1 Talking Point 5 Week in 60 Seconds 6 China Ink 7 China Consumer Week in China 8 Banking and Finance 9 Agriculture 10 Energy and Resources 11 M&A 13 China and the World 14 December 2012 15 Chinese Character Issue 176 17 Society and Culture 20 And Finally www.weekinchina.com 21 The Back Page The war on graft m o c . n i e t s p e a t i n e b . w w w

New leaders say corruption could be the Party’s undoing – but is the problem

too big and too widespread to fix? Brought to you by Week in China Talking Point 14 December 2012

A long, hard graft ahead Wang Qishan becomes anti-corruption tsar, but will he have an impact?

“ eemingly a bizarre appoint- from power in recent years. Point- to have been getting worse, or at Sment,” was the verdict of Jay edly, he then warned that least much more apparent to the Taylor, the biographer of Chiang unchecked corruption in China public eye. Kai-shek. He was referring to the de- would spell “the end of the Party As we pointed out in WiC172, cision to include Du Yuesheng on a and the end of the state”. sales of high-end liquor Moutai new drug control commission. The offer a decent proxy for graft – as year was 1932. The problem was that How big a problem has graft be- the drink is the favoured banquet- Du was also the head of Shanghai’s come? ing tipple of corrupt cadres and the Green Gang and a major drug lord. ‘Endemic’ is the adjective that business folk seeking to bribe them. His appointment symbolised the springs to mind. Moreover, it seems While most of the stocks on China’s institutional corruption that bourses have performed lethargi- dogged Chiang’s government. Inter- cally, shares in Kweichou Moutai – estingly, the Chinese leader was which makes the alcoholic drink – aware that graft was one of his surged 3,500% during the past regime’s fatal weaknesses. Taylor decade thanks to rising demand and points out in his book Gen- soaring prices (leading to calls to eralissimo that Chiang di- ban officials from drinking this agnosed as much in a costly luxury or receiving it as a speech to a military confer- gift). ence (again in 1932). Speaking Transparency International last of the enemy that would even- week published its own annual cor- tually defeat him in the civil war, ruption index. This ranks 176 Chiang warned: “the roots of the countries and in a sign of deteri- Chinese Communist Party lie in the oration, China slipped from inefficiency and corruption of our 75th to joint 80th place, scor- government machine”. ing just 39 out 100 (where 0 Today – after more than six denotes ‘highly corrupt’ decades in power – that same Com- and 100 ‘very clean’). munist Party faces a similar issue A quick search of WiC’s itelf. As with Chiang, China’s cur- own web archive under rent leaders are making clear that the term ‘corruption’ corruption could see their own rule generates 154 sepa- at risk. rate articles touch- Over the past decade President ing on the subject. Hu Jintao and Premier Wen Jiabao An early case we have talked repeatedly about reported on was China’s corruption problem. But that of a Nanjing new Party boss Xi Jinping has official outed by neti- started out in office by making one zens, who posted photos of him Photo Source: Shutterstock of the most dramatic statements so wearing a $14,600 Vacheron far. Soon after being elected general Constantin watch (his salary was secretary of the Party, Xi gave a $584 a month). And last year we speech to the Politburo citing other looked at how offenders were (unnamed) regimes that had fallen becoming progressively more 1 Week in China Talking Point 14 December 2012

senior, and the sums involved much greater. Former railways minister Liu Zhijun was detained for taking up- wards of Rmb1 billion ($160 million) of bribes on high-speed train con- tracts, while the former deputy gov- ernor of Shandong province was purged on allegations that he had salted away billions more from du- bious dealings (see WiC131). In fact, hardly a day goes by with- out some tale of corruption emerg- ing in the Chinese media or via Sina Weibo microblogs. Late last month a village deputy head in Guangdong was suspended after allegations that he owned 80 properties and 20 cars valued at over Rmb2 billion. This month the mayor of Lanzhou Best Overall Renminbi Products and was accused of owning five luxury Services Provider watches and a police chief in Xin- jiang was removed when it emerged that he’d kept sisters as mistresses, giving both a place on the payroll as a reward. Indeed, sex and money go hand- in-hand in many of the corruption cases. Take the example of Chongqing official Lei Zhengfu, who got into trouble after indecent videoclips started circulating on- Best Bookrunner of Offshore Best Offshore line. It emerged that a construction Renminbi Bonds Renminbi Bond House company had paid an 18 year-old to have sex with Lei in return for granting it contracts. The whistle- blower who revealed the case has since said that he is aware of videos featuring at least five other senior figures from Chongqing.

2012: the annus horribilis… When Deng Xiaoping launched ‘re- form and opening’ his goal was the Dim Sum Bond House Best Dim Sum of the Year Bond House unleashing of a more entrepreneur- ial market economy in China. But a seamier by-product was rising cor- ruption, in part because officials still controlled access to the assets and opportunities that would allow com- panies and individuals to prosper. Over the years the general public has 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 and SIPC, and become disenchanted by the steady HSBC Bank USA, NA. 12-043 stream of cases, each unveiling a 2 Week in China Talking Point 14 December 2012

fresh example of venality. net giant Tencent. In fact, there However, the year 2012 has was general surprise that, con- been altogether different, with trary to the usual practice, local the scandals that have emerged roads were not closed as his en- assuming a new scale of signifi- tourage drove across town. This cance. The biggest story of the spared local motorists the usual year by far has obviously been tailbacks. Nanfang Daily quoted the fall of Bo Xilai, princeling and one netizen: “I followed his bus former Party boss of Chongqing. to Tencent Plaza. It was around A tale of abuse of power, murder 4.17pm. There was no special and intrigue, Bo’s case rocked the police patrol on the streets, not Party, exposing illicit behaviour even traffic police. Traffic on by one of the country’s most sen- Shennan Avenue was as nor- ior politicians. The exact sums mal. I think the wind may truly are unknown, but local media have changed this time.” speculate that Bo and his family Reports in the China Daily – made fortunes in cahoots with which called Xi a “man of the (the now detained) Dalian tycoon people” and said that he had Xu Ming (see WiC145). Much of made “little fuss on his first of- that money was moved offshore. ficial visit” – were clearly de- The revelations – worthy of a signed to show the new chief John Grisham novel – would have Wang: huge task ahead setting a new tone. been serious enough. But there were “In China it is very important for further blows. The New York Times the central leadership to set an ex- produced an investigative expose disapproval at cases of abuse of ample because it sends a strong sig- into wealth accumulated by Wen Ji- power. He has demanded that Party nal to officials at the lower levels,” abao’s family (although Wen’s members take a resolute stand thought Ma Huaide, a law professor lawyers have disputed the article). against corruption, including abuse at China University of Political Sci- Then there was the attempted cover by relatives. “Recently, our Party has ence and Law. up by Ling Jihua of his son’s death in had serious discipline and legal cases The other significant aspect of a car accident. A chief of staff to Hu of a despicable nature which has had the trip was its destination. Visits to Jintao, Ling was destined for even a bad political effect and shocked Shenzhen conjure memories of higher office until it emerged that people,” Xi said, without naming any Deng’s famed 1992 ‘Southern Tour’, his son had smashed a black Ferrari individual incident. leading some analysts to say that Xi into a wall in Beijing in March. Ling Xi’s initial weeks in power have was signalling that he favours fur- Gu died, while two semi-naked also suggested an attempt to pres- ther economic reforms. women passengers were seriously ent a new, more ascetic style. Gov- A new broom? injured. A fake message sent from ernment officials have been told to The man Xi has selected to be the the son’s weibo sought to persuade cut back on costly banqueting, and new anti-graft tsar is Wang Qishan. media he was still alive, while a state- there are to be “no welcome ban- It’s an interesting choice, not least owned firm reportedly paid millions ners, no red carpets, no floral because the New York Times reports of dollars to the families of the girls arrangements or grand receptions that Wang has no children, which to keep quiet. The full extent of the for officials’ visits”. He emphasised eliminates a key conflict of interest scandal emerged just ahead of last instead that cadres should focus on (there is always the temptation for month’s Party Congress, and once thrift, efficiency and less verbose the offspring of senior officals to again highlighted shocking behav- meetings. cash in on parental connections). iour at the government’s most sen- Xi also sought to live up to the di- Known in China as ‘the fireman’, ior levels. rectives on a visit to Shenzhen last Wang has frequently been assigned week. Weibo postings made much of to trouble spots. In the nineties he Photo Source: Reuters Is change afoot? the fact that the usual pomp was ab- was entrusted with turning round Xi, whose own family has also been a sent as he toured the city, laying one of the big state banks, then target for investigation by flowers by a statue of Deng Xiaop- mired in bad debt. When GITIC, the Bloomberg, was quick to signal his ing and visiting private sector inter- main fundraising arm of the 3 Week in China Talking Point 14 December 2012

