1 Talking Point 5 Week in 60 Seconds 6 Investor Q&A Week in China 9 China and the World 11 Cross Strait 12 Banking and Finance 13 Economy 16 M&A 22 January 2016 18 Society and Culture Issue 310 22 And Finally www.weekinchina.com 23 The Back Page New allies plot mobile warfare m o c . n i e t s p e a t i n e b . w w w

Unicom’s Wang Xiaochu forges alliance with his protege Yang Jie, the new

China Telecom boss – will a full-blown merger follow? Brought to you by Week in China Talking Point 22 January 2016

Better together Does Unicom and China Telecom pact signal a full-blown mega-merger?

Smartphones and smart alliances: could new deal see smaller duo outflank rival China Mobile?

t the heart of Beijing’s com - pete with their neighbour: the companies climbed more than 3.5% Amercial district is Financial larger and better capitalised rival in Hong Kong after the announce - Street and there you will find – China Mobile. ment. aside from investment banks – the “21 Financial Street working with Mind you, it wasn’t a total sur - glass-and-steel headquarters of 31 Financial Street, has anyone con - prise. A tie-up has long been ru - many of China’s giant state-owned- sidered the feelings of 29 Financial moured, following some enterprises. That includes all three Street?” went one popular online mega-mergers within China’s state- state-owned mobile carriers. joke in the wake of the news. owned sector. Predominantly these In fact, not only are the three tel - have been in sectors which are ei - cos on the same street, they are very What is the partnership about? ther struggling (such as shipping close-by. China Mobile is located on In an unexpected joint statement and coalmining) or competing for 29 Financial Street, while China last week, China Unicom and China contracts overseas (i.e. to sell high- Telecom is number 31. China Uni - Telecom said their new partnership speed trains or nuclear equipment). com, meanwhile – at number 21 – is will help them to better compete in That said, the telecom carriers don’t a five-minute stroll from China China and abroad. really fit either trend. They compete Telecom’s HQ. The duo will cooperate strategi - locally. They are profitable. WiC suspects there’ll be a lot of cally in areas that include sharing But the government has made executives making the walk be - capital expenditure, expanding net - clear the sector needs shaking up. tween numbers 31 and 21 now that work coverage as well as promoting For instance, it instructed the state- China Telecom and Unicom have new smartphone models and stan - owned trio to join hands to create a entered into an alliance. Last week dards. The two will also ally to ne - new national tower company to P h o the pair announced they’d signed a gotiate better international hold their infrastructure assets and t o :

I m

a multi-pronged strategic agreement roaming rates. avoid repetitive investment (see g i n e

C to share resources, so as to enable The news was greeted favourably WiC236). h i n a them to cut costs and better com - by investors. The shares of both Similar thinking seems to be be - 1

Week in China Talking Point 22 January 2016

hind the latest tie-up between Uni - com and China Telecom. The most Planet China significant aspect of their agree - Strange but true stories from the new China ment: they will team up to build (and share) some of their 4G base LOOSE CASH. stations. Analysts reckon that ac - Chinese media reckoned it was “a new China record” tive network sharing could save the although it might be impossible to verify that. The feat in question: a man two firms up to 40% in capital ex - surnamed Qiu had sex with more than 160 prostitutes over the past six penditure. months. That averages nearly one woman every 24 hours and China HSBC notes in a recent research News Service suggested that Qiu’s own record was hiring nine prostitutes report that both Unicom and Tele - on one particularly lustful day. com are “substantially behind” Qiu spent more than Rmb2.8 million ($425,000) on sexual services, China Mobile when it comes to de - which is a lot for a junior banking officer. How did he afford it? China News ploying faster 4G technology. The Service reported that he embezzled Rmb17 million from a rich relative, government now wants to change who thought she was using the money to invest in a wealth management product that Qiu was marketing. that. “We [often] come back to the After Qiu was arrested for fraud the police found out that he was a VIP question: what does the government client of one of the largest prostitution rings in the country. Subsequent want? It wants more investment and leads provided by Qiu have resulted in an incredible 3,500 arrests in 15 faster networks… approving active provinces. sharing between Unicom and Tele - com fits this goal,” surmise the HSBC analysts. China’s current 4G subscriber base. sonnel shuffles. The first was in Au - Last November the company said gust when Chang Xiaobing, former It’s about taking on China Mobile? it had 287 million 4G users and pre - chairman of China Unicom, took up China Mobile has been offering 4G dicted that figure would reach 500 the same role at China Telecom. since 2013, using a standard called million by the end of this year. Wang Xiaochu, departing chairman time-division long-term evolution Opting instead for an interna - of China Telecom, was named to the (TD-LTE). Keen to promote the tional 4G standard, both Unicom same post at China Unicom. homegrown technology, the gov - and China Telecom faced a delay in At the time that looked like just ernment gave the company a head- rolling out their network – lagging another round of the sort of musi - start – issuing it with a 4G licence a China Mobile’s aggressive push. By cal chairs frequently seen in the year before its rivals (see WiC174). November China Telecom had 58 state-owned sector. But Chang’s China Mobile didn’t waste any million 4G subscribers while Uni - tenure at China Telecom proved to time. It’s now in the final phase of com possessed a combined 180 mil - be short-lived: a few months after its 4G infrastructure rollout and lion 3G and 4G subscribers his move, he was forced to resign thanks to having the broadest na - (unhelpfully, it did not break out after an anti-corruption probe re - tional network it has the bulk of exact figures, indicating perhaps vealed malfeasance during his time the 4G number is unflattering). at Unicom. The Central Commis - “If China Unicom and China Tele - sion for Discipline Inspection ac - com don’t work together there’s no cused Chang of pursuing “personal way they can take down China Mo - rather than Party loyalty” (see bile,” concludes Fu Liang, a telecoms WiC308). analyst. Chang had held the top job at Caijing magazine, too, says there China Unicom for more than 10 is little downside to the alliance: “At years. His job change and his subse - its best, the move can help the two quent arrest now looks uncannily gain ground [against China Mobile]. similar to the tactic used to take At its worst, the move still elimi - down the former boss of China’s nates one enemy for each other.” biggest oil company (see WiC207). In both cases the official’s en - P h o How about the job changes at the trenched power base was broken t o :

R e top? first (by taking them out of a com - t u e r s Working together: Wang and Yang The alliance follows a series of per - pany they’d run for a long time) be - 3 Week in China Talking Point 22 January 2016

fore their later purge. The tactic also a few weeks after Chang’s removal, But during the press conference, seems to presage an industry over - Wang and his protege held a signing Yang stressed that the partnership haul. In fact, China Mobile’s long- ceremony at China Telecom’s HQ. was not the forerunner of a bigger serving Party boss Zhang Chunjiang deal: “The signing of this agreement was also put under anti-graft inves - So is the stage being set for a full- suggests that our cooperation has tigation before the telecom sector’s blown merger then? entered a new phase. It has nothing restructuring in 2008 (when four Rumours have been circulating to do with restructuring or a merger carriers were reduced to three) and since last year that Beijing is looking in any way.” resigned a year later. to merge the two companies to cre - As CCTime, a technology portal, Meanwhile, China Telecom has ate a more formidable competitor puts it: “The two are only living to - promoted Yang Jie, formerly its to China Mobile. gether; they are not getting married.” chief operating officer, to replace “Reading the tea leaves, this HSBC telco analysts are also not Chang. Caijing points out that Yang seems to support a lot of rumours anticipating a merger. After all, net - worked under Wang Xiaochu for of late that China Telecom and work sharing can be implemented many years – and was widely re - China Unicom will eventually relatively easily while a “full-blown garded as his ‘right-hand man’. This merge,” Chris DeAngelis at Alliance merger of Unicom and Telecom – as may explain how the new Unicom Development Group, a Beijing- well as reducing competition – boss and new Telecom boss were based consultancy, told the Finan - would be complex, time-consum - able to agree a deal so quickly. Only cial Times. ing and potentially difficult.” n

