September 2014 Issue by China Newsweek Corporation

EDITORIAL

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

CN11-5826/G2

NEWSCHINA I September 2014

Budget transparency is the key to tackling corruption

ince assuming power in 2013, Chinese Pre- the development of NGOs has been under tight mier Li Keqiang has repeatedly stressed that controls in recent years, most established bodies ofthe Chinese government will endeavor to ficially termed “non-governmental organizations” establish a “modern and maare either directly controlled ture” system of governance by by or closely affiliated with The lack of balancing the relationship bevarious government agencies, transparency and tween the State and the marwhich have already monoposupervision of ket. lized the market for public serIn a keynote document revice procurement. These orgagovernment budgets leased in 2013, the Chinese nizations have not only been has been one of government promised to allow disinterested in improving the major causes of the market to “play a leading the quality of their services, widespread corruption role” in the allocation of public but have worked hard to hold resources. back the healthy development One approach in this regard of the NGO sector. has been to allow government entities to procure It has long been argued that the lack of transparpublic services from NGOs. An established practice ency and supervision of government budgets has in many Western countries, a government procure- been one of the major causes of widespread corrupment system is claimed by advocates to simultane- tion. Instead of focusing on the establishment of ously improve the quality of public services and the nominal procedures, the government should tackle efficient use of public funds. As NGOs compete some of the fundamental flaws in governance. First with one another for government procurement and foremost, the government should improve contracts, they will theoretically be able to provide budget transparency. Efforts to revise China’s budbetter public services in a more efficient manner. get law can be traced back to 2005, but have as yet In the past couple of years, relevant programs yielded no concrete results. to this end have been launched in various localiIt has been previously reported that a draft revities such as Guangdong and Shanghai. Unfortu- sion to China’s budget law has been submitted to nately, it appears that the reform has done nothing the National People’s Congress for a third reading. to curtail corruption, a prevalent problem within Requiring government departments to disclose the government. It is reported that in relevant pro- their budget plans, financial accounts and budgetgrams as much as 40 percent of allocated funds end ary statements, as well as publicize their procureup in the pockets of government officials, leading ment of goods, projects and services, it remains some to warn that this new sector is already a bas- unclear when or even if this revision will be passed tion of graft. into law. A major problem for the existing system of govBut as long as the public has no chance of overernment procurement of public services is the lack seeing public budgets, there is no way China can of a competitive market in the NGO sector. As establish a modern system of governance. 

Contents

Academic outcasts, failed experiments and the power of compromise - NewsChina presents the untold story behind China’s economic miracle

Editorial

politics

Cover Story

interview

society

P16

01 Budget transparency is the key to tackling corruption 10 13

CPC Membership: Tipping the Scale Historic Visit: Learning to Listen

P13

16 1984: Accommodating Commodities/A Strenuous Climb/ The Entrepreneurial Renaissance/Cultural Heatwave 30 Liu Yongfu: Target: 10 Million 32 36

Ruan Yisan: Man About Towns Tianyi Hostel: Dark Days at the Red Hotel

P32 NEWSCHINA I September 2014

Photo by CFP

MOBILIZING MILLIONS

Contents

P44

P58

special report

international

38 Corruption Crackdown: Pulling Rank/A Tiger’s Tale 44 China and South Korea: Putative Partnerships economy

47 Wu Xiaoling: “Banks should first treat their borrowers as enemies, then allies” culture

50 Transformers in China: Evolution or Extinction? 54 State Theater: Servant to Two Masters

outside in

62 Remote Chiufen : Walking in the Clouds 65 Flavor of the Month: Real good

P62 P50

Commentary

70 Face the Fear 72 China’s new ambitions in Latin America are not without their challenges 04 MEDIA FOCUS 05 What They Say 06 NEWS BRIEF 08 Netizen Watch 49 China by numbers 64 real chinese 66 ESSAY 68 CULTURAL LISTINGS

visual report

58 The Grand Canal

NEWSCHINA I September 2014

NewsChina Chinese Edition

Economy & Nation Weekly

July 14, 2014

June 26, 2014

Unattainable Goals

WhilecheeringforforeignteamsduringtheWorldCup thissummer, Chinesesoccerfanscouldn’thelpwonderingwhen,orindeedif,they wouldseetheChinesenationalteamcompeteinthecompetition again.Nearly74percentofrespondentstoarecentsurveybythe ChinaYouthDailybelievedthatChinawouldnotqualifyfortheWorld Cupfinalsintheirlifetime.ManyformermembersoftheChinese nationalsoccerteam,thoughnowretired,stillblamethecountry’s sportsbureaucracyforthelaggingdevelopmentofChinesesoccer– backroomsquadselectiondeals,institutionalcorruptionandmatchfixingscandalshavedisappointedbothplayersandfans,andforced manytalentedplayersoutofthegame.Ananti-corruptiondrivein 2003netted13high-rankingsoccerofficials,butaccordingtoplayers interviewedbyNewsChina,under-the-tabledealingsremainrife acrosstheprofessionalleagues.Recently,alargenumberofprivately fundedsoccerschoolshavesprungupinChina,aimingtoimprovethe sport’sprospectsbyavoidingtheStatesystemasmuchaspossible.

Caixin June 23, 2014

China in Baby Bust Although China now allows couples either member of whom is an only child to have a second baby, the baby boom that critics of the policy change warned of has failed to materialize. Zhejiang Province, for example, received fewer than 30,000 applications for permission to have a second child over the two months since it implemented the policy in January, far fewer than the predicted 800,000 per year. The densely populated province of Sichuan has seen a similar lack of enthusiasm for reproduction. Figures are even lower in municipalities like Beijing and Chongqing, where only several thousand couples have applied for permission to have a second baby. Some experts have thus concluded that China’s birth rate has bottomed out due to the government’s longstanding restrictions and the high cost of raising a child. Many are now appealing for a further loosening of the family planning policy, such as allowing all couples to have a second baby, in order to combat a looming labor deficit caused by China’s rapidly aging population.

Underground E-Waste Disposal From the northern capital of Beijing to Guangzhou in the south runs an underground industrial chain of electronic waste, which, while providing work for around 300,000 people in the capital alone, causes serious ecological damage, polluting rivers and soil with heavy metals. Dangerous levels of lead were detected in the bloodstreams of 165 local children aged one to six tested by the health authorities in Guiyu, Guangdong Province, China’s “e-waste capital.” However, due to difficulties in testing and monitoring, polluting enterprises have little trouble avoiding supervision. Lured by high profits — Guiyu has the power to influence the global gold market by extracting the precious metal from used PC motherboards – unlicensed operators are flooding into the e-waste disposal sector, squeezing out licensed businesses who have to bear high pollution control costs. Licensed operators are now advocating a government crackdown on unlicensed recyclers, and better implementation of the 2012 policy that requires producers to contribute to an e-waste subsidy. Nanfengchuang July 2, 2014

More Chinese Divorced Latest statistics from the Chinese Ministry of Civil Affairs show that 3.5 million Chinese couples divorced in 2013, 12.8 percent more than in 2012, with extramarital affairs being the leading grounds cited in many divorce cases. Analysts have attributed this to a decline in traditional moral views on marriage, with extramarital affairs becoming more common. China is now home to at least 20 million single men, many of them from poor rural families. Some worry that this will result in the breakdown of the nuclear family – which many believe to be a foundation of society – and see higher divorce rates as a threat to social stability. Xinmin Weekly July 16, 2014

Meth Rampant in China Ning Caishen, screenwriter for the popular Chinese sitcom My Own Swordsman, was detained on June 24 on suspicion of taking drugs. The high-profile case comes just three months after popular reality TV singing contest participant Li Daimo was jailed on similar charges. Experts have said that the use of drugs, especially methamphetamine hydrochloride or “crystal meth,” is spreading quickly among various Chinese demographics, including entertainers, businesspeople, office workers, officials and students. In some circles, meth use is so normalized that it has become a popular social lubricant. A lack of education about the dangers of meth, along with its comparative availability compared to heroin, has been blamed for the rising number of users. Experts have called on the government to crack down on the production of illegal narcotics. Currently, China only designates and restricts access to 24 chemicals due to their use in narcotics manufacture – leaving regulations far behind the innovations of highly adaptable producers. Experts told the media that anyone can easily buy the chemicals required to make meth, and produce the drug in a home laboratory. NEWSCHINA I September 2014

“Internet entrepreneurs never talk about history. They believe only in the future.”

“The middle section is missing from the Chinese sports‘pyramid’– there are a few top athletes and countless beginners, but we’ve lost the intermediates.” Former basketball star Yao Ming criticizing China’s unbalanced sports system for focusing on prodigies and failing to help new enthusiasts develop into the next generation of stars.

“My goal is to improve Sino-US relations and to rebuild the image of China’s wealthy.” Controversial philanthropist Chen Guangbiao, smarting from a storm of criticism after a gaffeplagued publicity stunt which involved the billionaire throwing a banquet for the homeless in New York City.

NEWSCHINA I September 2014

Illustration by Wu Shangwen

Writer Wu Xiaobo criticizing short-termism among China’s Internet billionaires.

“As most economic sectors are already at overcapacity, it is no longer enough to simply ‘add more flour to too much water, or add more water to too much flour.’” Economist Wu Jinglian speaking out against a stimulusbased approach to averting further economic backsliding in China.

“It is a grand paradox that Beijing restricts traffic and the purchase of private cars while hosting car expos and building car production bases. I don’t get it - what on earth are they trying to do?” Wang Xuming, former spokesman of the Ministry of Education, on the Beijing city government’s inability to balance its conflicting economic and social goals.

“Now I’m done with CCTV, I no longer need to be a moral paragon. So long as I don’t start soliciting prostitution, I’m in the clear.” Former CCTV anchor Cui Yongyuan responding to critics who accuse him of political opportunism and selling his opinions to the highest bidder.

“If GDP growth maintains its current pace, at least 100 Chinese cities will edge themselves into the global Top 600 in the next 20 years, so why don’t young people pick one of these 100 instead of just flocking to Beijing, Shanghai, Guangzhou, and Shenzhen?”

“Most corruption cases will end with a broken home. Those with family ties to corrupt officials are rarely clean.” Lin Zhe, a professor with the Central Party School of the Communist Party of China (CPC) quoting an anonymous official from the CPC ’s Central Commission for Discipline Inspection.

“All reality TV shows, no matter their gimmick, are pandering to the materialism of the middle classes. They ooze consumerism from every pore.”

Chen Yuyu, a professor from Peking University, offering a simplistic solution to the employment worries of his students.

Commentator Han Haoyue from the Beijing Youth Daily on TV entertainment shows.

Top Story

OSI China in Food Scandal Shanghai Husi Food Company, a China subsidiary of OSI, the world’s biggest food processor, has come under fire after its Shanghai plant was exposed as having processed expired meat. According to Shanghai Oriental Television, which broke the story, Husi had processed tons of expired frozen chicken to be made into chicken nuggets for Chinese branches of McDonald’s. The company also reportedly used beef trimmings that were seven months expired in reconstituted steaks supplied to Chinese KFC restaurants. The report claimed that the company had printed its own expiration date labels in order to evade the attention of food inspectors. Shanghai’s local food supervision authority has so far seized 100 tons of suspect products originating at the Husi plant, many of which were destined for chillers in local branches of McDonald’s, KFC, Pizza Hut and 7-Eleven. Parent company OSI, which has set up six other branches on the Chinese mainland in the company’s 22 years of China operations, has found its practices under scrutiny, with shockwaves resonating throughout the country’s immense fast food industry. McDonald’s CEO Don Thompson argued on July 22 that his company’s China branches were fooled by faked quality assurance certificates provided by Husi and that they have ended cooperation with the company. Many other foreign brands affected by the scandal also made similar announcements. Despite the fact that the plant responsible for the violations was Chinese, the revelations have shaken public faith in what were previously seen as “safe” restaurants operating under foreign brand names. A litany of tainted food scandals have led to mass public outrage at the country’s outmoded quality assurance supervision, with critics arguing that only in China could foreign companies get away with selling expired meat products for so long. Shanghai police have closed Husi’s local plant and reportedly detained

five employees. An insider revealed that the company’s senior executives had encouraged the use of expired materials and the faking of quality supervision documentation. Now the media are digging for evidence that such practices occurred with the full knowledge and complicity of foreign-owned fast food brands operating in China.

Society

CCTV Anchor Detained Rui Chenggang, a well-known anchor on State broadcaster CCTV’s financial network who shot to fame after hijacking a Seoul press conference Q&A session to put a question to Barack Obama out of turn, was escorted from his studio by government prosecutors on July 11. Although no official source has revealed any details of allegations against Rui, media reports have speculated that his closeness to Guo Zhenxi, the director of CCTV’s finance channel, who was recently detained for allegedly taking bribes from advertisers, might be to blame. Media sources claimed that Rui was detained minutes before he was scheduled to host his regular show, leaving his seat on the set empty throughout the broadcast. Altogether eight senior CCTV employees have been detained since a probe was launched into alleged corruption at the broadcaster.

NEWSCHINA I September 2014

Disaster

Economy

Typhoon Hits Hainan

BOC Goes Underground?

As of July 23, a total of 25 people had been killed by super typhoon Rammasun which made landfall in Wenchang City on July 18 and swept the southern island province and areas of southern Guangdong over the course of 10 hours. According to media reports, Rammasun was the strongest typhoon to hit southern China in 41 years, with windspeeds calculated at 60 meters per second. The high winds gutted buildings and leveled at least one power station on the island, while heavy rainstorms flooded entire communities. The local government of Hainan has relocated over 380,000 people in the wake of the devastation, stating that the typhoon has led to a direct economic loss of nearly 11 billion yuan (US$1.8bn). Despite prompt rescue efforts, Wenchang City, the epicenter of the disaster, saw over 20,000 houses destroyed, leaving around 140,000 displaced locals in urgent need of food, water and clothing.

The Bank of China (BOC), one of China’s five biggest State-owned banks, has been caught in a trust crisis after claims emerged that the firm was involved in money laundering. In a news report broadcast on July 9, CCTV revealed that BOC had transferred certain customers’ yuan-based assets to its overseas branches before exchanging them into foreign currency in violation of laws restricting the maximum amount of foreign currency Chinese citizens are free to exchange in a year to US$50,000 per capita. The transactions were made via an undeclared emigration service exclusively provided by BOC’s Guangzhou branch, the sales volume of which has been recorded as 6 billion yuan (US$1bn). Despite speculation that this undisclosed service could have led to vast amounts of illegal assets leaving China via the back door, BOC denied the accusation, saying that the service was a “pilot business” approved by regulators and applicable only to Chinese émigrés and real estate investors. The company’s statement also claimed that officials could not avail themselves of the service, and that asset transfers were capped at US$300,000 per capita per year. The investigation continues.

Trade

Chinese are Biggest Tourists According to the World Tourism Organization, nearly 100 million Chinese nationals traveled abroad in 2013, a number set to double in the next decade. These Chinese tourists were responsible for collectively spending US$102 billion on their travels, making China the world’s biggest single source of tourists in history. The craze for overseas travel has come alongside a rising deficit in China’s service sector that the China Ministry of Commerce claims has grown steadily for 19 years, reaching US$118.5 billion in 2013. That same year, Chinese shoppers were responsible for buying 47 percent of the luxury

goods sold on the world market. This high deficit has led to unease in China’s domestic marketplace, dogged by overpricing, counterfeiting and poor customer service, which many now claim is actively helping to send potential consumers abroad for their shopping.

2007

2008

2009

2010

2011

2012

2013

Politics

Feedback Loops on Corruption

NEWSCHINA I September 2014

Abuse of power:

Allowing family members to interfere in large-scale commercial transactions, specifically land sales.

Corruption in construction: Nine

projects were named by investigators as “heavily corrupt,” these were currently in progress in Gansu, Liaoning, Henan, Ningxia, Shandong and Hainan provinces, in Beijing Municipality, among the paramilitary Xinjiang Production & Construction Corps and in Fudan University’s administrative departments.

“Naked” officials: So-called because they move the bulk of embezzled assets abroad, followed by their close family members.

Overstaffing: Creation of unnecessary positions

Photos by CFP

The Disciplinary Inspection Commission of the Central Committee of the Communist Party of China (CPC) recently published feedback solicited after its first round of anti-corruption investigations which took place from March to May 2014. Besides regularly investigating government departments in six provinces, two municipalities (Beijing and Tianjin) and one autonomous region (Xinjiang), the commission also probed suspect activity at Fudan University, State-owned food conglomerate COFCO (China Oil & Foodstuffs Corporation), and the Ministry of Science. According to the resultant data, corruption is at present particularly concentrated in State-owned enterprises, construction projects and land sales as well as the medical and education sectors. In many rural areas, low-level corruption such as smallscale bribery was reportedly “out of control.” The government’s second round of investigations will begin in mid-July in 10 other provinces and municipalities, including Shanghai and Tibet.

in government-controlled sectors, usually to facilitate nepotism and the embezzlement of funds.

Amusing

Poll the People

A grandmother from Shashi, Hubei Province, spent hours patching up her granddaughter’s “torn” jeans, before discovering that these had been purchased intentionally and at great expense from Korea. Her granddaughter then spent almost as long carefully undoing the ‘repairs’.

According to a survey of employees, more than one third of Chinese had worked overtime in the past month, but less than half had received extra pay. Do you get paid overtime?

Yes, I get paid overtime 143 7.41%

Touching A young Chongqing man rescued his large pet dog from a river by holding it above his head for two hours as he waited for rescue. Hu Xiaodong jumped into the waist-deep torrent after his dog, a full-grown border collie, accidentally fell in. Unable to climb the steep river bank while holding his beloved pet, Hu chose to remain with the animal while passersby called the police.

Shocking

Saddening

No, but I receive free meals or compensatory time off 242 12.54% No paid overtime 1,446 74.92% No overtime, paid or otherwise 71 3.68% Other 28 1.45% Source: www.weibo.com

Most Circulated Post Retweeted: 150,698 times State television network CCTV on the 77th anniversary of the Marco Polo Bridge Incident, the catalyst for the Empire of Japan’s invasion of China proper, which occurred on July 7, 1937:

Eighteen detainees who dug an escape tunnel under the walls of a detention center in Yulin, Guangxi Province were recaptured within 24 hours of their escape. All the men had been detained for drug offenses and were serving a two-year compulsory detox program at the center. Three officials at the detention center were dismissed after the incident.

A woman sexually assaulted on a bus in Fuzhou, Fujian Province, was saved by the driver when her fellow passengers ignored her screams for help. Surveillance video footage showed the male suspect straddling the woman on the crowded city bus around 10 PM. After most of her fellow commuters, the bulk of them male, ignored her screams, the driver pulled over and came to the woman’s aid, single-handedly subduing her attacker and then calling the police.

77 years ago today, Japan began its full-scale invasion of China. More than 35 million Chinese soldiers and civilians were killed in the following eight years but we never gave up fighting. Now please pay tribute to the dead and never forget our humiliation. NEWSCHINA I September 2014

WHO’S

Top Five Search Queries On

HOT? WHO’S NOT?

over the week ending June 19 Germany vs. Brazil 363,450 The 7-1 defeat of the home nation in the World Cup semifinal shocked Chinese soccer fans. Tang Wei Marriage 197,140 The announcement of the renowned actress’s marriage broke many hearts. Beautiful Supervisor 174,921 28-year-old Fang Lu, an associate professor of information science with the University of Science and Technology of China, is the country’s youngest female PhD supervisor.

Court Romantic Desperate to win back his estranged wife, a man decorated a Zhejiang Province courtroom with roses in an attempt to halt their divorce proceedings. The judge ultimately threw out the case, claiming that the couple “have what it takes” to stay together.

Xu Caihou 73,462 The former vice chairman of the Central Military Commission is the most senior military officer in China to be charged with corruption in over 30 years.

Top Blogger Profile James Liang Followers: 607,027 45-year-old Liang is the co-founder and CEO of Ctrip, a major travel service portal in China, and also conducts research into employee rights and demographic changes in the country. A longtime outspoken critic of the One Child Policy and immigration restrictions imposed on Beijing by the capital’s government, Liang has coauthored a book warning of a demographic crisis facing China if the country does not increase its birth rate. NEWSCHINA I September 2014

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

Messi 129,680 The Argentinian’s performance in the World Cup did not disappoint his Chinese fans.

Swindler Daughter A 19-year-old girl sent threatening messages and nude “abuse” photos to her parents in an attempt to fake a kidnapping and extort ransom money from them. When her worried father traveled more than 2,000 kilometers from the family home in Fujian to northwestern Gansu Province to report the “crime,” he discovered his daughter playing poker with friends.

Tenacious Driver

A Chongqing trucker managed to prevent his vehicle from plummeting off a 20-meter cliff by keeping his foot jammed on the brakes for seven hours straight. The 27-year-old driver, surnamed Chen, was later rescued.

Emergency Disservices An ambulance giving a ride to the director of a local hospital ignored screams for help and instead drove blithely past a road traffic accident. The victim of the crash later died after waiting two hours for medical assistance, and the hospital director was promptly fired from his post.

politics

CPC Membership

Tipping the Scale

With new recruitment guidelines, the Communist Party of China is looking to consolidate its rule by cutting loose legions of fair-weather members By Chen Fei

NEWSCHINA I September 2014

ith more than 80 million members, the Communist Party of China (CPC) has long been called the world’s largest political party. But since ushering in a new leadership, there have been repeated calls to streamline Party membership to increase its efficiency. Party leaders have begun to warn that the largely uncontrolled expansion of membership, once a source of pride, had contributed to the current lack of “discipline, cohesion and vitality” within the CPC, jeopardizing its legitimacy. Signs that downsizing was under consideration by China’s new leadership emerged early on. In a keynote speech delivered January 28, 2013 to the Politburo, China’s highest political body, Xi Jinping, the Party’s General Secretary, called to control the overall size of the Party for the sake of the organization's “purity, vitality and reputation.” More recently, in June 2014, the CPC released new recruitment guidelines. Calling for a “cautious and balanced” approach, many believe that this first amendment made to Party recruitment policy in 24 years marks a new approach to securing the CPC’s future.