Guangzhou government, blew up in simple point: when Wang speaks it But the jury is still out? 1999, causing a furore among for- makes sense to listen. This is not an The sheer enormity of China’s cor- eign lenders, Wang was sent in to fix individual given to empty talk. And ruption problem makes Wang’s job that too. Later he was made Mayor he seems to have started his anti- one of the toughest on the planet. of Beijing to oversee the Olympic graft campaign with a senior scalp. Cynics (or realists, perhaps) say he preparations. And most recently his Last week it emerged that Li is doomed to fail and that a web of portfolio has including dealing with Chuncheng, the deputy Party secre- powerful vested interests will block Sino-American ties and the frac- tary of Sichuan province had been his progress. Harvard historian and tious issue of the renminbi’s ex- detained for “disciplinary viola- Party expert Roderick MacFarquhar change rate. tions”. Li is a vice-ministerial level said as much during a recent The editor of WiC met Wang per- official and is thought to be impli- speech in Hong Kong. He re- sonally in 1997, interviewing him for cated in a scandal at Chengdu Indus- counted: “The former chief editor an hour in the period when he was try Investment Group, a of the People’s Daily said to me that head of China Construction Bank. It state-owned firm. in the forties – which he lived was immediately obvious that Wang The markets also seem to have through as an adult – corruption was no standard bureaucrat. There taken the view that Wang is serious. helped to undermine Chiang Kai- were no slogans or lists of statistics. Stocks associated with the more in- shek, but that it was peanuts com- Instead, he listened closely to ques- sidious side of China’s banqueting pared to the present problem. Now tions and answered them in a re- culture have dropped. Listed liquor he said the sky is the limit and it’s freshingly direct manner. In short, brands such as Kweichou Moutai everywhere.” The author of Mao’s he was extremely impressive. have plunged 20% or more. Last Revolution seems to think the At the time of the interview, Con- Also significant: Macau casino problem too big to fix. “Where do struction Bank had just entered stocks have retreated after reports you start?” asks MacFarquhar. into a joint venture with Morgan that Beijing sent agents to the terri- For those who dare to be more Stanley. As the meeting wound up, tory to investigate cases of money positive, Xi’s first month at the Wang made what seemed like an laundering involving senior govern- helm has at least offered a welcome outlandish forecast. Maybe in 10 ment officials. It’s also rumoured change of style. Moreover in Wang years time we’ll buy Morgan Stan- that Wang plans to probe China’s he has selected one of the most ley, he said. It came close to junket operators (who finance the qualified men to oversee the battle fruition: during the 2008 financial gambling habits of mainland cadres ahead. That leads to a rather more crisis, the US investment bank des- in Macau, and are often said to be a worrying leap of logic: if ‘fireman’ perately courted a Chinese buyer core channel by which ‘dirty’ ren- Wang isn’t able to win the war (though unsuccessfully). minbi is converted into ‘clean’ Hong against graft, then probably no- We cite this anecdote to make a Kong dollars). body can. n

An inconvenient truth For retailers, China has long been an expansion story, as more outlets open to serve the huge consumer market. But for the convenience store industry the growth phase may be over – for the time being, at least. CBN reports that Lawson – a chain from Japan – will shut 30 of its stores this year, trimming its network to 300 nationwide. Another chain KEDI has closed 10 stores in Shaoxing, and FamilyMart is rumoured to be looking to close 200 more. The reason? There’s a store every few hundred metres in

Illustration: Noel de Guzman China’s main cities, reckons CBN. As with other instances of oversupply (see page 7 for suggestions increases in employee salaries. An industry expert that KFC may be facing something similar), this hurts told CBN that stores now need to earn Rmb6,000 profitability at some store locations. The problem is ($963) a day to break-even – a hurdle that many worsened by two other trends: rising rents and shops are struggling to achieve.

4 Week in China The Week in 60 Seconds 14 December 2012

Chinese top luxury ranking The major news items from China this week...

Industrial production rose by 10.1% in November, 1compared with a year earlier, according to official data from the National Bureau of Statistics. This was bet - ter than expected, and the strongest performance since March. At the same time, China’s retail sales increased by 14.9%, the best showing for eight months.

Chinese consumers have overtaken US shoppers this 2year to become the world’s biggest buyers of luxury goods, accounting for 25% of global sales through pur - chases at home and overseas, according to consultancy firm Bain. American consumers now account for one- fifth of the world’s luxury sales, followed by the Japan - ese at 14%.

The Philippines would “strongly support” a rearmed Still working: industrial production surged 3Japan as a counterweight to the growing military as - sertiveness of China, the country’s foreign minister said To boost deposit levels ahead of an expected year-end this week. The unusual statement reflects alarm in 5regulatory review, Chinese banks have been stepping Manila at what it sees as Chinese provocation in the up their sales of high-yield investment products to cus - South China Sea, most of which is claimed by Beijing as tomers. Executives at some Chinese banks told the Wall territorial waters. Street Journal that new wealth management products are being launched almost daily, much more frequently Authorities in the Chinese city of Taiyuan have ac - than prior to the recent push (see page 8). 4cused French supermarket giant Carrefour of price fraud, further muddying the retailer’s growth plans in Auto parts company Wanxiang America has won the the country. The Taiyuan Bureau of Price Supervision 6bidding for US firm A123 Systems, the government- and Inspection said it had uncovered cases in which Car - backed battery maker that has yet to turn a profit. The refour was charging consumers higher prices at check - Chinese firm (for more on its business history in the US, out than were advertised on shelves. Carrefour’s market see WiC92) purchased A123 at a bankruptcy auction. share in China fell last year to 8.1% from 9.1% in 2007. Wanxiang’s winning bid was estimated at between $250 million and $260 million. A123, which was awarded nearly $250 million in grants by the Department of En - ergy in 2009 to build a factory in Michigan, filed for Chapter 11 bankruptcy in October.

BMW Group announced that Christoph Stark, the 58- 7year-old chief of its China operations, will retire in the first quarter of next year after helping to boost the company’s annual China sales more than 20-fold during P h o t

o a management tenure that started in 2004. During

S o u r Stark’s eight years at the helm, annual sales surged from c e :

R e 15,500 cars to the 300,000 units expected to be sold by u t e r s Paying a price: Carrefour faces allegations in Taiyuan the end this year. n 5 Week in China China Ink 14 December 2012

Line in the sand

Canada approves Chinese state-owned CNOOC’s $15.1 billion acquisition of local oil firm Nexen. A controversial decision?