The driving force

There are many business risks companies face in China. In Uber’s case its executives face an existential threat: can it even operate there? The government is currently working on new regulations for online ride hailing and it is thought these will make plain whether Didi, which in its most recent fundraising was valued Uber is permitted. Taxi drivers are among those hoping at $15 billion, refuted this calculation and said Uber was the American firm will be banned from the roads. using “crazy creativity for our subsidy figures”. On the So it was a fairly big vote of confidence in Uber’s contrary, it insists it is more efficient than Uber in China future when a group of powerful Chinese firms invested owing to its far bigger scale. almost $2 billion in Uber’s Chinese entity last week, Didi also seems to think its business model is less valuing the unit at $7 billion. According to Chinese exposed to potential regulatory changes since 75% of media the consortium included insurance giant China its drivers are professional (such as taxi drivers using it Life, state-linked carrier Hainan Airlines Group, financial to look for rides) rather than part-timers using Uber’s giants Minsheng Bank and Citic Group, as well as top ‘sharing economy’ model. homebuilder Vanke. China Business points out that Uber has been Uber’s boss Travis Kalanick says the new funds will cutting its driver subsidies to improve its bottom line, be used to pay for his firm’s relentless expansion in but this hasn’t endeared it to this group. “The direct China, where his main competition is from the Alibaba response to the subsidy reduction is that drivers are and Tencent backed Didi Kuaidi, which has a roughly getting frustrated and less enthusiastic about Uber,” 80% market share. The fact that so many government- China Business wrote. “One Uber driver told our related companies seem willing to pump cash into Didi’s reporter that the number of times he uses Uber to pick US rival has buoyed Kalanick’s confidence. In a recent up passengers has got fewer and fewer.” I l

l interview with the Financial Times, he even rubbished

u Didi – which counts China Life rival Ping An among s t r a t his local rival’s prospects, saying that to enlist and its Chinese investors – now operates in 350 cities and i o n :

N retain drivers for its service Didi needs to spend $4 towns and according to Forbes it claims to break even o e l d e billion annually in subsidies, which he deemed in 100 of those markets. Uber is currently in 22 cities

G u z m unsustainable. and hopes to reach 100 within a year. a n

4 Week in China The Week in 60 Seconds 22 January 2016

IMF predicts slower growth The major news items from China this week were...

Xi Jinping has made his first visit to the Middle East 1since assuming the presidency. On the first day of Xi’s tour to Saudi Arabia, Egypt and Iran, Chinese oil major Sinopec inked an estimated $1.5 billion deal with Saudi Aramco. Xi is also expected to seek new trade opportu - nities with Iran as sanctions imposed on the nation were lifted just last weekend. Since sanctions began, China has become Iran’s largest purchaser of crude. The Iran-China Chamber of Commerce said Iran now expects China will invest in the country’s infrastructure.

Gui Minhai – a Hong Kong publisher of gossipy books Lufax: an online lender that is worth $18.5 billion 2on Chinese politics who went missing – appeared on CCTV this week explaining how he had turned himself in peer-to-peer loans. The company said its IPO could take to the state authorities last October to accept responsi - place in the second half of 2016 as it is planning on a dual bility for a fatal hit-and-run which occurred 13 years ago listing on a domestic and an overseas exchange. in Ningbo. Gui admitted he had fled abroad, and even - tually to Hong Kong, whilst serving a suspended two Taiwan saw a major administrative shift as it elected year sentence for the incident. Some viewers have been 4the opposition party DPP as well as its first female sceptical of the confession’s accuracy considering how president Tsai Ing-wen on January 16. Tsai is due to as - Gui went missing whilst in Thailand. sume power in May but already faces a political quandary as the outgoing cabinet all threatened to re - Lufax, a peer-to-peer lending company controlled by sign the day after their defeat at the election. Such a 3Ping An Insurance, concluded a $1.2 billion fundrais - move could leave the state in limbo until May. Across ing round, achieving a valuation of $18.5 billion. The the strait, Beijing’s Taiwan Affairs Office was quick to dis - Shanghai-based lender’s new shareholders include Bank suade any thoughts the DPP might declare a pro-inde - of China, Minsheng Bank and Guotai Junan Securities. pendence stance: “On important issues of principle like Lufax serves as a trading platform for a wide variety of protecting the country’s sovereignty and territorial in - financial products between institutional and individual tegrity, our will is as hard as rock.” investors, including wealth management products and The PBoC is due to raise the reserve requirement 5ratio (RRR) for banks holding offshore yuan from its current level of zero on January 25, Reuters reports. The move is suspected to be a further attempt to reduce speculative trading by lowering the amount of currency available in the market. The normal RRR rate in China is 15.5% for small banks and 17.5% for larger ones.

The IMF cut its global growth forecast over the next 6two years by 0.2% each year, citing a slowdown in P h o Chinese economic growth as one of the key reasons. The t o :

R e fund predicts Chinese economic growth of 6.3% and 6% u t e r s The missing bookseller who appeared on CCTV respectively in 2016 and 2017, down from 6.9% in 2015. n 5 Week in China Investor Q&A 22 January 2016

Grim tidings Independent economist predicts banking crisis in China

hanghai-based Jonathan Ander - said that fiscal and monetary pol - Sson has been described by the icy will be kept as “supportive” as Financial Times as “one of the most needed to achieve that growth. thoughtful China analysts”. In re - Meanwhile, you hardly see any dis - cent years he has been cautiously cussion of rising debt levels, not at optimistic about the Chinese econ - the PBoC, the DRC [the Develop - omy. But earlier this month his re - ment Research Centre of the State search firm Emerging Advisors Council], nor in any of the senior Group published a report that pre - leadership forums. dicts China could face a banking cri - The bottom line for us is that sis in five years. Here Anderson official policy is now to simply explains his reasons for that call. “kick the can down the road”, re - gardless of the longer-term conse - You’ve turned more bearish on quences. China, after being sanguine on its This probably means that prospects for many years. What things will be okay for the next was the tipping point? few years, as the government will To be fair, for years my view has do what it takes to keep growth at been that the debt bubble would re - Now bearish: Anderson or around 6%. But it also means sult in crisis if the government just that China is heading directly for a let it run to the bitter end. tios have spiralled non-stop since much bigger crisis in perhaps five But until very recently I also took 2012, and are now 100% of GDP or six years’ time. the view that the authorities under - higher than where we started in stood the problem and wouldn’t let 2008. How do you arrive at your estimate it get to that point. Instead, they So I am not saying the same that there will be a crisis within would quickly turn to serious tight - thing anymore. It’s now clear that that time period? ening, cutting back on credit growth in spite of skyrocketing debt num - I’m not saying there will definitely and allowing local government fi - bers, the government is not really be a crisis in five years. Rather, the nance vehicle platforms and in - interested in a meaningful tight - point is that within five years China debted firms to go bankrupt. ening – in fact, just the opposite. will be crossing the threshold point This would mean much weaker Since last summer the credit num - where crisis risks become much growth, of course, probably down to bers have jumped in a big way larger, with a real possibility that 2-3% for a couple of years from to - once again and the PBoC [the cen - the liquidity buffers and other con - day’s 6% range, but surely the gov - tral bank] has lowered interest straints that China has put in place ernment could explain to the public rates and pumped lots of liquidity to protect the financial system that China had to go through a pe - into the system. There is no sense could be overwhelmed. riod of necessary pain in order to at all that the authorities are try - How do we know? In every global stabilise balance sheets, deleverage ing to rein in a debt bubble. This example of credit crisis, whether in the economy and prevent a more se - winter President Xi Jinping him - emerging markets or developed rious credit problem down the road? self announced an average annual economies, the trigger has always This is what I told clients in every growth target of 6.5% for the sec - been an unsustainable buildup of one of the past four years. But it ond half of the decade, which re - risky funding on the liability side never happened. China never ally implies growth no lower than of the financial system balance stopped levering up. Overall debt ra - 6% in any given year, and he also sheet. In simple terms, it’s not so 6 Week in China Investor Q&A 22 January 2016

