1 Talking Point 5 Week in 60 Seconds 6 and the World Week in China 7 China Consumer 9 Banking and Finance 11 Property 13 Rise of the RMB 15 M&A 26 July 2013 16 Society and Culture Issue 203 19 And Finally www.weekinchina.com 20 The Back Page Bitter pill m o c . n i e t s p e a t i n e b . w w w

As UK pharma giant is caught up in corruption row,

will other firms soon get the same treatment? Brought to you by Week in China Talking Point 26 July 2013

Wrong medicine GSK bribery headache reveals seedy side of China’s healthcare boom

Condition critical: the Chinese office of the scandal-hit pharmaceuticals giant GSK

he word “tabloid” has its origin 1880, hosted some of the stepping the mark are also im - Tin compressed medicine most spectacular parties of the day, mense. This time last year GSK tablets, a technique that invigorated networking with the cream of Eng - parted with $3 billion – the biggest the pharmaceutical industry in the lish society and paying for sumptu - healthcare fraud settlement in US late nineteenth century. Henry ous banquets at scientific and history – for promoting its drugs Wellcome, the pharma entrepre - medical conferences. with unsavoury tactics. And as of neur, coined the term in 1884 by Endorsement from people of in - last week, GSK found itself in simi - blending the words “tablet” and “al - fluence boosted his company’s pro - larly troubled waters with the Chi - kaloid” to denote the new product file and sales, and Burroughs nese authorities too. being offered by his firm, Bur - Wellcome grew into a pharmaceuti - roughs Wellcome. ‘Tabloid’ became cal major that was later merged into How did GSK’s difficulties begin? one of the most powerful brand today’s GlaxoSmithKline (GSK). The The first sign of problems in GSK’s names in business history, so much office that Wellcome set China business became public as so that it passed into general use for up in 1908 also marked the begin - early as March. An anonymous other items in compact form, most ning of GSK’s heritage in China. whistleblower alleged that the com - notably the tabloid newspaper. But in the modern-day drug in - pany’s research head in China, Zang P h o t

o Wellcome introduced other mar - dustry, the dividing line between ac - Jingwu, had fabricated data in a pa -

S o u r keting masterstrokes too, including ceptable giveaways and overly per published in 2010 in the scien - c e :

R e lavish hospitality. Having moved to aggressive marketing seems to be tific journal, Nature Medicine. u t e r s

London from the United States in growing thinner. The costs for over - GSK withdrew the paper and 1