What the Chinese press says The key issues What the foreign press says

China Securities Journal thought so. After CNOOC’s A victory for China Inc? The Nexen deal has been approved, but Reuters humiliating failure to acquire Unocal in 2005, the suggested that Canada’s Prime Minister Stephen approval of the Nexen bid showed a “profound Harper then “drew a line in the sand against any transformation” in the international energy sector, it future buys by state-owned enterprises” by commented. After the financial crisis of 2008, promising that Canada’s oil sands – the world’s third China’s cash-rich companies now have an largest proven crude reserves – would not be sold advantage in buying in the West. The newspaper also to foreign governments again. thought the deal would break new ground in giving News agency the Canadian Press said Harper had a Chinese energy company 90 tenancies in the Gulf been under extreme pressure to nix the deal. State of Mexico, as well as oil assets in the UK. ownership of energy resources is a highly Securities Daily was also upbeat, saying the contentious issue, especially as policymakers have acquisition will increase CNOOC’s oil and gas output spent years getting the Canadian government out of by almost 23%, taking it close to Sinopec’s levels. the oil sector via privatisation. In what was described Nexen will also bring useful expertise in tapping oil as the PM’s longest news conference in recent sands and shale gas, in which China has big reserves memory, Harper said: “To be blunt, Canadians have (see WiC151). not spent years reducing the ownership of sectors CBN was more circumspect, pleased that the of the economy by our own governments only to see approval showed the Canadian government hadn’t them controlled by foreign governments.” stirred up “nationalist sentiment” against China, but In that same briefing Harper was at pains to point concerned that there would be no similar deals in to the opportunities in the Chinese economy for future. That’s because Ottowa has said future Canadian companies, and the need to improve acquisitions of Canadian oil assets by Chinese state- relations with Beijing. If he had vetoed the CNOOC owned firms would be vetoed except in (undefined) deal, those ties would likely have deteriorated. What exceptional circumstances. has emerged is a grand compromise, or as Professor “It seems that CNOOC wins this time, but the way Warren Mabee at Queen’s University put it: “Harper’s is blocked in future,” comments CBN. intent on having his cake and eating it too”.

National Business Daily says the deal is still risky, Any other issues? It’s not a done deal: a final decision on China’s because of the higher costs of extracting oil sands. biggest ever foreign takeover rests with the foreign Crude sold at more than $80 a barrel will be investment panel in the US, where Nexen also owns profitable but below that level Nexen is a “non- assets. But Canada’s Globe and Mail seems to think performing asset”. China Times also quoted local it will go ahead, telling readers: “Now that CNOOC P h analysts who believe Nexen is “not cheap” and finally owns a piece of Canada, Canadian investors o t o

S noting that CNOOC accepted various conditions to might want to return the favour and own a piece of o u r c

e get the transaction approved, such as maintaining a CNOOC… it trades at 10 times earnings, compared :

R e

u major presence in Calgary and keeping a minimum to an average of 21 for its peers… all of that adds up t e r s number of Canadians on Nexen’s board. to an intriguing opportunity.” n

6 Week in China China Consumer 14 December 2012

A little less yummy? Fast food leader reports slowing sales growth

fter years as a business school Xinhua reported last week that Acase study for how to succeed health inspectors have confirmed in China, is Yum Brands – the parent that the “fast-growing chickens” are company of KFC and Pizza Hut – safe to eat, the report unnerved con - struggling to keep its story in the sumers already rattled by a long list textbook? of food safety scandals. In late November, Yum surprised Other analysts say it was only a investors by announcing that same- matter of time before Yum’s sales in store sales will rise only 6% in China China would show signs of slowing, this year. Yum’s New York-listed as its growth trajectory had been so stock plummeted 10% on the news. steep. Still, executives are pushing So what’s the big deal? For Yum, a ahead with new store openings. single-digit increase is unimpressive Yum already has 5,100 restaurants – last year same-store sales went up in China, opening 800 new stores nearly 20% from the prior year. And this year and planning 700 more for the company is also predicting that 2013. In May it announced a tie-up its China sales could continue to be They’re finger lickin everywhere with Suning for outlets at the elec - sluggish through the first half of tronics giant’s stores. Late last year, 2013 before picking up again later thing of a treat, rather than a way of it announced a similar deal with oil in the year. economising on an evening out. major Sinopec to open restaurants Yum says there’s no need to panic. But a closer look at a series of in petrol stations. “I’m very confident we’re going to comments on weibo microblogs “Both of these initiatives showed have solid same-store sales growth,” hint that some of Yum’s China prob - that Yum was increasingly desperate David Novak, the chief executive, lems may run deeper, with diners for new business opportunities after told analysts at an investor confer - unhappy at price rises at KFC, and building out a national network that ence in New York. “I believe in our others even complaining that some already included stores in most of China business model as much to - of its new menu is “deceiving”. the most profitable locations,” says day, if not more, than I ever have.” Take the 9-layer burger, which Doug Young, the author of Young’s The company blamed the sales has been on offer since April. Con - China Business Blog. stumble on the slowdown in the Chi - sumers gripe that it isn’t much The Financial Times agrees, say - nese economy, at a time when different from the standard fare, ing that Yum’s China problem is higher rent and labour costs in first- as KFC counts the condiments as similar to Starbucks’ experience in tier cities like Shanghai are also eat - two layers and the bun as two the United States market several ing into profits. That’s not surprising more, says Kan Kan News, a Chi - years ago. There, the coffee chain news given that McDonalds and nese news portal. was opening new stores so fast that other fast food operators like Japan - Hence the idea that the burger some of them started cannibalising ese noodle chain Ajisen have re - has ‘9-layers’ is a deceptive one. sales at pre-existing ones. That con - ported something similar. Like Yum, And then there are the toxic tributed to the chain’s struggle to they also cited China’s broader eco - chicken accusations. Late last month, increase its same-store revenue at nomic slowdown, and slackening de - Chinese media claimed that Su Hai the rapid pace to which investors P h o t

o mand from diners. It sounds plausi - Group, one of KFC’s chicken suppli - had grown accustomed.

S o u r ble, especially as a meal at Yum iers was using feed that allows its It will be interesting to see if c e :

R e restaurants in many lower tier Chi - chickens to accelerate their growth Yum’s own expansion plans lead to u t e r s nese cities is still regarded as some - cycle from 100 days to 45. Although the same commercial quandary. n 7 Week in China Banking and Finance 14 December 2012

Blame game Huaxia wriggles on the hook, as wealth management product sinks

lmost exactly four years some extent, it is doing business Aago Bernie Madoff was ar - under the government’s direc - rested, setting into motion a tions. How can we trust the gov - chain of events that ended with ernment and the Communist a 150-year prison sentence for Party… now that a state-owned one of the biggest cases of fi - bank refuses to pay our money nancial fraud that the US has back?” claimed another. ever seen. Wealth management prod - But at $65 billion in investor ucts have become a significant losses, the scale of Madoff’s part of China’s financial sys - crimes appear to be small fry tem, with an aggregate of compared to the concerns that Rmb12 trillion ($1.91 billion) are circulating in China right now. Not our problem, sir having been issued, according to The country could be facing a tril - Fitch, a rating agency. lion dollar ponzi scheme, with in - The bank employee has since While the default in Shanghai is vestors and regulators’ fears height - been arrested, although her hus - not the first failure of a wealth man - ening after a high profile default of band believes that his wife is not to agement product, it is the highest a wealth management product (for blame. profile so far. And should Huaxia an earlier article alerting readers to “The products had been on sale for compensate investors, it could also the issue, see WiC172, where the boss half a year, and now the bank is push - set a precedent for further payouts of Bank of China sounded the alert ing the responsibility on her. Why is when other investments turn sour. on this investment class). the bank sacking her now, when the “If the banks foot the bill, there will Earlier this month, more than 40 product has failed, rather than six be no end of trouble,” predicted CICC, investors took to the street in Shang - months ago?” the man, called Xu, said a domestic investment bank, in a re - hai’s financial district to protest on Netease, a news portal. port cited by 21CN Business Herald. against Huaxia Bank, after losing Investors were originally offered But others are more concerned money invested in one of its wealth returns of 11-13%, much higher than that the sale of similar products management products. bank deposit rates, for a minimum could be reaching such a scale that The product was issued by investment of Rmb500,000. The their chameleon nature could end Zhongding Wealth Management In - money raised was then invested in up subverting the banking system. vestment Centre, and sold by an em - four businesses in Henan province As the Financial Times’ Alphaville ployee at a Huaxia branch in the and has since disappeared, says Se - blog explains, wealth management suburbs of Shanghai, reports curities Daily. products can have a bewildering ef - Reuters. But the bank said that the Investors are angry that Huaxia fect on bank balance sheets, where employee was acting without au - seems to be blaming the employee, they can be included to satisfy loan thorisation. Since the investment rather than take responsibility itself. to deposit ratios, but then removed was offered by a rogue agent, “Our money was deposited into to reduce reserve requirements. Huaxia is arguing that it didn’t un - Huaxia’s accounts via the branch “These hidden balance sheets are derwrite the product, reports Secu - counters. For ignorant investors like beginning to undermine the in - P h o t o rities Daily. us, we were buying the Huaxia tegrity of the banks’ published bal -