much the size of the debt but rather the funding of that debt that leads to a meltdown. The approaching crisis And the best way to measure this in any country is the aggregate credit to deposit ratio, which com - pares the amount of total credit be - ing pumped into the system to the traditional safe deposit base. This shows how far the system as a whole is “gearing up” on the liability side of financial balance sheets. Sure enough, in every historical case of crisis we have seen a sharp increase in this credit/deposit ratio. You can see this in the chart; the vertical axis is the peak credit/de - posit reading over the 12 months prior to the onset of the crisis for major emerging market countries over the past 20 years, and the hor - izontal axis shows the foreign com - ponent of this, i.e. the peak net for - eign liability position of commercial that are inherently much more un - even the formal banking system. banks as a share of assets. The blue stable and volatile. How would it occur? An obvious points in the top left quadrant show Remember that the non-bank fi - trigger would be a wave of trouble exactly where crisis “tipping points” nancial system doesn’t have manda - in heavily geared trusts, finance occurred. tory reserves, stable deposits or ac - companies or securities firms, And the exposure numbers are cess to emergency lending facilities. probably in conjunction with a re - rising in China. The yellow points in It’s a hodge-podge of firms outside newed property market recession the chart show China in 2009 and the formal safety net and without or a stock market downturn. again in 2015, and you can see that the kind of buffers that help banks And if you double today’s expo - the Chinese economy is rising withstand shocks to the system. sure ratios into the formal banking slowly but inexorably toward the Today the size of that “shadow” system, defaults and bankruptcies threshold point – the red dotted line system is still moderate compared in the non-banks would easily take that marks the beginning of where to the banks themselves, so that out some smaller and medium other emerging markets fell apart. even if you get a wave of bankrupt - sized banks as well. At this pace it will be there within cies and illiquidity it wouldn’t be Liquidity locks up. You get a five years. This doesn’t mean that enough to seriously impact banks. wave of panic. Credit activity falls, China faces a crisis the moment it But consider this. Five years ago corporates hoard funds and the crosses the line, but the risks start to gross claims and liabilities vis-à- economy goes into recession. This rise very rapidly once it does. vis non-bank financial institutions is just your classic “Minsky mo - were only around 5% of commer - ment” once again. How will that crisis play out, i.e. cial bank balance sheets. Today the Of course the PBoC would be what might trigger it? number is 16%, a dramatic in - quick to respond by issuing massive Good question. What are the spe - crease, and the share is still grow - amounts of new liquidity and back - cific stresses that lie behind these ing rapidly. stopping larger banks in the system, ratios we’re measuring? In the case So fast forward another half- but as we learned in 2008 this does - of China, what we’re really talking decade – with total debt outstanding n’t stop the initial crisis from oc - about are rising banking system ex - in the system increasing from 240% curring and doesn’t prevent a big posures to non-bank “shadow” to 340% of GDP in the process – and economic downturn, one that could firms such as trust, finance and se - suddenly you’re talking about ex - lead to protracted deleveraging curities companies – institutions posures that could truly overwhelm pressures as well. 7 Week in China Investor Q&A 22 January 2016

What about the argument that cap - growth in the banking system is Are we seeing a big deterioration in ital controls ought to protect against running at 16% year-on-year and M2 the quality of Chinese policymaking? a yuan-based financial crisis? is growing at 14%, while nominal I think the answer is no … and yes. Yes, this is an important point. In GDP growth is only 6%. So implicitly No, because the toolkit used to most emerging markets crises you a lot of “excess” financial assets are manage growth, the stock market or have a big currency component as being created (money that is not the currency is pretty much the well; just think of the Asian finan - needed to facilitate underlying ac - same as 10 or 15 years ago. cial crisis of 1997. And China doesn’t tivity) and these sums are as high as Just to use the A-share market have anything like the same exter - $1.5-2 trillion per year. So the fact as an example, when stock prices nal exposures that these economies you have large capital outflows is to were falling sharply in the early had; it runs trade and current ac - some degree due to financial bal - 2000s or again in 2008-09, the count surpluses, it doesn’t have ance sheets growing very quickly government rolled out precisely massive foreign borrowing and it and some of this wants to diversify the same bunch of measures to try still has very high reserves as well. out of the renminbi. to prop up the market that we have So you don’t necessarily have the But there are other factors that today – and with precisely the renminbi “exploding” and my guess have nothing to do with Chinese same lack of effect. is that the PBoC could prevent that debt creation. One is the rapid The trouble, though, is that the from happening. strengthening of the dollar against underlying environment has But I want to stress that you don’t all currencies, at the same time that changed. China’s asset markets and need to have an FX crisis to have a fi - the PBoC has moved to manage the financial balance sheets are a lot big - nancial crisis. The US meltdown in exchange rate against a trade- ger than they were a decade ago. The 2008 had nothing to do with for - weighted basket. So for nearly a economy is more open and is also eign exposures, and the dollar actu - decade the renminbi was seen as a more complicated and technologi - ally strengthened. The US savings one-way positive trade against the cally advanced as well. Which means and loan crisis in the 1980s was en - dollar, and now suddenly it’s not. that when you’re using the “same tirely domestic as well. So were There’s no surprise that local house - old toolkit”, you can run into much some of the other examples of holds and firms have started to bigger problems. banking crises in the UK and Eu - switch out of the renminbi to hold Back in 2000, for example, if rope. Even in the widespread Cen - dollars instead. the currency moved by 1% in one tral and Eastern European crises in And the other, to be honest, is direction or another it wouldn’t 2008-09 most countries kept their the lack of transparency in ren - generate big external capital flows. currencies pegged to the euro minbi policy. The PBoC is allowing But now, with far bigger liquidity throughout – but still had horrific the currency to bounce around and assets in the system, and a banking system collapses and years against the basket in small but un - more integrated global economy, of lost growth. predictable ways, with no real ex - the same uncertainties around ex - So in China’s case we’re not nec - planation for why the renminbi change rate policy have much essarily talking about the exchange suddenly moves on any given day. greater ramifications. rate. But that may not matter much The message to markets is not only This applies to money and credit in terms of the potential for domes - that the renminbi is no longer ap - policy. Turning on the credit taps to tic pain. preciating. It’s also that you proba - hit 8% GDP growth was fine when bly should sell the currency and the economy was not so levered and Looking at more immediate sig - buy dollars quickly, because you when the global economy was nals, the Chinese bourses are ar - just don’t know if there’s a bigger booming. But trying to rely end - guably a speculative irrelevance. devaluation looming next week. So lessly on domestic credit tools in the But what does recent volatility in this is more about communication face of a long global export reces - the currency tell us? and confusing signals. sion and debt ratios that are already In part what’s happening with the sky-high has essentially brought us renminbi can be viewed as a symp - This week there were reports and to where we are today. n tom of the debt spiral – but in part then denials that CSRC boss Xiao it’s also a different and distinct phe - Gang had resigned. Is this another For those interested in subscribing to nomenon. instance of China’s regulatory elite Anderson’s research, they can find With regard to debt, China is cre - looking less surefooted (and less more information at his firm’s web - ating a lot of credit today. Deposit in control) than previously? site: www.emadvisorsgroup.com 8 Week in China China and the World 22 January 2016

Silky touch required Xi’s tour of the Middle East takes in two of the region’s great rivals

Xi Jinping with Saudi Arabia's King Salman Bin Abdulaziz Al Saud

ne of the most acclaimed his - Middle East and Central Asia. lect goods such as ivory and per - Otory books of 2015 was Peter Further, the events are “signs of fume. Frankopan’s The Silk Roads . In it he the world’s centre of gravity shift - Iran’s strategic location on China’s tries to show how our understand - ing back to where it lay for millen - modern-day Silk Road (in fact, it ing of global history has been nia,” he concludes. comprises a series of routes identi - warped by the recent rise of the President Xi Jinping’s five-day fied in Xi’s ‘One Belt, One Road’ pol - West. As a counterpoint Frankopan visit to Egypt, Saudi Arabia and Iran icy) has made Tehran the most im - puts more emphasis on a part of the this week has thrown the spotlight portant stop on Xi’s current tour. world which has always been at the back on reviving the economic and Last Saturday’s lifting of sanctions very “crossroads of civilisation.” diplomatic links that once sup - against the Iranians has potentially “It’s easy to feel confused and dis - ported the ancient Silk Road – a made it the most lucrative visit for turbed by dislocation and violence route which began in China’s Han both countries too. in the Islamic world, by religious Empire and passed through Iran’s China’s status as the world’s fundamentalism, by clashes be - Parthian Empire into the Mediter - largest oil importer means it has tween Russia and its neighbours, or ranean and Persian Gulf. now overtaken the US as a trading by China’s struggle with extremism A Chinese president has not vis - partner with both Saudi Arabia and in its western provinces,” he writes. ited modern-day Iran since 2002, Iran. Last December, its ambassador P h o But Frankopan says these events but during the Tang Dynasty, the to Riyadh said bilateral trade stood t o :

R e are the “rebirthing pains” of a Chinese court was sending 10 trade at $69.1 billion. This compares to u t e r s swathe of land now known as the missions a year to Parthia to col - $38.17 billion in Saudi-US bilateral 9 Week in China China and the World 22 January 2016