Week in China Talking Point 26 July 2013

Zang was sacked in June (he claims he has been made a scapegoat for the errors of colleagues). A co-author of the dissertation also resigned. More damaging leaks then fol - lowed a few days later. The Wall Street Journal cited another anony - mous source as claiming that GSK’s sales staff were involved in wide - spread bribery between 2004 and 2010. Doctors in China were pro - vided with “speaking fees, cash pay - ments, lavish dinners and all-expenses-paid trips” in return for prescribing GSK’s products, the article suggested, citing the tipster’s Ideal for GSK executives looking for pain relief in China emails which were sent to GSK’s top executives in January. the police began their investiga - agency in question would then use While GSK was investigating the tions by looking into the activities the excess budget to “clear all the allegations, police in Beijing, Shang - of a Shanghai-based travel agency roadblocks in the medical network” hai and raided the drug called Linjiang International. The with pay-offs, Liang says. giant’s regional offices late last newspaper described Linjiang as a He then confessed that he con - month. Since then, at least four sen - “husband-and-wife firm” but found trolled annual “conferencing fees” ior managers – all Chinese nationals it strange that the agency hasn’t worth several hundred million – have been detained by police for arranged any travel at home or yuan. Putting this into perspective, ‘economic crimes’. The unit’s fi - abroad, only organising business Liang said GSK’s China revenues nance director was briefly barred conferences in China. Thanks to its were Rmb4 billion ($651.7 million) from leaving China. GSK has since business ties with GSK, Linjiang’s in 2012, and that “conferencing replaced its China head Mark Reilly annual revenue had spiked to “sev - fees” are part of operating expenses with Hervé Gisserot, one of its two eral hundred million from a few that typically equate to 30% of the top European managers. million” in just a few years. price of GSK’s drugs. Police are now examining more That makes the kickback industry How serious are the allegations? than 700 “travel agencies” of a sim - a lucrative one: the People’s Daily Many of the highest-profile corrup - ilar kind on allegations that they reckons there are so many middle - tion probes in China are conducted may have served as conduits for il - men like Linjiang that these shady in secret, with little public view of legal payments and perks to doc - entities have to compete with each what might be going on behind tors, medical staff and government other for business. In doing so, kick - closed doors. But the Chinese au - officials across the industry. backs are soon flowing back to phar - thorities have been unusually trans - maceutical executives themselves, parent in the GSK investigations, How does the system work? it claims. with extensive briefings given to Liang Hong, one of the senior GSK As WiC has reported before, journalists. In a rare appeareance managers detained, was paraded many listed firms in China carry last week, Gao Feng, head of the eco - on CCTV to confess his wrongdo - bulky entertainment and meeting nomic crimes investigation unit at ing. According to Liang, the phan - fees in their operating expenses. the Ministry of Public Security, even tom “travel agencies” were estab - (WiC194). But the proportion of accused GSK of acting like “the ring - lished because of anti-corruption these expenses seems especially leader” of a “criminal organisation”. rules imposed on drug firms which high for Chinese pharmaceutical “We found that bribery is a core made it difficult to deal directly and drug-distribution firms. In the part of the activities of the com - with a customer. When a “travel case of Fosun Pharmaceutical, P h o t

o pany,” Gao told journalists. “To boost agency” helps to organise a med - which is controlled by Shanghai bil -

S o u r their prices and sales, the company ical conference of 100 executives, a lionaire Guo Guangchang, Rmb308 c e :

R e performed illegal actions.” pharmaceutical firm would typi - million was spent on staff costs last u t e r s

According to the People’s Daily, cally pay for a 150 attendees. The year from sales expenses totalling 2 Week in China Talking Point 26 July 2013