S o u r c “We sympathise with investors,” Bank’s product and we want our ance sheets,” Charlene Chu of Fitch e :

I m

a a Huaxia spokesman told Century money back from Huaxia,” one told Ratings told the FT. And many sus - g i n e

C Weekly. “But now we can only re - the South China Morning Post. pect the failure of Huaxia’s product h i n a solve this through legal channels.” “Huaxia is state-owned, and to will not be the last. n 8 Week in China Agriculture 14 December 2012

Forward steppe Chinese farmers cross the border into Russia

hang Hongbin’s progress in Rus - WiC90) and water scarcity (WiC59), Zsia is best measured by the ma - and at a time when demand for chinery parked in his backyard. grain is rising, in part because When he first arrived to grow soya China’s dietary shift towards greater beans in 2005, Zhang rented a small meat consumption requires more tractor. The next year, he bought it. feedstock for cattle. The year after that, Zhang’s earnings Russia, in contrast, has the were enough to buy a harvester, and world’s largest reserve of idle agri - in his fourth year he purchased a cultural land, according to the World transporter for his crop. Last year Food Programme, following the col - Russian land, Chinese cabbages Zhang had his wallet out again, this lapse of its collective farm system time for a larger tractor to help him and a steady depopulation of many East Agricultural Development and cultivate a wider area, says the Eco - rural areas. the Dongning Huaxin Group, which nomic Observer. That means that the Kremlin now specialise in leasing land to mi - Zhang runs what is known collo - sees the sector as a commercial op - grants. quially as a “family farm” in the portunity, with Russia’s president, Still, life in the Russian Far East is Russian Far East, an arrangement Vladimir Putin, highlighting agri - not without its challenges. Finding which has seen many Chinese cultural cooperation as an agenda employees is one problem, with lo - farmers cross the border to plant item at APEC’s September meeting cal workers in short supply and the new crops, mostly soya beans but in Vladivostok. Russians limiting the number of also corn. Step forward one of the more suc - Chinese arrivals by quota. Currently, Two regions have attracted most cessful Chinese pioneers, Liu Jian - one solution is to bring in more of the Chinese settlers, the Pri - ping, who now farms 16,000 workers from Uzbekistan, whose cit - morsky Krai north of Vladivostok, hectares in Primorsky Krai and ex - izens can work visa-free. and the Jewish Autonomous Oblast pects a 20,000-tonne grain harvest Huaxin’s Zhang Yingshan also to the west of Khabarovsk. Both ar - this year. This is a vastly bigger ven - wants more support from the cen - eas border on China’s northerly Hei - ture than the small, densely packed tral government, saying that Beijing longjiang province. plots available to most farmers at is advocating a ‘going out and bring Sino-Russian agricultural coop - home, says the China Daily. it back’ policy for agricultural im - eration first began in the 1950s, Liu agrees: “Primorsky is a mirac - ports but has done little to help the when the Soviets paid for the You Yi ulous land. It offers bountiful har - pioneers who have responded. farm (“Friendship Farm”) in Hei - vests at low costs,” he told the news - Farmers in China often get subsidies longjiang. The Russians also sent ex - paper. Other Chinese migrants when buying agricultural machin - perts, teaching thousands of Chi - think so too, attracted by the oppor - ery or seeds, but those overseas miss nese soldiers about mechanised tunity to cultivate soil similar to out, Zhang complains. He would farming techniques. Today You Yi Heilongjiang’s but at a much lower also like to see reductions in tariffs still employs 120,000 people but cost. At Rmb200-500 ($31 to $80) for crops coming into the country the impetus behind the new era of per acre, land is as little as a quarter from Chinese-run farms in Russia. agricultural cooperation is now be - of the price of comparable plots in “For agricultural cooperation, the ing reversed, as Chinese farmers mi - China, says the Economic Observer. shipping back of grain produced in P h o t

o grate to Russian territory. Accordingly, Chinese farmers are Russia should enjoy special policies,

S o u r The move comes as the supply of renting smallholdings in Russia, and including being seen as a resource c e :

R e farmland in China is squeezed by many have signed contracts with import,” Zhang told the Economic u t e r s trends including urbanisation (see Chinese firms like Baoquanling Far Observer. n 9 Week in China Energy and Resources 14 December 2012

Smoke and mirrors Renewable energy firms go to elaborate lengths to hide their problems

rigory Potemkin was the min - nearby residents. Gister who led Russia’s war ef - But fake factories aren’t limited fort during the Russo-Turkish to the solar industry, it seems, with conflict in the late eighteenth cen - wind turbine manufacturer Sinovel tury. But despite his military career, also accused of employing similar Potemkin’s legacy rests more on his tactics. When Sinovel went public efforts to deceive Empress Cather - early last year, it said that it would be ine II on her visit to the Crimea in building a plant in Yancheng to pro - 1787, when he built a series of pre - duce a series of heavy duty turbines tend villages on the Dnieper River. for major offshore wind projects. But Historians still argue whether nearly two years later and Yancheng the tale of the ‘Potemkin villages’ is phase II has yet to be completed, re - even true but the phrase has stuck ports Capital Week. Only Rmb110 as a way of describing a form of de - For real or for show? million has been invested, leaving ception designed to impress on - the plant as little more than a “shell”. lookers. And the strategy seems to were so low that he had no chance Capital Week’s source had more be alive and well in China’s renew - of getting his family member a job. news, too, especially that the facility able energy sector, where compa - In fact, the factory only spent half has been lavishly furnished with nies have been busying themselves of its time in production and had Italian furniture, but that no work creating an illusion of activity to already fired at least half of its actually goes on there. Sure enough, mask the dire conditions in the in - thousand workers. the allegation was also that the fa - dustry. This was a very different situa - cility is populated with staff from Xing’an County in Guangxi tion to the reporter’s encounter in Beijing when it receives official vis - province is one place where reality an earlier visit, where he had wit - its, who act out research and devel - is failing to live up to the hype. Un - nessed white-coated workers toiling opment work. til recently, Xing’an had no solar in - on a busy production line. Sinovel hasn’t commented on the dustry whatsoever, but it now has A visit to a nearby village re - article, although Xinhua has re - plans to build a Rmb100 billion vealed what was really going on. Lo - ported on the allegations too. ($15.98 billion) industrial park spe - cal residents explained that when - The firm is currently battling cialising in renewable energy. In ever an outsider judged to be with an oversupply crisis in wind support of the plan, it claimed to important came to inspect the fac - power equipment and National have 18 businesses already operat - tory, they would be summoned to Business Daily has said that Sinovel ing in the photovoltaic industry last pose as workers, only to disperse had Rmb8.52 billion of unsold in - year, with annual output of Rmb4.7 back to their rural jobs once the visit ventory at the end of the third quar - billion of equipment. was over. ter. A cash crisis seems to be beck - Not all is as it seems, reports As for the proposed solar park oning, which is probably why China Enterprise News. A reporter plan, the locals complained that it Sinovel is reducing the number of from the newspaper visited what is was probably a ploy to appropriate staff nationwide. Last month supposed to be the largest plant in land from nearby villages. China En - Bloomberg reported that 351 people the park, Xing’an Jiyang PV Corpo - terprise News also reported clashes were told to take leave, about 12% of P h o t

o ration, on the pretext that he was in Tielu village earlier this year the work force. They’ll get full pay