China-led Asian Infrastructure In - vestment Bank hopes to team up with Riyadh’s Islamic Development Bank to jointly invest in infrastruc - ture projects across the region. Throughout Xi’s visit to the Mid - dle East, the Chinese press has so far been highlighting the deep pool of Islamic finance that might be tapped to finance One Belt, One Road projects. However, financial markets have been more concerned about an alternative possibility in recent weeks – that Middle Eastern governments will have to sell assets to raise cash. Plummeting oil prices have forced the region’s sovereign wealth China’s new Silk Road as envisaged by Xi’s One Belt, One Road project funds to refocus on covering grow - ing budget deficits back at home, trade to the end of November (the ternationalisation by putting a cur - leading to questions about what figure has almost halved since 2012, rency swap mechanism in place with might be ahead for their equity thanks to surging production of US Iran. And thirdly, it has released a pol - stakes in listed companies, most no - shale gas). icy document to mark Xi’s visit, tably in Malaysia and China. The Saudi Arabia’s regional arch-rival, which highlights the potential to fi - Kuwait Investment Authority, for Iran, has also seen trade with China nance infrastructure development example, has a 13.88% stake in the boom in recent years. China’s ex - right across the Middle East. Agricultural Bank of China and a emption from economic sanctions A number of projects have al - 7.42% stake in Dalian Wanda. means it has taken up almost half of ready been flagged. Last November, Another trend which became Iran’s vastly reduced oil output. In China Railway Corp proposed a abundantly clear during Xi’s trip is 2014, Iran’s bilateral trade with high-speed network from Urumqi that he has to walk the diplomatic China stood at $51.85 billion (similar in China’s far west through Central tightrope between two increasingly to China/Saudi levels) and in stark Asia to Tehran. The two countries bitter Islamic rivals (Saudi’s rulers contrast to the $185 million it are also jointly constructing an oil are Sunni, Iran’s Shia). A similar trip recorded with the US (a few Ameri - refinery in Kazakhstan, sourcing in 2015 was postponed after the can companies were allowed to crude from Iranian oilfields to serve Saudis started military action trade humanitarian goods). Chinese clients. against Iran-allied forces in Yemen. Iranian President Hassan Both sides also want to develop So it was important that Xi pitched Rouhani first met Xi Jinping on the Iran’s Chabahar port on the Gulf of something for everyone during his sidelines of the UN General Assem - Oman. The Chinese believe this whirlwind tour. In Saudi’s case he bly last September. He made it clear would complement their existing offered to conclude a free trade where Iran’s loyalties would lie once investment in Gwadar port in Pak - agreement this year with the Gulf sanctions were lifted. “The Islamic istan. But the news has not gone Cooperation Council (which com - Republic will not forget its friends down well in India, which also wants prises Saudi Arabia, Bahrain, Kuwait, who maintained their good ties with to invest in Chabahar so it can by - Oman, Qatar and the UAE, and the Iranian nation in hard times,” pass Pakistan and secure a direct makes up China’s largest source of he promised. route to Afghanistan, with which it imported oil and its second largest That relationship is now likely to enjoys closer relations. market for construction projects). bear fruit on three levels. China wants The Egyptian government, Of course, the symbolism of an - to build up its deeper oil reserves, tar - meanwhile, hopes to secure Chi - nouncing the surprise resumption geting a stockpile of 100 days worth nese investment for an expansion of talks on a free trade agreement of imports by 2020. Secondly it of the Suez Canal and for an elec - fits nicely with Xi’s broader rhetoric wants to extend the renminbi’s in - tric train project, while CBN says the about reviving China’s Silk Road. n 10 Week in China Cross Strait 22 January 2016

Business as usual? Mainland reacts to Taiwan’s elections

he last time that Taiwan’s inde- noted that more than a million blue Tpendence-minded Democratic camp (i.e. KMT) supporters seem Progressive Party (DPP) won a pres- not to have bothered voting, and Tsai turfs out the KMT idential election, it took an assassi- even more switched to the green nation attempt to swing the result. camp (the DPP). Although Tsai man- Yet she also promised a “stable and Hours before the 2004 election, aged to gain about 800,000 more predictable relationship with China” DPP incumbent Chen Shui-bian was votes than she received in 2012 and appealed to Beijing’s leaders to shot. The injury wasn’t life-threat- (when Ma Ying-jeou won re-elec- look for ways for the two govern- ening, but it spurred turnout from tion), the KMT lost nearly 3 million ments to interact “based on dignity anti-Kuomintang (KMT) voters. votes this time around. and reciprocity”. Chen won by less than 30,000 Tsai’s party won 68 of the 113 Beijing’s Taiwan Affairs Office in- votes, or a narrow 0.2% margin. seats, meaning that the KMT won’t sisted that the election results Subsequent investigations re- be the largest party in parliament would have no impact on the so- vealed that the assassin mysteriously for the first time since 1949. called “1992 consensus”, a tacit un- drowned 10 days after the shooting. Why did it suffer such heavy derstanding between the KMT and Chen himself would go straight from losses? One of the independence- the Chinese government that both the president’s residence to jail on leaning Taiwanese newspapers sug- sides of the Taiwan Strait acknowl- corruption charges after the KMT re- gest that the party had simply been edge there is “one China”, with each gained power in 2008. getting too close to the mainland, side having its own interpretation Events were a lot less dramatic last and that proved a turn-off for of what that means. week. The DPP’s Tsai Ing-wen, who younger Taiwanese. Indeed, the Xinhua, meanwhile, threatened led in the opinion polls for months, soon-to-step-down Ma has been that any move by the island towards won a landslide victory and is now dubbed the most China-friendly independence would “poison” Tai- set to become the island’s first fe- president in Taiwan’s history. Dur- wan’s outlook. male president. ing his period in office he signed Without “peace and stability in “Everything goes as expected. This more than 20 agreements with the the Taiwan Strait”, it warned, Tsai’s has to be the most boring presiden- mainland, including a 2014 trade promise to help poorer Taiwanese tial election ever in Taiwan,” Hong package that backfired politically “will be as useless as looking for fish Kong’s Singtao Daily lamented. when hundreds of students in a tree”. In fact, one of the more emotive stormed the government’s head- The CPPCC Post (a sister publica- issues in the last days of campaign- quarters in protest. tion of the People’s Daily) was more ing was how Chou Tzu-Yu, a 16 year- Of course, China’s state media re- open in speculating that rougher old singer, had felt forced to apolo- buffed the notion that the KMT’s times could be ahead. gise publicly for waving a Taiwan loss signalled a rejection of closer “The American presidential elec- flag (see Page 18 for more on the fi- ties. “The defeat of the ruling Kuom- tion will also take place later this asco). intang in the election was caused by year. The cross-Strait relation is Only 66.3% of 12.45 million eligi- internal issues such as administra- likely to enter a very turbulent ble voters chose to vote, the lowest tive lapses, rising unemployment phase should both women [Hillary number since the Taiwanese were and the widening wealth gap, not Clinton and Tsai] become presi- first allowed to pick their leader in the party’s mainland policy,” the dents.” 1996 (in 2004 turnout was 80%). China Daily claimed in an editorial. (That may not be massively far Photo: Reuters The KMT – the incumbent party In her victory speech Tsai prom- off the mark: see WiC242 for our re- of government – was hardest hit by ised a government that is steadfast in view of Clinton’s book, detailing her the lower turnout. The China Times protecting the island’s sovereignty. views on China.) n 11 Week in China Banking and Finance 22 January 2016