Qualitative Easing

According to Professor Ye Duchu from the Central Party School, wide expansion of Party membership has long been perceived as a boost to the legitimacy of the CPC. By absorbing leading figures in society as a whole, particularly business leaders and academics, the Party was able to bring valuable personnel into its fold. According to its own statistics, the total number of CPC members increased from

NEWSCHINA I September 2014

4.49 million in 1949, when the CPC assumed power, to 86.7 million by the end of 2013, an almost twenty-fold increase. By contrast, over the same period, China’s overall population had increased less than threefold, from 542 million to 1.36 billion. Therefore, the proportion of Party members rose from 0.83 to 6.37 per 100 citizens. Some argued that this vast expansion allowed the Party to better represent the general population. Celebrity blogger and author Han Han quipped in a widely circulated essay in 2011 that, as Party members and their family members account for 20 to 30 percent of the total population, the Party can be said to be representative of the interests of the people. However, Professor Yu warns that the application of the economy of scale to the governance of the Party may have run its course as a justification for continued expansion. While claims that many people join the Party simply to get ahead are nothing new, now even Party academics agree that many are joining simply to enjoy the perks of membership. As the CPC remains the dominant force in government, society, culture and business, ideological interest in its core beliefs may well play second fiddle to more material reasons for wanting to join. “The problem is a large proportion of Party members join in name only, without necessarily embracing the Party ideologically,” Professor Zhu told NewsChina. “Instead of strengthening the Party, they have actually weakened it.” This effect has also led to what Party experts call an “obpyramidal” distribution of Party members among the overall population, as Party members tend to be concentrated in

government agencies, where positions come with lucrative benefits and better opportunities for promotion, whereas active Party members at the grassroots level are scarce. “The higher the level of a government agency, the higher the proportion of Party members among its staff,” Wang Jinzhu, a professor from the Central Party School wrote in a paper in 2013. “In some agencies, almost all staff are Party members.” Wang warns that if the trend continues, the Party risks losing touch with the people, an issue close to the heart of President Xi Jinping. Last year, the new CPC Chairman launched a mass line campaign urging cadres to “see things from the mass perspective.” It is believed that the recent guidelines on recruitment are also aimed at addressing these problems. Reports have emerged that Party membership quotas allocated to some major universities, formerly the CPC’s frontline recruiting grounds, have been cut by 30 percent. It has been long argued that the promise of better job prospects is the overwhelming driving force behind high recruitment from China’s higher education institutions. “The goal of the reform is to fortify the CPC’s position as the ruling party,” Chen Zhigang, a Party historian from the Chinese Academy of Social Sciences told NewsChina. Chen emphasized Party recruiters’ shift from a quantitative to a qualitative recruitment strategy, bringing only those with ideological affinity with the CPC’s core beliefs into the fold, and keeping out careerists.

Systemic

This new thinking on the Party’s compo-

politics

sition is also considered part of the ongoing anti-corruption campaign which has continued to gather momentum since China’s new leadership assumed power in 2012. It is estimated that by the end of June 2014, more than 30 ministerial-level officials, including several former Politburo members, will have been expelled, arrested or put under investigation within the space of 18 months. By contrast, in the 10 years between 2003 and 2012, less than seven ministerial-level officials were investigated or charged with breaches of discipline. At the sub-ministerial level, more than 6,400 officials were fired from their posts and most expelled from the Party in 2013, 36 percent more than those who fell in 2012. As the anti-corruption campaign largely focuses on mid- and high-level corruption, the new guidelines, seemingly targeting lowerlevel Party members, is being seen to serve as part of the on-going effort to “purify” the Party and boost its public image. “If you want to become a Party cadre, then don’t expect to get rich,” warned Xi Jinping, in a speech delivered to fellow cadres on July 2. Public prejudice, however, generally maintains that becoming a Party cadre is in fact the quickest way to get rich in China. Another notable feature of the anti-corruption campaign has been the increased willingness of investigators to invoke Party regulations when sacking wayward officials. In June, several senior officials and executives from State-owned enterprises were removed for “adultery,” along with other charges typically associated with corruption. While a lot of fallen officials have been known to have maintained mistresses,

the term “adultery” has, until now, rarely appeared in official language relating to disciplinary action against officials. On its website, the Central Commission for Discipline Inspection of the CPC explains that the citing of adultery is based on Party codes of conduct, which prohibits adultery, which is not a criminal offense under Chinese law.

No Exit Strategy

Many argue that the new guidelines are far from sufficient to address the many problems associated with a bloated Party. For example, many are concerned that as long as being a Party member remains a major criterion for landing a government job or gaining promotion, the political and economic benefits associated with Party membership continue to outweigh most ideological considerations. Moreover, leaving the Party, whether voluntarily or otherwise, has never been a straightforward process. In 2013, despite an initiative launched by the central leadership to streamline membership, the Party’s ranks continued to grow. According to official data, the CPC had accrued 86.7 million members by the end of 2013, 1.56 million more than the previous year. Though the 1.8 percent increase was the lowest in ten years, the absolute numbers are still formidable, and a major challenge to those seeking to downsize the organization. Even though the Party can control recruitment quotas and stabilize growth at 1.5 percent in the next ten years, a target set up in 2013, the Party will soon have to contend with supporting 100 million members. According to Zhang Xi’en, a public ad-

ministration professor from Shandong University, the “ideal size” of the Party is no more than 30 million. He argues that only a ruthlessly effective exit strategy can achieve this target. However, at the highest level, there is little agreement over how to determine such a strategy. The reason may lie behind the concerns over the political consequences of culling millions of members from China’s sole governing party. Given the country’s existing political culture, expulsion from the Party usually means the end of one’s political career, becoming a black mark against the former member in all their future endeavors. Voluntarily leaving the Party can have equally unappealing consequences – one’s former colleagues may see such an action as a snub to the Party’s core values, and there is a perception that a mass voluntary exodus of members, even for reasons of downsizing, could be perceived as a political statement. Many obviously have realized that uncontrolled expansion of the Party might lead to a catastrophic implosion as the organization becomes too unwieldy to respond to a rapidly-changing sociopolitical landscape. In training sessions provided at the Central Party School, Party cadres are now frequently lectured on the lessons to be learned from the collapse of the Communist Party of the Soviet Union (CPSU). “The CPSU had only 240 members when the Soviet Union was established in 1922; with a membership of several millions, it was able to defeat Nazi Germany, but when it eventually collapsed in 1991, its membership had swelled to 20 million,” one lecturer told his audience.  NEWSCHINA I September 2014

Historic Visit

Learning to Listen

The grassroots activities of mainland official Zhang Zhijun on his historic visit to Taiwan are being seen as an effort to foster a more reciprocal dialog across the Taiwan Strait

Photo by Xinhua

By Xing Xinyan

Zhang Zhijun (second row, fourth from right), director of the Taiwan Affairs Office of China’s State Council, visits the Wulai mountain area of New Taipei City and meets with Atayal aborigines, Taiwan, June 26

n June 26, Zhang Zhijun, director of the Taiwan Affairs Office of the State Council, arrived in Taiwan’s New Taipei City, kicking off an historic four-day visit to the island. Accompanied by the city’s mayor Chu Li-luan, also vice-chairman of the ruling Kuomintang (KMT) Party, Zhang began his journey by visiting an elderly care home in Tucheng District. Both officials donned aprons and gloves to prepare food for seniors at the care home for a photo-op that made the front page of the island’s United Daily News. The public reaction was generally positive, with many pointing out the contrast between the folksy appeal of

NEWSCHINA I September 2014

Zhang’s care home appearance and the stuffy image of most mainland bureaucrats. Zhang’s visit marked the first time a head of the mainland’s Taiwan Affairs Office had visited the island, an occasion hailed as a major breakthrough in cross-Strait relations which many hope will lead to the establishment of a regular communication mechanism between both sides. Zhang came to Taiwan at the invitation of Taiwan’s Mainland Affairs Council chief Wang Yu-chi, who visited Nanjing, Jiangsu Province, in February. “It took me less than three hours to fly to Taiwan. But we have

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politics

Zhang Zhijun visits an activity center in New Taipei City, June 26

spent 65 years working to make this meeting happen,” said Zhang.

Down To Earth

In March, Taiwan’s “Sunflower Movement” reached a peak when political protesters opposed to a Kuomintang push to force a trade pact with the mainland through the courts occupied the legislature in Taipei. While the protest was largely dispersed peacefully, it was seen as symbolic of how sensitive the issue of cross-Strait relations has become in Taiwan. Lin Teh-chang, a professor with the Institute of China and AsiaPacific Studies at Taiwan’s National Sun Yat-sen University, observed that Zhang’s determination to visit the island so soon after the upheaval sent a strong signal that the mainland would continue to foster positive contact. Lin added that by choosing to meet with a diverse cross-section of Taiwanese society, Zhang was acknowledging the island’s complex political landscape, doing “an excellent job” of respecting differing viewpoints. Previously, when senior officials from the mainland visited Taiwan, all proceedings were highly routine – meetings with KMT bigwigs or business leaders. Few mainland officials have ever met face-to-face with the island’s grassroots population. On arrival at Taiwan Taoyuan International Airport, Zhang greeted locals in the Hokkien dialect, one of Taiwan’s most widely-spoken languages. Over the course of four days, Zhang broke with tradition time and again by meeting with ethnic minority groups, owners of small and medium-sized enterprises, college students, farmers, seniors and blind children as well as Taiwanese residents married to mainlanders. “I hope to have more contact with locals from all walks of life, especially grassroots people, to understand their lives, thoughts and their opinions on cross-Strait relations,” Zhang told local media. “I want to know the real Taiwan.” Zhu Weidong, vice director of the Taiwan Research Institute under the Chinese Academy of Social Sciences, told NewsChina that a pivotal feature of the mainland’s emerging Taiwan policy is the Taiwan-

ese people, with Zhang’s visit an opportunity to demonstrate positive intentions and defuse some of the tension that has surrounded crossStrait relations since the Taipei protests in March. “It was a journey of all-round communications and dialog to boost mutual trust,” he said. In addition to New Taipei City, Zhang visited Taichung, Kaohsiung and Changhua County in the center and south of the island, but the capital Taipei was avoided due to ongoing political sensitivities. Professor Chang Wu-ueh, director of the Graduate Institute of China Studies at Tamkang University, told South China Morning Post that he saw the avoidance of Taipei as a shrewd move. “With limited trust across the Strait, this could spare [Zhang] from becoming embroiled in controversial or sensitive political issues,” he said.

Green Camp

The timing of Zhang’s visit coincided with a special session to discuss the controversial trade pact that had sparked the Sunflower Movement. Zhang steered well clear of politics for the duration of his visit. There was no discussion of a much-anticipated summit between CPC Chairman Xi Jinping and Kuomintang leader Ma Yingjeou. No official documents were signed, but Zhang did not voice opposition to Taiwan joining the Trans-Pacific Partnership Agreement (TPP) and the Regional Comprehensive Economic Partnership (RCEP). Zhang even attempted to act as a conciliatory voice in the ongoing disputes over the controversial trade pact, sending messages of goodwill both to the KMT and the historically pro-independence Democratic Progressive Party (DPP), leaders of the island’s center-left Green Camp coalition, the island’s de facto opposition. Zhang vowed to conduct further negotiations on the subject of the trade pact, much to the relief of Taiwan’s authorities. The KMT’s tacit desire for greater contact with the mainland has put the ruling party in a privileged position in terms of cross-Strait relations, while the DPP has struggled to engage with Beijing since Ma Ying-jeou came to power in 2008. NEWSCHINA I September 2014

To regain ground lost to the KMT in cross-Strait relations, the DPP is increasingly reining in its more outspoken pro-independence factions in a bid to maneuver itself into a more flexible position on the issue of relations with the mainland. DPP chairwoman Tsai Ing-wen in particular has taken steps to improve relations with Beijing, abandoning the hardline stance taken by her predecessors in the party. In 2008, when Chen Yunlin, then head of the mainland-based Association for Relations across the Taiwan Strait, a separate semiofficial body that handled cross-Straits ties in the absence of official relations, visited Taiwan, the DPP supported dozens of protests. Similarly, both pro- and anti-mainland protesters dogged Zhang’s visit every step of the way from the arrivals lounge of Taoyuan airport onwards, but the DPP’s influence was conspicuously absent from the picket lines. Instead, DPP leaders at different levels officially welcomed Zhang to the island, with Tsai Ing-wen even expressing desire for direct dialog with Zhang “with no agenda,” and encouraging future visits by mainland officials.

Protests

However, entrenched pro-independence sentiment throughout the DPP continues to be a sticking point in negotiations with the mainland, which routinely stipulates its unchanging position that Taiwan is an inalienable part of its territory.

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On June 27, in Kaohsiung, pro-independence protesters hurled white paint at Zhang’s vehicle. Due to security concerns, Zhang’s itinerary was changed on the last day of his visit. City mayor Chen Chu expressed regret for the paint-throwing incident and appealed to local residents to “show what hospitality is” and “learn to listen to different voices.” Indeed, Zhang’s meeting with Kaohsiung mayor Chen Chu, also acting chairwoman of the DPP, was marked as a particular breakthrough during his visit. “Meeting Chen Chu sends a clear message that the mainland will not overlook the influence of the DPP,” Chen I-hsin, a political science professor at the Tamkong University in Taiwan, told the mainland’s Global Times. Zhang, meanwhile, acknowledged that the protests he encountered at every stage of his visit showed the diversity of viewpoints on the island. A poll conducted in March by Taiwan’s Mainland Affairs Council and presented to KMT members by party leader Ma Ying-jeou bears out Zhang’s remarks. According to the data, 44.8 percent of respondents welcomed the speed of dialog between both sides, with 31.3 percent believing the pace was too fast and 14.2 percent believing it was too slow. While the issue of cross-Strait relations remains as contentious as ever, it seems that, for now at least, communications are moving in what most parties agree is the right direction.

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NEWSCHINA I September 2014

brave new world

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Five years after the end of the Cultural Revolution, China was still struggling to find its feet. While paramount leader Deng Xiaoping was busy championing market-oriented reform, a vast network of deeply entrenched interests were stalling the nationâ&#x20AC;&#x2122;s transformation. Thirty years on, NewsChina looks back to the cultural, political and economic wastershed that took place in 1984 â&#x20AC;&#x201C; which many describe as the year the tide turned in favor of reform

Deng Xiaoping on a tour of inspection of Xiamen, Fujian Province, February 1984

NEWSCHINA I September 2014

cover story 1984

AccomModating Commodities

The year 1984 marked China’s first big step toward a commodity-based – rather than a centrally planned – economic system. NewsChina looks into how market economics, long painted as the defining attribute of the capitalist system, began its journey into China’s socialist economy, with the support of then paramount leader Deng Xiaoping By Han Yong and Huang Wei

Deng Xiaoping waves to the crowds during a military parade to mark the 35th anniversary of the founding of the People’s Republic of China

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“

China implements planned economy – that is to say, planned commodity economy,” read the rather verbose headline of China’s Resolution on the Reform of the Economic System issued at the Third Plenum of the 12th Central Committee of the Communist Party of China (CPC) held in 1984. The fact that the formerly taboo concept of market economics had not yet been clearly defined made the headline no less impactful – it was the first time that the People’s Republic of China, a socialist country, had officially embraced the “commodity economy” it had spent three decades demonizing. “Different from the previous two plenary sessions, which focused on rural reform, this session shifted to urban reform. But no matter where reform happens, its focus is always on ‘opening,’” Deng Xiaoping, then China’s paramount leader, said in a pre-session meeting with West German Chancellor Helmut Kohl. First proposed in the late 1970s by reformists within the Chinese government, the concept of “commodity economy” had been the subject of severe controversy in the early 1980s. Some leaders and economists viewed it as capitalism, and many others, though they supported reform, were keen to retain and enlarge the protective “cage” of the planned economy system. However, Deng Xiaoping had bigger plans, proposing to “free the bird.” “Birds instinctively know how to fly,” he said. NEWSCHINA I September 2014

The first “bird” to be freed was Shenzhen, Guangdong Province, China’s first Special Economic Zone set up in the late 1970s, where many economic policies and restrictions were loosened in order to attract both domestic and foreign investment. At the time, the idea of enlivening the economy by opening it up was all the rage among economists and government leaders, pushing the government to set up three more special zones in Guangdong and Fujian provinces. In September 1980, the State Council inserted the term “com- Peking University graduates unfurl a banner reading “Hello, Xiaoping” during celebrations modity economy” into its preliminary ad- marking the 35th anniversary of the founding of the People’s Repuublic of China, October 1, 1984 vice on the reform of China’s economic system, citing economic consultant Xue Muqiao as saying that “China’s current socialist economy is a com- an expression coined by Chen Yun, a core Party leader in charge of modity economy in which the public sector and other sectors co-exist, national economic readjustment and disciplinary inspection. with the former holding a dominant position.” Impacted by such a high-level decree, the commodity economy However, China soon began to show a lack of conviction in its sud- became taboo even in the booming Special Economic Zones. Conden change of direction, as smuggling became increasingly rampant sidering the pointed disputes over the two economic theories, the in the special zones. In April 1981, the Chinese government launched government suspended its plan to establish more special zones. In the a nationwide crackdown on “economic crimes,” which later escalated second volume of the Selected Works of Deng Xiaoping published in into an ideological backlash against “bourgeois liberalization.” Oppo- 1983, Deng’s speech titled “A Socialist Country Can Also Implement sition to a commodity economy began to gather steam. Market Economy” was redacted. “It was the first and only time in the 1980s that the government opIn order to stabilize the national economy, Deng Xiaoping, acposed ‘bourgeois liberalization’ in the economic field. Debates about cording to official records, at first agreed to Chen Yun’s concept of commodity and planned economies began to determine whether a “dominant planned economy” and fully supported the crackdown you stood on the side of capitalism or socialism,” a source who par- on economic crimes, but did not wish to see the campaign obstruct ticipated in the debate at the time, who asked not to be named, told economic reform. As Ezra Feivel Vogel, the American author of Deng NewsChina. Xiaoping and China’s Transformation wrote, Deng was waiting for a When in 1981 the government announced its intention to “mature political climate” in which to promote his reform agenda. strengthen the status of the planned economy, the commodity economy retreated accordingly, with many of its supporters and advocates Deng and Hu’s Determination criticized – even Xue Muqiao, the State Council’s consultant econoThe chance finally came from the rural areas, where a form of commist, was forced to “clarify” his views, explaining that China’s socialist modity economy had been in operation since 1981. Official data economy was not, in fact, a commodity economy, but “a planned show that China saw 13.8 percent annual growth in its agricultural economy based on the public ownership of the means of production, production from 1982 to 1984, with the number of rural enterprises growing by 20 percent on average each year. The rapid economic in which the production and exchange of goods exists.” “The socialist economy develops based on [government] planning, development had curbed inflation, eliminated debt and relieved the while the capitalist economy develops based on anarchy. If we were food shortages, a chronic problem under the planned economy. Acto define China’s socialist economy as a ‘commodity economy’ or a cording to media reports, many farmers even found themselves with ‘planned commodity economy,’ we would blur the distinction be- mountains of surplus grain by 1984. The four Special Economic Zones also performed well. In 1984, tween the two,” five drafters of the government work report wrote to a leader responsible for ideology in 1982. In response, at the following the value of exports in Guangdong, for example, exceeded 100 billion 12th National Congress of the Chinese Communist Party (CPC), the yuan (US$16.7bn), 238 percent more than before the province was government defined the Chinese socialist economy as being “domi- declared a pilot area for economic reform. In January 1984, Deng Xiaoping conducted a tour of inspection nated by planned economics with supplementary market regulation,” NEWSCHINA I September 2014

Photo by Wang Dong

Tough Turn

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Photo by Dong Jiexu

of Shenzhen. Standing on the rooftop of a 22-storey commercial building overlooking the rapidly changing city, he reportedly told local officials that he could clearly see the benefit that reform was bringing to the zones. “We have to bear in mind that the guideline for setXie Minggan ting up and developing the Special Economic Zones is to free them, not to regulate them,” Deng said at a meeting with other top leaders after returning from Shenzhen. With Deng’s support, Hu Yaobang, then chairman of the CPC Central Committee, set up a work team to draft the Resolution on the Reform of the Economic System, make meaningful progress on major issues, particularly the commodity Gao Shangquan economy. However, according to Xie Minggan, a member of the drafting team, voices in support of the planned economy still dominated the team, and “nobody dared to overthrow Chen Yun’s concept finalized at the CPC’s 12th National Congress.” The first three drafts thus resulted in nothing new, urging Hu Yaobang to replace all the work group’s conservative members with more trusted, open-minded ones. “What is socialism? Socialism is eliminating poverty and allowing people to lead a good life,” he told the new team.

Breakthrough

According to Xie Minggan, the biggest challenge for the team was to persuade more top leaders, Chen Yun in particular, to accept the commodity economy. An experienced and respected economist, Chen Yun enjoyed high prestige among top government leadership. Working to stabilize China’s economy in the preliminary phase, he held a very cautious attitude toward economic development, persuading Deng Xiaoping to slow the pace, advising the abandonment of a plan to invite 80 billion yuan (US$13.3bn) in foreign investment and lowering the GDP growth target to 4-5 percent in the first three to five years of

the 1980s. While Deng proposed to implement market economics as early as 1979, Chen Yun propagated the “caged economy” theory, saying that the country should “neither hold the bird too tight, nor remove its cage.” However, Chen Yun was not necessarily an opponent of reform. In fact, it was Chen who had knocked down significant political obstacles to help Deng, then an aggressive reformist, to return to the Party leadership after being purged during the Cultural Revolution. “The dispute between Chen Yun and Deng Xiaoping did not lie in whether or not to reform, but in how to reform,” revealed Chen Yun’s former secretary Zhu Jiamu in his paper “Chen Yun and Deng Xiaoping in the Preliminary Phase of Reform.” “A socialist economy must be planned, but it also shares characteristics with the commodity economy. The opposite of the commodity economy is not the planned economy, but the natural economy,” read a letter from the Chinese Academy of Social Sciences (CASS) to the top leadership. At the invitation of the draft team, CASS, the nation’s primary think-tank, became a third-party voice that served to amplify the pro-reform argument. “The loudest opposition was from the planning commission, since under a commodity economy they would lose their power to allocate resources. They were actually protecting their own interests,” Gao Shangquan, another drafter of the resolution, told NewsChina. He revealed that he finally won the debate by emphasizing that “only the commodity economy could enrich China.” “China implemented planned economics, not commodity economics. But this ‘planning’ was not according to the government’s orders… What we proposed was to guide the market based on the ‘law of values,’” the team wrote in a summary report sent to top leaders. “So, the socialist economy was a planned commodity economy dominated by the public sector. It was not proper to continue with the idea that ‘planning is of higher priority than the law of [market] value,” they continued. “Compared to the direct proposal of a brand new concept, it was much more acceptable to ‘add something new to old concepts.’ So, it was better to introduce the commodity economy in the context of the planned economy,” Gao Shangquan explained to our reporter. This strategy worked so well that it led to unanimous consent among leaders, including Chen Yun. “What you have proposed conforms to the status quo. We are not in the 1950s, so it is not right for us to continue with old practices. In fact, even in the 1950s, we did not totally copy what the Soviet Union had done,” Chen replied to the team. On October 20, 1984, the resolution was approved. That year, China saw a boom in entrepreneurship, with the number of private enterprises reportedly rising to nearly 6 million, 126 percent more than in 1983 – in the process creating many of today’s captains of industry. NEWSCHINA I September 2014

1984

A Strenuous Climb

Atop a mountain 30 years ago, a group of young economists became the engineers of China’s reform, under the leadership of “architect-in-chief” Deng Xiaoping. Their words still resonate with every step the country takes By Li Jia and Zhou Zhenghua

or thousands of years, Chinese intellectuals, whether poets or students of Confucianism, have lived in pursuit of the same dream: to see their solutions to the country’s ills land on the desks of the decision makers. When a nation stands at a crossroads, the chances of this dream coming true increase significantly. Along China’s more than 30 years on the road to Reform and Opening-up, there have been several such landmark moments. The year 1984 was one of them. Five years of rural reform empowering farmers had lifted the majority of Chinese people out of crushing poverty that had lasted decades. The success and experience in rural reform laid a strong foundation, reinforcing the need for an injection of fresh air into the sluggish and chaotic urban economy. Prices set and controlled by the government mixed and competed with prices decided by market supply and demand, sending confusing signals to the market. As a result of the entanglement of the government and the market, spiraling inflation (a concept basically unheard of in China at the time) and subsidies for inflation-hit urban residents reinforced each other, worsening the fiscal deficit. Neither the still sizable planned side of the economy nor the emerging market-oriented side worked efficiently. Consensus and confidence in both was nonexistent. NEWSCHINA I September 2014

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It was time to call upon economists, known for their skill in using these “two hands.” Young economists, largely free of old prejudices and full of enthusiasm for progress, seized this historic opportunity. Their solution that found its way onto the policymakers’ respective desks has cast a long shadow over their own lives and China’s reform agenda, and continues to do so today.

