1 Talking Point 6 Week in 60 Seconds 7 Consumer Week in China 8 Banking and Finance 9 Energy and Resources 10 Internet and Tech 11 Economy 12 Aviation 7 September 2012 13 Society and Culture Issue 163 18 And Finally www.weekinchina.com 19 The Back Page Feeling the strain? m o c . n i e t s p e a t i n e . w w w

China’s top are now global heavyweights. So why are investors concerned?

Brought to you by Week in China Talking Point 7 September 2012

The $3.9 trillion loan binge As they report first half results, do China’s banks still look so strong?

Big is best? ICBC is currently the largest in the world by market capitalisation

orget turning left for business dollar funds (less than $40,000) to China, ICBC, and Fclass on boarding the aircraft. cover their US travel itinerary. ) rank Back in 1974 it was more a case of Today, booking a few business among the top 21 firms in the list (in China’s political elite lacking the class seats isn’t going to be a prob- 22nd place is Apple). Leader of the foreign exchange to make a trip lem for China’s top cadres – given pack is ICBC, in first place for finan- abroad. the nation’s $3 trillion of forex re- cial services by market cap, as well As retold by Carl Walter and serves. What’s more, the most re- as taking number one position as Fraser Howie in Red Capitalism: The cent list the world’s most profitable lender Fragile Financial Foundation of (published in April) would make for last year, earning $33 billion. China’s Extraordinary Rise, the back- some triumphant in-flight reading. But is some of that ‘Masters of drop was Deng Xiaoping’s trip to With banks elsewhere losing much the Universe’ magic starting to look the United Nations in New York, of their lustre amid a slew of post- frayed at the edges? In their most seen today as a crucial step towards credit crunch scandals and recrimi- recent financial results – an- ending China’s self-imposed inter- nations, China’s financial nounced last month – China’s five P h o t o national exile. institutions have risen quickly biggest lenders (Bank of Communi-

S o u r But the delegation nearly didn’t Forbes global rankings. cations joins the Big Four we’ve c e :

R e make the journey, because the Chi- Paupers in 1974, four of China’s mentioned above) were still able to u t e r s nese banks could barely find the big banks (Agricultural Bank of announce that aggregate earnings 1 Week in China Talking Point 7 September 2012

were up by 13%. But this was down ment companies as part of a huge years after a period of abnormal significantly on the 33% increase a recapitalisation of the financial sec- credit surge,” he advised. “There will year before. And the investor narra- tor. be a notable rise in bad loans in the tive has also taken on an edgy tone, banking sector this year.” with talk of rising bad debt, as well So why the anxiety today? So there’s also a more sceptical as anxiety that the days of bloated In part because of fears that more undercurrent to the coverage of the net interest margins – the profit debt could soon go bad once again, banks’ loan portfolios, especially mainstay for the sector – are com- following more than Rmb25 tril- when so much of the surrounding ing to an end. lion ($3.93 trillion) of new lending news on the Chinese economy has “The deterioration trend is just between 2009 and 2011. been downbeat. beginning” was the latest warning Wei Guoxiong, chief risk officer For instance, when Bank of China from rating agency Moody’s. “The at ICBC, seemed to suggest as much announced that its own NPL ratio announcements show deteriorating in comments widely reported by had fallen by a fraction in the first asset quality and slowing profit the Chinese media last week. “Past six months of the year, its stock growth, which are credit negative experience has taught us that a bad price still sold off by 5%. Maybe that because they mean the end of a loan crisis usually comes three was because analysts had caught multiyear streak of improving fi- nancial performance.”

So the banks are feeling unloved? They have plenty of critics. Frus- trated borrowers fret that they can’t get loans in the first place, while ex- isting ones complain about being pursued for repayment too aggres- sively. Investors are frustrated by share prices that have fallen further than the index averages. Even the government has jumped on the bandwagon, following a highly pub- licised attack on the sector’s mo- nopoly profits by Chinese premier Wen Jiabao in April. The banks’ results were also awaited with trepidation last month, on speculation that credit conditions have been deteriorating sharply, in step with China’s growth In the future, there will prospects. be no difference between But in fact, many of the headline numbers looked resilient. Because waste and energy. new loans have been growing faster We are going to need multiple alternatives to fossil fuels. than defaults, non-performing HSBC’s award-winning Project and Export Finance team puts together innovative deals that help make pioneering projects loans actually dropped to 0.9% in happen. We arranged the first wind power project financing in China – a landmark in opening up the renewables sector the second quarter, the lowest in to international investors. The future starts here. more than a decade, according to There’s more on project and export finance at the banking regulator. That hardly www.hsbcnet.com/pef sounds like a crisis, especially com- pared to 1999, when 39% of loans at the Big Four were classified as non- performing. The result then was the HSBC operates in various jurisdictions through its affiliates, including, but not limited to, HSBC Bank plc, authorised and regulated by the Financial Services Authority, The Hongkong and Shanghai Banking Corporation Limited, HSBC Securities (USA) Inc., member of NYSE, FINRA state swallowing up much of the and SIPC, and HSBC Bank USA, NA. 11-095 bad debt into new asset manage- 2 Week in China Talking Point 7 September 2012

sight of BOC’s “overdue” loans actu- The banks are trying to call in debt? rowers themselves. There is also a ally increasing by 18% (or Rmb7 bil- Lenders have been getting tougher growing clamour for more time to lion) in the first half. Perhaps they with some borrowers. The coverage meet repayments. “Banks should wondered too why BOC has opted to from Reuters this week has looked at consider the greater good and not take a much smaller impairment loans made to steel firms during the just focus on protecting their own charge than last year. peak of the previous credit boom. interests,” insisted the head of Loans are classified as non-per- Unsurprisingly, some of the cash Shanghai Shunze’s local chamber forming if interest payments are seems to have ended up in property of commerce. “[But] instead of overdue by more than 90 days, says speculation or the stock market – pumping in more blood to save the Reuters. But the banks have been re- with steel executives now com- patient, they’re choosing to draw porting greater deterioration in plaining that they didn’t even want more blood.” other categories, including “special the money. In July we reported on similar mention” and “delinquent” loans. “After the financial crisis, banks frustrations in Zhejiang, where hun- The worry is that some of these begged us to borrow money we dreds of businesses have been peti- loans could end up being classified didn’t need,” Li Huanhan, the boss tioning the local authorities to stop as non-performing in the foresee- at Shanghai Shunze Steel Trading the banks from calling in loans (see able future. told a Shanghai court. “We had WiC160). “There is evidence of higher NPLs nothing to do with the money, so in the pipeline,” the latest Moody’s we turned to other investments, But the banks are under revenue report concurs. “Special-mention like real estate.” pressure too? loans, in which a borrower currently Now, of course, conditions have Aside from the speculation about able to make interest and principal taken a turn for the worse. For Li, their balance sheets, banks also face payments faces a negative develop- the struggle is over a debt of Rmb3 new questions about their longer ment in his payment capability, are million that term profitability. A particular fear generally on the rise. Delinquent has been trying to recall since June. is the reductions they may experi- loans, defined as any loan with prin- But his case is just one of numer- ence in the spread between what cipal repayment or interest pay- ous examples in which banks are they demand in interest rates from ment overdue at least one day, are chasing their clients, often to the borrowers and what they have to also rising.” apparent bemusement of the bor- pay out to their depositors.