Resigned to bad news Wholesale shake-up looms for financial regulators

he most high profile sacking of very impressed with what he saw. T2015 was probably of football Netizens have commented that coach Jose Mourinho. He was axed Huang’s suspected new role carries as Chelsea manager last month, such a senior rank that it needs to be and during a trip to Shanghai this approved at the next Politburo week his possible career moves meeting, which explains the delay were grabbing headlines again. in announcing it. Other events in Shanghai – in - volving a stock market plunge – were reported to have led to another high profile job exit this week. Only in this case what’s going on is far less China shrunk clear cut. In the spotlight: Xiao Gang GDP contracts in dollar terms It centres on Xiao Gang, the head of the CSRC, China’s stock market the banking, securities and insur - hina said this week its economy regulator. Reuters reported this ance regulators. Cgrew 6.9% last year, the slowest week (citing unidentified sources) It has already appointed Li Zhen - rate since 1990. The data looks even that he had handed in his resigna - jiang, a senior banker with Agricul - grimmer when you analyse China’s tion, taking responsibility for the tural Bank of China, to be the deputy GDP performance in US dollar market turmoil this month sur - chief of the new unit. Speculation has terms. By this measure the economy rounding the introduction (and now focused on who will be the or - actually shrank. swift withdrawal) of the circuit ganisation’s boss, and (it would seem) According to the World Bank the breaker system (see WiC309). China’s top financial regulator. GDP of China at the end of 2014 (at Not so fast. The CSRC swiftly is - All bets seem to be on Huang Qi - then exchange rates) was $10.35 tril - sued a rebuttal stating that the re - fan, says Phoenix Finance. The cur - lion. According to Chinese official port “does not accord with the facts”. rent mayor of Chongqing may not statistics, at the end of 2015 China’s The regulator said it had contacted seem the natural choice – having GDP stood (in local currency terms) Reuters and demanded a correction. never worked in banking – but does at Rmb67.67 trillion. Using current And to confirm Xiao’s ongoing have long connections with the exchange rates that equates to tenure the state broadcaster CCTV world of finance. He was formerly a $10.28 trillion. This outcome is ob - showed footage of him attending a senior official in Shanghai where he viously the result of the deprecia - seminar for high level cadres. oversaw the transformation of tion in China’s currency in 2015 ver - Nevertheless Chinese media is Pudong from farmland into a fi - sus the US dollar. also reporting that a regulatory nancial centre. Want a rosier perspective? In local shake-up is underway. The in - Huang looks to have survived the currency terms China’s GDP in 2014 creasingly haphazard and uncoor - fallout from the purge of his former was Rmb63.64 trillion. So in ab - dinated activities of various finan - boss in Chongqing Bo Xilai. Indeed, solute terms it added Rmb4.03 tril - cial regulators will be addressed on January 4 Xinhua reported that lion. Given all the discussion about with the creation of a new body President Xi Jinping had made his the economy’s performance in 1990, that will have oversight over them first visit to the megacity since be - the size of China GDP in that year all. According to Time Weekly the coming China’s leader and in a was just Rmb1.87 trillion. That P h o State Council has created a new telling optic was photographed be - means China’s output gain last year t o :

R e secretariat to coordinate and im - ing shown around by Huang, and was more than twice the size of its u t e r s prove communications between reportedly told the mayor he was total economy in 1990. n 12 Week in China Economy 22 January 2016

Jobs, jobs and jobs Unemployment to prove a headache as China tackles overcapacity

i Keqiang has clearly never Lwatched many zombie movies. Earlier this month the Chinese pre - mier suggested “zombie firms” should take the courageous step of slitting their wrists. Yet as every zombie flick aficionado knows the only sure fire way to kill a walking dead is to destroy its brain. Li was actually calling for local governments and state firms to be ruthless and shut down or sell off units that have been suffering from long-term overcapacity and losses . At its Central Economic Work Conference last month, the govern - ment made overcapacity cuts its number one priority in 2016 as it seeks to complete the difficult tran - sition of moving China away from an investment-led economy to a consumer-oriented one. This means past policies aimed at managing de - mand through increased invest - ment have been replaced by struc - tural supply side reforms. The statistics released by the Na - Li Keqiang wants to kill off “zombie” firms tional Statistics Bureau earlier this week demonstrate the impact of Economists have now reduced Others disagree. They believe the this new strategic direction. The their 2016 GDP forecasts to between government not only has plenty of headline figures reveal that the 6.4% and 6.5%. room to manoeuvre, but is also fac - country’s GDP growth rate dropped Some brokerages meanwhile are ing a far more benign downturn to 6.9% in 2015, its slowest pace in a advocating a replay of old style stim - than in the late 1990s, when the last quarter of a century. ulus to ease the transition. Local in - big industrial upheaval occurred. Services now account for more vestment bank CICC, for example, On that occasion the reform of than 50% of the economy for the argues that equity market volatility the country’s inefficient state- first time ever, with fixed asset in - and unanchored exchange rate ex - owned industries led to job losses vestment growth falling to 10% in pectations will quickly raise the in - of roughly 21 million, although 2015, its weakest level since the turn vestment risk premium and worsen about 13 million are thought to of the century. Particularly striking the country’s short-term growth tra - have been reabsorbed into the were the industrial production fig - jectory unless the government in - workforce. This time round, the P h o ures, which showed growth falling tervenes. “Structural reforms can job losses are expected to be far t o :

R e to 5.9% in December compared to only be conducted in a stable cycli - lower. CICC estimates that three u t e r s 6.2% in November. cal environment,” CICC warns. million workers could be laid off if 13 Week in China Economy 22 January 2016

CICC expects 3 million job cuts to reduce overcapacity in five key industries

the five industries suffering the economy: “Many jobs are paying find new jobs. They suffered huge worst overcapacity cut back pro - more, too. Except in the perennially mental stress trying to support their duction by 30% (these are steel, depressed northeast of the country, children and elders. It was a very bit - coal, cement, aluminium and flat incomes have been rising between ter time.” glass manufacturing). 10% and 15% a year. In India, and Most economists agree that while Economists believe workers fac - most developed markets, by con - the structural downturn may be less ing redundancy will find it far easier trast, incomes have barely risen at painful than 1998 it is likely to be far to get new work in a market where a all. Better-paid workers should also more prolonged because it is harder number of industries are suffering mean China can rely more on do - to restructure upstream industries. structural shortages and there is no mestic consumption, instead of As recent global stock market longer an unlimited supply of mi - pouring yet more concrete in a volatility has shown, China’s in - grant labour from inland provinces. country that has already built too creased economic power also means Financial Times columnist Henny many steel mills and cement plants.” it is having a far wider impact on Sender shares this view, noting this Still, the government also feels it demand elsewhere – meaning ex - week that China “has continued to has a role to play in helping redun - ports to overseas markets could also create jobs at an impressive rate”, dant labour change career path. suffer, and in turn, make matters generating 7.2 million of them be - Earlier this month, Premier Li also still worse at home. tween January and June last year. told a symposium in hard hit As to the overcapacity itself, Pre - She offered the example of private Shanxi province that the central mier Li pointed to one of its more sector success story JD.com which government is setting up a special absurd aspects when he com - has increased its workforce in two fund to retrain workers and sub - mented: “We have huge overcapacity years by almost four times to sidise local government efforts to in steel [an estimated 300 million 150,000. This e-commerce company reduce overcapacity. tonnes] yet we have to import metal has created fresh job opportunities One netizen reflects on the hard - for the tips of ballpoint pens.” by employing hordes of workers to ships many endured after the so- Crude steel output fell 2.3% in deliver its parcels on motorbikes to called “iron rice bowl” system ended 2015 (its first drop in 30 years), but online shoppers across China. in the late 1990s, and state-owned Li’s real point is that much of China’s P h o Sender is upbeat on another sta - firms began firing staff for the first industrial overcapacity is heavily t o :

R e tistic too, saying it points to the re - time. “Most of the workers affected concentrated at the lower quality u t e r s balancing underway in the Chinese were over 40 and were unable to end of the value curve. n 14 Week in China Economy 22 January 2016