Rmb1.5 billion. But Rmb226 million was spent on conferences, Rmb240 Planet China million on marketing, Rmb203 mil - Strange but true stories from the new China lion on travelling and Rmb431 mil - lion on unspecified “others”. MARRIAGE, THEN MORTGAGE Many people get married for love. But in Similar expense ratios apply to Beijing there is a new breed of woman who views the whole thing in a far state-run heavyweights such as more transactional light. Known as huntuo , these ladies sell their wedding Sinopharm, which accounts for vows to those from outside the capital who want to buy a property, but aren’t about a tenth of China’s drug distri - eligible. As WiC has pointed out before, Beijing has restrictions on who can bution market. buy property (imposed to stymie prices). Those without a Beijing hukou (household registration) need to have paid tax in the city for five years to Is GSK the only guilty party? qualify as a buyer. Enter the huntuo – which roughly translates as ‘trust fund Apparently not. The Chinese police bride’ – who will marry you, enabling you to jointly to buy a property. You pay said these 700 agencies have a wider a fee, then she divorces you, but you keep the property. The practice has range of clients, while the New York been going on for a while but made headlines again last week when China Times has reported that Linjiang National Radio reported on the activities of one particularly enterprising lady was used by companies including who has clocked up three marriages and three divorces in less than five months. The radio station said officials were investigating her marital affairs Roche, Sanofi, Novartis and Merck. but from a legal point of view were a bit stumped. Currently there is no limit All of these companies have since to how many times someone can get married and divorced within a single severed links with Linjiang. year. It’s thought the huntuo ladies charge around Rmb20,000 per betrothal. Economic crimes boss Gao Feng has delivered a blunt message that others could soon face GSK’s isation list published in 2006. drugs. As a result, hospital pharma - predicament too. Expenditure has increased over cies become a breeding ground for “We have also found some clues the years. (McKinsey projected last bribery (for an example, see of illegal money transfers involving year that it would grow from $357 WiC114). Payments by drug firms to other foreign firms. Whether they billion in 2011 to $1 trillion in 2020.) get their products onto prescription have been involved in these allega - The State Council also said in March lists is standard practice. tions we are not sure now. Probably that spending in 2013 would climb For instance, GSK’s Liang Hong you better ask them yourself. One 27% year-on-year. told CCTV that a pack of Heptodin, a question is enough: can you sleep Greater government subsidies GSK drug for hepatitis B, sells for well at night?” the UK’s Telegraph will eventually change the face of Rmb140 at a Chinese hospital. Out newspaper quoted him as saying. Chinese healthcare. But that is still of this sum 20% is used for bribing This week, Xinhua said that po - some way off and until this point medical staff, while GSK still keeps lice had already raided the Shanghai Chinese hospitals (nearly all state- a 20% profit margin. offices of AstraZeneca and taken run) have been left to cover their According to China Business away one employee. Belgian drug - own costs. As WiC has mentioned News, the pharma giants face a maker UCB has also confirmed that previously, hospitals have long re - dilemma: “Foreign drugmakers are it has been visited by police. lied on drug sales to patients for being forced to choose between fol - much of their income. Even the lowing the underground rules or Why is bribery so widespread? health ministry admits it, with offi - losing out on a booming market to At the root of the problem is China’s cial figures suggesting that drug rivals who do so.” paltry medical spending on its 1.35 sales accounted for 44% of hospital billion population. revenues in 2010. For less affluent Is GSK being singled out? When Beijing kicked off its Five- cities – where government financial Gao, who will conduct any future Year Plan in 2006, healthcare spend - support is weaker – the proportion case against GSK, denied that the UK ing was $121.5 billion a year, could be as high as 70%. giant was being singled out because compared with just over $2 trillion This model results in routine it is a foreign firm. But as efforts spent by the US in the same year. over-prescription of medicine and continue to restructure the Chinese That translated into per-capita ex - improper pricing. CCTV revealed in economy to one more driven by do - penditure of $92 – versus $6,714 for late 2011 that patients were paying mestic consumption, cynics point the US and $3,552 in the UK – ranking prices five times the manufacturing to a bigger picture: Beijing is in - China 101st in a World Health Organ - costs of the 20 most common creasingly flexing its regulatory 3 Week in China Talking Point 26 July 2013

muscles against multinationals. named?” it demanded. “We all ture,” Hussain insisted. European food packaging group know the answer, some of them GSK also says that it shares the de - Tetra Pak became the subject of an are people of significance. GSK is sire of authorities to root out cor - antitrust investigation last week just the tip of the iceberg.” ruption and fully supports reform (see WiC201) and this was followed According to Liang, bribes were of the medical sector. More impor - by a pricing inquiry into foreign - being offered to officials at all the tantly, it will now change its opera - milk powder firms. Then came the key agencies including the China tional model to reduce drug prices crackdown on Western pharma. Food and Drug Administration further, although no details were (CCTV weighed in this week by (equivalent to the FDA in US), the given on how this might be achieved. claiming that ice cubes at Ameri - National Development and Reform The comments may well strike the can fast-food chains like KFC are Commission (which regulates drug right note with Beijing (some ana - “dirtier than toilet water” too.) prices) and even the Ministry of lysts suspect that the ongoing inves - International newspapers have Human Resources and Social Secu - tigation is designed to force the highlighted that GSK’s case reiter - rity (which pays for some of the pharma giants to cut their prices in ates that foreign firms can expect state’s health budget). China) but they are unlikely to stop a rougher ride as they vie for a the probe from widening. foothold in China’s vast consumer And the way forward? The State Council has said it market. Some of the local media The president of GSK’s international wants to wean hospitals off their re - are sympathetic towards GSK’s businesses, Abbas Hussain, met the liance on income from drug sales predicament though, noting that it Ministry of Public Security this before 2015. That means Beijing will takes two to tango in corruption week. In a statement that followed, soon be footing the bill for an ever- cases. But so far, there is little sign the UK multinational admitted vio - increasing proportion of the pre - of local parties being pursued as lating Chinese laws but stressed that scription drugs consumed by enthusiastically by the authorities. company executives had also acted Chinese patients. Ergo, if medicines Century Weekly was typical in its in contravention of GSK’s own rules cost more, the government bill will view: GSK is alleged to have of - and regulations. be bigger, so eliminating the bribes fered bribes to everyone in the “Certain senior executives of GSK said to have been paid by GSK (and medical food chain, it noted, but China who know our systems well potentially by many others) could not a single Chinese government appear to have acted outside of our prove significant in budgetary official or entity has been named processes and controls which terms. A back-of-the-envelope cal - in the scandal. “Why aren’t the breaches Chinese law. We have zero culation suggests it might make people taking the bribes being tolerance for behaviour of this na - medicines 20% cheaper. n