Snout in the trough

Here’s a dysfunctional situation: the price of pig feed in China is now more expensive than human food, reports International Finance News. It points out that domestic futures for pig feed reached Rmb4,290 per tonne in late August. In comparison rice cost Rmb2,826 per tonne, and wheat still less at Rmb2,530. The reason for this strange anomaly? Pig feed is made of soya beans and, as we reported in WiC160, the price of this commodity has soared due to drought in the US and a poor harvest. The rising price is now putting pressure on Chinese farmers, making hoggeries into loss-makers and I l l u s t r

a forcing some to start culling their pig herds. This is t i o n :

a move that worries the government since it could can be released onto the market if supplies fall, and w w w

. trigger inflationary pressures, reports Reuters. To threaten to drive up prices). China produces and b e n i t a counter the threat the state has started buying consumes about half the world’s pork, making the price e p s t e pigs to add to its reserves of frozen pork (which of the meat a sensitive issue. i n . c o m

3 Week in China Talking Point 7 September 2012

Harvest what you sow: concerns are rising that the lending binge will lead to bad loans and require new capital

Traditionally, these net interest positors as they compete for fund- much riskier too. Correspondingly, margins have been set within a ing, they haven’t moved so aggres- some of the worst of the loan delin- highly beneficial range by the cen- sively to offer new, lower-interest quency is currently being reported tral bank, the People’s Bank of loans to their customers. among smaller clients, especially ex- China. The spread has then deliv- Also in the Big Four’s favour, says porters from the coastal zones. ered the overwhelming share of the Dunivant, is the beginning of a shift Fortunately for the Big Four, they banks’ operating income. Todd away from the disproportionate seem less affected than some of Dunivant, HSBC’s head of banks re- share of lending traditionally ex- their mid-sized rivals, who have search in Asia-Pacific, calls it the tended to larger, state-owned greater exposure to this type of “lifeblood” of banking profits. clients. Instead, more credit is likely client base. Ping An has been one of But the has begun to to flow to small and medium-sized the worst hit, reporting a 51% in- allow more flexibility in the range enterprises, largely in the private crease in its non-performing debt. as it looks to encourage more mar- sector. In part this is a policymaking The city of Wenzhou in Zhejiang is a ket-driven interest rates. As banks goal: small and medium-sized firms particular bleak spot, accounting adjust to competing more aggres- contribute more than half of for almost 28% of Ping An’s bad sively for business, there are signs China’s tax revenue and GDP, as well loans. Wenzhou made up an even that the spread could be starting to as the large majority of employ- higher proportion of troubled lend- narrow (see WiC158 for more back- ment, so Beijing wants to see these ing for the Bank of Communica- ground). This isn’t likely to be a companies get more credit. But it tions – about 90% of its Rmb887 rapid deterioration (indeed some also stems from expectations that million in new loan defaults in the banks were able to report a small in- state-owned firms are going to raise most recent quarter. crease in net interest margin last more capital from the bond market There is symbolism here. Wen- month). But bigger picture, the net in future, rather than rely on tradi- zhou can be painted as a reckless interest margin looks more likely to tional bank loans. Both trends could case, overly dependent on under- shrink rather than grow in the benefit the Big Four, as SME bor- ground lending (when the economy months and years ahead. rowers will pay more interest on slowed and speculative investment Nonetheless, for the short term their loans, slowing some of the ero- unravelled, this dependence trig- Dunivant says that the impact of di- sion in lending margins. gered a chain-reaction of defaults). minishing net interest margins is But the city also has a reputation as being overplayed. Nor does he ex- Is that going to protect banking the heartbeat of China’s private P h o t o pect declines in the spread to hit profits? economy: where it leads, the rest of

S o u r bank profitability as hard as some Maybe. But higher interest rates are the country is often said to follow. If c e :

R e have suggested. Although banks demanded from SMEs because their experience in Wenzhou is any- u t e r s have been giving better terms to de- many of their loans are seen as thing to go by, China’s banks could 4 Week in China Talking Point 7 September 2012

be forgiven for going slow on lend- ing to SME clients. Planet China It would help if the economy Strange but true stories from the new China showed more signs of life? Definitely. Despite concerns about BORN IN THE USA. Reincarnation is a Buddhist belief that links your shrinking interest margins and the behaviour in this life to how you will be reborn in the next. It’s not a concept gloomier picture on bad debt, HSBC that has an obviously commercial angle. But in China everything pretty much has a price tag. And according to the Shenzhen Evening News, the says the macro-economic outlook is Yuantong Temple is offering to guarantee that your dearly-departed loved the primary factor in shaping the fi- one will be reborn in America. Of course, to ensure rebirth with a US nancial sector’s performance. passport you’ll have to give Rmb500 to the temple, which is in Kunming. For example, if the purchasing Netizens have commented widely on the monks’ scheme. The more manager indices (PMIs) start to flippant point out that the temple is offering tremendous value for money. show a positive trend, it is normally That’s because a standard visa to the US will cost applicants Rmb1,000. a solid indicator that corporate “The Buddhist monks are well aware of Chinese people’s psychology,” profits are going to strengthen in acknowledged the Shenzhen Evening News, acidly. the months ahead. As firms start doing better, they have fewer diffi- culties paying off current loans. international conditions. turning to a familiar role as tools of There’s also more likelihood that In turn, that makes it more likely government policy rather than they will request new ones. that Beijing will turn back to invest- masters of their own destiny. Unfortunately, current sentiment ment to get growth closer to tar- More positively HSBC says the on the economy is very weak. geted levels. Sure enough, last week banks are at least being allowed to HSBC’s own China PMI has been on a we reported that local governments respond to new loan requests from woeful run with negative ratings for seem to be gearing up for another local governments in a more varie- ten consecutive months. The most round of stimulus spending. We gated way, charging higher interest recent survey (for August) indicated queried how this would be financed rates for riskier projects than dur- yet another contraction, as the but most likely the state-owned ing the previous wave of loans index dropped to its lowest reading banks will be required to play an starting out in 2009. (47.6) since March 2009. Analysts important role once again, even But that won’t be much comfort blame a collapse in new orders both though the balance sheet impact of for more pessimistic investors, wor- at home and overseas. They detect the last round of loans is still to be ried that a big chunk of such lend- few signs of the pick-up in domestic fully determined. ing will inevitably go bad. That will demand needed to offset the weak In this context the banks are re- mean raising yet more new capital. Over the past year the seven biggest banks have already raised $51 billion in new money, reports the New York Times, with $17.7 billion more in the pipeline. Public shareholders are naturally unimpressed by all that dilution. Witness the trouble China Ever- bright Bank is having getting away its IPO. Last year it had initially targeted a $6 billion deal, but by last month it still had not been able to price a much smaller $1.5 billion offering. Will it get the listing done this year? As litmus P h o t o tests go, this will be an interesting

S o u r one to watch – indicating whether c e :

R e the allure of China’s banking sector u t e r s Will it manage to list in Hong Kong before the end of the year? has faded for global investors. I 5 Week in China The Week in 60 Seconds 7 September 2012

PMI worst since March 2009 The major news items from China this week were...