Disappearing act Unwelcome headlines for Metersbonwe’s boss

s anyone who has seen the grandmother’s 100th birthday party A2006 film The Prestige will (in a rather dashing Armani lab know, every good disappearing act coat). Chinese media said Xu was ar - has three parts: the pledge, the turn rested on suspicion of insider trad - Zhou: briefly a missing person and the titular prestige. The pledge ing and stock manipulation (see shows the object, the turn makes it WiC295 and WiC302). secretary of the board Tu had re - vanish, and the prestige brings it Xu was general manager of the turned to their posts. back. For the growing number of hedge fund Zexi Investment. The However, a moratorium on the Chinese billionaires who have gone investment group made good prof - trading of Metersbonwe stock is due missing over the last four months, its on risky investments and is said to continue until at least February 5, not all of their disappearing acts to have done remarkably well from as the company is planning “major have yet reached the return stage, trading Metersbonwe stock. Ac - asset restructuring”. and even those that have tend to do cording to Thepaper.cn, Zexi In - Although Zhou and Guo have so without the implied prestige. vestment bought 50.55 million both emerged from their sudden ab - The latest volunteer picked from shares of Metersbonwe through off- sences and are not said to have been the audience has been Zhou the-counter trading in late Septem - the focus of investigations them - Chengjian, CEO and founder of fash - ber 2014 for Rmb9.82 per share; the selves, their situations have still dis - ion retailer Metersbonwe. Zhou was firm was then able to sell the stocks concerted the country’s private sec - speculated to be missing on Janu - through the Shenzhen Stock Ex - tor. Previously anti-corruption ary 6. The Shenzhen-listed firm con - change via centralised bidding at a investigations had primarily em - tested the rumours until the next price of Rmb17.66 in April 2015, gen - broiled state-owned enterprises and day when it said the company erating a profit of Rmb396 million government officials, as evidenced would be “investigating reports of ($60 million). by former Wuhan Iron and Steel his disappearance”. Soon after that it Zhou Chengjian and Tu Ke are (Wisco) chairman Deng Qilin’s arrest suspended trading of its shares. not the first businessmen to have and subsequent expulsion from the Famously bankrupted twice be - gone missing as they helped the au - Communist Party – with the execu - fore he turned 18, Zhou in 1995 thorities with their investigations tive the latest to be purged this founded Metersbonwe, which now of other people. In December of last month. Authorities began investi - has 4,000 stores across China (long - year the chairman of the Fosun con - gating the head of the state-owned standing readers will recall our glomerate Guo Guangchang was ab - metals producer as early as last Au - mention of the brand in WiC116 sent for a week before appearing un - gust on suspicion of corruption when the 50 year-old Zhou paid for expectedly at a company event. (see WiC297). Now according to the a high profile product placement in The company previously re - Central Commission for Discipline a Transformers movie). ported that he was “assisting in cer - Inspection, Deng will stand trial ac - On January 7 this year Meters - tain investigations [being] carried cused of taking bribes, using his bonwe admitted that it had lost all out by mainland judiciary authori - power to further the interests of means of contact with Zhou, as well ties”. It was unspecified what those relatives and for the “long-term oc - as the board secretary Tu Ke. investigations were, but he has since cupation of hotel rooms for per - Many suggested that Zhou may appeared in public this month at an sonal use”. have been picked up by the police Israel investment summit in Beijing Although Deng Qilin was spared for questioning in relation to the (see WiC309). the trouble of having to disappear, case of Xu Xiang: a fund manager Another official statement from he has still become one in a long list P h o t o

: who was arrested last November Metersbonwe announced on Janu - of wealthy Chinese to be denied

P B U when he was about to attend his ary 15 that chairman Zhou and the their prestige. n 15 Week in China M&A 22 January 2016

Taking the Haier bid Whirlpool targets washers made in China, as Haier moves for GE unit

“ he washing machine has Tchanged the world more than the internet has”. That’s one of the bolder claims in Ha-Joon Chang’s 23 Things They Don’t Tell You About Capitalism . The Korean-born econ - omist argues that the advent of white goods (here represented by the washing machine) has prompted far greater social and eco - nomic change than the invention of the internet. Continuing in his mission to de - bunk what he sees as the myths of liberal economics, Chang dismisses the notion of a free market by opin - American breakthrough: Haier’s founder Zhang Ruimin ing that countries that champion the concept often protect their com - Mexico with dumped washers to cooperation between the two panies against international threats. from China,” claims Whirlpool’s sides and is damaging to the inter - Far from decrying this protection - president, Marc Bitzer. ests of Chinese exports to America.” ism, Chang encourages it. The threat of another round of The impact of higher tariffs could Chang’s 23 Things might strike a duties has drummed up concerns in ricochet across the industry, with chord with US washing machine China that, if upheld, the newer tar - China Business Journal warning that manufacturer Whirlpool at the iffs will encourage the Korean pair the levies will have a “butterfly ef - moment: the firm has petitioned to move its production elsewhere, fect” on firms not directly affiliated for increases in anti-dumping hurting the local economy. with either of the South Korean levies on imports from LG and According to China Daily, indus - companies. The more speculative Samsung, whose cheaper products try insiders suspect that China is concern is that action from US reg - are threatening the American more of a target for the proposed ulators might encourage similar brand’s home market. levies than Samsung or LG. cases against other white goods Whirlpool’s petition, issued in China’s Ministry of Commerce made in China. December last year, suggests raising announced at one of its regular Chinese manufacturers are no the duties on the two Korean brands press conferences that the exports stranger to anti-dumping levies: be - from 68.92% to 109.04%. The re - of LG and Samsung washing ma - tween January and November last quest comes less than three years chines were worth $1 billion, so it is year there were 58 anti-dumping after the US Commerce Department watching the situation closely. cases filed against them. Xu Dong - levied anti-dumping charges on LG Shen Danyang, a spokesperson, sheng of the China Household Elec - and Samsung washing machines said: “The Ministry of Commerce be - trical Appliances Association made in Mexico and South Korea. lieves that the complainant and (CHEAA) argues that they are often a The latest targets for additional those involved in the export of response to the growing popularity P h o duties are produced in China. “Sim - the machines should engage in dia - of Chinese brands overseas: “They t o :

I m

a ply put, beginning in 2013, Sam - logue to resolve one another’s con - [the US companies] try to resort to g i n e

C sung and LG replaced their cerns. Simply resorting to trade pro - anti-dumping measures and invoke h i n a dumped washers from Korea and tection measures is not beneficial other trade rules to protect their po - 16 Week in China M&A 22 January 2016

sition in the US market. They accuse foreign companies of dumping without concrete evidence.” But others sought to downplay the potential for disruption. Hisense Group, a Shandong producer of home appliances, told the China Daily that the impact would be lim - ited as the investigation is aimed at South Korean brands, and not the industry as a whole. Another Chinese manufacturer that seemed unperturbed by the repercussions of sanctions was Haier, which told the same newspa - per that it “always adheres to the principle of honesty and complies Haier is paying $5.4 billion for GE’s home appliances business with local laws and regulations wherever it operates”. cal rival Midea, which also submit - Another trend: around two thirds As of last Friday, however, Haier’s ted a bid. Guangdong-based Midea of total investment went into serv - operational scope was expanding vies with Haier for leadership in ices, up from just 14% in 2009. further into Whirlpool’s home terri - home appliances in the Chinese “The main reason for the Chinese tory. On January 15 it signed a deal to market (Euromonitor says Midea firms’ buying spree is to get the purchase the home appliances divi - has 17% of total sales compared with brands, technologies and talent they sion of General Electric for $5.4 bil - Haier’s 8%). But the acquisition of lack, to capitalise on future waves lion – the third most expensive ac - GE’s unit will help Haier to grow in - of growth at home,” the Economist quisition of an American firm by a ternationally with a brand name reported last week. Chinese company to date, and the more recognised than its own. Haier will certainly want to capi - seventh overseas purchase in The Haier-GE deal is one of a talise on American consumer confi - Haier’s portfolio. Haier is buying a number of global takeovers by Chi - dence in the GE Appliances brand, long-established business that nese firms so far this year, alongside which it has licenced for a 40-year makes refrigerators, freezers, the $3.5 billion acquisition of Leg - period as part of the deal. It will also clothes washers and dryers. endary Entertainment by Dalian be interested in selling more of its Despite being one of the smaller Wanda (see page 19) and the $1 bil - own products through GE’s distri - divisions in the GE conglomerate, lion bid for KlaussMaffei by Chem - bution channels. the unit is the second largest in ap - China (the largest purchase yet of a But in Haier’s case the technol - pliance sales in the US, taking 10% of German company by a Chinese one). ogy and talent part of the equation the market. First place belongs to The GE transaction follows a busy may be less significant than for (guess who) Whirlpool. 2015 when Chinese FDI in the US some of the other acquisitions. It’s Much like Whirlpool, GE has reached a record $15.7 billion, up already developing a series of championed domestic production: 30% from 2014, according to ‘smart appliances’ through its U+ 80% of its appliances are made in Rhodium Group. The composition Smart Life platform and it looks the US and 88% of its sales are made of last year’s investment was con - more likely to introduce that tech - in North America. For Haier, which siderably more diverse than before, nology in the US, rather than currently reports 1% of its sales in Rhodium notes, including real es - bringing American know-how back the US, that looks like an opportu - tate (Anbang’s acquisition of 717 to China. nity. It has been trying to get into Fifth Avenue), financial services (Fo - Of course, if more of Haier’s the American market for more than sun’s takeover of Ironshore Insur - products were manufactured in a decade. In 2000 it opened a fac - ance), ICT (the acquisition of Inte - America, that would be helpful. tory in South Carolina and in 2008 grated Silicon Solutions by a Cases like Whirlpool’s claim against P h o it placed an unsuccessful bid for the Chinese consortium) and health and the Chinese-made washing ma - t o :