The Crossroads

On June 12, 1984, Hua Sheng, a 31-year old postgraduate student at the Chinese Academy of Social Sciences (CASS) happened to read a notice in the Economic Daily, a newspaper directly under the control of the State Council, soliciting essays on reforming China’s economic system. Successful candidates would be granted admission to an academic forum to take place that September in Zhejiang Province. Besides their choice of topics, the way that candidates would be assessed – purely on the merits of their essays, without any reference to their personal background – appealed particularly to young scholars like Hua, who had no powerful connections or much of an academic reputation. Within two months, more than 1,300 pieces were submitted. The majority of the 124 winners were in Hua’s age range. It was against this background that reform itself came into question. The previous year, a brief but dramatic government campaign to “clear spiritual pollution” had railed against “bourgeois ideology” appearing in print. The idea of an economy based on market exchange in pursuit of profit was regarded as a primary spiritual pollutant. In the month before the announcement appeared in the Economic Daily, a privately sponsored seminar attended by two or three high-profile frontline reform players, including officials and entrepreneurs, was criticized by the central government immediately after being hailed as a “national convention for reformists.” The situation on the ground – inflation and market disorder – compounded domestic and international doubt about whether China’s political elite were willing and able to walk the long, hard road to reform. The meeting for the young economists was hosted by media and think tanks sponsored by the central and provincial governments. This not only avoided political risk, but attracted the interest of reformist decision-makers who urgently needed solutions to give reform momentum in the correct direction. Indeed, several high-level government officials, including a deputy minister for an industry, attended the meeting – though they all claimed to be there in a personal, not an official capacity. Wang Qishan, current Secretary of the Communist Party of China (CPC) Central Commission For Discipline Inspection, at the time an official with the rural policy research office of the CPC Central Secretariat, played a key role in organization of the meeting. Solutions presented at the meeting were relayed to Zhang

In the panic buying that occured during the runaway inflation in 1988, this Nanjing engineer traveled to Beijing to purchase a refrigerator he was unable to obtain at home, returning triumphant with his purchase on a train from Beijing Railway Station

Jingfu, then a State councilor and secretary-general of the CPC Central Committee’s taskforce on financial and economic affairs.

New Ground

The intensive seven-day brainstorming session at Moganshan, a tourist resort in Zhejiang Province, covered all aspects of China’s reform, such as remodeling State-owned enterprises (SOEs) and the opening up of coastal cities. The most fierce debates were on sorting out the pricing system – perhaps the biggest headache at the time – by leveling out the “three prices” on the market: one fixed by the government, one allowed to float within a certain cap, and one determined by the demand and supply of the market. Given the severe supply shortage, the market price was much higher than the two planned ones. Three different proposals dominated the discussion, representing the three visions that have always competed with one another NEWSCHINA I September 2014

of convergence. A month after the conference, a landmark meeting of the CPC Central Committee reiterated its commitment to Reform and Opening-up with a formal endorsement of an economy based on market value. As a result, building a pricing system “reflecting the labor capability and market demand and supply” was identified as the “key task” on which would depend the success of the country’s entire economic reform effort. A separate part of the decision stressed that “tens of thousands of young officials adept at economic operation” should be promoted to play a bigger role. When the young scholars descended the mountain after the conference, they found the stage set for the country’s renewed reform mission, and stepped into the roles that would define their careers.

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Thriller

throughout China’s economic reform. They included the adjustmentcentered mentality (though this camp has always remained divided on the pace of adjustment), unfettered laissez-faire market economics, and gradual market liberalization. The latter has proven the favorite among policymakers in most cases, and it was no different at Mogan Mountain. Under the illusion that mathematicians knew better than the market when it came to pricing products, the government had pinned its hope on engineers and computers. Predictably, all such efforts, no matter how scientific, went nowhere. Any sudden exposure to rudimentary market forces could send prices rocketing. The solution that was adopted by decision makers was a typical “two-hand” solution to secure a smooth transition, relaxing price controls on more products to let the market set their value, and at the same time adjusting government-controlled prices with reference to the market. It was hoped that reasonable market prices would emerge from this process NEWSCHINA I September 2014

But as reform played out, it became clear that China’s affair with market economics would be no fairytale romance. The so-called dualtrack price system did give more freedom to the market – for example, State-owned enterprises producing raw materials were allowed to sell excess product (that outside of official plans) on the market at a maximum 20 percent markup. This cap was removed in 1985. It gave private companies, fully excluded from the country’s cheaper planned supply, wider, if expensive and unfair, access to raw materials. More importantly, by providing an innovative, more acceptable choice for hesitant policymakers, the solution helped build confidence and consensus on moving towards reform, instead of retreating back into planned economics. The problem that the solution failed to fix, or may have even worsened, was corruption. The further relaxed price controls on more products gave governments and SOE staff and their connections more opportunities than ever to take advantage of their access to cheap planned quotas, and profit from selling them on the market at much higher prices. Those products were mainly raw materials like oil, steel and coal, and electric consumer goods like TVs and refrigerators, in which price gaps between quotas and the market were particularly large. The two objectives that were expected to be accomplished by releasing more supply on the market – a narrowed price gap between the two tracks and a reduction in market prices – did not happen, due to the much faster growth of comsumer demand and monetary supply. Inflation flared up even more fiercely, and consumers began to rush to buy. In July 1988, the National Statistics Bureau reported a record price jump of 19.3 percent. Deeply concerned about the prospect of an economic collapse and

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lems encountered had simply not been anticipated. Some argued that while the dual-track system was imperfect, it was the best possible solution to a difficult situation in which both market reforms and social stability had to be maintained. At the same time, knowledge of modern economic theory was very limited due to the decades China had spent with its doors closed to the outside world. It is generally accepted that the fundamental effects of the decisions made at the meeting, both the good and the bad, pushed China’s reform forward. Because of this, a few years ago, several participants of the meeting, all of them famous economists today, clashed over who should take the most credit for designing the dualtrack system. In the panic buying that ensued due to the runaway inflation in 1988, shops had to sell goods through Many participants of the meeting have security gates played and will continue to play an important role in China’s economic reform social frustration against corruption and soaring prices, the central and operation as economic policymakers, researchers at governmentgovernment took a dramatic step. On August 19, a five-year plan funded think tanks, or entrepreneurs. Their names and remarks often to liberalize all prices was declared. This immediately triggered the make headlines. Before becoming the top CPC disciplinarian, Wang expectation for further drastic price increases. Panicking consumers Qishan spent most of his career making and implementing economic swarmed into shops to buy anything they could get their hands on, and financial policies. The international market follows closely what from salt, to soap, to refrigerators. A bank run swept the country. Zhou Xiaochuan, China’s top central banker for more than a decade, The shock therapy had failed. The central government had to open- says. Ma Kai, a vice-premier, steered the National Development and ly clarify and promise that the planned solution would be effective Reform Commission (NDRC), China’s most powerful macroecoover “five years or even longer,” not overnight, and that price hikes of nomic decision-making body, through the stable boom years between this sort would not happen again. 2003 and 2008. Lou Jiwei is the incumbent finance minister, after Inflation was finally tamed at the cost of a sharp economic slow- running China’s sovereign wealth fund for several years. Li Jian’ge led down as a result of tightening investment policy. This made it possible China’s first joint-venture investment bank, and is now chairman of to liberalize the prices of most consumer products by the end of 1991, a major securities company. Any move by Vantone, a listed property which in turn made it possible for the country to officially enshrine giant founded by Feng Lun, has the power to shake the property and the commitment to a “market economy” in 1992. stock markets. The views of Hua Sheng, Zhou Qiren, Wu Xiaoqiu and Zhang Weiying have a discernible effect on policymaking, public History opinion and even stock prices. These are just a few examples. The corruption and chaos of 1988 forever tainted the dual-track Their voices and practices, which to a large extent have undersystem, and put its designers, including Hua Sheng, today a well- pinned the successes and failings of China’s economic reform in the known economist, under pressure. Some blamed them for the prob- intervening years, are no less controversial than they were on that lems. Technically, such accusations were justified, though the prob- mountaintop, 30 years ago. 

NEWSCHINA I September 2014

1984

The Entrepreneurial Renaissance The year China’s tycoons jumped on board the new economic bandwagon By Zhou Zhenghua

Liu Chuanzhi, co-founder of Lenovo

The supply shed where Lenovo began NEWSCHINA I September 2014

n October 1984, perched on the sofa-bed in his 15-square-meter home, Zhang Zuxiang made the most important decision of his life. Zhang, now a supervisor at Legend Holdings, the parent company of Chinese computer giant Lenovo, was paid a visit by his colleague Liu Chuanzhi at the one-room apartment allocated to Zhang by his employer, the No.8 Computer Research Institution under the Staterun China Academy of Sciences. Liu had come to lobby Zhang – successfully, as it turned out – to join a new venture under the auspices of his parent institution. Liu Chuanzhi, now chairman of Legend Holdings, was 40 years old at the time, and had been working at the institute for 14 years, focusing on research into magnetic recordings. By that time, Liu had participated in three research programs, all three of which had won State awards, but none of which had resulted in the development of any commercial products. Liu couldn’t understand why so many State resources were being used on these research projects, only for their findings to be confined to research papers locked away in dusty filing cabinets. As with most State employees at the time, Liu was eking out a relatively stagnant living, getting by on a salary of 105 yuan (US$17) per month while awaiting his inevitable seniority-based promotion. Jumping ship would have made little sense – a State job meant lifetime employment, and privately-run technology companies did not exist at the time. But unlike most of his fellow researchers, who had few interests beyond their work, Liu kept a close eye on current affairs. Liu read with curiosity about China’s first few fledgling entrepreneurs. In the city of Tangshan, Hebei Province, a group of residents had pooled their money to erect a three-story department store, making headlines across the country. At a time when almost no one in China had ever been near an airplane, the story of a fish farmer who chartered a plane to fly 800,000 live fry from Hubei Province to a market in Chongqing caught the nation’s attention. These tales awoke Liu’s inner businessman – he proposed to the

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director of his computer institute the idea of launching a company, promising that it would achieve annual sales revenue of one million yuan (US$161,860) within five years. The idea won support in the upper echelons of the Chinese Academy of Sciences, which oversaw the computer institute. With starting capital of 200,000 yuan (US$32,370) a 20-squaremeter supply shed, five pieces of furniture and the nine personnel Liu had managed to pull in (including deputy chief manager Zhang Zuxiang), Liu’s company was born. Earlier that year, Deng Xiaoping visited the Special Economic Zones in the southern Chinese cities of Shenzhen, Zhuhai and Xiamen, underlining his endorsement of economic liberalization. Reading this in the newspaper, Wang Shi, now chairman of China’s largest real estate developer Vanke, was caught with the same entrepreneurial bug as Liu Chuanzhi. Like millions of government employees around the country, Wang quit his government job and headed for the gold rush in Shenzhen, launching his company in May 1984. By 1985, when Deng Xiaoping first said that some of China’s citizens would “get rich first,” Wang was well on his way to becoming one of those people - using any means at his disposal. Due to the dualtrack system created by the planned and market economic systems, those who had connections with government officials could cut their costs by obtaining subsidized resources within the planned system, and selling them at market prices. Using his connections, Wang managed to exploit the strictly government-controlled foreign exchange market, laying his hands on US$10 million at an official rate of 3.7 yuan per US dollar and reselling his greenback on the black market for around 4.2 yuan per dollar, turning a profit of 5 million yuan.

From Washed-up to Cool Millions

The same year, Zhang Ruimin was appointed manager of the Qingdao Household Electrical Appliance Factory, an ailing State-owned company on the brink of closure, which had had three different managers that year before Zhang took over. Management of the factory was in disarray when Zhang took the

Workers assemble circuit boards at an electronics plant in Beijing, April 1, 1984

helm. Few workers would show up on time, and many would leave before the end of the work day - at the time, State factory workers could not legally be dismissed except in case of criminal conviction, and workers’ salaries usually had little to do with the performance of the factory. Though color television sets and refrigerators were in dire shortage in the 1980s, the factory had little motivation to meet market demand, and lacked the capacity to produce quality goods. Like all other State-run factories, market-orientation was an alien concept at the Qingdao plant. The factory’s flagship product, the White Crane line of washing machines, never found a market. Zhang identified the problem with a market survey – washing machines required water faucets, and in Qingdao at the time, one faucet was shared by many households, and even public faucets scarcely existed in rural areas. Zhang decided to switch to refrigerator production, importing an assembly line from Germany and changing the factory’s name to the Qingdao Refrigerator Cooperation. In terms of management, Zhang introduced a performance appraisal system at the factory, threatening grave salary cuts for those who were found to be underperforming. In less than three months, one third of Zhang’s workers applied for transfers to other factories. The company never looked back, eventually re-branding as Haier, now China’s largest home appliance supplier, with success in many overseas markets. By the end of 1984, the mainland had become the second largest market for Hong Kong’s computer exporters, and meanwhile, China was reopening trade with the Western world following more than four decades of isolation. For Lenovo’s Liu Chuanzhi, his attachment to a State computer research institute proved advantageous to the company’s development. When the institute began developing the KT8920, a type of mainframe computer, it outsourced much of the work to Lenovo, opening up a steady revenue stream for the company in years to come. At the end of 1984, the Chinese Academy of Sciences bought 500 IBM computers, outsourcing the initial testing, maintenance and training to Liu’s company with a contract worth 700,000 yuan (US$113,300) - the company’s first big deal, and the first step in the company’s development of a long-term relationship with IBM. Aware that the demand for PCs would soon explode, Liu and his colleagues applied to be IBM’s China sales agent, eventually becoming IBM’s first mainland distributor, partly thanks to its government background. The business brought in big money. An IBM PC/XT, a type of microcomputer, sold for 40,000 yuan (US$6,470), double what it cost to import, a profit equivalent to 200 times a college lecturer’s monthly salary of about 100 yuan (US$16.2) at the time. In 1985, Liu became the company’s managing director. In the following years, the computer company would be renamed as Legend, then back to Lenovo, becoming China’s best-known PC brand. Eventually, Lenovo in 2004 acquired IMB’s PC business, making it the world’s largest PC producer. NEWSCHINA I September 2014

1984

Cultural Heatwave

In the late 1970s and early 1980s, Chinese intellectuals tested the limits of public political debate by discussing concepts of culture By Yang Min and Chen Xiaoping

Photo by Xinhua

NEWSCHINA I September 2014

or those active in China’s cultural and intellectual scenes, 1984 was a watershed. Wang Xuedian, a famous historian, deemed this mainly a reaction against the “movement for cleansing spiritual pollution” at the end of 1983. As the policy of Reform and Opening-up gained momentum, the conservatism of the previous three decades was gradually giving way to a comparatively loosened societal atmosphere – one in which political and cultural issues were being discussed in increasingly frank, and often heated, language. Inside the Communist Party of China (CPC), a similar change was taking place. In March 1983, Zhou Yang, a formerly conservative CPC senior cultural official, sent shockwaves through the establishment, praising “humanism” and criticizing socialist “alienation” in a speech to mark the 100th anniversary of the death of Karl Marx. “In the course of economic construction… many erroneous things have been done. There is alienation in the economy. Due to the incomplete democratic and legal systems, civil servants sometimes abuse the power given them by the people, and become masters. This is political alienation, or the alienation of power,” said Zhou in the speech. The terms “humanism” and “alienation” caused uproar among senior CPC officials. Zhou, who at the time was no longer at the center of power but still enjoyed a relatively prominent public profile, was

cover story

day, while introducing a raft of influential Western theories to a Chinese readership – consequently, the books sold well and gained huge influence. At the end of 1984, the Chinese Writers Association held its fourth national meeting where, with the support of Hu Yaobang, representatives conducted democratic elections to choose the association’s unofficial president and vice-president. The following year saw the publication of a large number of important works of literature. This “cultural heatwave” continued to spread in the following few years until 1989, when it was brought to a sudden halt by the Tian’anmen Square incident. According to Li Zehou, an influential philosopher in the 1980s and 1990s and member of the IAFCC commented on the movement, “The cultural heat was actually politics in the guise of culture.”

Photo by Xinhua

Humanism is its Own Goal

The 1980s saw academia resurgent after decades of stagnation

quickly made the target of a campaign against what the Party called “spiritual pollution” resulting from the relaxing ideological environment. In the winter of 1983, the “criticize Zhou Yang” and “cleanse spiritual pollution” movements began. Although the campaign ended after less than a month due to interference from then CPC General Secretary Hu Yaobang, it sent a clear message about the limits of public debate. However, while the discussion of political theories began to slow down, debate around culture continued to heat up. In 1984 – the following year – the International Academy for Chinese Culture (IAFCC) was founded, with philosopher Tang Yijie as its first president. The IAFCC attracted several philosophy scholars and intellectuals to promote research of both Chinese and Western culture and thinking. Meanwhile, two series of books were published – Towards the Future, edited by Jin Guantao, and Culture: China and the World, edited by Gan Yang. Both volumes reflected the frontline thinking of some of the most prominent Chinese intellectuals of the

In the run up to Zhou Yang’s influential speech, discussion of humanity, humanism and “alienation” had been bubbling under the surface for some time. In 1978, two years after the end of the Cultural Revolution, Zhu Guangqian, an esthetics professor from Peking University, wrote in an article that “Karl Marx argued for the necessity and inevitability of the proletarian revolution from a perspective of humanism.” Two years later, Ru Xin, vice-director of the Department of Philosophy at the Chinese Academy of Social Sciences (CASS), published an article in the People’s Daily arguing that “Humanism is defined as treating people as human. Humanism is the highest purpose of the human, and has its own intrinsic value.” That discussion continued for more than five years. Within 18 months, between 1980 and 1982, 400 articles were published on the subject, before the trend reached its peak with Zhou Yang’s speech in 1983. Li Zehou, then vice director of the Esthetics Research Office at the Philosophy Department at CASS, did not participate directly in the discussion. Yet, his book Critique for Critical Philosophy – Commentary on Immanuel Kant, completed in 1976, was often regarded as a prelude to the discussion. In 1979, the book was published by the People’s Publishing House. Its initial print run of 30,000 copies quickly sold out. “He was using Kant to expound his own thinking,” said Zhao Shilin, Li’s first doctoral student and now a professor of Philosophy at Renmin University. The theories in Li’s book comprised epistemology, ethics and esthetics, among which he placed esthetics highest, arguing that “Humans are truly free only in the kingdom of beauty.” This declaration, the first time since the Cultural Revolution that any prominent thinker had asserted the theoretical value of the human being, was a landmark. Kant’s theory that the ultimate goal of the human was humanity, rather than to be “the tool of any authority, group, or other person” corresponded well with the movement of “emancipation of NEWSCHINA I September 2014

Beauty and Philosophy

The first wave of this “emancipation” of culture and art theory came in the form of discussion of esthetics. In 1981, Li Zehou’s book The Path of Beauty: A Study of Chinese Ethetics was published, taking a comparatively lighthearted approach to Chinese art history from ancient times to the Qing Dynasty (1644-1912). Contrasting sharply with the solemn political tone of previous writing on fine arts, the book was well received among young urban Chinese, and became a highlight of the esthetics “heatwave” of the 1980s. Over the following decade, the book was reprinted seven times. Nie Zhenbing, from the Esthetics Research Office at CASS, said that the nature of esthetics itself led to the formation of the heatwave. In his opinion, beauty is naturally connected with the advocacy of freedom and humanism. Also, esthetics, an abstract concept ostensibly far from the political realm, was a comparatively safe topic – a branch of the general “emancipation of minds,” pushing back against ossified ideology by appealing to a desire for discussion of perceptual matters. In 1984, the first volume of the History of Chinese Esthetics, written by Professor Liu Gangji from Wuhan University and supervised by Li Zehou, was published. In Li’s definition, the four pillars of the “essence and soul of Chinese esthetics” were Confucian spirit, Zhuangzi’s Daoist philosophy, Zen Buddhism, and Qu Yuan’s Encountering Sorrow, a poem from the Warring States Period (475 BC-221 BC). This elaborate explanation was seen as a total rebellion against the dualistic framework within which philosophy had been discussed for the past several decades – exclusively in terms of of materialism and idealism. At the same time, a group of young teachers of philosophy at Peking University were putting together an academic group for research into Chinese culture. The idea was backed by elder professors at Peking University, one of whom, Feng Youlan, even wrote to Hu Yaobang personally for support, and Hu forwarded his letter to the Ministry of Education. In 1984, the IAFCC was founded, aiming to promote the modernization of Chinese culture through research and exchange with Western culture. The academy was open to all schools of thought – some of its members were advocates of traditional Chinese culture, while some were vociferously against it. Others aimed to bridge the gap between Western and Chinese culture. Li Zehou was invited to become a member. Not long after its foundation, the academy held a seminar for the comparative study of Chinese and Western culture, which more than 12,000 people applied to attend.

emy of Sciences, gathered a few young academics in their dormitory to plan a series of books introducing modern Western science and thought. Jin Guantao wanted the books to focus on new ideas across interdisciplinary subjects that comprised both translated and original articles. They hoped that at the same time, the books could be combined with reform action. Jin invited Bao Zunxin, the deputy chief-editor of the then widely influential Dushu magazine, to be chief editor, with Jin himself as deputy chief editor. The two were later joined by a number of young academics. In 1984, the series Towards the Future went into print, the first volume of which included Li Pingye’s Discovery of Human, Jin Guantao’s Behind the Surface of History, and Liu Qingfeng’s Let the Shine of Science Light Me Up. The same year, Jin Guantao and Liu Qingfeng also published their monograph Prosperity and Crisis: Articles on the Super Stable Structure of Chinese Feudal Society, laying out what they called the “three theories” of China: system theory, control theory and information theory. They introduced these ideas to the study of history and sociology, making discussion of methodology the latest trend in the cultural heatwave. Towards the Future quickly gained popularity and sold out – the series has seen numerous reprints. Jin had originally planned to publish 100 books in the series, and by 1988, 74 had been released. Although the series ended there, its frontline thinking had already opened up a window of enlightenment for the young, through which they could examine the world and the future.