HSBC’s (finalised) manufacturing PMI for August 1recorded its lowest reading (47.6) since March 2009, driven mainly by a sharper contraction of new orders. The data was weaker-than-expected and confirms that the manufacturing sector is still facing strong downward pressure and the economy could be heading for a hard landing.

The People’s Daily weighed-in on the economy too. 2An editorial in the state-run newspaper on Monday called for authorities to build up an inventory of policy measures that could be used to rekindle growth. How- ever, it also urged officials to use the downturn to ad- Hopes to list its engineering division in Hong Kong dress long-standing ills such as economic imbalances and industrial overcapacity. But analysts say the article Asia’s largest refiner has set up a new engin- suggests China’s top leadership may not be in any rush 4neering and construction giant that state media say to roll out aggressive monetary easing or expansionary is expected to be listed in Hong Kong by 2014. Sinopec En- fiscal measures to prop up growth in the near term. gineering has been created with registered capital of Rmb3.1 billion ($488.3 million) via the consolidation of The Chinese government unveiled charges on Sinopec’s eight engineering and construction units. It will 3Wednesday against Wang Lijun, the former provin- be capable of handling more than 20 large-scale EPC proj- cial police chief who triggered China’s biggest political ects concurrently. scandal in two decades. The charges allege that Wang took bribes, tried to defect and abused his position of Not such good news for Chalco, however. It has power. He triggered a political crisis in February when 5dropped its $926 million offer for a majority stake in he fled to the US Consulate in Chengdu and reportedly Mongolia-focused coal miner SouthGobi Resources. The told American officials that Gu Kailai, the wife of his state-controlled aluminium giant triggered a backlash boss Bo Xilai, had murdered a British businessman. in Mongolia when it bid for SouthGobi in April. In May Mongolia passed a new law limiting foreign ownership to 49% in strategic sectors including mining.

The US said it welcomed – and was likely pleasantly 6surprised – that China had decided not to appeal against a WTO ruling that China discriminated against US bankcard suppliers like Mastercard and Visa in favour of state-owned firm UnionPay. The Chinese Com- merce Ministry, in its statement, said it believed “coop- eration and competition” between domestic and foreign companies would help develop its payments market. P h o t o More than $1 trillion worth of electronic payment card

S o u r transactions are processed in China each year, rendering c e :

R e it a hugely attractive market for US electronic payment u t e r s After you: police chief Wang next up in Bo scandal services firms such as Visa and MasterCard. I 6 Week in China China Consumer 7 September 2012

Closing time British retailer Tesco halts China store expansion

hortly after becoming chief committed to the China market. Sexecutive of Tesco last year, “China’s retail market is very Philip Clark offered a sporting big but it is not easy to make metaphor to the Financial money,” says Li Wende, general Times. It was about his strategy development manager of for the Chinese market. “For French retailer Auchan, adding me, China is not a race, it’s not that the recent replacement of a sprint,” he told the newspa- the senior executive teams at a per. “If it’s a race at all, it’s a number of foreign retailers (in- marathon.” cluding Wal-Mart) in China in- But that marathon is now dicates that results have dis- proving tougher than Clark may Within the target demographic? pleased head offices. have envisaged. Tesco recently an- Li also suggests the industry is nounced that it is shutting down tion, labour and rental costs for re- heading towards more consolidation four stores in China by the end of tailers grew by 26% and 10% re- and there were more rumours last this month, as part of a consolida- spectively in 2011. week that French hypermarket op- tion campaign. It wasn’t long ago Analysts also say that Tesco was erator Carrefour is also interested that Tesco was talking about dou- late into the game. When it first en- in selling its Chinese operation. A bling the number of its Chinese hy- tered China in 2004, Carrefour and local retail company manager told permarkets to more than 200. Ad- Wal-Mart were already expanding National Business Daily that Car- ditionally it planned to open 50 aggressively. Even after Tesco went refour, the world’s second-largest re- Lifespace shopping malls by Febru- into more rapid expansion mode in tailer, is in discussions with China ary 2016. 2009, it never caught up with its Resources Enterprise about selling Now the UK retailer seems to be larger rivals (Wal-Mart has 267 up. Apparently the French firm has quietly scaling back these ambi- stores, for example). also spoken to Tingyi, another major tions. Sales have disappointed and Tesco may also have overesti- food manufacturer, and COFCO. But the shopping mall projects have mated consumer spending power in talks went nowhere because Car- been difficult to execute. The chain, smaller Chinese cities. In the last two refour’s asking price was too high, which runs 111 supermarkets and hy- years it targeted third and fourth-tier says Xinmin Evening News. (Car- permarkets in China, says the clos- cities to avoid the greater competi- refour, like Tesco, also denies talk of ings are designed to “improve the tion in more developed areas. How- selling its Chinese stores.) strategic allocation of resources”. ever, local spending power has disap- Meanwhile, Wal-Mart has also an- So what happened? Although the pointed. The British retailer has also nounced that it is having a China re- company does not disclose its fi- had to compete with small domestic think, after admitting it had made nancial performance in China, one rivals, which have undercut it on mistakes in its haste to expand. analyst told the FT that Tesco lost an price, says China Co-Operation Times. Company executives said they’d estimated £50 million in the coun- The disappointment has led to ru- opened stores that had proved hard try in the year to February 2012. mours that more radical steps may for shoppers to navigate (some were P h o t o Rising shop rents and labour be under consideration and Xinmin configured in odd shapes). Wal-Mart

S o u r c costs have led to lower profits, and Evening News reported last week that has partially scaled back its own new e :

I m

a not just for Tesco but for many re- state-owned food giant COFCO is in store ambitions too: it will open half g i n e

C tailers. According to the China talks with Tesco to buy its Chinese of the new square footage it had pre- h i n a Chain Store and Franchise Associa- operation. But Tesco says it remains viously planned in the country. I 7 Week in China Banking and Finance 7 September 2012