S o u r helping relatives to find work. But when the county government gave for the first month, and then just c e :

R e an over-talkative employee at the local land to solar firms without 80% of Beijing’s minimum wage u t e r s door told the visitor that orders gaining majority consent from (Rmb1,260) thereafter. n 10 Week in China M&A 14 December 2012

How I made it in China... PPR acquires Qeelin, a Chinese luxury brand founded by a French expat

ot quite a unicorn, although blend French craftsmanship with in - Nsaid to resemble one in terms spiration from China. It also opened of longevity and prosperity, the qilin its first stores in Paris, London and is a difficult beast to pin down. A Hong Kong before launching in gentle and benevolent creature, its mainland China in 2008 (the com - depiction from the Qin Dynasty pany now has seven stores in China, shows the head of a dragon, the four in Hong Kong and three in Eu - antlers of a deer, the scales of a fish, rope). The intention was to establish the hooves of an ox and tail of a lion. a brand with the requisite interna - But many hundreds of years later tional origins. “The Chinese believe under the Ming, qilin were associ - that the top brands come from ated more with the giraffe, after abroad,” Brochard explained to Zheng He brought two of the ani - Global Entrepreneur. mals back with him from East Yet Qeelin’s collections are also Africa, as presents for the Emperor. infused with Chinese meaning and Much more recently still, the an - Now owned by PPR style, using symbols such as lions, imal has been picked as a source of pandas and dragons. inspiration for one of China’s the brainchild of a French luxury Jean Zimmerman, formerly a lux - newest luxury brands. Qeelin, which goods executive, Guillaume ury goods consultant, followed a sells jewellery in the $2,500-40,000 Brochard, and fellow founder, a well- similar path in founding Ba Yan Ka range, has positioned itself in a sim - travelled designer from Hong Kong La, a cosmetics brand inspired by ilar pricing category to Cartier and called Dennis Chan. Chinese medicine, five years ago. Tiffany. And it was in the news last Shortly before the PPR acquisition Like Qeelin, Ba Yan Ka La is posi - week, when it became the first Chi - was announced, both Chan and tioned as a luxury, but with Chinese nese company to be bought by PPR, Brochard featured in an article in roots. Claiming to draw from the the world’s third-largest luxury Global Entrepreneur about expats wisdom of ancient healing, the com - group behind French peer LVMH who have started their own busi - pany uses natural ingredients har - and Swiss company Richemont. nesses in China, often leaving roles at vested according to the lunar calen - Once more, identity was at the well-established multinationals to dar, featuring traditional remedies heart of the issue. “There is a high try out a more entrepreneurial life. like Chinese mulberry (detoxifying), probability that [Qeelin] speaks In Qeelin’s case Brochard left a liquorice (balancing), goji berry more to a Chinese clientele, given senior role at Louis Vuitton to part - (strengthening), lotus seed (nour - that it uses the codes and tradition ner with Chan, the creative direc - ishing) and Tibetan roseroot (an of that culture,” François-Henri Pin - tor, to build a luxury brand that anti-oxidant). ault, chief executive at PPR, told the represented China, he told the mag - Ba Yan Ka La’s promotional liter - Wall Street Journal, adding that a azine. The plan was to offer luxury ature also makes much of the fact brand “whose origins and DNA are with Chinese characteristics, in a that it eschews chemicals and syn - Chinese will benefit from a consid - similar approach to other aspiring thetic ingredients, formulating its erable advantage”. luxury marques like Shang Xia products with glacial water sourced That Qeelin is now targeting a (which is being developed by from the Yellow River in the Ba Yan P h o t

o Chinese customer base is true French group Hermès). Ka La mountain range of Qinghai

S o u r enough, although Pinault’s rather Qeelin has still been careful to province. Here the combination c e :

R e glowing endorsement seems to cultivate a sense of international ca - suggests East and West once more, u t e r s overlook the fact that the brand is chet, saying that its collections for a product going back to Chinese 11 Week in China M&A 14 December 2012

roots but with a brand champi - on offer – another example is the is their focus on higher-end cus - oning green and ethical values, with service style, in which waiters and tomer segments, as well as concen - a purer, fresher offering, delivered waitresses introduce themselves to trating on operations in Beijing and under a commitment of “100% nat - diners at the start of a meal. This Shanghai before moving to other lo - ural origin”. was initially a challenge, says Mi - cations. Some have also been able to There’s a similar approach in the noie, as staff members were too appeal to dual audiences, both in - restaurant sector from Element embarrassed to speak up, assum - ternational and Chinese. Fresh, a restaurant chain. It was also ing that their Chinese guests had “Foreign customers buy Qeelin started by expats, as a catering no interest. But many diners have because they like our design, while service by Scott Minoie and Shel - grown to like the approach, becom - Chinese consumers prefer the aus - don Habiger 10 years ago. Frank ing regular visitors. picious meaning of Qeelin,” Rasche, an Asia veteran from Coca- Are there many similarities in the Brochard told Global Entrepreneur. Cola, joined them two years later. start-up stories? In most cases, the Over at Element Fresh, the example the chain has expanded, and it now entrepreneurs look to have avoided is a little more prosaic. There, bosses has 10 venues in Shanghai, two in local partners. Perhaps that’s be - noticed that international cus - Beijing and one in Guangzhou. It cause they all seem to have spent tomers often come back to enjoy the also promises a fresh and invigor - considerable time working in China same dishes, while Chinese diners ating offering, in which salads, before they started their own busi - want to try something different smoothies and juices feature nesses, a significant factor in shap - each time they visit. That means a strongly. But the restaurant brand ing how they approached their new menu with a combination of tradi - makes a little more of its Western ventures. Most can speak Mandarin, tional favourites and constantly re - background than Qeelin and Ba Yan too, some to a high level of fluency. freshed, newer fare, Economic Ob - Ka La. That isn’t just for the food Another area of common ground server says. n

Who’s Hu: Wu Hougang Profiles of China’s business leaders

Getting started tree) rather than using floating rafts, as other Chinese fisheries Wu Hougang was born into a fishing family in 1965 in Zhangzi, a preferred. Some locals were sceptical of the investment, but Wu small island near Dalian. At 17, he started work with a local was vindicated when his new produce fetched much higher prices shipping company, first as a mechanic, and later joining the than normal scallops. Zhangzi Island suddenly became a ‘national accounts department. famous brand’ thanks to its scallops (70% of Zhangzi Island’s revenue comes from these bottom-cultured scallops). Meet the Mayor Wu began acquiring businesses elsewhere – such as a Towards the end of 1980s, Wu joined the finance fishery plant in Fujian used for abalone. In 2005, he department of Zhangzi Island Fishery Corporation, a purchased several plants in Dalian and invested Rmb120 township enterprise founded in 1958. In 1996, he million to create Golden Square, a marine industrial park. became the company boss and also the local mayor The benefits of this logistic hub? In a little under a day, (traditionally the two roles went hand-in-hand). Wu fresh scallops, sea cucumbers, abalones, sea urchins and wrestled with a loss-making business – he motivated conches could all be distributed to 72 key markets across the fishermen by giving them ownership of their the country. boats, but on condition the company could control In 2006 Zhangzi Island listed on Shenzhen Stock sales and pricing. A year later he had the worst of the Exchange, becoming the first fishery company to do so in losses under control. China.