Photo by Xinhua

minds” following the Cultural Revolution.

To the Future

As more and more young Chinese began to talk about esthetics and philosophy, Jin Guantao and his wife Liu Qingfeng, both editors at the Journal of Dialectics of Nature published by the Chinese Acad-

NEWSCHINA I September 2014

Cubist propaganda posters designed to appeal to the young extol the internationalist values of Reform and Opening-up

interview

Liu Yongfu

Target: 10 Million Poverty alleviation director Liu Yongfu on the central government’s action plan to lift 10 million Chinese citizens out of poverty before 2015 By Xi Zhigang

uring his government work report delivered earlier in the year, Chinese Premier Li Keqiang proposed to reduce by 10 million the number of Chinese citizens living below the official poverty line before the end of 2014, the first time the central government has imposed an annual target for poverty alleviation. According to its own government’s statistics, China is home to nearly 100 million rural people living in poverty. Both the current administration and its predecessor have vowed to make a “moderately prosperous society” by vastly reducing rural poverty by 2020. To discuss Beijing’s strategy and whether or not it can be successfully implemented, NewsChina secured an exclusive interview with Liu Yongfu, director of the Leading Group Office on Poverty Alleviation and Development under the State Council. NewsChina: Li Keqiang has vowed to lift 10 million people out of poverty this year. How can this goal be achieved? Liu Yongfu: Current poverty reduction mechanisms and related policies need to be improved. It is still a gnawing problem that some people who had managed to rise above the poverty line are being reduced to poverty once again by illness or accidents. Chinese Vice Premier Wang Yang said during a meeting on poverty alleviation that there are three key tasks in 2014. The first is working hard to cut the impoverished population by 10 million. The second is the draft-

ing of more favorable policies and granting fiscal support to areas performing well when it comes to poverty alleviation. [Wang’s] third criterion is improving performance assessment of [officials in] poor counties to curb malpractice and to ensure that areas recently lifted out of poverty continue to receive policy support. The living standards of the poor have barely changed. A good harvest plus government relief can see households lifted out of poverty. But if there’s a bad harvest the following year, you’ll see backsliding. Other counties were plunged back into poverty by natural or man-made disasters. Formerly impoverished counties that have established relatively stable prosperity should be de-listed. But the fact is that many resist, as being de-listed means losing access to preferential policies. These policies should only benefit those living in poverty. Funds need to get to where they are genuinely needed. NC: What challenges does the government face in accomplishing its 2014 poverty reduction goal? LY: China introduced a system for identifying under-developed counties and flagging them as key areas for poverty alleviation work in 1986. This list was updated three times; in 1994, 2001 and 2011. In 2011, 38 counties were de-listed, while 38 more were listed for the first time. After new poverty alleviation standards were released, a succession of counties were able to successfully remove themselves from

the government list. However, those that remained have proven difficult to tackle. The current economic downturn has affected poverty reduction targets by causing reductions in rural budgets, increasing rural employment pressures and depressing income growth. I recently visited several provinces and was glad to find that many county Party chiefs have shifted their focus to poverty alleviation. In Laishui County, Hebei Province, the county head has pushed forward microcredit programs worth 400 million yuan (US$64m) in total, which have boosted the local economy and incomes. I believe that difficulties will be overcome as long as favorable policies are in place. NC: The central government has proposed to restructure poverty alleviation mechanisms. Can you give us any specific measures? LY: A basic survey of local conditions has to be conducted first. Then, government officials are dispatched to the area in question to ensure that each village has a working team and that each impoverished household has been assigned a duty officer. Policies targeting the management of relief funds will be improved, including project transparency, the competitive allocation of funds and government procurement of public services. We will reinforce supervision to remove loopholes, work to incentivize financial institutions to take part in the poverty alleviation through the introduction of more preferential policies in credit and loan appliNEWSCHINA I September 2014

NC: What will be the role of working groups stationed in poor villages? LY: China is home to roughly 120,000 villages living below the poverty line. Every one of them will have a three-person work team, and each household will be assigned an official overseer. Work teams will include village officials with college degrees, local Party chiefs, technical staff, and poverty alleviation coordinators. It is vital all these people are competent and familiar with rural conditions – we’ve had past issues with officials who were unable to communicate with rural residents. The performance of these work teams will also be carefully monitored and evaluated. In total, we’re looking at 400,000 individual officials directly engaged in poverty alleviation, a globally unprecedented mobilization. NC: What is your view of alleviating poverty through financial incentives? LY: It is not easy for rural residents, let alone an impoverished household, to obtain a loan. Financial departments and banks at different levels are trying to work out a solution to this problem. Despite its limited rural presence, China Development Bank has done a good job of aiding local economic growth. Rural Credit Cooperatives, regional financial organizations that offer financial services to boost economic growth, have also played a significant role – issuing 80 percent of the total loans to villagers. However, these measures are still in their infancy. China’s national fund for poverty alleviation totals 40 billion yuan (US$6.4bn), not a lot to split between 100 million Chinese people living in poverty. The comprehensive poverty alleviation fund, including preferential policies on local communications, irrigation, education, and healthcare, has an amount of 400 billion yuan (US$64bn), or 4,000 yuan (US$644) per person, per NEWSCHINA I September 2014

Photo by CNS

cations as well as social insurance. The government will also maximize the efficiency of targeted poverty alleviation to ensure that poor counties get matched up with wealthy ones in eastern areas under an aid “buddy system.”

A villager carries a piglet which donated by the local government of Rongshui Autonomous County in the Guangxi Zhuang Autonomous Region, March 21

year. Work done in Guangdong Province has showed that, on average, a person living below the poverty line needs an additional 20,000 yuan (US$3,220) per year to cross this line. NC: Do you feel there is still room for big financial institutions to contribute to poverty alleviation? LY: Absolutely! In the future, the government will cooperate with financial institutions to introduce more preferential policies targeting poor communities and individuals. We have already recommended that financial institutions grant 50,000 yuan (US$8,050) loans with terms under five years to poor households according to the national benchmark interest rate. But there’s more to do. Starting this year, the central government poverty alleviation office will create a new platform to ensure that loans are granted to poor villages and households. Central and provincial aid needs to be provided in the form of subsidies. Risk funds and microfinancial insurance should be set up and a credit rating system introduced for impoverished households, extending collateral-free loans to poor families to create jobs and boost

incomes. However, hardship loans should only be granted to households approved by village, township and county authorities. NC: You have said that the public nowadays plays a limited role in poverty alleviation. How can this situation be changed? LY: It will take a long time. The wealthy are willing to take more responsibility, but currently we lack the platform to mobilize them. What’s more, private enterprises, social organizations and individuals are concerned about transparency and the misappropriation of charitable donations. Additionally, if an entrepreneur donates 100 million yuan (US$16m), they will be taxed on the full amount. Unless they’re receiving an award or some other form of recognition, their motivation will remain low. The government should encourage and guide the public, but we need to put an end to “compulsory charity” and the arbitrary solicitation of donations. This is step-by-step work and we can’t afford to be idealistic. In my view, simply raising awareness of the role of public social responsibility in poverty alleviation is far more valuable than simply compelling citizens to donate to charity.

society

Ruan Yisan

Man about towns

NewsChina meets with Ruan Yisan, hailed as one of China’s most important conservationists who has been responsible for saving countless historic towns and sites from the wrecking ball By Yang Di

uan Yisan is in his 80s and white haired, but still brims with energetic concentration. When we met with him in historic Xinchang Town, Shanghai, the deputy Party secretary of the town was following him around, struggling to keep up while explaining the Party’s grand plan for protecting ancient and historic buildings. Ruan was more interested in the buildings themselves. “The stone used here is very distinctive,” he said while pointing to the riverbank. “The white stonework is from the Qing Dynasty (1644 – 1912) and the yellow is from the Republican era (1912 – 1949).” Drawing closer to a nearby building, he reached out to touch its decorative window screens. “The patterns differ from house to house,” he enthused. “That’s authentic, natural!” Ruan is quite the local celebrity - store owners and local seniors stopped us to take photos with him. However, this elderly academic

remained nonchalant, his attention firmly held by his surroundings. Xinchang Town is located to the southwest of Pudong New Area, the district of Shanghai that gives the city its most impressive modern skyline. Xinchang is one of the latest batch of designated Historic and Cultural Towns jointly approved by the State Administration for Cultural Heritage and the Ministry of Housing and Urban-Rural Development. Ruan Yisan, the town’s chief planner, has played a key role in preserving Xinchang’s original architecture since 2004. In his dual role as a professor with Shanghai Tongji University’s College of Architecture and Urban Planning and director of the university’s Historical and Cultural City Research Center, he has served as the architect of development projects tied to a large number of ancient towns across China since the 1980s, including Pingyao (Shanxi Province), Lijiang (Yunnan Province) and Wuzhen (Zhejiang Province) to name a few. NEWSCHINA I September 2014

Photo by Long Hai

Ruan Yisan outside historic dwellings in Shanghai, May 2014

However, during decades of rapid urbanization in China, Ruan has faced tremendous obstacles in his attempts to preserve China’s vanishing historic architecture. “In the past, I struggled with ignorance,” he told NewsChina. “Now, I have to struggle with short-sighted utilitarianism.”

Gorgeous

Ruan Yisan was born into a famous scholarly family in Suzhou, Jiangsu Province in 1934, at the height of the Republican era. Ruan’s great-great-grandfather Ruan Yuan was one of the most influential scholars and dignitaries who served at the imperial court of the Qing Dynasty. Ruan’s father was among one of the earliest students to travel abroad for study in Japan, and, after returning to China, helped establish several power plants in Jiangsu Province. As a child, Ruan Yisan received what was at the time a traditional

NEWSCHINA I September 2014

private pre-school education, largely devoted to the memorization and recitation of classics of the Confucian enlightenment. After entering elementary school, Ruan was asked by his father to curate the family’s library, where Ruan further expanded his knowledge of the Chinese classics. Despite his scholarly pursuits, Ruan dreamed of joining the military in his youth. In 1950, he was admitted to the People’s Liberation Army Naval Cadre Institute. However, his father fell foul of one of the Party’s many anti-Rightist purges, and Ruan, his political background under scrutiny, had to return home. In 1956, he enrolled in college. His political background prevented entry to most prestigious majors of that time, and thus Ruan made do with an undergraduate degree program under Shanghai Tongji University’s Department of Architecture. In his senior year, Ruan, in his role as a teacher’s assistant, participat-

The Wuzhen waterfront, Zhejiang province

ed in compiling The History of Chinese Urban Planning. From 1960 to the eve of the Cultural Revolution (1966-1976), Ruan would spend two months every year visiting and researching historic cities across China. “The cities at that time were gorgeous,” Ruan Yisan recalled. “Though somewhat dilapidated, each place was distinctive in its own way. South China is characterized by picturesque and poetical watertowns, while northwest China featured spectacularly complete walled cities.” Ruan’s work became his life’s passion. After receiving tenure at Tongji University, Ruan found himself constantly referring back to county annals collected in Shanghai’s libraries. “I can say with pride that when it comes to cities and their associated records, I might be the most extensively read and travelled person in China,” he told our reporter. The more Ruan learned of China’s architectural heritage, the more he came to realize that this vital cultural legacy was under threat.

“Over my dead body!”

In the 1980s, as economic liberalization began to kick in, China saw an unprecedented boom in rapid urban construction. Roads were dug up, new houses were being built and construction sites were erupting all over the country. The march of development quickly laid waste to the picturesque but impractical. Officials were mulling over demolishing the historic fortified town of Pingyao, Shanxi, China’s main financial center in the Ming and Qing dynasties, replacing it with a brand-new city with broad roads and expansive plazas. As one of Ruan’s former fellow students was working for Shanxi’s Provincial Construction Committee, Ruan was invited to participate in the redevelopment project as a consultant. The committee’s plans appalled Ruan. He went to Pingyao immediately only to find that part of the town’s Ming Dynasty city wall

Photo by CNS

society

Pingyao, Shanxi Province, an ancient financial center

and some residential communities had already been bulldozed. He strongly protested the local government and asked them to stop their “destructive construction”. As an expert on ancient towns, he offered his services as a town planner pro bono to the local government, his fee being the preservation of Pingyao’s old town in its entirety. On his return to Shanghai, Ruan quickly assembled a team of 11 graduate and undergraduate students to draw up a new plan for Pingyao. He also asked his former teacher Chen Congzhou, also a respected expert in ancient architecture, to provide opinions, and invited Dong Jianhong, director of the Tongji University Department of Architecture, to give on-site instruction. Still, Ruan was not convinced that the Pingyao government would accept his “unfavorable” suggestions. To bolster his argument, he leaned on contacts in Beijing, sending his plan and materials illustrating the tremendous historic and cultural value of Pingyao’s ancient town to as many academic and political bigwigs as he could think of. He invited Zheng Xiaoxie, a renowned architect and the director of the Urban Construction Team of the Chinese People’s Political Consultative Conference (CPPCC), and Luo Zhewen, a senior engineer with the Ministry of Culture, to visit Pingyao, to rouse the attention of the Shanxi provincial government. Finally, Ruan’s tactics paid off, and Pingyao was saved, going on to become one of China’s mostvisited UNESCO World Heritage Sites. After his success in Shanxi, Ruan turned his attention to Zhouzhuang, a “river town” to the east of Suzhou. More than 60 percent

“In the past, I struggled with ignorance. Now, I have to struggle with short-sighted utilitarianism.”

NEWSCHINA I September 2014

Priorities

Historic towns that Ruan Yisan actively involved himself in flourished one after another, making him perhaps China’s most in-demand town planner. Ruan has continued to travel with his students in search of new projects. Of the “Top 10 National Historic and Culture Towns” named by the Ministry of Culture, five were planned by Ruan. In 2003 and 2006, two of Ruan’s projects, the Yangtze River Water Towns Project and the Pingjiang Historic District of Suzhou Project, were granted the Awards of Distinction in the UNESCO Asia-Pacific Heritage Awards for Culture Heritage Conservation. This year, Ruan was awarded the 2014 Henry Hope Reed Award from the University of Notre Dame for his contributions to the preservation of ancient towns, the first Asian to win this accolade. Despite his nominal success, however, Ruan remains concerned not only for “undiscovered” towns threatened with demolition, but even for those towns he has had a part in “saving.” One aspect of development he hadn’t foreseen was the damage that profitable tourism can do to an historic town. Zhouzhuang’s once-silent streets and alleys, for example, are now lined with noisy generic storefronts. The problem of commercialization became so severe that local officials called upon Ruan’s services again in 2002 - this time to do some “damage limitation” regarding Zhouzhuang’s thriving tourist traps. NEWSCHINA I September 2014

Photo by CNS

of Zhouzhuang’s dwellings were in the Ming and Qing dynasties, and the town’s awkward location, away from highways, had spared it the unceremonious demolition that had destroyed many other historical towns and villages in the vicinity. Ruan was invited to draw up a plan for Zhouzhuang’s development. While preserving the ancient architecture and original landscape, he also advocated promoting the town as a tourist site, organizing forums and inviting photographers to visit Zhouzhuang. The resulting publicity, paired with glossy images of quaint bridges, murmuring streams and characterful dwellings, soon fixed Zhouzhuang on the tourist trail. However, in the 1990s, a proposed bypass threatened to turn this sleepy backwater into just another pit-stop along China’s industrial belt. Ruan petitioned the indifferent Suzhou government to preserve the town at all costs. Met with stonewall tactics, Ruan resorted to lying in the middle of the highway, yelling “You build this road over my dead body!” Amazingly, the technique worked.

Lijiang, Yunnan, an ancient transport hub linking southwest China and Tibet

Some stores had to be closed, with their owners blaming Ruan for “depriving [them] of [their] right to survive.” Ruan’s response was curt. “You are not making money because of your business acumen, but simply because of the existence of this ancient town.” “Without the town, you would have to close all your stores,” he added. “Any store likely to damage the ancient landscape must be closed!” In the eyes of Ruan Yisan, history and the preservation of relics always take priority over economic expediency. Any attempt to interfere with the historic architecture, no matter the justification, in Ruan’s view, must be stopped. The Xinchang government is expecting their town to become the next Zhouzhuang or Wuzhen under Ruan’s supervision. However, working with Ruan is not necessarily a path to limitless riches. The government had planned to build an eight-floor five-star hotel on a piece of empty land west of Xinchang’s old town. Ruan rejected the plan and went over the heads of local officials to the government of Pudong New Area to demand the plans be changed. Despite Ruan’s supervision, the Xinchang government managed to build a huge “Ming-style” memorial gateway at the entrance to the town, despite the fact that no such gateways were ever constructed under the Ming. Ruan, however, resigns himself to the occasional construction of such follies as part of his chosen territory. “The thing has been built, so it won’t be easy to pull it down,” he told NewsChina. pointing to the gateway.

society Qiao Shuzhi in front of the Tianyi Hostel shortly before its demolition

Photo courtesey of Qiao Shuzhi

s the bulldozers bore down on Qiao Shuzhi’s hostel on a frozen December morning in Beijing, Qiao sat in the custody of thugs, wondering how his fortunes had changed so suddenly. The small family-owned hostel, given an operations license as a reward for its founder’s contribution to the Communist revolutionary cause and later hailed as a symbol of private entrepreneurial spirit, had enjoyed toplevel protection during the upheavals of the economic collectivization movement and the Cultural Revolution. Where were Qiao’s protectors now?

Red History

Tianyi Hostel

Dark Days at the Red Hotel Having survived half a century of upheaval, the Tianyi Hostel, Beijing’s “last outpost of private business” during the Cultural Revolution, has fallen victim to the realities of the modern Chinese economy By Sun Zhe and Xu Tian

The hostel was opened in January 1953 by Qiao Tianmin, the late father of Qiao Shuzhi, when his son was only two years old and the family was expecting another child. Qiao Tianmin, then 43, had worked at a secret Chinese Communist resistance safe house in west Beijing during the Sino-Japanese war, and after the founding of the People’s Republic of China in 1949 was appointed as deputy director of a State farm by the Party. However, basically illiterate and suffering from tuberculosis, he declined the offer. Instead, Qiao applied to the government to convert the former safe house, a camouflaged grocery store where he had worked in the guise of a clerk, into a small guesthouse to support his family. He was soon granted a special business operation license by Luo Ruiqing, the newly founded republic’s Minister of Public Security. Qiao Tianmin was also given the threeroom house attached to the hostel. After obtaining his business license, Qiao installed a large kang – a heated brick bed common in northern China – with enough space for eight or nine guests. With the addition of some simple furniture and a tea set, Qiao was in business. In the 1950s, Qiao Tianmin’s guests were either tradesmen, like streetside barbers and cobblers, or farmers coming to Beijing for odd jobs between farming seasons. The low prices at the inn, named Tianyi, appealed to low-income customers – a night on the shared NEWSCHINA I September 2014

NEWSCHINA I September 2014

plan to add an extra story to the hostel. The inn expanded to 14 rooms with 30 beds, and when Qiao Tianmin passed away in 1991, Qiao Shuzhi took over as general manager. While Qiao saw a period of relative success aided by the booming economy in the first half of the 1990s, over the following decades business began to peter out as higher-quality private hotels began to spring up in the vicinity. However, its low-end prices remained attractive to some. Before its demolition, the hostel offered double rooms for 140 yuan (US$22.70) – since it was located near several large hospitals, most guests were patients and their relatives seeking the superior medical treatment available in the capital. Eventually, the inevitable happened – the hotel was bulldozed late December 2013 to make way for a government project, though Qiao was not informed of the details. While the hostel was being demolished, Qiao was seized by a group of unidentified men and held for more than 10 hours. When he was released, he found his hostel – the product of half a century of his family’s work – razed to the ground, his belongings gone. Qiao asked the government to build him a new home in the area, or at least provide compensation appropriate for the demolition of a commercial development. However, he was offered compensation according to the value of a residential property. In the face of modern government-planned expansion, it seemed the hostel’s revolutionary history counted for little – it did not endow Qiao with any more bargaining power than his neighbors. He told NewsChina that despite his close ties with central government ministers in the 1980s, he was unable even to get an audience with a senior district government official when trying to appeal against his paltry compensation. “The senior officials who endorsed us are either dead or no longer in power. That’s why the government bulldozed our house.” Qiao said. Photo courtesey of Qiao Shuzhi

kang cost only 15 cents, about one tenth of confiscated by Red Guards, but Qiao manthe daily income of a street peddler. aged to keep hold of the license signed by At the time, hostel guests anywhere in Chi- the former public security minister, who had na needed a letter of authorization from their attempted suicide due to a Party purge that village administration or employer in order preceded the Cultural Revolution. to check in. Indeed, Chinese people could barely travel outside their hometown without such a document. A letter issued to Lin Zhongxin, a farmer from Hebei and a frequent guest at Tianyi, read “This is to certify that Lin Zhongxin, a 26-year-old resident of our village who has a clean history, is seeking work in Beijing.” Every day, Qiao needed to make copies of these letters and send them to the local public security bureau for scrutiny. When he reached sixth grade, Qiao Shuzhi took over responsibility for this The license issued to Tianyi Hostel, dated January 15, 1951 paperwork. In 1956, at the height of the economic collectivization movement, the city of Beijing converted all its “capitalist leg“It is a miracle that we stayed open through acies,” namely private enterprises and mom- the Cultural Revolution,” said Qiao Shuzhi, and-pop stores, into public-private partner- adding that his father had told him that their ships. The city’s mayor announced that year hostel was protected on special orders from that the capital had succeeded in its transfor- former Premier Zhou Enlai. mation into a socialist society, and a city-wide Thanks to Qiao Tianmin’s revolutionary celebration and firework display, attended by credentials, the inn remained the final out200,000 people, went on till midnight. post of capitalism in Beijing during the chaIn 1958, when the Great Leap Forward os, according to a People’s Daily report. and the organization of people’s communes throughout rural China began, the bonds Boom and Bust tying Chinese rural residents to their homeAfter the revolution, the inn’s fortunes betowns tightened. Even during the subsequent gan to change for the better – it was nomiGreat Famine from 1959 to 1961, starving nated as a model private business in the ensupeasants were prevented from fleeing their ing market economy era, and was lionized by villages in some provinces. This decreased local Party publications and even the national mobility effectively cut off Qiao’s income, People’s Daily. In old-style black cloth shoes, baggy jeans and business dried up. However, despite Tianyi’s poor performance, it was still al- and a camouflage-colored polo shirt, Qiao lowed to operate as a private business, rather looked older than his years as he reeled off the names of the numerous officials who had than being taken over by the government. Tianyi even survived the chaos of the Cul- visited the inn over the 1980s. In the 1980s, relaxed social controls altural Revolution, when almost all of China’s remaining private businesses were looted lowed rural residents to migrate to cities to or destroyed by marauding gangs of Red work, making the decade a golden age for Guards, for being “legacies of capitalism.” business. Qiao seized the opportunity – ofSome of Qiao’s paperwork, including a li- ficials would visit frequently, and the governcense issued by the district government, was ment provided building materials to aid his

Photo by Xinhua

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Corruption Crackdown

Pulling Rank

Executives at China’s State-owned enterprises often hold a higher administrative position than those charged with their supervision. Unless the government can find a way to keep tabs on State-sector leaders, corruption will remain rife By Xie Ying, Su Xiaoming and Hua Xuan

n June 5, Li Lang, former general manager and Party secretary of the Zhangzhou branch of China Telecom, one of China’s three telecoms giants, was detained by police for “severe violation of law and Party discipline,“ becoming the 47th high-ranking State-owned enterprise (SOE) executive to come under investigation for corruption this year. Following the 18th National Congress of the Communist Party of China (CPC) in November 2012, China launched an ongoing nationwide anti-corruption campaign, an effort that has so far seen a total of 180 high-ranking SOE “tigers” (President Xi Jinping’s buzzword for powerful corrupt officials) jailed, with bribery, embezzlement and abuse of power being the three most common charges. Repeated exposures of systemic corruption within China’s monolithic SOEs, including in core fields like energy, telecommunication, press and construction, have left China’s population with little faith in the government’s supervision of SOEs. “It has become evident that [the government’s] various layers of supervision on SOEs are largely ineffective. In other words, SOE officials are not subject to supervision by their subordinates, and are beyond the control of their superiors,” Ji Xiaonan, chairman of the Supervision Commission of Key SOEs told the media following the arrest of Jiang Jiemin, former president of CNPC (China National Petroleum Corporation). In 2014, the Disciplinary Inspection Commission of the CPC Central Committee has so far held four separate conferences on the subject of SOE corruption, and has issued an array of new policies to tighten both internal and external supervision on SOEs, such as setting up a dedicated office for the supervision of the State-owned Assets Supervision and Administration Commission (the SASAC), the department responsible for overseeing the SOEs, and expanding the range of investigations. However, these efforts have been met with skepticism – critics called for a loosening of the relationship between administrative powers and SOE management, which many have referred to as the “soil” in which corruption germinates.