Black mood The CSRC tries to lift market sentiment as stocks hit a new low

lack Monday has been used a (the maximum that a share price Bnumber of times in stock mar- can increase during a single session). ket history to describe cataclysmic More companies are expected to events. Most famously there is Oc- conduct similar deals. tober 19, 1987, when the Dow Jones So will buybacks help to lift the Industrial Average posted the morose mood? Perhaps not. “The largest one-day decline in its his- market, which is mainly driven by tory, a staggering 22.6%. There was economic expectations, is still un- another Black Monday in 1929, der pressure,” Xiang Weida, chief an- which followed the Black Thursday alyst at Great Wall Securities told that started the Wall Street Crash. China Daily. The slowing economy So it might seem something of a has taken its toll on corporate prof- overreaction for 21CN Business Her- itability, making many companies ald to use the ‘black’ moniker to de- less attractive to investors. In the scribe Monday August 27 as a dis- first half of the year, corporate earn- mal day for the A-share market. ings in the MSCI China Index grew After all, the Shanghai Composite by just 2%, compared with 10% in only dropped by 1.8% – enough to the last half of 2011 and 29% in the push the market down to a new Buyback plan: Guo Shuqing six months before. three-and-a-half year low, yet hardly Still, some believe the worsening a spectacular decline. tention. The China Securities Regu- profit trend may have bottomed Perhaps it was more the cumula- latory Commission, now run by for- out. HSBC thinks that MSCI China tive effect of months of price de- mer China Construction Bank chair- companies will grow their earnings clines that darkened 21CN’s mood. man Guo Shuqing, has spent most this year by 5%, for instance. The No single catalyst has been picked of the year trying to restore confi- bank expects “earnings growth to out for blame, either. Analysts seem dence in the market via a wide range stabilise and rebound, as policy eas- divided: some point to weak manu- of measures, including allowing ing measures filter through”. facturing data, others to unimpres- more foreign capital into local stock The test is whether improved sive earning reports, and some to a markets, as well as encouraging profitability can overcome the lack of clarity over government eco- listed companies to pay out more in deeper lack of confidence currently nomic policy as the “hard landing” dividends. haunting China’s stock markets. debate goes on. More recently the CSRC has also In the meantime, investors are Whatever the reason, the Shang- been suggesting that companies re- looking farther afield in search of hai Composite has seen a prolonged ward shareholders with share buy- returns. Aside from more estab- decline – losing 37.3% of its value backs and state-owned Baosteel lished markets, the nascent bourse since the beginning of 2011. It con- Group has obliged with a Rmb5 bil- in Cambodia is also attracting Chi- tinues to underperform markets lion buyback along these lines last nese capital, even though it has only across Asia and – of the 54 interna- week. China’s biggest steelmaker one listed company – the Phnom tional markets tracked by the Fi- said it would buy one billion shares Penh Water Resources Bureau. nancial Times – only Russia and for up to Rmb5 a share, a 22% pre- When the firm listed earlier this P h o t o Venezuela have lower price-to- mium to the price on the day the year, more than 100,000 of the

S o u r earnings values. deal was made public. shares on offer were snapped up by c e :

R e Such dreadful performance has Baosteel stock (unsurprisingly) Chinese investors or people of Chi- u t e r s not escaped the government’s at- soared, finishing the day 10% higher nese descent. I 8 Week in China Energy and Resources 7 September 2012

Digging a hole Pilbara mine is now three years late opening

hen an Englishman or an In- MCC’s failure to deliver the project Wdian hears the acronym not only to schedule, but also well MCC, he’ll probably think of cricket over budget too. and the venerable Marylebone The massive open-cast mine was Cricket Club. Founded in 1787 the originally slated to cost $2.47 billion shortages of experienced techni- MCC served as the sport’s governing when Citic Pacific bought the site in cians saw labour costs soar too. The body for centuries and it still owns 2006. MCC was supposed to deliver Chinese also complain that local Lord’s, the spiritual home of a game a mine capable of shipping 27.6 mil- regulations slowed the construc- once described by playwright lion tonnes of ore per year by 2009. tion process, while a series of hur- Harold Pinter as “the greatest thing However, the mine is still not open ricanes prevented the delivery of that God ever created on earth”. and pre-opening costs have esca- vital materials. (Not everyone agrees: Robin lated to nearly $8 billion. The 21CN An exasperated Citic Pacific then Williams’ take on cricket is that it is Business Herald says the outlay now signed a new agreement with MCC “baseball on valium”.) equates to 16 times the cost of Bei- specifying the mine had to be - But in – another cricket- jing’s Bird’s Nest Olympic Stadium. tional by August 31 this year or else it loving nation – the MCC tag will res- And it’s still not ready: some indus- would receive compensation. That onate with executives in the re- try experts think the final costs has now kicked in, with MCC on the sources industry for another reason. could top out nearer to $10 billion. hook for $5 million a day. Under the That’s because it’s the name of a Needless to say this has been fi- current schedule, MCC could end up company that’s experiencing some nancially disastrous for Citic Pacific. paying $450 million before the mine of the worst cost overruns and de- Clinton Dines, former president of finally opens later this year. lays in completing a mine in history. BHP Billiton in China, told Reuters Because of the delays, Citic Pa- MCC also stands for Metallurgical the mine has “the potential to be a cific has missed out on much of Corporation of China, the state- company killer, that’s for sure”. the ‘golden era’ for iron ore sales, owned group that owns projects in For China Inc, Sino Iron was part when prices went as high as $200 places as far flung as Afghanistan of a move to buy a quality asset and per tonne. Current pricing has and Papua New Guinea. In WiC41 we reduce reliance on foreign iron ore sunk to $90, which means the Sino described the company as a ‘behe- miners like BHP, Rio Tinto and Vale Iron project will be altogether less moth’. Aside from operating mines, (a subject WiC has written about profitable. MCC is also a huge construction and comprehensively, see issue 121). MCC To tough out the financial pain, engineering firm. For example, it is would bring its acknowledged world Citic Pacific has sold a 50% stake in thought to have built around 90% of class magnetite mine construction real estate firm Citic Guoan to its China’s steel plants. techniques to Australia. Citic Pacific parent. The Chinese government This construction prowess has then planned to operate the mine also looks likely to endorse a $575 taken a heavy blow in Australia’s Pil- for 25 years. million loan. bara region where MCC is the con- What went wrong? Pretty much Arguably the biggest winner tractor on the Sino Iron project, a everything, it would seem. First off, from the whole episode has been magnetite iron ore mine. Compli- the Chinese firm wasn’t able to ship Australia. As well as fleecing the Chi- cating matters it is working for an- its experienced (and cheap) work- nese on construction costs and re- other state-owned giant from China, ers to the Pilbara. So it had to hire quiring the employment of 4,000 P h o t o Citic Pacific, which is far from happy locals, a situation which led to com- locals, the completed mine stands

S o u r about the crippling delays. To return plaints from the Chinese side about to make the economy an estimated c e :

R e to cricketing metaphors, Hong Kong- ‘work culture differences’. Even $75 billion in export income over u t e r s listed Citic has been ‘hit for six’ by these were in short supply, and the next quarter of a century. I 9 Week in China Internet and Tech 7 September 2012