Big break Independent thinker In 2002, Wu worked to turn the fishery into a private enterprise. The firm employs 4,000 people and revenues reached Rmb2.9 The firm had advantages: access to some of China’s cleanest sea billion last year. Through an agreement with Wal-Mart, Zhangzi water, and an ocean highly regarded for its seafood. Island products are distributed in more than 30 countries. P h Wu invested Rmb5 million ($799,322) for a 10% personal But Wu still leads from the front, and isn’t a great believer in o t o

S stake in the company, now called Zhangzi Island Fishery Group. collective wisdom. o u r c e The remaining 90% was shared among the residents of the island. “When coming up with strategies, if 70% of the employees :

I m a Wu introduced new technology from Japan to cultivate were for it, I concluded it was probably the wrong decision,” he g i n e

scallops – planting seeds on the ocean floor (akin to planting a advises. C h i n a

12 Week in China China and the World 14 December 2012

Sail of the century A new account of how American merchants first arrived in China

fter a year in which Week in AChina has reported frequently on Sino-US relations, we end 2012 with an account of the earliest days of contact between the two coun - tries. So early, in fact, that when the Empress of China first anchored off Canton in 1784 – six months after leaving New York – its hosts had no knowledge of the country from which the ship had sailed, or any way of referring to its inhabitants by name. On being advised by the new ar - rivals that they most certainly were The Empress of China first anchored off Canton in 1784 not British (as the Chinese had as - sumed), the locals kept things sim - Company which held a monopoly, book – an American trade deficit ple by deciding to refer to their vis - mandated by Act of Parliament in with the Chinese – was also appar - itors as “the New People”. the United Kingdom. It wasn’t until ent from the very start of commer - So says Eric Jay Dolin, author of the Stars and Stripes flag was first cial ties. When America First Met China: An seen fluttering off Canton that a Ginseng, sea otter pelts, sealskins Exotic History of Tea, Drugs and genuinely new relationship was to and sandalwood were the main Money in the Age of Sail . The re - be established. Misconstruing the goods that the Chinese actually cently published book is an account ensign’s design, the Chinese would bought from American traders. They of the first hundred years of Sino-US later use it to descriptively label the too offer an intriguing parallel: after trade ties. American merchants as the “Flow - all, there are those who claim that For a relationship so critical to ery Flag Devils”. the sale of low-price Chinese goods America’s future, more knowledge From the start, the relationship in American supermarkets today has of how the relationship with China looked lop-sided in commercial come with a cost to China of wide - started out is important, Dolin sug - terms. For the Americans, trade with spread environmental damage. Two gests, and he helps out with a his - China was treated with great impor - hundred years ago it was the pur - tory that looks at events from the ar - tance, as a chance to redress the chases by Chinese consumers that rival of the first merchant ship in commercial stranglehold still en - led to some of the worst cases of de - present day Guangzhou through to joyed by their former colonial mas - struction of natural habitats and an - the late 1860s, and the advent of ter on trade routes elsewhere. But imal species. steamship travel. for the Chinese, the interest was less Hawaii (christened Tan Heung Of course, the Chinese were trad - immediate. Initial American hopes Shan , or Sandalwood Mountain by P h ing with America long before the of cashing in on a 300-million con - the Chinese) had been almost en - o t o

S o 1780s, mostly with the sale of silk, sumer market were never fulfilled tirely stripped of its sandalwood u r c e :

R tea and porcelain to the former as hoped. As Dolin points out, there forests by visiting traders by the a y m

o British colony. But in the days be - is resonance here with some of the 1820s, for instance, while seal popu - n d

M

a fore independence, the goods had frustrations of more recent times. lations in the Pacific and South At - s s e y to arrive courtesy of the East India Another theme that features in the lantic were decimated by American 13 Week in China China and the World 14 December 2012

ships bound for Canton. after a mutiny three years later. touring the country as an object of At home, the sea otter was Nor was that the worst of the fa - public curiosity, the brothers decided hunted close to extinction on the talities, Dolin says. Dysentery, to settle in North Carolina once their Pacific coast by 1832, in one of the scurvy and other diseases would kill contract came to an end, becoming most lucrative trading opportuni - at least 26,000 Chinese coolies, a naturalised citizens, marrying two ties of the time. The sea otter trade shipboard mortality rate approach - sisters and producing 21 children, all was truly a global enterprise. Team - ing 12%. Eventually, the suffering surnamed Bunker. ing up with Russian fur traders from was enough to rouse public concern When America First Met China is a Alaska, American ships carried and in 1862 Abraham Lincoln signed straightforward read that should be press-ganged natives from the Aleu - legislation making the United States of interest to anyone doing business tian and Kodiak islands to Califor - the first Western nation to prohibit with China. The chapters on the nia, and then forced them to hunt the trade. Opium Wars and subsequent inter - for pelts for delivery to the Chinese. How about wider human contact national treaties help, for example, to In later chapters, Dolin also deals between the two countries? The give perspective on why these still with the opium trade, in which Canton trading system prevented rankle with Chinese today. American merchants were active, al - foreigners from travelling into the But often it is the parallels with though never as heavily as the Chinese hinterland for many of the the present day that stand out most, British. early years of commercial ties, while like the endeavours of the Carne Another chapter covers the Chi - few Chinese showed much interest brothers of New York, who made nese coolie trade, with thousands of in making a return journey on the their fortunes by getting Chinese labourers shipped overseas, often to merchant ships to America. So it craftsmen to copy French luxury the sugar plantations and guano wasn’t until the 1830s that a visit perfumes, fans, silk and porcelain, mines of Latin America. Some of the from China first caused a wider stir and then pricing the goods as if they cases of mutiny and mistreatment in the United States, with the arrival had been made in Paris. The Chinese on American ships make for grim of 17 year-old conjoined twins called even managed to find a pulpy wood reading, including the 300 coolies Chang and Eng. The pair, who were that could pass as expensive who suffocated to death in the hold ethnic Chinese but actually born in rhubarb when pickled. It sold very of the Waverly at anchor in Manila in Thailand, count as something of a well, Dolin writes, even after a num - 1855, or the 70 Chinese corpses cross-cultural success story. Brought ber of children died from eating too thrown into waters off Hong Kong back to Boston to spend 10 years much of it. Sound familiar? n

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14 Week in China Chinese Character 14 December 2012

China’s savviest tech investor Lei Jun models himself on Apple’s iconic founder

hen Steve Jobs died last year, Wmany Chinese questioned whether their own country could ever produce someone quite like like Apple’s former chief executive and founder. Perhaps they are start - ing to get an answer to their query. Lei Jun seems to have something in common with the former tech ge - nius and digital visionary. For a start, he is often spotted wearing a black T-shirt and jeans (though Jobs preferred black mock turtlenecks). Lei also founded one of China’s buzziest tech firms, Xiaomi. Like the iPhone, Xiaomi’s handsets are often some of the most talked-about gadg - ets in China. “China’s media say I am China’s Steve Jobs,” Lei told Reuters in a re - cent interview. “I will take this as a compliment but such kind of com - parison brings us huge pressure.” Lei does his product launches ‘Cupertino-style’, in homage to Steve Jobs For now, at least, the Beijing- based smartphone maker seems to model, the MI1, have been sold since in 2007. Lei is still its chairman and be on the right track. Xiaomi, it was launched in late October 2011. owns about 12% of the company. founded only two years ago, recently Sales for the latest model, the MI2, That stake is worth around $60 mil - raised $216 million from investors which went on sale in October (also lion, according to Forbes magazine. including Morningside Group, IDG for Rmb1,999), are forecast to hit 5 While working at Kingsoft, Lei and Temasek in a round that valued million units. For context, about 130 started Joyo.com as a side project. the company at $4 billion. That was million smartphones were sold to Joyo began as a download site but a quantum leap from June 2011, Chinese customers this year. later became an online bookstore. when Xiaomi was said to be worth a Even before Lei started Xiaomi, Amazon subsequently acquired it quarter of that. which means ‘little rice’ in Chinese, for $75 million in 2004 , rebranding Xiaomi handsets cost Rmb1,999 he was well-known in China’s ven - it as Amazon.cn. ($320). The company’s pitch is that ture capital circle, owning stakes in After Kingsoft went public, Lei they feature “specifications that ri - a number of promising start-ups. spent much more of his time in - val the fastest mobile phones from In 1992, Lei joined Kingsoft, an vesting in other start-ups. He owns P h o t o international brands” but that they anti-virus software firm, after grad - minority stakes in a number of on -