R e same division that it is now buying. biotech (Hepalink taking control of chines would be more difficult to u t e r s In its purchase Haier trumped lo - Cytovance Biologics). uphold, too. n 17 Week in China Society and Culture 22 January 2016

Beware the ‘Terminator’ Why a veteran vocalist is suddenly Taiwan’s most controversial man

he 1993 TV drama Bao Qing TTian is arguably Taiwan’s most successful cultural export to main - land China. The crime thriller, which tells the story of Judge Bao, an incorruptible Song Dynasty offi - cial, was so popular that the series has been dubbed as the “Taiwan Strait’s answer to CSI ”. Bao Qing Tian ’s closing music New Butterfly Dream of the Man - darin Ducks also became a break - through hit for Taiwanese singer Michael Huang. A true one-hit wonder, Huang has not come up with any notable songs since, although the royalties from his one-and-only success (which he also composed) have been enough to make him a multi-millionaire. Huang has lived in Beijing since the 1990s. But now the 53 year-old is back in the spotlight, earning the nickname “the Taiwan Independ - ence Terminator”. So what is Huang’s new role? The veteran singer has taken to alert - ing mainland authorities about which of Taiwan’s celebrities are “pro-independence activists”, pri - marily by picking up on comments that appear to be anti-mainland on social media. That’s a headache for the stars as Chou Tze-yu: apologised for her flag-waving behaviour China has become a profitable mar - ket for Taipei’s entertainment in - tims. Wong is not a big name but ties through a fireman’s boot camp. dustry. The artists accused of dis - TV watchers in southern China But when the show aired this loyalty by Huang run the risk of know him for his lead role as a fire - month Wong was shocked to find being blacklisted by the mainland’s fighter in Hong Kong’s Burning that his face had been pixellated media regulators, and even dumped Flame series. out, even though a third of the shoot by their own studios. He was on the verge of rebooting had been planned around him. Huang’s wrath reaches out be - his career when he featured in state The reason? It turned out that he P h o t o yond Taiwan, with Hong Kong ac - broadcaster CCTV’s reality show In - shared an article on Facebook about :

C F P tor Wong Hei one of his recent vic - finite Challenge , which put celebri - a recently published book which 18 Week in China Society and Culture 22 January 2016

questions the sexual orientation of returns to Taiwan for medical help. a former Chinese leader. The post Indeed, Huang has become such a was picked up by Huang, and Wong hated figure that he is said to be was reported to the state censor. seeking the protection of Zhang Huang’s own profile is on the Anlo, a gangster-turned politician rise in China and his weibo account (see WiC233 for our profile on the is being widely followed by neti - White Wolf), according to Taiwan’s zens. Many praised him for ensur - Apple Daily newspaper. ing that Wong was punished. “It is The row was a timely one, coin - only appropriate that a dick [Wong ciding with the island’s presidential Hei] has got the mosaic treatment election over the weekend. Taiwan’s [a practice in Japanese pornogra - incumbent president Ma Ying-jeou phy where parts of the body are ob - stressed that it was unacceptable for scured by digital pixels],” one in - a girl to be forced into a public apol - ternet user wrote. ogy for carrying Taiwan’s flag. Tai Last week the Taiwan Independ - Ing-wen, Ma’s opposition and now ence Terminator claimed another the president-elect, also addressed Wang: buying up Tinseltown victim: a 16 year-old pop star. Huang the controversy in her first news spotted the teenage singer Chou Tze- conference after declaring victory. It turns out that the sight of Hol - yu waving the Taiwanese flag dur - Beijing’s Taiwan Affairs Office has lywood A-listers Leonardo DiCaprio, ing an appearance on a South Ko - offered little support for Huang on Nicole Kidman, John Travolta and rean show (which was broadcast two this occasion, with a spokesman producer Harvey Weinstein tread - months ago). He quickly brought the suggesting that “some politicians” ing the red carpet launch of Wanda images to the attention of national - have been trying to use individual Dalian’s vast movie facility in Qing - ist Chinese. incidents to instigate hostility be - dao in 2013 was a powerful and At first it looked like another tween the two sides. glitzy statement of intent (see prize scalp. Plenty of Chinese neti - And in a delightful irony, Huang’s WiC211). zens called for Chou and her band, own weibo account was censored Just how significant his intent is Twice, to be banned from perform - this week too. now starting to emerge, as Wang ing in the country. Chou was forced continues to buy holdings in enter - to make a public apology in a video tainment, sports and tourism inter - hastily arranged by her South Ko - ests, making the group less depend - rean management company. ent on property (Dalian Wanda is “There is only one China,” Chou Tickets, please China’s largest commercial real es - read abjectly from a piece of paper. Another Hollywood swoop as tate developer). “I have decided that I will halt all of Wanda buys American studio Wang’s ambitions are now better my current activities in China, and understood, leading him to com - will go through some serious re - egendary Pictures made its plain at how difficult it is to find the flection. Again, I apologise to every - Lname bringing the dinosaurs of right targets. one. Sorry.” Jurassic World and the monsters of “When I want to buy, they won’t However, Huang soon found Godzilla to the big screen. Now sell and when they want to sell, I himself on the receiving end of an Wang Jianlin, China’s richest man don’t want to buy,” he told a gather - online backlash too. Chou’s apology and the new owner of the American ing in Hong Kong this week. caused uproar, with many Tai - studio, wants the acquisition to Days after he bought Thomas wanese furious. Huang’s role in the turn his company Dalian Wanda Tull’s Legendary for $3.5 billion, affair was highlighted and the Ori - into one of the biggest beasts in the Wang was projecting a 30% surge ental Daily News reported that Tai - movie industry. in revenue for Wanda’s entertain - wan’s media had imposed a collec - The tycoon says Wanda will ment and sport businesses in 2016. tive ban on him, with radio stations raise returns from its entertain - And he is expecting to complete refusing to broadcast his hit song. ment holdings this year, as the real three more overseas purchases and P h o An enraged Taiwanese doctor is estate market cools and he seeks two domestic ones this year, ex - t o :

R e even lobbying for his colleagues not to continue the diversification of cluding cinema chains. t u e r s

to treat Huang in the event that he his business. Wanda’s unlisted cultural and 19 Week in China Society and Culture 22 January 2016

sports unit, Wanda Cultural Industry for employees last weekend, Wang Group, is expected to generate rev - took to the stage and sang Fake enues of just over $10 billion this Monk , a song made popular by Cui year, while the film production arm Jian, one of China’s Bruce Spring - Wanda Pictures is targeting an in - steen equivalents. crease of 71% to $152 million in sales Costumed dancers pranced income. around a giant cardboard bird be - On the film distribution side, his hind him, and as the crowds Wuzhou Film Distribution is aim - cheered, Wang was given bouquets. ing at generating box office receipts Just days later he was in Hong of nearly $1.4 billion and earning an - Kong, causing a stir at a conference. nual revenues of $268 million this The South China Morning Post says year, up about 10.6%. Wang was “whirled in and out of the Wanda Cinema Line, the biggest Wanchai venue like a rock star”, be - operator of cinema theatres in fore announcing a plan to issue 500 China with 292 cinemas and 2,557 million credit and debit cards to Chi - screens, is planning to open 77 new nese consumers. theatres and add 698 screens this The billionaire also gave short year (the forecast makes no al - shrift to the predictions of doom for lowance for potential acquisitions). the Chinese economy. Meanwhile new purchase Leg - The naysayers, he scoffed, don’t endary is expected to contribute really know China: “The Western Rmb4.02 billion ($612 million) in world has been talking about a revenue this year. China property collapse for 20 That said, overall group revenue years; the Western world has been Zhang Tian’ai: the princess is forecast to drop by 12.4% year-on- talking about China’s collapse for 20 year to $38.7 billion in 2016 because years. If you want to view China’s tume drama, a genre that is hardly of falling commercial property sales problems, you must view it from lacking on Chinese TV. (although Wang said he expects net China’s standpoint, you can’t view The 35-episode series was made profit to grow). from a Hong Kong, US or Europe by LeTV, China’s answer to Netflix, Wanda has been busy buying standpoint.” and was broadcast exclusively on its overseas targets for several years. Negative views on China’s prop - online video site. In spite of having Among the previous acquistions are erty market were unfounded, a very low budget – it cost only the American cinema chain AMC Wang insisted. “Many people just Rmb20 million ($3 million) to pro - Entertainment, Infront Sports & Me - follow others’ views– they read duce and its cast is made up of new dia, a chunk of Atletico Madrid soc - some media reports and then and unfamiliar faces – the show was cer club, a plot of land at 9900 quickly form their views. They watched 2.6 billion times before the Wilshire Boulevard, Beverly Hills, for should use their brains.” censors ordered LeTV to pull it on the group’s US headquarters and Thursday. even the World Triathlon Corp, So why was it so hot? which organises the Iron Man Critics say that it helps that each Triathlon races. episode was no more than 30 min - Now is the time to see whether No, princess, no utes long, appealing to a young de - Wang has the stamina to bring these LeTV’s hugely popular drama mographic with a shorter attention businesses together in what could gets pulled by the censors span. The fact that the series is turn out to be a lengthy struggle to broadcast on the online video site improve returns across Wanda’s en - t first glance, Go Princess Go also allowed users to post com - tertainment portfolio. Adoesn’t seem like it has the po - ments and discuss the storyline While Wang has courted Holly - tential to be a hit. Nor does it seem with others, a move that makes P h o wood celebrities to help him pro - like the sort of controversial fare watching it a lot more interactive. t o :