Search and destroy Ugly battle begins between and Qihoo 360

hou Hongyi is not afraid to many agents that sell Baidu’s adver- Zpunch above his weight. Back in tising space and other products, to Taking on Goliath: Zhou Hongyi November 2010, the chief executive stop using Qihoo products. of antivirus provider Since last Tuesday, internet users tion of $39.8 billion, compared to Qihoo 360 engaged in a very public also found that Baidu had begun to Qihoo’s $2.6 billion). Building a battle with , China’s largest redirect certain links away from the search engine to rival Baidu’s will internet company. The accusation Qihoo search engine directly to the also require enormous investment, was that Tencent was letting its in- Baidu homepage. “Whenever users which would put pressure on the stant messaging system QQ scan do a search about Baidu, instead of smaller firm. All this begs the ques- users’ computers for personal data. being taken to a particular Baidu tion: why did Qihoo want to chal- The feud escalated and Qihoo took website, they are redirected to lenge Baidu’s dominance? Tencent to court in Guangzhou this Baidu’s search homepage. That’s not “No matter how hard Qihoo 360 April. The case is ongoing. how an internet firm is supposed to works, its current business model But the latest internet titan to feel behave – you are affecting the users’ can only sustain 200 brand adver- Zhou’s wrath is search giant Baidu, experience,” Qihoo’s chief financial tisers. So there’s a cap to its revenue after Qihoo launched a competing officer Alex Xu complains. growth,” says Hong Bo, founder of search engine. Several hours later, Qihoo fired 5G, a consulting company. “On the “Only through competition can back by deleting all of Baidu’s prod- other hand, the search market has the quality of search engines be im- ucts – news, maps, and photos – in an infinite number of advertisers. proved, thus benefitting users,” its own search results, replacing Baidu, for instance, has more than Zhou declared on his personal weibo. them with its own, as well as those 40 million small- and medium-sized Little-known outside China, Qi- of rivals Google and (a search companies that pay to advertise on hoo counteracts the viruses and engine developed by ). its site. Therefore, for Qihoo, the malware that have sprouted in the Baidu’s action has caught many in- browser is only the first step. Its ul- country’s cyberspace, offering a dustry observers by surprise. Clearly, timate goal is to tap into a huge mar- more secure browser and portal. Ac- the search giant has a lot at stake. Sec- ket so it can share the gold mine cording to the company’s own fig- ond-quarter search revenues in China with Baidu and Google.” ures, Qihoo’s secure browser had 272 surpassed $1 billion, says research As WiC has reported (see issue million monthly users (that’s half firm Analysys International. So when 158) this isn’t the only battle Qihoo is of the country’s internet popula- news reports suggested that Qihoo’s fighting. It is also fighting short- tion) in the first quarter of this year. search engine had already started seller Citron Research. And it won a Its website also had 77 million grabbing market share since its Au- small victory this week when the unique daily hits. gust launch, Baidu must have taken former head of Google China, Lee Why the spat with Baidu? That notice. But Bill Bishop, a Beijing- Kaifu, and 60 other tech leaders firm controls the search market based internet watcher, doesn’t signed a letter defending Qihoo and with almost 80% share. So Qihoo’s think David will take down Goliath criticising Citron for “targeting le- new search engine, which is bundled this time. “Baidu is still far and away gitimate companies with either no with its popular browser, could pose the dominant search provider in problems or minimal problems”. It P h o t o a threat to its market dominance. China, and it is unlikely that Qihoo added that short-sellers “boldly tell

S o u r c Baidu has acted quickly to protect will take significant share in the lies, knowing that their American e :

I m

a its turf. CBN reported that the Bei- short-term,” he suggests. readers have no way of verifying g i n e

C jing-based company has asked its Indeed, Baidu is a much bigger them”. (Citron denied the allega- h i n a business partners, including the company (with a market capitalisa- tions, reports Wall Street Journal.) I 10 Week in China Economy 7 September 2012

Housing allowance Erdos officials look for cash to prolong building spree

ast month, the Inner Mongolian 101 of the 306 local mines are func- Lcity of Erdos staged the annual tioning as normal, with most closed Miss World competition. It even or curtailing production. hosted a home win, with Miss China All this has an impact on local tax Yu Wenxia (see WiC161) deemed the receipts. Although Erdos saw its fis- most beautiful contestant. cal income increase by 8.9% in the The event’s organisers claim that first half of 2012, that is an unim- a billion viewers watched the show pressive rate compared with the worldwide. But closer to home, in- past – especially when Erdos still terest seems to have been more sub- seems captivated by the construc- dued. “Miss World? Miss World… tion bug. There are public plans to what is that? I have never heard of Erdos: famed for its ghost town build another 600 kilometres of ex- it,” one local told Women’s Wear pressways, 14 new industrial parks Daily which was at the scene to ($788 million) to construction com- and 18 power substations. cover the pageant. panies that have been working on In total, the government has bud- Despite Miss China’s triumph, Kangbashi – the vast new suburb geted for Rmb150 billion of invest- the magazine found it a tougher supposed to house a million resi- ment in 2012, which is in line with story to cover than it likely antici- dents. Visitors to Kangbashi all some of the extraordinary figures pated. In a possible first for the come away remarking how it seems bandied around by other municipal world of fashion journalism, one of so sparsely populated. bureaucrats recently (see WiC162). its reporters was evicted from a cat- Moreover, the broader property Boosting the property market walk show by police, and chased to market in Erdos has soured. In one would be one way to rejuvenate the the airport where he departed a far district housing sales were down local coffers. The city government from welcoming Erdos after a mere 93% year-on-year in the first quar- has tried a number of creative 48 hours. Women’s Wear Daily says ter. Even prices at high-end projects schemes to do just that – such as “no explanation” was given for why like Star River have fallen from buying unoccupied housing itself police had prevented its reporter Rmb24,000 per square metre last and renting it to poorer families – from covering the fashion event. year to Rmb15,000 today. but so far with little success. So why all the fuss? Locals sug- With property sales apparently in Another way to raise money is to gested it was because officials were the doldrums, the local authorities carry on borrowing it. Dongsheng already on edge, worried that visit- have also lost another way of meet- Urban Construction Investment ing journalists might dig too deeply ing their debts: handing over land Group – a local government financ- into the city’s recent real estate instead of cash. ing vehicle – has been diligently so- boondoggle. Breakneck construc- “Land is losing value now, and liciting loans, including billions of tion has created what the BBC re- companies are unwilling to accept renminbi from local companies like cently called “the biggest ghost town it,” a project manager at an Erdos coal giant Inner Mongolia Yitai in China” in Erdos – not the kind of road contractor told the magazine. Group. But Dongsheng already looks coverage likely to please the image- Adding to the local economy’s over-leveraged, with liabilities conscious bureaucrat. misery: the unravelling of private worth Rmb14 billion at the end of The city’s government is also lending markets (see WiC127) and 2011, compared to just Rmb634 mil- P h o t o running late in paying for some of weakening prices for the mainstay lion in 2008. In a weakening local

S o u r its public projects, reports Century of the regional economy, coal, as economy, it seems unlikely that c e :

R e Weekly magazine. As of August, Er- prices fall due to a weakening de- more borrowing offers a credible so- u t e r s dos owed around Rmb5 billion mand. One analyst reckons that only lution to the financing deficit. I 11 Week in China Aviation 7 September 2012

Time for plane speaking It’s livid with the EU over carbon tax. So why is Beijing buying Airbus planes?

emember Alec Baldwin being R‘deplaned’ last December, when he refused to switch off his iPad? The actor was escorted off the air- craft after a stormy altercation with a flight attendant from American Airlines. This week China had its own high-profile in-flight bust-up, al- though on this occasion all the sym- pathy was with the cabin crew. The incident took place on a China “We need to talk” Merkel tells Wen Southern flight and the culprits were a drunken military official and like coming to a head next April Sino-European disputes through his equally inebriated wife. Unable when airlines will start facing EU talks (although in this case, the Ger- to stow their hand luggage, the two fines if they fail to comply. man Chancellor mentioned a poten- first berated the crew member Meanwhile the Chinese have tial anti-dumping case about solar (“Aren’t you just a flight attendant? been searching for alternative panels). Interestingly, the Financial I know your boss!” was one threat) means to force into a com- Times thought that this was putting before she was scratched and promise. According to media re- Merkel on a “collision course” with punched. She later posted images of ports earlier this year, Chinese air- the EU trade commissioner Karel De her bruises on Sina Weibo. lines were also told to hold back on Gucht. It indicated that Europe’s Soon enough, news of the inci- ordering Airbus planes or switch to most powerful leader was going over dent stirred an online storm, espe- buying Boeings instead as a means the head of the EU bureaucracy. cially when the man’s wife seemed of punishing the Europeans. The carbon tax didn’t get a spe- to have taken the blame in a local That made Angela Merkel’s visit cific mention during Merkel’s visit. probe. The netizen response was fu- to Beijing all the more intriguing But the combination of the Airbus rious enough for the story to find last week. During the German order and her emphasis on dispute its way into the mainstream press. leader’s trip, the Chinese signed an resolution may suggest that she is The military official – a political agreement to buy 50 Airbus aircraft ready to push for talks to solve this commissar from Guangdong – has for $3.5 billion. That raises the ques- rancorous problem too (serious now been suspended. tion: with the carbon tax issue still enough that The Economist maga- But another aviation row – this not settled, why would Beijing zine has forecast a trade war with one of a more geopolitical kind – has throw away one of its strongest the EU next year). If that’s right, the been festering for a while between cards? Starving Airbus of orders Chinese will be pushing hard for the Beijing and Brussels. The disagre- looked like one of China’s most pow- carbon tax to be levied on airlines ment is over the EU’s new carbon erful negotiating ploys. only when they fly through EU air- tax on aviation (see WiC155 for more Either China’s leaders are playing space, and not in other sovereign ju- details on how it works), which the an inexplicably poor hand of politi- risdictions. P h o t o Chinese government sees as unfair cal poker, or some sort of compro- Presumably if the EU refuses to