Powerless Supervisors

China is now reportedly home to over 150,000 SOEs, most of which fall under the jurisdiction of the SASAC or its local counterparts which are responsible for supervising the assets, operations and human resources – including top-level personnel – of SOEs. It is generally believed that this management structure has lead SOEs to bear a closer resemblance to government departments than enterprises, with many SOE leaders enjoying immunity from supervision due to their high administrative rank. Of the 113 SOEs managed directly by the SASAC, 54 are desig-

NEWSCHINA I September 2014

Photo by CFP

nated “deputy ministries” whose top-level leaders are appointed by the State-level Organization Department of the Central Committee of the CPC, China’s highest determining body for official appointments. This means that many leaders at these SOEs hold a higher administrative rank than their supposed supervisors at the SASAC, let alone those at local supervision organs. Former president of China Three Gorges Corporation Cao Guangjing, for example, was a deputy ministry-level official with status equal to that of the mayor of Chongqing Municipality where the gorges are located. Even more ironically, Jiang Jiemin, the former CNPC president now under investigation, had been promoted to director of the SASAC before his arrest. “[Due to the ranking issue,] the SASAC cannot exercise its right of supervision,” Zhou Fangsheng, deputy director of the China Enterprise Reform & Development Society under the SASAC, told NewsChina, adding that many SOEs have been known to bargain with the SASAC over their annual performance appraisals. Worse still, the administrative ranking system has effectively allowed SOE officials to set their own budgets. While the SASAC’s financial approval system, ostensibly an internal anti-corruption measure, sets specific thresholds for the amount of public funds different levels of SOE leaders are authorized to use, this has seldom restrained senior leaders, especially those in big State-owned monopolies. Many believe this to be the reason why SOE corruption is often most rife in finance-heavy business activities like investment, procurement and bid solicitation. For example, both Li Lang and Jiang Jiemin are accused of having accepted bribes during purchases of telecoms and petroleum facilities, respectively. Jiang was also accused of controlling overseas assets valued in the billions of yuan. Sources within the CNPC are reported to have criticized him for making the corporation into a “walled kingdom,” requiring private enterprises to offer substantial kickbacks in exchange for contracts. “The so called ‘chairman’ of an SOE actually serves as both competitor and referee, usually dominating the decision-making with his sizable power,” Zhao Huxiang, president of SinoTrans & CSC, a State-owned logistics giant, told political journal Nanfengchuang. In 2000, China’s State Council set up a separate supervision commission, the Supervision Commission of Key SOEs, in an effort to tighten supervision of large, listed SOEs by bringing in third-party auditing firms, sitting in on SOE board meetings, and calling ad-hoc talks with top leaders. However, since many SOEs form a part of the same administrative structure as the various supervisory departments, many of them enjoying an equal footing with their supervisors, the new measures have failed to guarantee independent supervision. Official data show that the Supervision Commission in 2012 sub-

Jiang Jiemin, former CNPC president

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mitted a total of 283 briefs about their supervision of SOEs, proposed 730 pieces of advice and revealed 222 problems, most of which analysts have dismissed as irrelevant.

Inspectors Marginalized

Photo by Jia Guorong

A force of “disciplinary inspection secretaries,” government-appointed internal supervisory personnel for SOEs, are even less effective, Chen Wei (pseudonym), one such secretary for a large SOE directly under the SASAC, said in an interview with NewsChina. He said that his position, in the eyes of many, is “nothing but an empty shell.” “As subordinates to the top leaders, it was hard for us to get involved in their work, let alone to supervise them,” said the source. “Sometimes, [leaders] would get irritated because I was asking too many questions.” Having been involved in SOE disciplinary inspection for 18 years, the source told NewsChina that he spent most of his time reading newspapers and official documents. “The position was commonly known as a job for idle workers, or a substitute for retirement,” he said. Gao Zhikai, a former deputy president of a large SOE, China National Offshore Oil Corporation (CNOOC), agrees. He attributed the limited remit of disciplinary inspectors to the lack of legal rights of detection and investigation. “They have neither the right to monitor the calls and emails of those under suspicion nor to get involved in company operations. Simply ‘looking around’ at SOEs does little to

Wang Qishan, director of the CPC’s Central Commission for Disciplinary Inspection, pledges to tighten the anti-corruption crackdown, March 2014

fight corruption. Corruption is never obvious,” he told NewsChina. “Even if the inspectors find evidence of foul play, the SOE leaders would either try to push them aside or drag them into the wrongdoing,” he added. “‘No abnormalities were detected’ is our most frequently used term in reports to upper-level departments,” said Chen Wei. “Although SOE corruption has been expanding in recent years, the number of reports of corruption we receive from the public is declining sharply, even to zero in the case of some SOEs. This proves that the public no longer trusts us,” he continued.

How Far to Go?

Luckily for Chen Wei, since 2014 the Party’s central disciplinary inspection commission has expanded the powers of its disciplinary inspectors within SOEs, such as increasing their say over things like human resources and remuneration. According to Chen, the new policies have enhanced his status in the enterprise, and he is now receiving corruption reports from the public again. However, corruption remains endemic. “I still feel reluctant to report a suspect to the higher authorities [for further investigation]. If I do not do so, I have failed to fulfill my duties, but if I do, I might lose my job,” he said. “I had never dared to refuse an SOE leader’s request for leniency on a suspect he wanted to protect.” Chen’s worries are understood by many analysts and experts who believe that anti-corruption efforts based entirely on short-term campaigns will not be effective. Some now hope that the recent spate of shocking corruption scandals will press the government to deepen reform of SOEs, with measures such as breaking SOE monopolies and improving information disclosure to the public. These hopes were given new momentum when the CNPC issued a new draft policy on June 26, allowing private businesses to participate in the nation’s petroleum network – a move that some have suggested may be a byproduct of anti-corruption work. However, many remain pessimistic, claiming that the government’s supervision of the SOEs is similar to a parent disciplining their children – favoritism is unavoidable. “I would much rather own a State-owned enterprise than have shares in one, as it’s the only way to have any say in how they are run,” Zong Qinghou, chairman of the private food and beverage giant Hangzhou Wahaha Group, commented on the government’s bid to tempt private capital into State sector. “The root cause of SOE corruption is that the true stakeholders – the public – are kept out of supervision,” CNOOC former deputy president Gao Zhikai said. “If an SOE were to draw a map of its vested interests, it would start with bodies like the State Council, the SASAC and the Ministry of Finance, before moving onto things like the industrial and commercial sectors. The public wouldn’t be a factor,” he continued. “If this system can’t be broken, it will be impossible to uproot corruption.” NEWSCHINA I September 2014

Corruption Crackdown

A Tiger’s Tale

The fall of a ranking People’s Liberation Army (PLA) general on corruption charges has sent ripples through the Chinese military – seen by many as the final frontier for the Communist Party’s anti-graft crackdown

Photo by IC

By Xie Ying

A selection of SOE officials who have fallen under investigation for corruption since 2012 (top to bottom, left to right): Jia Hongxiang: President of Grand China Logistics Group Shu Zhan: President and Party secretary of Fujian Media Group Wang Shuaiting: Deputy president, general manager and deputy Party secretary of China Travel Service (Hong Kong) Ltd. Xu Long: President and general manager of China Mobile, Guangdong branch Lei Yi: President and Party Secretary of Yunnan Tin Co., Ltd. Song Lin: President and Party Secretary of China Resources Wu Yulu: President and Party Secretary of Yima Coal Group Xu Minjie: Executive director of China Ocean Shipping (Group) Company (COSCO)

NEWSCHINA I September 2014

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Bottom-up

According to Liu Mingfu, Gu Junshan could not have been snared without the involvement of Liu Yuan, the PLA Logistics Division’s hawkish political commissar, a well-known and outspoken critic of military corruption reportedly backed by Xi Jinping. According to Southern Weekly, in an internal speech to his colleagues, Liu warned that military corruption had become so rampant that it “threatened the CPC’s control of the army,” the fundamental principle behind China’s military apparatus for close to 70 years. This principle main-

Photo by CFP

he central government’s ongoing campaign to stamp out corruption hit new heights after Xu Caihou, former deputy chairman of the Party’s Central Military Committee (CMC), the country’s highest military body, was expelled from the Party and turned over to a military tribunal for further investigation into his alleged misdeeds. Xu, also a ranking general, is one of the highest military officials serving in the People’s Liberation Army (PLA) to be targeted by anticorruption investigations currently sweeping across almost all arms of the Party, and his highly publicized fall made headlines across the nation. The decision to strip Xu of his Party membership was announced at a June 30 meeting of the Standing Committee of the Party’s Politburo convened one day before the CPC marked the 93rd anniversary of its founding. During the meeting, China’s commander in chief, president and CPC chairman Xi Jinping pledged to continue to “battle tigers,” a euphemism for dethroning corrupt senior officials, no matter what their rank or position in the CPC hierarchy. According to the State media, Xu had received huge amounts of bribes through selling public offices. International media coverage dug deeper into unconfirmed allegations that Xu was the “big boss” behind Gu Junshan, a former deputy logistics director of the PLA charged in March with corruption, bribery, embezzlement and abuse of power. Xu’s demise has gone some way to allay doubts that Xi Jinping was shying away from fully implementing the anti-corruption drive at the center of his political platform when it came to fighting corruption in the PLA. After the official announcement of Xu’s fall, CPC mouthpiece the People’s Daily published three consecutive commentaries on its front page, trumpeting that “no tiger could escape China’s iron-fisted anti-corruption campaigns,” “nobody stands above Chinese law” and China will “never allow anyone to sully the image of the military.” “Cracking down on corruption has become Xi Jinping’s key to ‘rectifying’ the Chinese army,” Liu Mingfu, a professor of the National Defense University of the PLA told NewsChina. In his new book Why the PLA Wins, Liu described corruption as the “biggest threat” to the PLA.

Xu Caihou at the opening ceremony of the Chinese People’s Political Consultative Conference (CPPCC), March 2012

tains that the entire military is commanded solely by the CPC. Corruption in the PLA has long been an open secret, particularly in the logistics division which oversees the bulk of military spending. Gu’s predecessor Wang Shouye was also sentenced to death with reprieve for similar charges eight years ago after personally embezzling 160 million yuan (US$27m) from the military budget. “Corruption could begins at recruitment – any unqualified candidate can enroll with a bribe,” an enlisted PLA soldier who asked to remain anonymous told NewsChina. “In many regiments, money determines nearly everything, from division of labor to leave applications.” Selling official titles was one of the “big businesses,” according to our anonymous insider. Both Gu Junshan and Xu Caihou, for example, were alleged to have groomed underlings for command in exchange for exorbitant bribes. Chinese media reports made unconfirmed claims that Xu had an actual tariff for promotion to the various ranks he had the power to bestow on personnel, with Gu leaping five ranks within eight years in an absolute contravention of military promotion policies. Hong Kong press went one step further, citing unproven claims that Gu had offered 36 million yuan (US$5.8m) to Xu in exchange for his advancement, though no Chinese mainland media repeated these allegations. As in China’s official bureaucracy, higher ranks within the army NEWSCHINA I September 2014

come bundled with a wealth of privileges and commercial opportunities. According to official media reports, Gu Junshan received hugely valuable kickbacks by brokering military deals, with assets seized by investigators including gold, tiger pelts, luxury watches, antique calligraphy and paintings and crates of vintage Moutai liquor. Gu is seen as typical of the kind of entrenched interest that the CPC’s anti-corruption drive is seeking to root out. Since commencing its investigations in late 2013, the CMC has recovered 27,000 houses and 29,000 cars illegally appropriated for private use by PLA personnel.

Polluted

As many officers have openly claimed, corruption in the PLA ranks is not confined to a handful of “bad apples,” but has instead been nourished by a culture of materialism that emerged in the wake of market reform. In an article written about Xu Caihou by Teng Xuyan, one of Xu’s military academy classmates who currently works in the civilian sector, Teng claimed that Xu “was not born corrupt,” citing the example of the disgraced general refusing to accept the gift of an air conditioner early in his career. “If he [Xu] was not born corrupt, then what corrupted him?” his former classmate asked. “Where were the supervisory organs all these years? Did anyone attempt to warn [Xu], to caution him?” the article continued. Gong Fangbin, another professor from the PLA’s University of National Defense and a military researcher with the Institute of Military Science under the CMC, attributes corruption in the PLA to the “exclusivity” of its leadership, which remains aloof from civilian oversight and steadfastly protected from either legal or media scrutiny by China’s entire political system. “A country ruled by one party will attach extremely high importance to its army, [and will] shelter it to guarantee the absolute authority of its military leader,” he told the International Herald Leader, a weekly paper published by State news agency Xinhua. “There is scant possibility of the introduction of some external supervisory body,” he continued. “Military officers are generally appointed by higher-ups, and they are only answerable to their superiors. Such a system has made relationship networks into [the military’s] code, and law.” NewsChina’s anonymous PLA insider stated that the finances of a regiment, for example, were exclusively controlled by three leaders – the Political Commissar, the Regimental Commander and the Chief of Staff. “With the three working hand-in-glove, budgets, if any, would simply disappear into a bottomless cache,” he said. The CPC has set up multiple layers of internal supervision in the army, including a petition system, financial controls, auditing, discipline inspection and judicial investigation, with the latter three directly under the management of their higher-level competent deNEWSCHINA I September 2014

partments. These measures are designed to create a semblance of supervision without making the military answerable to any authority beyond the CPC leadership. Tours of inspection by a CMC disciplinary taskforce established by the CPC in late 2013 were also aimed at showing resolve on the issue of abuses of power by military personnel. However, unlike State-owned enterprises (SOEs) and government departments, which are less shielded from external criticism than the PLA, the secretive and insular nature of the military has proven a fertile breeding ground for corruption. The fact that the State media have supported Xi Jinping so vocally in his public criticisms of corrupt PLA personnel is remarkable in itself, but experts remain divided over how effective the campaign will prove in the long-term. “We have been inundated with anti-corruption educational materials in the last few months, and I should say it’s had some impact, especially on the illegal use of military vehicles and real estate,” the anonymous insider said. “But these campaigns haven’t solved the root problem.” “The upper-level supervision group has audited our regiment, but found no irregularities, which we knew was impossible. But the rankand-file have no recourse,” he continued. “The supervisors and those they supervise are all part of the same system.” This view is by no means limited to the ranks, which could explain why even the State media have taken up the call for third-party involvement in supervising China’s military, starting by opening channels for whistleblowers seeking to report corruption. “The PLA should take the lead in fighting corruption,” Major General Kun Lunyan told State publication the Global Times. “How could anything but a zero-tolerance policy [on corruption] convince the people?” Others, however, have urged caution over how to fight against military corruption. In an interview with the journal Global People, professor Gong Fangbin warned that the army should not “go too far in being supervised by the people.” “It would be an extreme move if we removed all the privileges any army worldwide can expect to enjoy,” he said. “During the revolutionary period, the PLA even debated whether or not adding eggs to rations was ‘too decadent.’ Pennypinching does nothing to strengthen an army.” “Step-by-step progress is better,” he later wrote on his blog. The military is generally lionized across State media, with its personnel celebrated as the embodiment of heroism, self-sacrifice and ideological purity. Despite embarrassing scandals involving military officials emerging in recent years, it remains unclear if the full glare of public scrutiny will be turned on the PLA, the Party’s single most powerful tool. Critics might claim that a little more frugal revolutionary zeal would go a long way towards restoring this idealized image of China’s military. 

international

China and South Korea

Putative Partnerships

Xi Jinping’s recent visit to South Korea shows common ground between the two countries, which analysts argue may reshape the geopolitical landscape in Northeast Asia By Yu Xiaodong

uly 3 saw the first summit between Chinese President Xi Jinping and South Korean President Park Geun-hye since both took office. While it may seem natural for two close neighbors and stalwart trading partners to convene, Xi’s visit to Seoul, amid escalating regional tensions, particularly with Japan, is far more than a mere social call, with some describing it as marking a potentially substantial shift in the region’s geopolitical alignment.

‘New Milestone’

Accompanied by 250 business executives including e-commerce billionaire Jack Ma and Baidu chairman Robin Li, Xi signed 12 agreements with Park covering various fields. In the joint statement released by the two leaders, the two countries further agreed to work on over 90 cooperative projects in 23 fields ranging from tourism to clean energy and environmental protection. Among the signature achievements of this most recent visit is China’s granting of an 80-billion-yuan (US$12.9bn) RQFII (Renminbi Qualified Foreign Institutional Investors) program to Seoul, which would allow direct yuan-denominated transactions between South Korean and Chinese financial markets. The two sides also agree to accelerate negotiations on a bilateral FTA expected to be completed by November when China will host the Asia-Pacific Economic Cooperation (APEC) summit in Beijing. In 2013, the volume of bilateral trade between the two countries reached US$274.2 billion, accounting for a quarter of South Korea’s total trade volume, making China more valuable to the South Korean economy

than the US, Japan and Russia combined. Besides progress in economic cooperation, the two sides also agreed to launch formal negotiations over a shared maritime boundary in the Yellow Sea in 2015, which has been a thorny issue in bilateral ties. In summarizing Xi’s trip, Chinese Foreign Minister Wang Yi claimed on July 4 that “a new milestone for the future development of bilateral relations” had been reached.

Looking North

For many, Xi’s visit to South Korea was a snub to its historical ally, North Korea. Ever since China established diplomatic relations with Seoul in 1992, a move called a “betrayal” by the North, new Chinese leaders have always visited Pyongyang before Seoul in a symbolic show of goodwill. Xi’s decision to break with tradition, and the fact that North Korean leader Kim Jong-un has yet to be invited to Beijing, is now seen as a sign of increasing Chinese irritation with Pyongyang’s continued belligerence, its nuclear program and ongoing provocations across the DMZ. The Beijing-Pyongyang relationship appeared further strained in the aftermath of the sudden arrest and execution NEWSCHINA I September 2014

Photo by Xinhua

Chinese President Xi Jinping meets with South Korean President Park Geun-hye (right) in Seoul, July 4, 2014

of Jang Song-thaek, Kim’s maternal uncle and previously the second most powerful man in Pyongyang. Jang was seen by many as a political and business intermediary between North Korea and China. Based on trade data from China’s General Administration of Customs, China is believed to have cut oil shipments to Pyongyang from January to at least May 2014, and South Korean media have claimed this has led to the partial grounding of the North Korean air force. On July 9, North Korea launched two short-range ballistic missiles into the sea off its eastern coast, following similar launches undertaken prior to Xi’s visit to Seoul on June 29 and July 2. Although Chinese officials denied any correlation between the launches and Xi’s South Korean visits, the routinely symbolic purpose of many North Korean military actions have led to claims that both were “warning shots” showing the North’s displeasure with Xi’s decision to meet with Park. As if to further disrupt rapprochement between China and the South, the June 29 launch was followed up with a “special proposal” to Seoul, demanding that both sides “curtail their slander and military hostilities.” NEWSCHINA I September 2014

Despite a recent rocky period, however, analysts have ruled out any significant changes in China’s overall policy towards Pyongyang. Adopting mild language regarding the issue of North Korea, the joint statement issued in Seoul refrained from referring to Pyongyang or the North Korean leadership directly. Instead, the two countries reiterated commitments made at a March nuclear summit in the Netherlands calling for the denuclearization of the Korean Peninsula, while restating the importance of the six-party talks to “defusing regional tensions.” Instead, many analysts have claimed that, in the current political climate, China and South Korea have bonded over a common enemy that both share with Pyongyang – Japan, and what many see as a resurgence of militarism spearheaded by rightwing elements in the administration of Japanese Prime Minister Shinzo Abe.