I m

a mote his plans, he is no slouch him - likely to be banned by China’s cen - Primarily, though, audiences g i n e

C self when it comes to putting on a sors. But both have proven the case. seem drawn to the series for its sto - h i n a show. At a Chinese New Year event Go Princess Go is yet another cos - rytelling. The show follows the es - 20 Week in China Society and Culture 22 January 2016

capades of a young man who swaps makes the series more topical. In the Beijing Youth Daily. LeTV is- places with a princess in ancient fact, some commentators have ar - sued a statement denying the China as he (or she) navigates the gued that the show has broken claim, but later in the week Xinhua palace politics to become the Em - down barriers in discussing gender indeed reported that the drama press. change and homosexuality, subjects was no longer available as SAPPRFT Despite what some have derided that don’t normally make it into had decided online sites’ content as a “ridiculous” concept, audiences mainstream Chinese drama. should be held to the same stan- have been hooked. “I have been up How? Well, after the male protag - dards as that on mainstream tele- since 3am this morning and binge- onist becomes a princess, he finds vision. watched 18 episodes in one go. I himself falling in love with the This verdict will upset not just can’t stop myself,” admitted one ne - crown prince. “We wanted to intro - fans of Go Princess Go but other tizen (with a longer attention span duce something current and con - viewers who have been flocking to than most, admittedly). temporary,” was how director Lü watch online dramas precisely be- “Even though the production val - Haojiji described this plot device. cause SAPPRFT had ignored them, ues are very poor and the backdrop Needless to say, the show isn’t meaning they often enjoyed and costumes are so cheaply made, without its detractors. Jin Bo, a me - greater creative freedom than con- the show reminds me of stinky tofu dia commentator, calls it “lousy” , ventional TV shows. [a popular fermented snack]: the griping that it has managed to strike It could be bad news for the cast smellier it is, the more delicious. If a chord with audiences because it too which was due to reassemble in this historical drama is toxic, then I appeals to “low-brow tastes”. mid-February to film a second sea- think I’m too addicted to be saved,” That seems to have been the ver - son. That now looks in doubt, as another fan gushed. dict of media regulator SAPPRFT does the rumoured proposal that a Aside from a good looking cast, (State Administration of Press, Pub - film version might be made for re- the key to the show’s success is its lication, Radio, Film and Television) lease in Chinese cinemas. humour. Even though Go Princess too. After the the season finale was So a show that had a lot of go is Go is a historical drama, it is at heart aired last Saturday, rumours began now the latest in a long line of pro- a comedy, while the language in the circulating on weibo that SAPPRFT ductions to suffer the censor’s no. series is deliberately informal and had demanded that the series be Its fate indeed is similar to the pop- colloquial. taken off air because it was “pro - ular time-travel drama Gong in Having a transgender angle also moting indecency,” according to 2011. n

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21 Week in China And Finally 22 January 2016

Monkeying around International brands try to cash in on Chinese New Year

hen Pepsi entered the Chi - Boarding’ line in China. The tongue Wnese market in 1981, it did so read Nike SB. And while the US firm with the slogan “Come alive with clearly intended ‘SB’ to be short for Pepsi”. Or so was the intention. The ‘skate boarding’, amongst China’s in - translation the beverage firm ended ternet users it is short for a term of up with was more akin to “Pepsi abuse that combines the word stu - brings your ancestors back from the pid with an unprintable expletive. grave”. In a country that is imbued One widely read weibo post dubbed with a general sense of taboo re - the shoe “a good example of how to garding death, this was a far from Nike: lost in translation? give up on the Chinese market”. ideal brand message. Clearly Nike has no intention of Unfortunately, foreign firms still It featured a design which embossed doing that, but The Observer said make the occasional cultural and the Chinese character fa (which im - another of its new designs – incor - linguistic faux pas . Indeed recently plies wealth) on one shoe while the porating a lotus flower, a koi carp, a string of international brands fell other carried an inverted fu (an in - and a paper doll: all auspicious sym - foul of Chinese netizens’ ire for re - verted fu is a traditional symbol dis - bols for the year to come – had not leasing gimmicky products de - played at the Spring Festival; it has offended anyone linguistically, but signed to capitalise on the upcom - connotations of good fortune). was definitely a style failure. ing Lunar New Year – which The idea seems sound enough, Other brands appear to have paid according to the Chinese zodiac will but regrettably for Nike when fa and more attention to simian images, usher in the Year of the Monkey. The fu are placed together their mean - but not always to great acclaim ei - Shanghai-based news website The ing stops being ‘wealth and good for - ther. For example, a Louis Vuitton Observer last week published an ar - tune’ and instead is ‘to become fat’. bracelet with a monkey’s head was ticle documenting netizen de - The slip-up sparked ridicule online derided by one netizen with the re - nouncements, with one writing that and a much-forwarded accusation mark “This is a monkey? It looks many of the commemorative prod - that Nike was telling China’s con - more like an alien!” ucts were “so ugly I could cry”. sumers they were putting on weight. Regarding the dash to cash in on Receiving the majority of the bad “Is the designer working undercover the Year of the Monkey, another ne - press was Nike, which revealed new for Li Ning [a rival local brand]?” tizen offered this warning: “Just be - models of footwear set to coincide mocked one weibo user. cause it’s related to the Lunar New with the Chinese New Year. One Last October some netizens were Year doesn’t mean Chinese people branding error was in the Nike iD line. even more put out by Nike’s ‘Skate will think it’s cool.” n

The naysayers are wrong

“[Pundits have often warned of a Chinese economic disaster] but China avoided falling into the crisis that other people depicted” P h

o Japanese leader Abe Shinzo tells the Financial Times that China’s growth remains “very solid”. South

t * o :

R e Korea’s finance minister also said this week that the Chinese economy will experience a “soft landing”. Abe Shinzo u t e r s

22 Week in China The Back Page 22 January 2016

Photo of the Week In Numbers 7 million square metres The area of wall space covered in advertisements last year by Cuncunle.com. The O2O service provider utilises its extensive rural network to help firms expand advertising into remote areas, enlisting users to paint the ads in their home villages on behalf of their clients. In 2015, the company painted 10,000 walls just for e-commerce giant JD.com.

3-1 P h o The score of the Syria-China under-23 t o :

R

e championship match last weekend: China’s u t e r s second game of the tournament and second defeat. The result bore a striking A man takes part in a ‘cold endurance’ competition in temperatures of resemblance to the first match against minus 6 degrees Celsius at an indoor ski resort in Hunan province Qatar, which China also lost 3-1, in both situations finishing with only 10 players. It now looks unlikely China’s team will qualify for the Olympics. Chinese fans were Where is it? dumbfounded to be beaten by war-torn Some of the places referred to in this issue Syria. 57% Beijing The dramatic fall in copper prices since 2011, dropping to a six year low. The steep Shandong decline is often thought to be a result of China waning Chinese demand and an indication Shanghai of the middle kingdom’s slowing economic growth. But the latest figures from HSBC suggest Chinese copper demand is still robust, growing 1.8% last year. HSBC Guangdong suggests the plummeting price appears Hong Kong instead to be more an issue of oversupply caused by mining firms increasing capacity.

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