S o u r and a slight to its sovereignty. As a mise is afoot. So it was perhaps im- give ground, the Chinese will find a c e :

R e result it has ordered the nation’s air- portant that Merkel also made a way of cancelling their Airbus order u t e r s

lines not to pay the levy. Things look statement in Beijing about solving at a later date… I 12 Week in China Society and Culture 7 September 2012

Coming to America Chinese star Li Bingbing lands role in Hollywood blockbuster

ou may have missed the first Hollywood roles,” she said. “But actu- Yfour Resident Evil films (WiC ally it’s because Western movies need did too, we must admit). But no more Chinese faces.” matter, there is a reason to catch But don’t expect Li to work in Tin- the latest and the fifth instalment: seltown full-time. “Frankly, no mat- Resident Evil: Retribution. That’s be- ter how nice Hollywood is, it is not cause Li Bingbing, the Chinese ac- my home. I will never go to another tress who starred in Snow Flowers country. The filming [for Resident and Secret Fan, has a role in the Hol- Evil] took place in , and I lywood movie, which is inspired by found myself extremely homesick. a video game. Every day I went online to surf the Li (see photo) portrays the only Chinese internet sites to nourish my Chinese-American character, Ada homesick heart.“ Wang, who appears frequently in traditional qipao, mirroring the ap- pearance of the character in the video game. Her attire seems prac- tical enough. In the film Li fights Murdering a plenty of zombies, alongside Milla song Jovovich’s character Alice. This is Li’s first time starring in a Karaoke proves a killer Hollywood film, making her the third Chinese actress to appear in a n paper it would seem that Hollywood production, after Zhang Osinging karaoke is one of the Ziyi and Gong Li. world’s safer pastimes. It happens “The reason I took the opportu- indoors, the singer is often sit- nity is because I wanted to broaden ting down, and the event is usu- my horizons, to see how a Holly- ally full of friends and family. wood production works,” Li told In China, however, karaoke Sina Entertainment, an internet por- has a deadly streak. At least 10 tal. “Their production process is very people have been killed so far streamlined, and they are also very this year in attacks directly re- rich. You can tell that from how the lated to karaoke singing. production is run… Filming on the The latest case involves the contract says eight hours a day and Yun family from Xi’an who they really only filmed eight hours a gathered in one of the city’s day! If it runs overtime, everyone’s karaoke bars to celebrate the salaries will be doubled. So no one Qixi festival – known by some complains and everyone works the as “Chinese Valentine’s Day” – best they could because you get paid last month. P h o t o so well for all your hard work.” The evening started well

S o u r Li told the Beijing News there were enough, a local newspaper re- c e :

R e clear commercial reasons behind her ported, with all the family of Li Bingbing u t e r s casting. “It’s not that I am chasing Yun, the owner of a local noo- 13 Week in China Society and Culture 7 September 2012

ment even concerns itself with the songs sung in them. Politically sen- sitive material won’t be found on the machines and it can even be dif- ficult to source songs by some pop- ular Taiwanese artists. Last year – around the time that former Chongqing Party chief Bo Xilai was encouraging people to “sing red” – police in the city began installing ‘black boxes’ in local karaoke clubs to alert them when illegal songs were being played. Off key: at least 10 people have died in karaoke lounges this year But don’t let any of this put you off karaoke entirely in China. Be- dle stall, taking part. University told China Radio re- sides karaoke rage is not an exclu- Centre of attention was Yun’s four cently. sively Chinese phenomenon. Two year-old son. But as time wore on, it “People are not encouraged to be years ago, clubs in the Philippines seems the four year-old got less co- aggressive and show individuality. removed the Frank Sinatra song My operative. By 11pm (no early bath and But, in karaoke clubs, they can un- Way from song lists after sub-stan- bed for him, apparently) he was hog- leash themselves and perform any- dard renditions also provoked a ging the microphone determinedly. thing they want,” the professor addd. string of killings. This proved too much for Yun’s That emotional release, mixed “The trouble with My Way is two brothers-in-law, who turned with plentiful alcohol, can make for that everyone knows it and every- on Yu and his wife, and a fight toxic combination. one has an opinion,” karoake broke out. Many of the subsequent fights crooner, Rodolfo Gregorio told The Sensing that Yun was getting the are said to relate to perceived loss New York Times at the time. “I worst of it, a nephew ran back to of face or unrequited love – slights used to like My Way, but after all the nearby noodle stall to fetch a that the victim would normally the trouble I stopped singing it. chopping knife. deal with privately, Zeren com- You can get killed.” The evening ended with the two ments. brothers-in-law lying in pools of In one case a man throttled a their own blood and Yun receiving waitress after she refused his ad- an emergency operation on the vances. He then threw her over his floor of the karoake club. shoulder and carried her out of the Hard graft The nephew fled the scene but club, claiming she was his drunk More corruption scandals was caught and arrested the next girlfriend. erode public’s trust day, after a man hunt, the Xi’an Such brazen behaviour is made News reported. more possible by the layout of tate media and China’s netizen So was this case of ‘Karaoke Rage’ many karaoke clubs – often vast Scommunity have taken a very representative at all? Part of the an- complexes of small, dark and different view about what hap- swer is simply that many people re- sound-proof rooms. Most have only pened on flight CA981 on August 29. ally enjoy karaoke singing and al- a small window in the cubicle door. The Air China flight to New York ways want their own turn at the This encourages not only the oc- turned around seven hours after it mike. But there are other factors at casional bout of unrestrained vio- took off, and flew back to Beijing. play too. By its nature, karaoke can lence. More commonly karaoke staff The People’s Daily reported that be competitive. Moreover in a soci- say amorous couples sing each other the highly unusual incident was due ety which claims to value self-re- into such a state of sexual desire that to a “threat” and that the flight re- P h o t o straint, karaoke clubs are one of the they can’t hold off long enough to turned to the Chinese capital “to en-

S o u r few places ordinary Chinese can let decamp to a nearby hotel. sure the safety of passengers”. c e :