S o u r c sell for “half the average price of de - uating from Wuhan University. In line enterprises including Vancl and e :

I m

a vices with similar processing less than 10 years, it has grown from Lakala, two e-commerce firms that g i n e

C power”. According to Xiaomi’s own five people to more than 3,000 em - have done exceptionally well in h i n a figures, 3.5 million units of its first ployees, having listed in Hong Kong their sectors (see WiC109 and 15 Week in China Chinese Character 14 December 2012

WiC58, respectively, for more on these firms). And then there’s YY, where Lei is again one of the largest sharehold - ers. The social gaming portal listed on Nasdaq recently (see last week’s issue), yielding a hundred-fold re - turn for Lei on his initial $1 million investment. Forbes reckons that Lei’s stake in YY is now worth at least $129 million. “My investment philosophy is that if I lose money, I tell myself that I’m just supporting innovation. But if I make money, I think of it as win - ning the lottery,” Lei wrote in his blog in 2008. “The fact is, I only need to put in Lei’s biggest bet yet: his phones are taking on Apple and Samsung a little money and watch these tal - ented people turn their interest - 50,000 units of the MI2 available driven by two things: one is massive ing ideas – bit by bit – into reality. when the phone was launched – volume and two huge brands.” I get to interact with these pas - which stimulates pent-up demand, Others expect that Xiaomi will sionate people every day and share as well as generating free market - have to deal with challenges in prod - their entrepreneurial enthusiasm. ing and PR buzz. Subsequent uct quality and after-sales service, What a joy!” batches, although larger, also sold once the post-launch buzz starts to That’s a pretty good attitude to out within minutes, says Private fade. have – although you need the fi - Economy News. China Business Times says some nancial wherewithal to be able to So is MI2 worth the hype? The customers are already complaining afford it. new handset looks similar to the about “poor workmanship” on the Most of Lei’s bets appear to have iPhone 5 and Samsung Galaxy S3. new phones, as Xiaomi ramps up pro - paid off. Forbes estimated that the And judging from different tech duction volumes. Nor does it expect entrepreneur had a net worth of $1.5 blogs, the Chinese smartphone also Xiaomi’s customer service centres to billion back in October, making him rivals the two better known hand - be prepared to handle a larger num - one of the 400 richest men in sets when it comes to performance, ber of questions or complaints. China. His net wealth will go up even though it comes in at less than But for the time being, Lei can af - again in the rankings for next year half the price of Apple’s iPhone 5. ford to ignore the warnings. after accounting for the windfall Some bloggers are claiming that the Xiaomi is already profitable and from YY’s IPO. MI2 renders a better graphics per - is expected report revenues of up to Along with money comes sta - formance than the Galaxy S3 and $2 billion this year. Lei says he’s not tus. Like Jobs, Lei has something iPhone 5 too. keen on an initial public offering, of a cult following. When he un - But Xiaomi is not without critics. saying that Xiaomi would end up veiled the new Xiaomi MI2 at a Some say that its products score well spending too much time on trying press conference (invitation-only, on price and technical specifica - to please investors, distracting it of course), crowds of fans greeted tions, but that they will never win from building its brand and prod - him enthusiastically. Reporters points for imaginative design. uct range further. even gave real time updates on the “This is a world where people are “In this industry, I think the most presentation. The first day the now cranking out ‘black back flats’. important thing is to get love from handsets went on sale they sold That’s what all these phones are. your customers,” Lei told Reuters. out within two minutes. When you put 10 on the table… Xi - “If you are popular with your cus - Taking a page out of the Jobs’ aomi is not going to stick out,” says tomers, you succeed.” playbook, Lei is adept at causing a Michael Clendenin, managing di - That was certainly the philoso - stir. Xiaomi releases its new prod - rector at RedTech Advisors. phy that won Jobs and Apple an ucts in small batches – making only “In this world, the market is army of devotees. n 16 Week in China Society and Culture 14 December 2012

The Godfather, Chinese-style New gangster movie revives memories of a corrupt 1930s Shanghai

ary Grant only trusted Saville CRow tailors to dress him off- screen. But China’s answer to the Hollywood legend prefers a Ger - manic tailor. Chow Yun-fat, who has been compared to the English actor for his debonair demeanour, has been tapped by Hugo Boss as its first Asian brand ambassador. Chow’s face is now adorning ad campaigns in Hong Kong and China targeting China’s sharply-dressed, middle-aged shoppers. On screen Chow is more recog - nised for an ability to carry a role in anything from an action adventure through to syrupy romance, usually with plenty of personal charm. And next week he will put that reputa - tion to the test with his newest film The Last Tycoon . In it, Chow plays the role of Cheng Daqi, who rose from lowly ruffian to become one of the most influential gangsters in 1930s Shanghai. Chow co-stars with leading ac - tress Yuan Quan as his love interest (see photo) in The Last Tycoon. But his role should be well within his comfort zone. After all, he first gained fame playing an ultra-cool gangster in the popular TV series Shanghai Beach in the 1980s. Later, he starred in John Woo’s A Better To - Not everyone can pull off a red velvet tux: Chow Yun-fat morrow (1986), cementing his place in Hong Kong gangster scripts. A Better Tomorrow , I had in my mind’s Clint Eastwood, Alain Delon or Better Tomorrow was so popular eye what I wanted. I wanted a mod - Humphrey Bogart. I can see all of that Chow’s character Brother Mark, ern knight: someone with a real per - these characteristics in him,” the di - a trench coat-wearing gun-toting sonality and human qualities. I read rector said afterwards. hoodlum, even became something in the paper that he [Chow] did a lot Having attained unparalleled P h o t

o of a cultural icon. Chow then re - of work with orphans. This is what I popularity in Asia, Chow decided to

S o u r united with Woo to make The Killer was looking for – a strong man with try his luck in Tinseltown. In his c e :

R e (1989) and Hard-Boiled (1992). a good heart. The image he por - first English-language film he u t e r s

“When we did the casting for A trayed to me was one of Cary Grant, played a hitman on the run ( The Re - 17 Week in China Society and Culture 14 December 2012

Chan’s Chinese Zodiacs and later Wong Kar-Wai’s The Grandmasters (see WiC175). But the veteran actor is still ex - pected to pull in cinema audiences. “Whenever Chow holds a gun he sends the audiences’ heart racing. Chow really is back!” Hong Kong director Felix Chong gushed on his weibo .

The trust factor Billionaire couple’s divorce rocks stockmarket

hina is often described in a su - Cperlative light but there is at least one statistic that has yet to fea - ture on many lists: as global leader in the ranking of the largest divorce settlements. In fact, this summer it seized the top spot, with a divorce payout worth more than $3 billion. Adding spice to the story is that the payout Yuan Quan: stars with Chow Yun-fat in The Last Tycoon was made by a woman to her for - mer husband. placement Killers , in 1998). Later, he Lee Ang’s Chinese-language martial Wu Yajun, regarded in the Chi - starred in The Corruption (1999) arts flick Crouching Tiger, Hidden nese media as the world’s richest with Mark Wahlberg, this time Dragon (2000). Chow’s Li Mubai, a self-made woman, parted ways with crossing the divide to play a New swordsman who has given up com - Cai Kui, her husband of two decades York City policeman. bat after decades of chivalric strug - in August. He left the union with a Though better known for his ac - gle, was cited as one of his most 29% stake in Wu’s company, Longfor tion style, Chow admits that he soulful performances. Properties, according to data from doesn’t like violent scenes and is But after years of struggling to the Hong Kong Stock Exchange. more comfortable playing comedic score more meaningful roles in Hol - Last month Longfor confirmed or dramatic roles. But Terrance lywood, Chow seems to have refo - media reports that the couple had Chang, Woo’s long-time producer, cused on Chinese cinema. The last divorced in a “peaceful and friendly says Chow’s problem is that his Eng - few years has seen him feature manner” in an announcement that lish hasn’t been good enough for mostly in mainland productions helped reverse a sell-off from in - many roles, so he has tended to be like Confucius (2010) and Let The vestors worried that a messy divorce offered action films. The best role Bullets Fly (2011). would harm the company’s per - that Chow managed to get in Holly - Despite the strong cast, The Last formance. P h o t o wood, Chang reckons, was as the Tycoon will face intense competi - The divorce is the latest of sev -