New Old Enemy

China and South Korea bore the brunt of Japanese brutality during World War II, and this shared experience, rather than the Korean War, has been the foundation upon which diplomatic relations between Beijing and Seoul have been

Photo by Xinhua

international

Xi and Park deliver a press conference after their meeting on July 3, 2014

conducted since formal ties were established in 1992. Both President Xi and President Park have refused to hold talks with Abe due to his repeated visits to Tokyo’s controversial Yasukuni Shrine, where the souls of Japan’s war dead, including Class A war criminals, are enshrined. Another factor are territorial disputes – while China is engaged in an increasingly vicious war of words over the Diaoyu/Senkaku island chain in the East China Sea, South Korea remains embroiled in a similarly heated dispute over the Dokdo/Takeshima Islands (Liancourt Rocks) in the Sea of Japan. On July 4, the Beijing Youth Daily published a political advertisement allegedly sponsored by “Southern Korean citizens” that called for the Sea of Japan to be renamed the “East Sea” as it is known in Korea. The ad ran despite an official State ban on Chinese media outlets publishing political propaganda from foreign countries, proving just how central a united front with South Korea has become to China’s strategy for counterbalancing Japanese territorial claims. The meeting of the two leaders also coincided with a highly contentious decision made by the Japanese cabinet to reinterpret Japan’s pacifist constitution, enabling the country to project its military power overseas and go into war “in defense of its allies.” Vigorously opposed by leftwing political parties and Buddhist organizations in Japan, the move was met with fury in China and South Korea, both of whom have long believed Tokyo has attempted to whitewash Japanese war atrocities and move towards full rearmament. Despite these developments, however, the two leaders’ joint statement on July 3 made no direct references to Japan. When Xi Jinping raised a proposal that, in 2015, China and South Korea should jointly commemorate the 70th anniversary of “China’s victory in the anti-Japanese War and the liberation of Korea,” President Park avoided giving a direct response. Despite widespread public support in South Korea for a tougher stance on Japan, Seoul’s military alliance with the US, which remains firmly in place, restricts Park’s ability to form closer political ties with Beijing. However, closer relations between China and South Korea, once Japan’s closest regional partner, are hugely damaging to Tokyo’s position. The bilateral FTA between China and

South Korea, expected to be finalized in November, will be a blow to Japan’s already sluggish economy. As some South Korean industries, particularly automobiles and electronics, are in direct competition with their Japanese counterparts, the bilateral FTA, opening more of China’s massive market to South Korea, will further undermine Japan’s already shaky economic position in Asia. Political estrangement from Seoul, moreover, further weakens Japan’s clout on the Asian mainland, despite its military alliance with the US.

Realignment

Given the delicate balance of regional power, Xi’s visit to South Korea shows a subtle strategic shift in regional geopolitics, blurring lines that had remained ironclad since the Cold War. Japan and North Korea, formerly inveterate enemies, have appeared to move tentatively towards one another in recent months, commencing negotiations regarding the return of Japanese abductees and even discussing some form of diplomatic rapprochement, a situation unthinkable before both Tokyo and Pyongyang began to become estranged from their historic regional allies. On the same day when Xi met with Park, Japanese Prime Minister Shinzo Abe announced that his government would ease some of its economic sanctions against North Korea. Despite the two nations appearing to be the most unlikely of partners, analysts believe Japan and North Korea share a similar goal which is to derail attempts by Beijing and Seoul to form a closer diplomatic relationship. To that end, Japan has also made attempts to reach out to Russia, with Shinzo Abe meeting with Vladimir Putin a total of five times in 2013. When Russia annexed Crimea from Ukraine in early 2014, an action condemned by Japan’s allies, Shinzo Abe was reluctant to add his voice to the calls for opposition. North Korea, meanwhile, also appears to be making its own overtures to Russia, a move welcomed by Moscow in its efforts to secure a key strategic economic outlet to the Pacific Ocean. In June, the two countries agreed to boost bilateral trade tenfold by 2020 and it is reported that Pyongyang has granted Russian business executives exclusive privileges to use cellphones and the Internet inside North Korea. It seems that, however subtly, the geopolitical map that has been largely unchanged in East Asia for over five decades is now beginning to shift. In response to China’s rise, the US has encouraged Japan to take a more active role in regional politics, and Tokyo has responded by seeking to wean itself off of military dependence on the US Pacific Fleet. For its part, China is increasing cooperation with South Korea and Russia while also attempting to keep relations with Pyongyang on an even keel. As the US continues to play a major role in the region, a “new order” in East Asia is unlikely in the near future. However, it is clear that old boundaries, once seemingly set in stone, have liquefied in recent years. NEWSCHINA I September 2014

economy

Wu Xiaoling

“Banks should First treat their borrowers as enemies, Then allies” According to former deputy central bank governor Wu Xiaoling, new financial products, shadow banking and bad debt aren’t as problematic as they may seem By Chen Jiying

NEWSCHINA I September 2014

Wu Xiaoling

Photo by Xinhua

u Xiaoling, former deputy governor of the People’s Bank of China, the country’s central bank, and a major advocate of market-oriented financial reform, speaks to NewsChina about China’s shadow banking system, and how China’s banks can lend enterprises a hand. NewsChina: The bottom line for the regulation of China’s financial sector is the prevention of systemic risk, but while the economy is slowing down, the risk of bad loans is increasing. Do you see any systemic

Photo by CFP

economy

Wu Xiaoling

risk there? Wu Xiaoling: My view is that it has yet to appear. Though the non-performing loan ratio is increasing among Chinese commercial banks, they are much more capable of dealing with risk than they were a few years ago. As of the end of 2013, the capital adequacy ratio of Chinese commercial banks was 12.19 percent, with a 9.95 percent core capital ratio, meaning their capital is of fairly good quality. Their non-performing loan ratio was 1.49 percent as of the end of last year – for the administrators of foreign banks, a figure below 3 percent is seen as ideal. On the other hand, the provision rate of Chinese commercial banks is as high as 273 percent, way above the international standard of 150 percent. These data indicate that Chinese banks have great capacity to absorb and digest non-performing loans. NC: Will the clean up of wealth management products exacerbate the funding difficulties experienced by enterprises, and will this harm the real economy? WX: The wealth management products sold by banks stand for a long funding chain and thus are very expensive sources of fund-

ing for enterprises. The clean up is meant to convert wealth management products into investment business for which the investors themselves shoulder the risk, while currently almost all banks offer implicit guarantee of risk-free fixed yields for wealth management products. The normalization of wealth management products would help bring down the excessively high loan rates. It would shorten the funding chain and thus reduce funding costs for enterprises to rectify interbank deposits and wealth management products. This is unlikely to have any impact on the economy. NC: A report by the China Academy of Social Sciences revealed that Chinese shadow banking amounts to more than 40 percent of China’s GDP. What is your view of shadow banking? WX: In light of its efficacy in raising funds, shadow banking can be seen to a certain extent as direct financing. It could work as a supplement to bank lending, and could be an appropriate means of direct funding. Shadow banking should be evaluated objectively and neutrally. One type of shadow banking is within the formal financial system, and the other outside it. The former

includes financial institutions such as trust companies that have finance licenses but are under-regulated, which make up the majority of China’s shadow banking sector. Chinese shadow banking only boomed after 2006 when the sub-prime crisis broke out in the US and the Chinese economy was suffering from a decline in global demand, forcing Chinese companies to turn to shadow banking for funding since they could not get loans from banks. In addition, when the stimulus package was launched to cope with the financial recession, it led to a flood of liquidity in the market – another cause for the boom in shadow banking. NC: What are the risks involved in shadow banking, and how best to regulate it? WX: Shadow banking primarily involves four problematic risks, namely ambiguity of legal implications, disorganized operation, implicit guarantee of risk-free fixed yields and lack of efficient regulation, with the former being the most pressing risk. Due to the lack of clear information in the sector, investors are willing to share the gains but not the losses and risks, and in order to defend their respective reputations, sellers of financial products try all means to redeem in spite of their own losses. This is no way to maintain market order in the long term. Excessive regulation exists in some parts of China’s shadow banking sector, while insufficient regulation exists in other parts. Along with the development and reform of China’s financial sector, we should clarify the boundaries of regulation – we should recognize that we do not have to impose regulation on all credit activities. Firstly we need to clarify the function of a product, its legal implications, and the breakdown of its yield and risk. We also need to make clear whether a certain financial activity involves a small or a large group of people. If it concerns only a small group who are able to NEWSCHINA I September 2014

china

bynumbers US$63.3bn Foreign direct investment in the Chinese mainland in the first half of 2014, up by 2.2 percent year-on-year, compared with US$43.3 in outbound FDI, which was down by 5 percent. FDI change by major sources and destinations handle relatively high risk, regulation should be moderate. Meanwhile, if the activity involves large numbers of small-time investors, strict regulation should be implemented, given the herd mentality and “free-rider dilemma” that tend to accompany this type of financial activity. NC: What is the best method to strike a balance between managing financial risk and supporting the real economy, given that many companies are floundering in the current economic downturn? WX: The enterprises confronted with difficulties fall into two categories, as do their loans. The first type are those burdened with obsolete production capacity – unless they can find an alternative industry to transfer to, their loans can only be written off as bad debt. The second type are those with good technology in industries suffering from overcapacity. In this case, help would be needed to digest or transfer the excessive production capacity and to expand the market. In these cases, the banks should not call in their loans right away, as this would push enterprises into bankruptcy and potentially harm enterprise, the bank itself or society as a whole. Banks should first treat their borrowers as enemies, then allies. That is to say, banks must conduct rigorous auditing and risk assessment before lending to ensure security of loans. After lending, banks are obliged to help enterprises with their production, in order to guarantee the safety of lending. It is to the detriment of the bank itself to pull back a loan at the first sign that an enterprise is facing financial difficulty, and the bank should raise its tolerance for bad debt to help enterprises weather the storm. Thus, banks should closely analyze the causes of bad debts, and should help enterprises through difficulties by solving their problems under the premise of concern for “moral hazards.” NEWSCHINA I September 2014

FDI Inbound

FDI Outbound South Korea

HK EU

UK Japan

Russia

Asean

US Australia

Asean -50

-40

-30

-20

-10

-50

100

150

200

250

Source: Ministry of Commerce of China

1.5:1

The ratio of skilled vacant positions to skilled workers in China. Currently 19% of Chinese blue-collar workers are classed as skilled.

US$2bn

Money spent on soccer lottery tickets in China during the 2014 FIFA World Cup between June 12 and July 13 in Brazil, 55% of total sports lottery revenue in 2014.

1.5 1

Source: General Administration of Sport of China

US$45bn Source: Ministry of Human Resources and Social Security of China

527m

The number of Chinese people who primarily access the Internet through mobile devices by the end of June 2014, equal to 83.4% of China’s total online population, and higher than the 81% of netizens who use a PC. Source: China Internet Network Information Center

The value of yuan-denominated offshore bonds issued in the first half of 2014, very close to the total US$45.5bn issued in the whole of 2013. Source: Development Bank of Singapore / Xinhua

Percentage of netizens using various online services, January – June 2014 100 80 60 40 20 0

Messaging

Search engines

News

Music

Games

Shopping

Payment

Microblogs

Social networking

Wealth management

culture

Transformers in China

Evolution or Extinction? The runaway box office success of Transformers: Age of Extinction in China has not eclipsed controversies surrounding its approach to including “Chinese elements.” Can Hollywood and China produce a co-production that is both creatively and commercially valid? By Yu Xiaodong

acking up 1.8 billion yuan (US$290 million) on the Chinese mainland within 20 days since its simultaneous June 27 release in China and North America, Transformers: Age of Extinction has become the highest grossing film of all time in China. Surpassing the 2011 record set by James Cameron’s Avatar, which made US$230 million at the Chinese box office, the latest installment of Michael Bay’s long-running franchise did even better in China than in its home market, where Transformers was displaced from its No 1 spot by Dawn of the Planet of the Apes in its third week of release. The movie’s liberal inclusion of “Chinese elements” along with widespread familiarity with both the movie franchise and the Hasbro line of toys among the younger generation guaranteed Transformers a significant marketing buzz in China. However, it is the movie’s “Chinese elements” that have dominated mainland headlines.

Chinese actress Li Bingbing was given a supporting role opposite Stanley Tucci, a number of Hong Kong and mainland Alisters had cameos in the movie’s third act, and a range of Chinese products, from carton milk and energy drinks to IT companies and hotel chains were prominently placed throughout the action. Hong Kong, Beijing and Guangzhou were all featured locations, and Chinese landmarks including sections of the Great Wall, Beijing’s Bird’s Nest stadium and the Hong Kong Exhibition Center were all included with various levels of relevance to the plot. In the past decade, China’s film market has seen year-on-year growth approaching 30 percent, and the number of theaters, particularly those equipped to screen 3D and IMAX productions, has mushroomed. In 2002, China’s box office receipts of 900 million yuan (US$108.7m in the year) represented a paltry 2 percent of the total US market. By 2013, China’s box office was raking in

US$3.6 billion annually, a third of total US receipts that year (US$10.9bn).

Shift in Focus

Age of Extinction is indicative of a new breed of Hollywood blockbuster devoted to commercially, if not creatively, breaking open the Chinese movie market, now the world’s second-largest. In its bid to secure greater audience share despite the State-mandated quota system, Hollywood has attempted to appeal to Chinese moviegoers in a variety of ways, from marketing and product placement to content creation and casting. Producers have to appeal to both Chinese moviegoers, the commercial needs of Chinese distributors and the content requirements of the State censorship apparatus to secure a market presence in China. 2012’s Cloud Atlas, for example, saw Chinese actress Zhou Xun cast in multiple roles, and the movie secured official co-production status from the Chinese cultural authorities, NEWSCHINA I September 2014

Photo by Jason Lee/CFP

A model of the Transformers character Bumblebee is displayed in front of the Qianmen Gate in central Beijing, June 20, 2014

exempting it from State import quotas on foreign films. However, almost 40 minutes of the movie were cut at the request of the Chinese authorities, including numerous sex scenes and references to a relationship between two male characters, a move which Chinese critics claimed dented the film’s coherence, and, consequently, its profitability on the mainland. James Bond’s most recent outing, Skyfall (2012), was partly set in Shanghai and Macau, and the movie became the most successful of the three entries in the 007 franchise screened publicly in China since 2006’s Casino Royale. Skyfall also had content cut – a scene in which a Shanghai security guard is murdered by one of Bond’s adversaries was removed for the China release of the film. Other Hollywood franchises, from Resident Evil to the Harry Potter series have made similar concessions in exchange for a nationwide release in China. More recently, X-Men: Days of Future Past, NEWSCHINA I September 2014

which earned US$114 million in China, cast Chinese actress Fan Bingbing as mutant superhero Blink in post-apocalyptic sequences set in a fictional temple near a desolate section of the Great Wall. This cameo was generally well received by Chinese audiences and critics alike. However, as cooperation between Hollywood and Chinese distributors and investors has deepened, focus on the China side has moved away from creative content and increasingly towards commercial interests, namely, product placement. In this respect, Transformers: Age of Extinction has blown all competitors out of the water with its China box office take. Not only did the movie go on release entirely uncut in both North America and China simultaneously (Hollywood productions are typically screened later in the People’s Republic for a variety of reasons ranging from the need to secure approval from State censors to avoiding direct competition with domestic films),

but it also enjoyed an unprecedented level of cooperation with Chinese commercial entities. Paramount Pictures worked handin-glove with M1905, the new media subsidiary of the China Movie Media Group (CMMG), throughout production, making Transformers a groundbreaking effort to fuse the interests of the world’s two biggest movie markets. Formerly part of the State-owned China Film Group Corporation (CFGC), which retains a monopoly on the distribution of all imported movies and operates China’s sole national TV network permitted to screen imported movies (CCTV6), CMMG owns the advertising rights to more than 4,000 movie screens across the Chinese mainland, accounting for 70 percent of China’s box office. CMMG not only provided a wide range of marketing channels to Age of Extinction, it also lined up China’s top 10 cinema chains to both promote and screen the movie. According to a report in China’s 21st Cen-

tury Business Herald, besides marketing and promotion, CMMG also made a direct investment of 50 million yuan (US$8.05m) in Transformers, and was thus a major beneficiary of the film’s box office take in China. CMMG was also responsible for organizing the mainland premiere of Age of Extinction held in Beijing on June 23, making this the first “foreign” movie to have its international premiere in China. The premiere was attended by Paramount’s vice-chairman Rob Moore, director Michael Bay and stars Mark Wahlberg, Jack Reynor and Nicola Peltz. As government quotas allow for only 32 foreign movies to be imported into China each year, cooperation with China Film Group Corporation is increasingly seen as essential if a production is to hit the big time in China.

Photo by IC

culture

Chongqing Wulong nature reserve is suing Paramount for its alleged failure to honor a product placement agreement

However, a movie’s success in this unique world market was not determined by promotion alone. The latest Transformers iteration, while a record-breaking hit at the box office, has found itself under scathing attack from Chinese critics, many of whom reacted to the movie’s much-hyped “Chinese elements” in a similar fashion to their American counterparts – with amusement, disbelief, and, in some cases, outright disgust. This skeptical response is nothing new – in 2013, Iron Man 3 included almost 10 minutes of additional content inserted solely for the mainland Chinese market, which featured Chinese actors Wang Xueqi and Fan Bingbing as a heart surgeon and his assistant in a sequence liberally sprinkled with cameos from Chinese products that were met with audible howls of derision during mainland screenings. In Age of Extinction, Chinese celebrity Han Geng appeared in a five-second cameo in which his character was “killed” by wayward Decepticons. Other celebrities were also featured in bit parts, but apart from Li Bingbing, no Chinese actor had significant dialog. Some critics even pointed to Li’s inclusion as largely token, as her character had only a mi-

Photo by Joe/IC

Controversy

Director Michael Bay takes selfies with fans at the Beijing premiere of Transformers: Age of Extinction, June 23, 2014

nor impact on the film’s plot. Complaints surrounding Age of Extinction’s Chinese product placement were even more vociferous, as many of the products, with the notable exception of featured Chinese automobile brands, had no connection to the narative. In addition, many Chinese brands appeared in sequences set in the US, a jarring creative decision that was mocked by many commentators. “What the hell is the China Construction Bank doing in Texas?” asked one moviegoer in an online forum, after one character attempts to withdraw money from an ATM in a small American town

apparently operated by the State-owned Chinese financial institution. Chinese brands of carton milk, and the Chinese version of the energy drink Red Bull, complete with Chinese character logos, also appeared in Transformers sequences set in the US. According to an online survey conducted by the news page of major web portal QQ which drew responses from more than 66,000 netizens, 39 percent “disapproved” of the way so-called “Chinese elements” are incorporated into Hollywood movies. China’s legion of online critics, much as in the US, were almost universally scandalized NEWSCHINA I September 2014

Photo by Yang Tao/CFP

Moviegoers in Wuhan, Hubei province, queue for tickets to Age of Extinction, June 27, 2014

by Age of Extinction. On cultural social networking site Douban, China’s leading movie review aggregator, the movie received a rating of 6.7 from over 105,000 reviews, the lowest of any installment in the Transformers franchise to date. “I hope that this is the last Transformers movie,” commented one netizen. While many reviewers mentioned the movie’s “clumsy” attempts to appeal to the Chinese market, many more shared common ground with their international counterparts, slamming the movie’s plot, performances and running time. Age of Extinction was equally panned outside China. IMDB gives it a rating of 6.3 from some 65,000 online reviews, while Rotten Tomatoes has certified it “rotten” with only 17 percent of total reviews being positive. Even Age of Extinction’s commercial success has been challenged, with the movie’s blunt placement of Chinese products and seemingly chaotic transitions between different Chinese locations spawning a series of lawsuits. On July 8, Chongqing Wulong Karst Tourism Association, which administers the Wulong nature reserve which featured in a fight sequence between Autobot OptiNEWSCHINA I September 2014

mus Prime and a mechanical dinosaur, sued Paramount Pictures and its domestic partner M1905 for violating an agreement to show the reserve’s logo during the movie. Wulong argued that this “oversight” allowed moviegoers to believe that the scene was taking place close to Hong Kong, site of a simultaneous action sequence in the movie, rather than 1,400km (875 miles) inland in Chongqing municipality. The company went so far as to release its contract with Paramount online, claiming that it had paid 6 million yuan (US$967,000) for the inclusion of its logo, and arguing that it had lost 4 million in revenue due to the park shutdown necessitated by the Paramount shoot in 2013. M1905 countered by arguing that Wulong had not paid them on time, while also attempting to lay blame for the mistake on non-Chinese speaking editors in the US for confusing a sign reading “Green Dragon Bridge” with a sign advertising the park itself. The sign does appear in the final cut of the film. Previously on June 20, Pangu, a Beijingbased real estate company, also announced it would sue Paramount Pictures and M1905 for “failing to honor” a product placement

deal in which the producers agreed to feature the company’s flagship seven-star hotel in Beijing, which is shown hosting an exhibit of human-built Autobots in the movie, for at least 20 seconds of runtime. Pangu even demanded that Age of Extinction be pulled from Chinese theaters until it had cut all shots featuring the hotel, however it later withdrew its lawsuit after allegedly “reaching a consensus” with Paramount on June 23. Then, on July 26, Hao Lixiao, vice general manager of Zhouheiya, a Chinese fast food chain whose signature product is spicy duck necks, told the media that his company’s attorney had sent M1905 a letter of protest at what he called the “inadequate” placement of his company’s products, arguing that his company’s logo was “barely visible” in its single on-screen appearance. Though Hao refused to provide details of the agreement with M1905, it is reported that Zhouheiya may have paid as much as 10 million yuan (US$1.6m) to the Chinese company in exchange for product placement. For many, such disputes over product placement lie in the contradictory goals of Hollywood and Chinese investors in foreign films. While American studios attempt to strike a balance and appeal to both a domestic and international audience, Chinese investors, particularly commercial interests, lacking recognition overseas, focus squarely on the Chinese mainland market. Of all the Chinese companies that enjoyed product placement in Age of Extinction, only IT giant Lenovo has a major presence in North America, where it enjoys a growing share of the local desktop PC market, a fact not lost on international and Chinese critics of the movie. Despite widespread criticism and legal disputes, most analysts believe that ChinaHollywood collaboration, fueled as it is by ever-increasing profits, can only expand in the foreseeable future. With box office receipts reaching US$2.2 billion in the first half of 2014, it is projected that China will surpass the US to become the world’s largest film market by 2016. 

culture

Lin Zhaohua

State Theater

Servant to Two Masters

The Beijing Peopleâ&#x20AC;&#x2122;s Art Theater (BPAT) serves a dual function as a mainstay of Chinese performing arts and as a bureau-level government organization established to produce polished propaganda for the Ministry of Culture. Ren Ming, BPATâ&#x20AC;&#x2122;s fourth president, has spent his 27-year career balancing the interests of art and politics By Yue Wei and Yuan Ye

NEWSCHINA I September 2014

Ren Ming NEWSCHINA I September 2014

n 1987, Ren Ming graduated from the Direction Department of the prestigious Central Academy of Drama, located in the heart of Beijing. Shortly after, he was assigned to a job with the Beijing People’s Art Theater (BPAT), at the time China’s foremost theater company. His classmate Jiang Wen, who would go on to become one of China’s leading directors, responsible for critically acclaimed classics such as In The Heat of the Sun and Let the Bullets Fly, congratulated Ren on his good fortune in the dormitory. “Hey, buddy! You were assigned to BPAT? That’s great! I wanted to work there, but I didn’t get in. Do your best!” In a post-Cultural Revolution People’s Republic, its college campuses teeming with newly-celebrated creativity, a job at BPAT was a dream of many. Not only did it come with a government salary and all the perks associated with working for a bureau-level government organization, the company had hothoused a great number of legendary actors, actresses and directors. Many of its productions had become milestones in China’s theatrical tradition, critical and popular hits that continue to set standards in performing arts. Above all, the company’s commitment to presenting socialist-realist drama in a creative way influenced generations of Chinese theater, film and television professionals. 27 years later, and Ren Ming still seeks to set standards. Ren Ming is passionate, serious and sincere about drama. Going from intern with the BPAT to assuming the post as one of its vice presidents took him only seven years. The journey from vice president to president, however, took two decades. As one of China’s longest-established and most influential State-run drama troupes, BPAT has always stood apart from its competitors, and government favor has meant that it serves a dual function as both a hub of creativity and a leading organ of propaganda. Despite changes in China’s creative industries in the last few decades, BPAT remains a bureau-level government organi-

zation that answers to the Ministry of Culture. Therefore, BPAT’s leaders need to be both artistically and politically accomplished, and are selected as much for their “political consciousness” and “political competency” as for their creative talent. Since taking his new role, Ren Ming has found himself increasingly working as a bureaucrat, only directing productions when his schedule allows, though direction remains his passion. “Being a director is a lifelong career. Being the president [of BPAT] is a temporary career, an era that has only just begun for me,” Ren told NewsChina.