R e their hair down, Gesang Zeren a Given the secluded nature of But internet commentators – us- u t e r s professor of psychology at Sichuan karaoke rooms the Chinese govern- ing the ubiquitous Sina Weibo serv- 14 Week in China Society and Culture 7 September 2012

ice – speculated that the real reason for the detour was that a top offi- cial was on board attempting to flee to the US. One passenger posted a photo of the huge police retinue waiting as the flight disembarked, and said that a woman was imme- diately surrounded by officers. Another commented that if there was such a serious threat, why had the plane not diverted to a closer airport? A blogger named Taoi wrote: “To me it means that whatever happened on CA981 was not such an emergency that the plane had to land right away; sec- ond, it had to be brought back to China for legal issues; and three, Differing views over why CA981 turned back en route to the US [it’s] not suitable to be publicised and had to be covered up.” proved defective last winter. Chinese a glimpse of how their rulers One passenger noted that the Wang’s is hardly an isolated case have enriched themselves and flight map on the inflight screen of a Chinese official trying to flee in awareness is growing of just how had started to show the plane was a bid to escape punishment. The privileged the political elite really is,” flying back to Beijing. But he was central bank believes that at least warned the Financial Times. told by flight crew that it was an er- 18,000 officials have skipped the That perception only worsened ror. Now, the speculation is that the country in the past, with an aggre- this week when the South China authorities didn’t want anyone on gate haul of $123 billion. Morning Post earned a rare re- the aircraft to know that the flight Nor is high-profile corruption vealed that a princeling had been plan had changed, perhaps to en- anything new. Last December we behind the wheel in a drunk-dri- sure that the fleeing official was as wrote a big piece on a similar theme ving accident reported earlier this surprised as anyone when it (see WiC131), after the deputy gov- year. It now looks like the incident touched down again at Beijing Cap- ernor of Shandong province was ar- was hushed-up, happening as it did ital International Airport. rested, suspected of accumulating only days after Bo’s arrest. How- Then again, if there was a genuine billions in graft. In May the deputy ever, it has emerged from an inter- security threat it would have been governor of the Agricultural Bank nal Party investigation that the an equally rational course of action. of China was also arrested for cor- driver was the son of Ling Jihua, The sensitivity over flight CA981 ruption. chief of the General Office of the comes at a time when stories about But, of course, the defining event Communist Party’s Central Com- fleeing officials continue to make of the year was the purge of former mittee. headlines. Last week the Oriental Chongqing Party boss and The young man in question – Morning Post reported that the for- princeling Bo Xilai. In the wake of Ling Gu – was driving a black Fer- mer Party secretary of Fengcheng – Bo’s fall it has emerged that he and rari around Beijing with two semi- a county-level city in Liaoning his family had moved huge sums naked women when the sports car province – had absconded to Amer- offshore, as well as likely received crashed at high speed on the North ica with Rmb200 million. Wang vast kickbacks from the boss of Fourth Ring Road. Guoqiang seems to have fled in late Dalian Shide (who was also ar- “People will ask how Ling Gu April but the state’s propaganda ap- rested). would have afforded a Rmb5 million paratus sought to keep the news Soon after that these revelations luxury sports car in the first place,” quiet. He’s thought to have amassed (and somewhat inevitably) the focus comments the South China Morn- P h o t o his fortune through kickbacks from shifted to how well other princelings ing Post. “It will only confirm the

S o u r a local heating company – a firm – the children of Party elite – seem to public belief that the children of c e :

R e which saw its reputation savaged in have done in their business careers. senior officials have rich and deca- u t e r s Fengcheng when its products “The downfall of Mr Bo has given the dent lifestyles beyond the wildest 15 Week in China Society and Culture 7 September 2012

dreams of the people.” viously, as millions of internet users More bad PR is also likely later work up a fury over many of the this month, reports 21CN Business more flagrant cases. Once an official Historic issue Herald, when disgraced former rail- has been targeted, the pursuit can Hongkongers protest against ways minister Liu Zhijun goes on be remorseless. Witness last week new ‘patriotic’ education plan trial in Shenyang. Liu was arrested the now-traditional practice of de- last year, suspected of taking Rmb1 manding action over photos of offi- his week Winston Churchill’s billion of bribes from contractors cals wearing watches that look be- Talma mater Harrow opened its wanting to win bids to build yond their paygrades. In this case the doors to 750 students in Hong Kong. China’s high-speed rail network. timepieces were worn by a Shaanxi Parents in the city are paying at His trial will only focus public at- bureaucrat (they had a combined least $21,000-a year to send their tention further on graft – and in par- price tag of around $55,000, and in- children to the boarding school, ticular how much of the Rmb4 tril- cluded a Vacheron Constantin and a which also boasts six other British lion stimulus package was siphoned Rolex). Xinhua has since confirmed prime ministers as former pupils. off by corrupt officials like Liu. that the man in question, Yang Da- Despite the hefty price tag, some Officially speaking, China began a cai, is now under investigation. local parents have been putting formal ‘battle against corruption’ in One result of the stream of scan- their children’s names on waiting 1993. So far it’s been a losing strug- dals is the manner in which they are lists at birth. For many, a debenture gle. In a revealing interview this eroding faith in the fairness of payment of up to HK$3 million month with Xinhua, a senior anti- China’s economic system. Put ($385,000) is needed just to secure a graft official conceded that the level bluntly, many Chinese now feel that place at the English school’s Hong of corruption remained “grim” and anyone who is rich must have be- Kong campus. the struggle was “arduous”. Li Xue- haved acted immorally to amass his The waiting list might be about to qin, director of the research office (or her) fortune. A case in point is get even longer? That’s because of the Central Commission for Dis- the Shide boss said to be in cahoots many parents in Hong Kong are cipline Inspection, added that the with Bo. worried about a new government situation was made more complex During the summer WiC also plan that they say will be detrimen- as many cases involve those “in high spoke to a businessperson with long tal to children’s education. The con- leadership positions”. experience of running factories in troversy is over the introduction of Another factor is that the public coastal China, but who now resides so-called “moral and national edu- now has much more opportunity to in the US. When asked if business cation” in all public elementary ruminate on cases of graft, prima- success could be achieved in China schools in Hong Kong (international rily on the web. This is something without paying bribes, he smiled schools like Harrow will be ex- that WiC has also written about pre- and said “impossible”. empted). P h o t o

S o u r c e :

R e u t e r s All not in favour, clap: protesters are aghast that their children will be taught Beijing’s propaganda in schools 16 Week in China Society and Culture 7 September 2012