S o u r c Thai emperor in Anna and the King , tion from other action films show - eral break-ups among China’s super e :

I m

a where the part didn’t require per - ing over the Christmas period. It wealthy, many of which have had a g i n e

C fect English. premieres on December 22, facing disastrous impact on the businesses h i n a Chow’s biggest hit in the US was off against kung-fu star Jackie that made them rich. 18 Week in China Society and Culture 14 December 2012

food giant Kungfu also had to be put on hold after ex-wife of founder Cai Dabiao’s sued for 25% of the com - pany. Cai eventually paid her $75 million in compensation but the squabble bred bad blood with his business partner (his ex-wife’s younger brother, unfortunately) and last year Cai was arrested on suspicion of fraud (on the evidence of information provided by his for - mer spouse’s family). While the Kungfu case was a scan - dalous one, the money involved still wasn’t enough to see China climb the rankings into the top 10 most expensive divorces worldwide. The final ascent came this year when Yuan Jinhua, one of the founders of the heavy machinery manufacturer Sany, paid his wife $359 million, making her one of China’s richest women in her own right. Billionaire Wu Yajun’s divorce was smartly structured But for China to really dominate the divorce list – think of it as an in - By contrast, Wu’s separation women are ahead of their male dicator of economic might, not just seems to have been pretty clean by peers, ” Hoogewerf continued. marital disharmony – Song Yahong, those standards, though Longfor’s Until a decade ago divorce was the disgruntled ex-wife of steel decision not to make a statement on still relatively uncommon in China, magnate Du Shuanghua will need the divorce led to the brief run on especially between people who had to win her own $4 billion claim the stock after the story leaked in a lot to lose financially from the against her former husband. the media. process. But new laws designed to The case is pending. n Longfor still refuses to give de - protect the weaker party, as well as a tails about the settlement, saying more relaxed social attitude to mar - only that Wu and Cai have held their riage break-ups, has led to more Keeping track shares in two separate trusts since people seeking to end their unions. before the company listed in 2008. Sometimes there are commercial In WiC168 we asked whether Guiyang “As major shareholders, the two consequences. Last year the online would be China’s next real estate disaster, thank to massive overbuilding of have reached an agreement on pro - video website Tudou had to delay apartment blocks. Last week Oriental tecting the company’s interests in its listing in the United States be - Outlook picked up on the same theme, future, other details are private mat - cause the ex-wife of its chief execu - saying the provincial capital of Guizhou ters, the company is not able to tive Gary Wang was demanding a had become well known throughout the comment,” Longfor told WiC. 38% share in the company. Eventu - country for offering a coveted hukou (household registration permit) to anyone “As a far as we know, shares that ally Wang paid his ‘ex’ – Yang Lei, a who bought an apartment. It noted that were once in Ms Wu’s name are now Shanghai TV news anchor – $7 mil - excess supply had already impacted in Mr Cai’s,” says Rupert Hoogewerf lion in compensation and the list - prices. The city’s most prominent the founder of Hurun report. ing went ahead, six months late. development Huaguoyuan was sold in P h o 2010 for Rmb8,000 per square metre t o “The amazing thing here is not But by the time of the settlement,

S o (and due to speculation peaked at u r c just that is the largest divorce set - market sentiment had soured and e

: Rmb17,000 per square metre). Oriental

I m

a tlement in the world but also that it Tudou’s IPO only raised half the g Outlook says that today the average i n e

C is from a woman to a man. Once amount originally forecast. selling price is Rmb4,000. h i n a again this shows Chinese business Similarly, the planned IPO of fast 19 Week in China And Finally 14 December 2012

Supermarket sweep Chinese shopper in US spending binge

others-to-be are generally ad - items of clothing, two baby seats for Mvised to stock up on the the next five years, 80 toys, as well things they will need for their new - as diapers and milk powder in bulk. born well in advance of giving birth. The article stirred a huge discus - But Mrs Zhang, a new mother sion online with some seeing it as from mainland China, has taken another example of a wealthy Chi - that advice to the extreme. nese wasting money. Having travelled to the US to have But most people said they under - her baby, Zhang decided to stay on stood Zhang’s motivations. “These showed that children’s health and and purchase everything that her people are neither out of their mind education were the main reasons son will need until he is five years- nor showing off their wealth. They cited by Chinese parents in deciding old. In fact, she has bought so much just want to buy cheaper, safer and to emigrate. that she needs to rent an entire ship - more durable goods with lower prices Following the news of Zhang’s ex - ping container to bring all the items than in China,” wrote one user on perience in the US, other expectant back to China. Sina Weibo. mothers said they would also like to In an article published by the “Her actions show people don’t give birth there. “It makes sense. American Chinese language news - feel safe with Chinese products. How do you do it?” asked one, after paper Qioabao, Zhang assures read - Rich people buy them from over - reading the article. ers she is not a shopaholic and that seas and it’s the poor who are un - Others pondered the storage bulk buying like this actually makes lucky,” wrote another. question (having a home with financial sense. Purchases of milk powder over - enough space to store five years “Children’s supplies in China are seas have become particularly com - worth of milk, toys and nappies). As incredibly expensive. Things that mon, since six infants died and wealthy as Mrs Zhang may be, it are of slightly better-than-average- thousands of others were made ill seems she may have run into this quality cost several hundred yuan by milk formula laced with issue too, limiting her shopping to but here I buy from discount stores melamine in 2008. items her child will need before he is where products priced $5 to $10 are Likewise, the trend of giving birth five. Will he then be given made-in- good quality. It is really cost-effec - in America is designed to give the China items? Not if Mrs Zhang has tive to buy things in the United child the chance to leave China if he anything to do with it. She is plan - States,” she said. or she wants to later in life. ning another shopping binge in five So far Zhang has bought over 300 A survey published last year years time, the newspaper said. n

Building confidence

“The Chinese are extraordinary. We are in a state of denial, while they are making decisions in the spirit of the Victorians.” P h o t o

S o u Architect Sir Norman Foster says the speed of China’s planning and decisionmaking r * c e :

S processes “embarrasses Europe”. He told Intelligent Life magazine: “China is getting a new h u t t e skyscraper every day.” r Norman Foster s t o c k

20 Week in China The Back Page 14 December 2012

Photo of the Week In Numbers 8.05% The ‘unofficial’ urban unemployment rate in China, according to a survey run by Gan Li, an economics professor at South Western University of Finance and Economics in Chengdu. The study of 8,000 households produced a rate nearly twice as high as the official 4.1% level. Gan reckons that layoffs rose sharply among migrant workers over the past year. P h o t o

S o u r c 2.5% e :

R

e Percentage of the world’s online poker u t e r s accounts from China, according to H2

Gambling Capital, which tracks around Looking for a sleigh: festively attired primary school students in Nanjing 210,000 online poker players. Online gambling is illegal in China but some users can still access sites. To promote Texas Hold’Em, the World Poker tour will host China’s first major poker tournament in Where is it? Sanya on Hainan island this week (although Some of the places referred to in this issue the event is being classified as a sport, to keep the authorities happy).

Beijing 28 The age of Chinese-American designer China Alexander Wang, recently selected as Shanghai creative director by French fashion house Chengdu Balenciaga. Industry observers speculate that Wang was picked for his knowledge of Fujian the Chinese market and fluency in Guangxi Mandarin. Shenzhen Hong Kong

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