Fortress of Realism

There have been only four presidents over the past six decades since the establishment of the BPAT, including Ren Ming. The first president was Cao Yu, a dramatist known as the “Chinese Shakespeare,” who published the Republican-era melodrama Thunderstorm in 1934, viewed as a game-changer for indigenous Chinese theater. Cao Yu headed BPAT for 40 years, and was succeeded by another writer, Liu Jinyun. The third presidency went to Zhang Heping, a “star maker” most famous for discovering the leading lights in China’s movie industry and a longtime collaborator of director Feng Xiaogang. Zhang also produced the political epic The Founding of a Republic to celebrate the 60th anniversary of the founding of the People’s Republic. In the 1950s in China, BPAT was synonymous with drama. In 1951, the play Dragon Beard Ditch, written by noted novelist and dramatist Lao She and directed by Jiao Juyin, was staged by BPAT, causing a nationwide sensation. Set in a Beijing slum named Dragon Beard Ditch, with its timeframe spanning the events immediately before and after the founding of the People’s Republic, BPAT’s naturalistic staging became a standard model for other theatrical productions. In 1954, Cao Yu’s Thunderstorm was staged by BPAT, and played to sell-out crowds. In 1958, Lao She’s seminal work Teahouse, a work which also attempted to portray China’s half-century of political turmoil prior

Photo by Gu Dehua/Xinhua

culture

Teahouse restaged at BPAT in 1979 after the Cultural Revolution

ences. Despite BPAT making his name, Lin would go on to become one of its harshest critics. In May this year, the now 78-year-old Lin said in an interview with Phoenix TV that for years, Teahouse remained BPAT’s signature work, a fact that “shamed [modern] drama.”

Photo by Huang Jingwen/Xinhua

Entry

A scene from Waiting for Godot, directed by Ren Ming, 1998

to 1949, was staged, becoming an instant classic. By 1992, 374 performances of Teahouse had been staged. In 1999, the centenary of Lao She’s birth, a new version of Teahouse opened at BPAT, breaking domestic records with 66 consecutive performances and box office income exceeding 4 million yuan (US$480,000 at the time). BPAT’s commitment to creative interpretation of socialist-realist theory first popularized in the golden age of Soviet drama earned its artists nationwide acclaim. Its seasoned performers often went on to become major screen stars, including actors Yu Shizhi, Lan Tianye and Lin Liankun. Some of today’s household names also earned their wings at BPAT, including Pu Cunxin, Xu Fan and Song Dandan. Lin Zhaohua, director and former vice president of BPAT, has been dubbed the “godfather” of modern Chinese drama. His Signal Alarm and many other experimental works staged in the 1980s actually broke with BPAT’s naturalist tradition, and were hailed for bringing modernism and contemporary theatrical practice to Chinese audi-

Lin Zhaohua was the man who brought Ren Ming into BPAT. In 1982, the then 22-year-old Ren Ming was admitted on to the Central Academy of Drama’s directing course. The early 1980s were revolutionary for the creative arts in China, after a decade of repression under the Cultural Revolution (1966-1976). A new wave of movies, theater, literature and art, much of it dealing with the after effects of those ten dark years, emerged. In 1983, a formal debate erupted over what constituted “drama,” a debate which resulted with an unprecedented flowering of daring contemporary performance art across the country. Ren Ming received good grades for both his essays and his production work. His former teacher He Bingzhu recommended Ren to her husband – director Lin Zhaohua, then working at BPAT and at the peak of his career. Lin Zhaohua made Ren assistant director on the production Svejk in World War II. Ren’s diligence and natural flair quickly caught the attention of his colleagues. Cao Yu supported Lin’s shakeup of BPAT’s traditional formats and styles, and Ren worked closely with Lin on groundbreaking productions like Signal Alarm (1982), a collaboration between Lin and future Nobel laureate and political exile Gao Xingjian, Bus Stop (1983) and Wild Men (1985). These three productions would later be viewed as signature examples of the new wave of experimental drama which transformed China’s theater scene in the 1980s. However, despite the critical success of his productions, Lin was less adept at the political maneuvering that was a necessary feature of life at BPAT. Despite being named one of the institution’s vice presidents in 1984, he remained marginalized in terms of determining the company’s vision and policies. Studious and diligent, Ren Ming’s seriousness about drama and respect for the company’s senior artists gained him a lot of recognition. In 1988, 61-year-old Yu Shizhi nominated Ren Ming to the BPAT Arts Council. In 1994, Ren Ming, who hadn’t even obtained a thirdtier rank in the official promotion system applied to directors along with all so-called “cultural workers” was promoted to a vice presidency NEWSCHINA I September 2014

Despite being well-received by BPAT’s political establishment, however, Ren’s own productions met with mixed success. In February 1998, he staged Waiting for Godot, which premiered at the BPAT’s experimental theater, with the two male leads replaced with female actors, and was the first absurdist play staged at BPAT. The production was uniformly panned by both his colleagues and critics. Despite Ren’s protestations that such experimental works needed to be represented at BPAT, rather than retreads of “safe” classics such as Teahouse and Death of a Salesman, his voice went unheeded, and Ren has never picked up a copy of Godot since. When NewsChina asked Ren whether his turning to a “safer” style meant denying his own creative instincts, he acknowledged this was what had happened. Ren was burned by his attempt to shake up the system, and so turned back to the bread-and-butter of BPAT – populist nationalism. When Ren Ming was appointed as BPAT’s vice president in 1994, he set himself a target to oversee production on 50 plays, a number he later expanded to 100. In 27 years, he has helped produce a total of 73, among which, in addition to many productions of repertoire works, were a smattering of “task plays” – a euphemism for propaganda works commissioned by the Ministry of Culture. The play Courtyard South of North Street, set against the backdrop of the SARS outbreak of 2003, and The Life, a reflection on the Wenchuan earthquake in 2008, were both staged at the instruction of the Chinese authorities. While Ren and his colleagues were given a degree of creative license to soften overtly propagandistic language, whether or not to stage such works was never up for discussion. “I will direct plays other people don’t want to direct, because I am the president [of BPAT], and a Party member,” he told NewsChina, echoing the resigned tone of many cultural workers in modern China. Ren’s previous experiences with rocking the boat have made him much more cautious even when handling productions over which he has a large degree of creative control. In 2007, almost 10 years after the disaster that was his production of Waiting for Godot, Ren Ming gave it another shot and produced Eugene O’Neill’s expressionist classic Desire under the Elms as part of BPAT’s “Nobel plan” to earn wider critical acclaim. Even presented with a government-approved adaptation of an experimental play, he told NewsChina, he erred on the side

NEWSCHINA I September 2014

Photo by Li Muyi/CFP

People and Populism

of not being “too outrageous,” instead, as he put it, directing from the position of “respect for classics, and their authors.” “At BPAT, we respect the freedoms of artistic creation, but we still prioritize [socialist] realism,” Ren told our reporter. “BPAT’s style is much more important than my own.”

A production of Lederfresse, a 1990s comedy written by German playwright Helmut Krausser, directed by Lin Zhaohua and staged at the BPAT’s experimental theater in 2004

Photo by CFP

by BPAT vice president Liu Jinyun. Today, Ren enjoys the status of a “national level first tier director.”

Thunderstorm, directed by Xia Chun, a senior director at the BPAT, is staged at the 10th International Chekhov Theater Festival in Moscow, 2011

visual REPORT

The

NEWSCHINA I September 2014

Grand Canal C

hina’s Grand Canal, the world’s largest and most extensive artificial river and civil engineering project, was added to the list of World Heritage Sites late June in Doha, Qatar, the 46th cultural site in China to be accredited. Nearly 1,800 kilometers in length, the canal links Beijing with the east-coast metropolis of Hangzhou in Zhejiang Province, passing through 31 cities and several provinces, and joining a number of river systems including the Yellow and Yangtze rivers. The canal’s construction began in the 5th century BC, and it remains in use today. The section recognized by UNESCO flows over 1,000 kilometers from south to north, through 25 cities and passing 58 historical sites. It was originally built to feed the expanding population, transporting rice and grain to cities on the banks of the river. To Chinese people, the Great Canal is a symbol of national pride and unity on a similar footing with the Great Wall, playing a vital role in trade and transportation, boosting local economies and strengthening cultural dialog.

NEWSCHINA I September 2014

Dusk falls over a section of the Grand Canal in Hangzhou, Zhejiang Province, 1984

visual REPORT

1. Locals gather on a bridge across the Grand Canal in Hangzhou, Zhejiang Province 2. The Yangzhou section, Jiangsu Province 3. Ruined Yancheng township, Jiangsu Province 4. Barges pass through Huzhou, Zhejiang Province 5. Traffic on the Huaiâ&#x20AC;&#x2122;an stretch, Jiangsu Province 6. The Suzhou section of the canal in Jiangsu Province 7. Villagers carry reeds onto a boat at the confluence of the Grand Canal and the Yangtze River

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OUTSIDEIN perspectives from within China

Remote Chiufen

Walking in the Clouds

Our writer explores this eerily pretty coastal mountain town in Taiwan that has inspired some of Asiaâ&#x20AC;&#x2122;s greatest filmmakers By David Green

NEWSCHINA I September 2014

Getting There From Taipei’s main train station, take the North Link train to Ruifang and then the bus to Keelung, which goes via Chiufen. Taxis are also easy to arrange (the journey takes about an hour). Accommodation Chiufen has a wealth of lodgings to suit every budget – check Tripadvisor for the latest deals. The Riguang Hanguan guesthouse on Chishan Street is a decently priced and clean option popular with Taiwanese holidaymakers. Shimen Seafood Being so close to the coast, it would be a shame to pass up the chance to indulge in some of Taiwan’s delicious seafood. Situated just a short drive around the headland from Chiufen, the Fuji Harbor in between the northeastern coastal towns of Shimen and Sanzhi presents travelers with the chance to eat fresh seafood literally as it comes off the boat. Prices are a steal, especially towards the end of the day, for anything from rock lobster to sea urchin, crab, fresh salmon, sea snails and a variety of fish. Diners are then shepherded from the wet market to an adjoining hall where each stall keeps its own restaurant, which can have your seafood prepared almost any way you please. My top tip is for squid cooked in Taiwan’s san bei style – meaning an even ratio of soy sauce, sesame oil and rice wine, and seasoned with ginger, basil, chili, sugar and garlic.

Photo by Xinhua

he seminal Taiwanese historical drama A City of Sadness opens with a radio announcer proclaiming Japan’s World War II surrender to the Allied forces, which marked the end of the Imperial Japanese army’s 51-year occupation of Taiwan. Set in the mountain town of Chiufen, very close to where the Japanese made their initial invasion of the island’s northeastern Pacific coast, the movie was the first to directly address the period immediately following the Japanese withdrawal and the subsequent ascension of Chen Yi’s Kuomintang administration. Director Hou Hsiao-Hsien tackles head-on the resentment that the new White government’s corruption instilled in Taiwan’s mixed population of Japanese and Taiwanese, which eventually manifested in the violent state-led suppression of rioters known as the 228 Incident. A City of Sadness is a complex and moving piece of cinema, and one that had a profound impact both on the Taiwanese movie-going public of the late 1980s, and the town of Chiufen itself. The Japanese had already inspired Local dwellings are built into the one new lease of life in this hillsides former sleepy hamlet when NEWSCHINA I September 2014

they discovered gold in the outlying hills during the 1930s and put prisoners of war to work in local mines, but the industry soon lost its luster, leaving Chiufen dusty and forlorn. Hou’s lingering shots of the town’s wild and windswept mountain hinterland, steep stone streets and sprouts of Japanese architecture sparked a tourism renaissance, and Chiufen has never looked back.

Tourist Trap

Chiufen’s streets are today thronged with visitors, and the crush along the main thoroughfares, which are narrow and pressed on either side by multi-story buildings that lean precariously over the streets, can become unbearable at weekends. The visiting hordes are drawn by an array of delicacies and souvenirs, perhaps the most famous of which are steamed deep-fried taro balls. Those looking for a sweeter option can try the mochi sweets, which combine glutinous rice with pure fruit for a tongue tingling taste, or a peanut and ice cream spring roll with cilantro. The town retains a deep cinematic connection that runs past the still-standing A City of Sadness Restaurant and culminates with the Shengping movie theater at the intersection of Ch’ien-bing and Shuch’i roads. Built during the Japanese occupation, this is Taiwan’s oldest cinema, and has served as a shooting location for a number of period movies. While often closed these days, the doors are occasionally thrown open to screen a movie or two, allowing visitors to soak up nostalgia for the pre-war era. Buildings close by sport distinctively Japanese curving roofs and overhanging gables, and I was lucky to spot an older resident still wearing his own pair of well-worn wooden geta, a form of traditional Japanese footwear that look like a cross between clogs and flip-flops. Hou Hsiao-Hsien was not the only director to take inspiration from Chiufen’s maze-like streets and boundless Pacific ocean vistas. His Japanese counterpart Hayao Miyazaki also credited the town as influencing his 2001 animated fantasy film Spirited Away. The visuals from the “abandoned theme park” featured during that movie’s opening sequence draw heavily on Chiufen’s cramped streets and teetering storefronts, while Chishan Street even sells wild boar sausages, inspired by Spirited Away’s protagonist Chihiro’s parents’ transformation into gluttonous pigs after they trespass into the spirit world. There is indeed a haunting quality to the Chiufen backstreets that is hard to ignore. Escaping the main thoroughfares teeming with color and the noise of vendors hawking their wares is a matter of taking just a few paces into a patchwork of eerily empty lanes. Behind the bustling façade, it is easy to see what Chiufen would be like untouched by tourists – as sleepy as a Spanish town engaged in a permanent siesta – and it does not take a great leap of imagination to picture the echoing alleys being haunted by Miyazaki’s spirits.

Spirit World

It is also almost impossible to find a view from Chiufen out over the sparkling Pacific that does not include a temple or a mountain cemetery. The hillsides are liberally sprinkled with the glinting stone and tile edifices of thousands of shrines, and there are a half-dozen

travel

Photo by Xinhua

temples within the town’s precincts alone, with still more a few minutes’ drive away. Perhaps the most impressive is Chao-ling Temple. Dedicated to the city god Cheng-huang, the interior is an artist’s palette of dazzling color, complete with intricate renderings of dragons and mounted warriors writhing amidst the columns. The temple stands directly opposite Chiufen’s visitors’ center, which is well worth stopping by for tips on where to go and what to see. The views themselves are exceptionOne of Chiufen’s precipitous al, visible between and behind buildstreets ings around every corner, offering up expanses of sun-dappled greenery that extend as far as the eye can see to the northwest, dropping down to the ocean to the southeast. A range of well-situated coffee shops and teahouses pepper the outer streets, offering patrons the chance to enjoy the surroundings from an airconditioned window or outdoor terrace. I stopped in the Chiufen Station teahouse and enjoyed a cup of Alishan Oolong tea, a light, clear brew sourced from Taiwan’s most picturesque mountain. Those

with an interest in the finer aspects of the tea ceremony will find plenty to occupy them here, while others can simply enjoy the soothing ritual of steeping the leaves and rearranging the various component of ornate tea sets. There are plenty of other sights to drop by and drink in, including the newly relocated gold mining museum, which documents the town’s reinvigoration during the gold rush as well as the practicalities of extracting the precious metal, and a kite museum that offers kite-making lessons on the weekends. It’s also possible to hike up to the summit of Keelung Mountain, though the peak is often obscured with cloud and on a hot day the journey is an arduous and possibly foolhardy one. For those with access to a car, it’s worth driving the six kilometers or so beyond Chiufen to the Jinguashi Geological Park. This is more a hiking trail than a fully-fledged park, but boasts terrific views and is a gateway to a network of paths that run around the mine-pocked hills surrounding Chiufen. The ascent also takes a few degrees off the temperature for those in need of a break from the summer heat. Chiufen is not just a place for the movie buff, but I’d certainly recommend watching both City of Sadness and Spirited Away before booking my ticket, as a rough guide to what makes Chiufen so historically important. For those with less time on their hands, the hour or so bus journey from Taipei is worth it just for the breathtaking views, delicious snacks and timeless architecture.

real chinese

fù

hēi

Fuhei Wolf in sheep’s clothing

The Hollywood movie American Hustle made its debut on the Chinese mainland on July 4, and has already been hailed as an homage to the fuhei – what 17th century novelists might have termed “blackguards” – unscrupulous and devious individuals who mercilessly revenge themselves on those who wrong them. A term originating in Japanese anime, fuhei literally means “black belly,” and traditionally denotes an individual who exploits others for their own gain, typically from behind a mask of friendship. However, the term’s association with animation has also afforded fuhei an aura of cuteness and moral neutrality, thus subtly shifting away

from its literal meaning and coming to signify a generally gentle, meek individual who can turn ferocious if wronged. Typically, the Chinese fuhei walks unseen until spurred to vicious action, usually by a colleague, family member or lover. Cautionary tales abound of the seemingly mild-mannered girlfriend who, once spurned, takes every possible step to ruin her ex boyfriend; from creating online rumors surrounding his sexual activities to posting his cell phone number to gay dating sites. Chinese costume dramas detailing the fictionalized intrigues of the imperial harem and workplace soap operas about how to get ahead in white collar life are also redolent

with fuhei archetypes, most of whom are women – the blushing but conscienceless concubine, the charming but ruthless secretary. Some have cited history professor Li Zongwu’s 1912 classic Thick and Black Philosophy as one of the first literary works that advocated a fuhei approach to life. Using historical examples including emperors, mandarins and merchants, the book detailed the tricks and traps one can lay while cultivating an image of serene magnanimity. Many see Li’s work as a guidebook for surviving and thriving in the dog-eat-dog network of relationships that dominates Chinese politics, a role more recently filled by TV melodramas and popular novels. NEWSCHINA I September 2014

flavor of the month

Real good Sean Silbert

NEWSCHINA I September 2014

Photo by Xinhua

n China, one thing you should look out for is whether your food is really made of food. Scandals involving unscrupulous lowlifes trying to pass rat meat off as lamb, molding “chicken” eggs out of resin and stuffing steamed buns with cardboard have dominated the news cycle at one time or another. It’s shocking, but you have to give the hustlers credit for creativity – I mean, hand-fashioning plasticized “eggs” that looked and tasted like the real thing but still worked out cheaper than chicken eggs? Impressive! While faking it to cut costs is a more recent phenomenon, China actually has a long tradition of making fake food. It’s tough to be a pure vegetarian in China, but that doesn’t mean falling back on make-your-own salad. Rather, some meatless meals might actually include fake meat carefully crafted from tofu, wheat gluten or soy. These delectable morsels can be so realistic as to not only fool your eyes, but also your palate. It’s uncanny - to some Western veggies, unnerving - but it makes sense: and it’s been done for a thousand years. Meat mockups aren’t prepared for the cheeky novelty. Rather, the concept has its origins in the strict proscription of meat for Chinese Mahayana Buddhists (Tibetans, who follow the Tantric school and live in an environment where vegetables are scarce, don’t have the same restrictions and can theoretically go hang out at a hog roast). In antiquity, China’s monks knew about tofu’s rich fats and proteins that could replace animal products in a restricted diet, but also sought other alternatives to a diet designed to limit distraction from enlightenment. Some orders even banned scallion, ginger and chili as flavors “too exciting” for the ascetic palate. According to the Buddha himself, eating meat destroys compassion for life, but what does a bland, boring diet do to the mind and

body? Never fear, there’s plenty of pizzazz in China’s meatless kitchens to augment even the most restrictive menu. Faux meat is one solution available to the bored (or Buddhist) gastronome. Easily made by rinsing out the starch in wheat flour, the resulting gluten can be molded and seasoned to look and taste like pork, chicken, scallops – whatever you fancy. When properly prepared, this chameleonic foodstuff can even fool the less attentive diner. Faux meat’s almost magical ability to resemble the genuine article has made it a feature of monastic menus for centuries. As far back as the Yuan dynasty, monk-chefs were using wheat gluten to make imitation meats, down to ersatz beef jerky, allowing them to prepare the otherwise flesh-filled dishes their brothers had dined upon before turning away from material cares and embracing the spiritual. Today, swing by restaurants like Pure Lotus in Beijing for a taste of this remarkable product: while the décor is uncomfortably bling, a Buddhist fairyland that would make any real lama cringe, you can try fake Peking

duck that both looks and tastes genuine. Close your eyes and take a bite – you might be fooled into thinking it’s the real deal. Fake meat is a gimmick, but a surprisingly good one. Unfortunately, many of these imitations are awfully expensive – certainly beyond monastic means. Formidable mastery comes at a price, it seems. Yet this ancient tradition seems mighty trendy, especially in an era where you can’t be sure exactly what you’re eating, wherever you choose to dine. Almost all Asian diets include gluten. The Chinese varieties have three common preparation methods. Raw gluten torn into small bits and deep-fried can be rolled into balls and passed off as abalone, or possibly duck. Raw gluten that is later steamed has a more dense texture, so it’s sometimes colored and disguised as ham. Finally, if you leaven the gluten and then bake, fry or steam it, it imparts a noticeably spongy character. All of these preparations can be served as dishes in their own right. Not all dishes use “wheat meat” to imitate animal products. Tofu is also quite common, as well as a mix between gluten and tofu. Nor is wheat meat only used by ascetic gourmands to compensate for the limitations of nirvana – in fact, it’s a quite common sight. Wheat gluten, or mian jin, is commonly used in Shanghainese cuisine as an appetizer, for instance. I’ve had particularly good incarnations in Tianjin cut into cubes and fried with soy sauce. But no matter how you eat it, gluten is recognized as a healthy option – even more so than tofu. Unlike meat, there’s hardly any fat, but there’s still lots of protein and plenty of texture. Salubriousness widens wheat gluten’s appeal significantly – and Western chefs are gradually catching on to the appeal. Maybe it won’t be long before the health crazes of the West start noticing fake food. And when they do, you’ll know it’s real.