Last Saturday, just days before way people chose to express their washed,” a columnist commented Hong Kong’s new school year be- opinions, they should act rationally in the Hong Kong Economic Jour- gins, 40,000 people took to the and exchange views with one an- nal. The only difference was that the streets (according to organisers of other,” Leung implored. Brits were much more subtle in how the rally) to protest against the new However, in light of the over- they approached the task. For a start, educational programme, despite whelmingly negative response to the Chinese history courses stopped torrential downpours. Ten students education plan, the government has with the events of the early 1800s. and teachers also began a hunger agreed to delay the mandatory im- That was conveniently before the strike protest last Friday. plementation of the curriculum un- Opium Wars that began in 1839 and Centre-stage in the protests is a til 2015. But it still insists that plans 1856, in which the British seized textbook titled The China Model, for moral and national education parts of the territory that now which was to be given to students in will move forward. Protesters were makes up Hong Kong, agreed the the autumn as part of the new not happy, with many still gathered New York Times. Lest we forget school year’s curriculum. Oppo- outside the government’s main of- these conflicts were triggered by nents say that its sections on mod- fices this week demanding that the British insistence on the right to sell ern history are a hasty rehash of programme be completely aban- narcotics in China. Gunships forced Chinese propaganda, omitting any doned. the issue when Beijing refused. mention of the Cultural Revolution The latest controversy is another In the meantime, the education or other problematic periods, and sign of the perceived animosity to- debacle in Hong Kong has also at- extolling the virtues of one-party wards China among sections of the tracted attention on weibo on the rule. One of the book’s more ideo- Hong Kong population. People in Chinese mainland. Judging from logical claims: “Multiparty politics the territory are worried that the some of the comments online it ap- could victimise people, whereas city’s future is leaning more towards pears that many netizens are sup- concentrated political power creates “one country” and further away portive of the protesters. One wrote: a selfless government and stable so- from “two systems”. While they ap- “Protect Hong Kong, because Hong ciety.” The class was scheduled to be preciate the perks of being a part of Kong is our future. If we lose Hong taught in some elementary schools China – especially the trade and fi- Kong, tomorrow we are no different beginning this September and is to nancial privileges not granted to from North Korea.” I be mandatory in 2015 for all public other Chinese jurisdictions – there is elementary schools, and 2016 for a growing sense that Hong Kong is public high schools. losing its independence. Keeping track “National education is necessary. “We must continue to be alert, to Every country has it, but not like know what really China wants in More bad news for ailing solar firm Suntech, after a court in the southern this,” one parent complained. Hong Kong,” says Allen Lee Peng-fei, Italian town of Brindisi filed charges Government officials say the former legislator and convener of against Suntech-owned investment fund point of the course is to promote a the Executive Council, an influen- GSF. The accusation is that solar plants deeper sense of awareness among tial advisory body. “We don’t want to were built without formal approvals in Hong Kong residents of Chinese cur- be puppets. We don’t want to be only order to cash in on Italy’s renewable- energy subsidies. rent affairs, history and culture. The followers.” This follows the report in WiC161 that idea is also to help them “foster a But others say that the anger di- Suntech founder Shu Zhengrong (who sense of affection for the country,” rected against the national educa- has an individual stake in GSF) had stood according to the Education Bureau’s tion programme has been blown out down as CEO after allegations that €560 curriculum guide. of proportion. “It’s impossible to be million worth of fraudulent bonds were allegedly issued by the fund in 2010. But for many parents, teachers brainwashed,” says Wong Chi Man, Suntech owns 80% of the fund but and their students, the new content who directs the National Education is said to have failed to disclose the seems to confirm fears that national Services Centre in the city. “Hong financial workings of GSF or properly education will turn out to be a form Kong people still have access to a lot monitor its business practices. The of “brainwashing”. of information. All education is, to initial revelations led to Suntech’s share price dropping 40%, as well as the This something that Hong Kong’s some extent, designed to brainwash. launch of a series of lawsuits in the newly elected chief executive CY Le- I think the word ‘brainwash’ is too , where the company is ung denies. He has insisted that his negative.” listed. Now it looks like the Italians administraion has “no motive” to Besides, under British rule Hong want their day in court too. brainwash pupils. “No matter which Kong people were also being “brain- 17 Week in China And Finally 7 September 2012

A crime against fashion Man who faked Hermès bags gets life sentence in prison

n original Hermès Birkin bag Three other men involved in the doled out for pharmaceutical and Acan cost upwards of $7,000, production of the bags were sen- health-related counterfeiting. but on the lower floor at Beijing’s tenced to 10 years each, according But others suggested that the real Silk Market a fake can be acquired to reports. reason for the severe sentencing was for about 1% of that price tag. The harsh sentences put that Chinese officials – or more WiC has been told that if you tell the French luxury brand in a dif- likely their wives or mistresses – the sales assistant you would like to ficult position. On the one hand had been stung by a recent purchase the better quality stuff it is keen to stamp out the prob- scam in which high-quality you will be led down to the car park lem of fake or ‘replica’ bags – Hermès fakes were passed and shown a photo album. 80% of which come off as real bags (ap- After you have selected the item from China. But as a parently the fraud- that you want, the girl makes a brand it may also ster used receipts phone call. About 10 minutes later have reservations from Hong Kong someone comes running in with being seen to sup- stores as part of your “replica” bag. port such dracon- the con). A quick inspection and cash ian punishment. Earlier this changes hands. Apparently a good Attempts by year police in copy will set you back about $200. the Wall Street busted a But all this could soon be a Journal to elicit “sophisticated thing of the past if China’s judi- an official response counterfeit Hermès bag cial system decides to uphold the from the company were unsuc- syndicate” involving former com- life sentence handed down to Xiao cessful. But netizens reacted with pany employees. Hermès shops in Zhenjiang, a Hermès bag counter- anger, saying the sentence did not China were then inundated with re- feiter, last month. Two factories match the crime. quests to authenticate customers’ set up by Xiao in the southern “You can get 15 years for raping a bags after the announcement. But province of Guangdong were child but life for making handbags. Hermès said its staff weren’t trained found to contain copies of Hermès Where is the justice?” asked one. to do so – possibly because it didn’t goods with a production value of Certainly, the sentence is a want information about its “secret over Rmb100 million ($15.7 mil- lengthy one. Legal observers say that markings” getting out to the fakers. lion), a statement posted on the the average term for counterfeiters Still, as things stand, at least one Heyuan People’s Intermediate is three to seven years in prison, counterfeiter won’t be making hand- Court website said. with the harshest punishment bags again for the rest of his life… I

Outlook All Black

“Australia is a province of China, and we’re a suburb of Australia”

Bill English, New Zealand’s finance minister, tells the Financial Times he expects Kiwi exports to face difficulties as a result of a slowing Chinese economy. Bill English

18 Week in China The Back Page 7 September 2012

Photo of the Week In Numbers Rmb8.8 billion China’s Ministry of Railways first-half net loss as it struggles with rising operating costs, highlighting the financial difficulties faced by the already debt-saddled ministry.

102.5 million tonnes The size of iron ore inventories at 25 major ports in China this Monday, as steelmakers posted widespread losses in the first seven

P months of the year. Steel companies saw h o t o

their profits decline sharply in the first half, S o u r c with the sector’s combined income e :

R e tumbling 49.4% from a year earlier to u t e r s Rmb6.64 billion.

For the man who has everything: a 6.8-metre-tall and 7.7-metre-wide chair is showcased at a shopping mall in Shanghai. Requires big flat 26.5% The percentage of the world’s shipped to China in 2012, according to data tracking firm IDC. China should overtake the US this year to Where is it? become the world’s largest Some of the places referred to in this issue market. The US is expected to account for 17.8% of units shipped.

Beijing $147 million The amount Chinese PC vendor Lenovo will pay to buy CCE, a consortium of China Xi’an three Brazilian consumer electronics Shanghai makers. The deal will beef up Lenovo’s Zhejiang presence in , where CCE makes Chongqing Wenzhou personal computers, phones and TVs at its seven factories across Latin America’s Guangdong largest country. Hong Kong

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