essay

The Farther You Go, the Closer You Get By Sijia Chen

One day, I cycled along Chang’an Jie – “Avenue of Eternal Peace” in Chinese – imagining my parents visiting the capital as students in the early 80s

Illustration by Liu Xiaochao

On May 2, 1986, a 26-year-old engineering graduate from Daguan, Yunnan Province bought a one-way ticket for Montreal, Canada. He left behind a pregnant young wife, his parents, a younger brother, and a large extended family. The plan was to complete a Master’s degree in mechanical engineering at Concordia University. At the time, there were only a handful of students from mainland China at Concordia. The young man exchanged mild winters for frigid nights and raging snowstorms. He spent long hours researching, teaching, and studying. He spoke decent English but struggled to understand French. He took a part-time job as a pizza delivery boy to supplement his income. He commuted on a 15-dollar bicycle, slogging through snow and slush even when the weather turned. In time, things looked up. The young man improved his English with his Tanzanian and Canadian flatmates. He became president of the 300-strong Chinese Students and Scholars Association of Concordia University, mounting a protest in the park to spread awareness about Tian’anmen Square. The research and teaching assistantships paid so well that he was able to buy duty-free refrigerators, color TVs, washing machines, sound systems, and even a motorcycle for relatives back home. They repaid him in Chinese yuan, which provided the foundation for a modest nest egg. He began to see Canada as a place to raise a family. In 1989, his wife and daughter, the latter of whom was by then just shy of her third birthday, immigrated to Montreal. During their first winter, they had epic snowball fights at Mont-Royal Park. In the summer, they won a mountain of stuffed animals at the local amusement park. A few years later, the young family moved to the suburbs. A few years after that, a second girl was born. That man was my father, and it is to him

that I owe my own journey. In the fall of 2010, I moved to Beijing after finishing university to study Mandarin for a year. It was hard at first; my heavily-accented Mandarin prompted locals to ask if I was Korean, Japanese, Vietnamese, Cambodian – anything but Chinese. My denials were met with scepticism; once, a shopkeeper turned to her colleague and said “Is she mentally ill?” As the only visibly Asian person in my group of friends, I was often mistaken for the tour guide when we traveled through China and given thick binders with pictures of seedy hotel rooms. “Do the foreigners have anywhere to stay?” touts yelled at me. Even among ABCs (American-born Chinese) and CBCs (Canadian-born Chinese), I felt out

of place. Many of them were second- or thirdgeneration; I was born in China. They studied law, finance, or engineering; I studied journalism. Their ancestors were from Fujian, Guangdong, and Taiwan; mine were from Sichuan and Yunnan. But despite it all – the language woes, the food poisonings, the shifting identities – I found myself falling for Beijing. I bumbled through advanced Mandarin classes with the help of my vastly superior Korean, Japanese, and Russian classmates. In time, locals stopped thinking I was a foreigner and assumed I was nanfangren (a southerner) instead. I did a prodigious amount of eating in my first year, slurping my way through bowls of thick, hand-pulled noodles on the street and putting away lamb skewers dripping with fat. My face revealed itself to be a useful bargaining chip. I haggled with shopkeepers, cajoling them into giving us lower prices lest they “embarrassed me in front of my foreign friends.” Though my thoughts often turned to home, I found myself reluctant to leave Beijing. One day, I cycled along Chang’an Jie – “Avenue of Eternal Peace” in Chinese – imagining my parents visiting the capital as students in the early 80s. As the first generation to attend university after the Cultural Revolution, I wonder how they felt as they surveyed the seat of Maoist power. One day, would my own child retrace my steps and feel the weight of our family history? Nearly four years later, the story continues. I now live in a siheyuan (traditional courtyard house), and wake up every morning to the sounds of old people arguing and spitting in the lane next to us. Though Beijing is thrilling and maddening by turns, it never fails to stimulate. My mom periodically asks when I’m moving back to Canada, but my dad is more understanding. There’s an elegant symmetry to our trajectories, but I don’t think of it as a coincidence; it’s the story of our family coming full circle. NEWSCHINA I September 2014

Dung-sweeping Festival By Alec Ash

NEWSCHINA I September 2014

We were in the grasslands, right where we wanted to be. There were no horses, but plenty of horizon. And that poop wasn’t going to scoop itself

Illustration by Liu Xiaochao

The blades of a hundred wind turbines chugged languidly, stirring the dry morning air over a brown expanse of cracked earth pockmarked with horse droppings. A click away, inside our ger, my friends and I reluctantly pushed off our blankets and rubbed the sleep from our eyes. It was a grudging start to the day, but missing breakfast would be worse. We were in the Huitengxile grasslands, Inner Mongolia – an Englishman, a French woman and a Russian, like the start of a bad joke. It was Qingmingjie, the “tomb sweeping festival,” and we had a long weekend off from our language program in Beijing. None of us had been to Inner Mongolia, and it sounded a lark. Horses and horizons, that kind of thing. Our host gave us a plate of flat noodles and a mischievous smile each. I may have imagined the mischievous smile. “Would you like to participate in a traditional Mongolian activity today?” he asked us, stoking the dung-fueled cooker. “Of course!” we chorused, eyeing the horses tied up outside. Noodles slurped and bellies full, we loaded into our host’s pick-up, and drove out into the middle of the grasslands. The wind farm lay in the distance, huge and lonely. Some turbines whirled energetically, others barely lifted a finger, a few were deathly still. The land stretched flat in every direction, dry as bone. It was the turbines that had killed it, the jeeps and workers that maintained the wind farm that had trampled the grass into the dusty earth. We piled out, and without ceremony each of us was given: a) a wire basket; b) a trowel; c) a thick pair of gloves. This was not promising. But what on earth were we going to collect? It was a wasteland. There was nothing around us except for a thousand buns of dried horse stool. Our host explained the rules (when your basket is full, dump it in the back of the pick-up), and went off without another word, trowel in hand. I exchanged a glance with my fellow saps.

We were committed by our enthusiasm, and couldn’t back out now. Our Qingmingjie would be spent collecting organic fuel for our host’s fire. It was a traditional Mongolian activity for this time of year, after all. Not tomb sweeping, but poop scooping. We sliced the field up between us, and got cracking. It was a crisp day and the air was clean. We were in the grasslands, right where we want-

ed to be. There were no horses, but plenty of horizon. And that poop wasn’t going to scoop itself. Dried horse feces is by no means an unpleasant thing. It is a satisfying size to hold, the shape (if not consistency) of a juggling ball, and has been in the sun for so long it isn’t smelly in the slightest. Of course, it’s not a pleasant thing. I wouldn’t go out of my way to admire one. I wouldn’t rack up the finest specimens on my mantelpiece. But of all the animal droppings, human included, it’s not the most offensive. The trowel was useless, unless you chanced on a goldmine of dung, a mound of ordure, an excreta jackpot – and shoveled it all up with a great sense of accomplishment. But these graveyards of brown gold were thin and far between. It was much easier just to pick up the outliers and throw them straight in the basket. I looked across at the competition. My Russian classmate was upending a full basket into the pick up. Our host was working at a prodigious rate. My French friend had retreated inside the car for a nap, claiming she was feeling ill. Surrender! This wasn’t helping my collective stereotype of her nation. Back to the poo, I thought. Focus. It was noon and we had barely carpeted the back of the pick up. Would we get a lunch break? Were we going to be here until sundown? Surely we could leave at any point. The comfort of our ger was too far away to walk, but if we asked then our host would drive us back whenever we wanted to, right? Right? I looked up at the merciless landscape of earth and feces. I was thirsty now, and wondered if there was water in the car. At the far end of the field, the wind turbines turned lazily. They were watching us, I was sure of it. From up on high, they were regarding us in their endless ennui – three small padded figures, fleshy and mortal, steadily inching closer, picking up horse turds for fuel to cook our noodles with when the sun set, like hunter gatherers of old. And they were unimpressed.

Cultural listings Cinema

Way of the Chopstick 22 years after the release of Bruce Lee’s only completed directorial work, the critically acclaimed Way of the Dragon, comes the release of a tribute to the movie, a martial arts comedy starring Xiao Yang and Wang Taili, a singing duo known as the Chopstick Brothers. Directed by Xiao Yang, the comedy caper captured a large share of the summer vacation movie market. One month before the movie’s release, the Chopstick Brothers, also known as the Old Boys – the title of their widely popular 2010 micro-movie and its theme song – released a catchy, if decidedly cheesy, dance-pop song titled “Little Apple,” which became an instant hit among pop listeners. In their new movie, titled Old Boys: The Way of the Dragon, the pair travel to America to pursue their dream of stardom by competing in talent shows. Viewed by many as having the same tacky entertainment factor as “Little Apple,” the movie took nearly 200 million yuan (US$32m) at the box office in just two weeks.

Music

Book

New Hit on the Net In the seven hours after “An Ordinary Road” was released on digital music platforms, the song racked up a play count of over a million, breaking the previous record of nine hours held by Wang Feng’s “Born to be Mazed.” Written and performed by mainland pop-rock singer-songwriter Pu Shu, “An Ordinary Road” is also the theme song of the movie Continent, the debut directorial effort by Han Han, one of China’s most popular writers and a champion racing driver. While Pu and Han co-wrote the lyrics, the song has been regarded as Pu’s comeback to the music scene following an absence of ten years – Pu first broke through in the late 1990s with an original Russian-style folk song. While Pu has only released two albums and starred in two movies, he is viewed by many as one of China’s few singersongwriters to have achieved both honest artistic self-expression and significant market recognition.

Disciple of a Character By Song Wenjing

Exhibition

World of Lacquer While China has been using lacquer for more than 2,000 years, this traditional practice and art has been pushed to the verge of extinction by modern coating technologies. A recent exhibition, titled “World of Lacquer: Collection Exhibition for Lacquer Art of Hubei Museum of Art,” is open from July to August at the Hubei Museum of Art, featuring a total of 79 fine Chinese lacquer works both ancient and modern, as well as pieces from Japan, Korea and the United States. The works include lacquer paintings, sculptures, furniture, installations, images and antiques. Besides exploring the artistic value of lacquer creation, the exhibition also allows visitors to try using lacquer for themselves, in the hope of rekindling the public’s interest in this ancient art form.

Language can hold the key to understanding a nation’s soul. With a history of more than 3,000 years, Chinese characters, a unique invention, are among the world’s most ancient writing systems that remain in use today. While there are a total of over 90,000 officially recorded characters, calligrapher Song Wenjing focuses on 108 of the roughly 3,500 basic characters in his latest book Disciple of a Character: The Homely Taste of Chinese Characters. Explaining and exploring their origins, evolution and usage with anecdotes and a light-hearted writing style, the writer brings readers a pictographic exploration of Chinese culture. NEWSCHINA I September 2014

NEWSCHINA I September 2014

Commentary

Face the Fear What can China do to prove her bona fides to small but crucial ASEAN partners? By Li Jia

s any international relations scholar or marriage counselor will tell you, mutual trust and common interests are the bedrock of any relationship - but neither comes easily. The general lack of the former and the difficulty in realizing the latter in the South China Sea have aroused international concerns over the prospect of cooperation and the danger of military confrontation in the region, a critical shipping route for world trade, its rich natural resources coveted by a number of dynamic economies. For China, the region has always represented the challenges inherent in dealing with small, developing neighbors, maritime sovereignty disputes, other emerging powers and the US. Each of these is sensitive to changes in the power structure, and movement on any issue affects them all. Few would call it a coincidence that tension in the region began to rise drastically the year that China became the world’s second largest economy, a landmark moment. While the effects of the country’s rise have been manifold, fear is a prominent one, fueling mistrust and undermining common interests. However, neither fear nor China’s rise can be stopped at anyone’s discretion. It is just as unreasonable to ask China to stop growing as it is to expect smaller, weaker countries with old scars to sleep well next to this recently awakened lion, or indeed to tell the world’s current superpower, with a long-established and powerful regional presence, not to worry about an imminent challenge from a formidable contender. China has realized, though not welcomed, the fact that she has to deal with US engagement in her own backyard. The growing rivalry in the relationship between the two is gradually disproving China’s old belief that no trouble with the US means no trouble with the rest of the world. Peripheral diplomacy weighs heavier than ever - while adopting a more assertive strategy on sovereignty claims, China is also trying to reassure her smaller neighbors of benign intentions. However, China has found herself in a situation often described by Chinese analysts as a dilemma that requires China to “defend her own rights while maintaining regional stability at the same time.” In 2013, China proposed a friendship treaty with ASEAN to institutionalize China’s commitment to peace and cooperation, as a complement to the existing Treaty of Amity and Cooperation in Southeast Asia, of which China became the first non-ASEAN contracting party in 2003. At a forum co-sponsored by Tsinghua University and Anbound, a private Chinese think tank, held in June in Beijing, Tan Qingsheng, a Chinese Foreign Ministry official focusing on Asian af-

fairs, said that some ASEAN members remained wary of the suggestion of a new friendship treaty, and were treating China with caution on security issues. He also acknowledged their concerns over the US’ possible displeasure about closer China-ASEAN ties. China’s and ASEAN’s interests converge most intensively in business, where the most promising prospects for progress appear to lie. China is ASEAN’s largest trading partner, while ASEAN is China’s third largest trading partner, after the EU and the US. Tan revealed that China and ASEAN had already agreed to launch negotiations in the near future to upgrade their trade-centered Free Trade Area, in order to boost bilateral investment and trade in services. There are high expectations among Chinese and international diplomats, as well as observers, that the shared desire for prosperity and strong existing bonds could make China and ASEAN a better partnership in this comparatively less political sphere, potentially having a positive influence on the political and security dimensions of their relationship. To make this happen, the fear needs to be addressed. Though ASEAN has for the most part enjoyed a trade surplus with China since 2003, it complains that China has benefited more. This is probably because China’s exports to ASEAN countries grew much faster than imports from them in the past decade, and as a result, China has maintained and expanded its surplus since the second half of 2012. ASEAN increasingly felt the pressure of competition from China on mechanical and electronic production, an area where ASEAN has long held a comparative advantage over China. Oil producing countries like Indonesia feel less than comfortable selling this strategic resource to big traders. China is trying to clear this fog. During their overseas trips, Chinese leaders have continued to tell the rest of the world that they have nothing to fear from the “peaceful, pleasant and civilized” lion. China has proposed a special dialog between Chinese and ASEAN defense ministers, an arrangement which currently only exists between ASEAN and the US, according to Tan. China is also vigorously promoting several other initiatives for economic integration with ASEAN, mainly an intra-regional transport network, joint economic and scientific maritime projects, an Asian infrastructure development bank and a new version of the FTA. There is something that China may need to be careful about in order to get her message across properly. The first is to whom China’s message of peace and cooperation is directed. In his speech at the NEWSCHINA I September 2014

forum in June Professor Fan Zuojun with the China-ASEAN Re- themselves, and more about the suddenness with which they were search Institute of Guangxi University said in his field research he taken. In an exclusive interview with NewsChina during the World found worries in some ASEAN countries Peace Forum in Beijing at the end of about the prospect of “too much” China May, Javier Solana, former EU high repIf smaller and weaker presence in their communities that could resentative for foreign and security policy be brought about by an enhanced transand former secretary-general of NATO, countries are confident port network and increased Chinese busistressed the importance of constant explain using Western-made ness. He suggested that greater efforts be nation of one’s actions, both “ex-ante and international laws to made to communicate with the public in ex-post.” As China, for whatever reason, defend themselves, China has recently chosen to skip the “ex-ante,” ASEAN countries, not just their governshould be even more ments or elites. increased efforts have become necessary confident in doing so ASEAN’s pro-US attitude at a delicate “ex-post.” time is partly based on the integration of This leads to another issue: the manner their industries into the global value chain in which China sends messages. China reof US investment, noted Xu Ningning, executive secretary general peatedly justifies its actions with the claim that such decisions are its of the China-ASEAN Business Council at the Tsinghua-Anbound “sovereign right,” and that “others have done the same in the past” forum. China hopes to equal this level of integration with ASEAN. - an explanation that has not been particularly effective. Of course, Xu stressed that communication between Chinese and ASEAN any state is entitled to refuse any form of third party involvement in trade organizations eyeing visible returns had already proved far sovereignty issues - a most sensitive issue, even in a globalized world more effective than that between their industrial policymakers, who - but arguments based more on international rules help galvanize have to consider political implications in their talks, particularly in international understanding and support, which may mean more the context of the current tension. bargaining chips on negotiation tables. Third parties can also facilitate communication. The EU, for exRecently, China has made discernible progress in this regard, by ample, is watching the tension in Asia carefully and nervously. Its openly presenting to the UN her stance and evidence on sovereignty position as an influential global force and a major business partner claims in the waters where clashes with Vietnam have occurred. But of both China and ASEAN, but not a direct security player in the there is a lot more still to be done. For example, China could reregion, gives it a certain motivation and credibility. Indeed, both spond to international doubts over her sovereignty claims and refusChina and the EU hope to see substantial growth in the strategic al of international arbitration by specifying her claims and reasons dimension of their business-centered partnership. It could be ben- on legal grounds to the rest of the world, if not to any arbitrator. eficial for China to explain clearly her policy in the South China Sea China’s resistance to international arbitration, according to some to the EU, so that the EU could understand better China’s inten- Chinese legal experts, is partly rooted in China’s mistrust of the intions at least, or reinforce China’s message to other direct regional ternational judicial system which China believes is dominated by stakeholders at best. If China does so, it is important for China to the West. However, if smaller and weaker countries are confident in realize that it is not a good idea to compel the EU, nor any other using Western-made international laws to defend themselves, China third party, to back China up on sovereignty disputes, as taking sides should be even more confident in doing so. China was confused by would conflict with their own interests. complaints against her exports filed to the WTO by trading partThe second question is the timing of these messages. Complaints ners. Now, China does not hesitate to use those same Western rules over China’s actions, particularly the Air Defense Identification to fight for her own interests. Zone (ADIZ) over the East China Sea and the deployment of an oil rig in the South China Sea, seem to have been less about the actions (The author is lead writer and senior editor with NewsChina) NEWSCHINA I September 2014

Commentary

China’s new ambitions in Latin America are not without their challenges There are both opportunities and obstacles facing China’s endeavor to woo ”America’s backyard” By Zuo Xiaoyuan

hinese President Xi Jinping’s recent visit to Latin America, Fund. Xi also pledged a special US$50m fund for mutual agriculhis second since taking office as head of state, has been a tural cooperation, and various scientific and technological partnermajor focus of international media coverage of China’s ship programs. Releasing a joint statement with Brazil and Peru global diplomacy in recent months. over a transcontinental South American The decision to create a development railroad, China also called for concerted With contrasting political bank and a crisis reserve fund made by the efforts to make the project a success. ideologies adopted in leaders of Brazil, Russia, India, China and However, while Latin America apdifferent Latin American South Africa at a BRICS summit in Brapears to be playing an increasingly imzil, is considered a challenge to Westernportant role in the landscape of China’s countries, it is hardly dominated global financial institutions. global diplomacy, there remain various possible for them to Xi’s tour included visits to Argentina, challenges to China’s ambition to forge formulate a consensus in Venezuela and Cuba, each of which is of a solid political relationship with a conterms of cooperation with tinent long considered the backyard of special interest to China. While Cuba has China long been a political ally, Venezuela is a the US. key oil supplier to China and Argentina Firstly, given the developmental level constitutes a major source of soybeans, of both China and Latin American as well as a potential future member of the BRICS bloc. During countries, trade relationships between the two sides are often more Xi’s visit, both Argentina and Venezuela agreed to establish a “com- competitive than complementary. Secondly, leaderships in many prehensive strategic partnership” with China. Beijing also voiced Latin American countries continue to face domestic economic and explicit support for Argentina in its territorial dispute with Great political challenges, undermining their ability to form long-term Britain over the Falkland Islands, known as the Islas Malvinas in and stable relationships with China. The Argentinian government, Spanish. for example, has been suffering from a debt default crisis in recent As China’s trade with Latin America reached US$261.6 billion decades, narrowing its economic policy options. In Venezuela, the in 2013, more than 20 times the figure in 2000, interdependence current leadership has been under constant political attack from its between the two sides has been on the increase, leading to closer po- opposition, posing a serious threat to any deal made with China. litical cooperation. While Latin America has become an important Even Brazil, the largest Latin American country and a key player source of natural resources for China’s rapid development, China’s within BRICS, has yet to prove its ability to implement the BRICS economic power offers an alternative option for Latin American initiative of a development bank and crisis reserve fund – congrescountries in terms of both financial investment and political sup- sional approval remains pending on both. With contrasting politiport. Xi’s visit to Latin America is considered to be part of Beijing’s cal ideologies adopted in different Latin American countries, it is new effort to strengthen its strategic cooperation with the region. hardly possible for them to formulate a consensus in terms of coopIn the China-Latin America and the Caribbean Summit held eration with China via the China-CELAC forum. on July 17 in Brasilia, Xi made a keynote speech, announcing the Finally, as the US remains the more influential power in the reestablishment of the China-Latin American Comprehensive Co- gion and in the world, and continues to dominate major global operative Partnership, and the Community of Latin American and financial institutions including the IMF and the World Bank, a Caribbean States (CELAC) Forum. bumpy road lies ahead for China in its efforts to establish closer Pledging to “build a hand-in-hand community of common ties with emerging economies both in Latin America and other destiny,” Xi announced that China will provide a total of US$35 regions.  billion to finance infrastructure projects in Latin America, including US$20bn in special loans for infrastructure, US$10bn in con- (The author is the director of the Institute of Latin American Studies of cessional loans and a US$5bn China-Latin America Cooperation the China Foreign Affairs University)

NEWSCHINA I September 2014