The future of freight?

The Royal Scotsman, the Palace on Wheels, and the Orient Express. Each name conjures up images of a great train journey. But perhaps the greatest trip of them all now departs from – although it won’t be carrying passengers, only cargo. The China Daily reports this week that the new service has commenced between the central Chinese city of Zhengzhou and Germany’s Hamburg. The train will take 18 days to make the 10,214km journey but that is still twice as fast as marine transport. It also costs 80% less than shipping goods by I l air. The route has been dubbed ‘the New Silk Road’ and vehicle parts and construction machinery, according l u s t r a will carry goods between Europe and China via to DB Schenker’s China boss, Karl-Heinz t i o n :

w Kazakhstan, Russia, Belarus and Poland. Jointly Emberger. “It can save a lot of time and money,” w w . b operated by the Chinese and Deutsche Bahn’s DB Schenker says, highlighting the increasing e n i t a

e Schenker, the service is expected to be particularly interdependence of the two economies. Last year, p s t e i attractive for German exporters of medical equipment, Sino-German trade volumes hit $189.35 billion. n . c o m

4 Week in China The Week in 60 Seconds 26 July 2013

The bottom line is 7% The major news items from China this week were...

Premier Li Keqiang has declared that China’s economic 1growth must not slip below the “bottom line” of 7%, said Xinhua. His comment came soon after HSBC said that China’s PMI dipped to an 11-month low in July at 47.7, illustrating a continued slowdown in manufacturing ac - tivity. The State Council then announced a “mini-stimu - lus” on Wednesday that temporarily exempts small enterprises from business taxes, as well as some meas - ures to stabilise exports and boost railway construction.

The EU’s new toy safety directive, which sets stricter 2requirements on manufacturers’ obligations by adding more articles on the chemical content of prod - ucts, took full effect last week. The directive will hit China’s toymakers hard, with one estimate reckoning Growing its smartphone business: Huawei that half of its toy factories could be closed. province, will be completed by next April. Once the 208- Xinhua has reported that the Chinese authorities are storey skyscraper is complete it will class as the world’s 3making preparations for an imminent trial of Bo tallest building, surpassing Dubai’s Burj Khalifa. While Xilai, the former Party chief of Chongqing whose wife it took five years to erect the Burj, Sky City plans to be was convicted last year of murdering a British business - completed at unprecedented speed (seven months) by man. An internal document issued by the party’s Gen - using a revolutionary technique relying on bolting to - eral Office revealed that Bo would face criminal charges gether large prefabricated sections of the structure off- for taking Rmb20 million ($3.2 million) in bribes via his site, then assembling them, Lego style. wife, embezzling Rmb5 million, and abusing power. Huawei said its revenue growth accelerated in the What could be the world’s tallest building held its 5first half of this year despite an uncertain global 4ground-breaking ceremony. Chinese developer economy. The unlisted Chinese telecommunications- Broad Group announced that building work at Sky City equipment supplier said revenue for the six months tower, situated on the outskirts of Changsha in Hunan rose 11% to Rmb113.8 billion, an improvement from 5% growth in the same period a year earlier. The company attributed the rise to steady growth in its infrastructure- equipment business, an expansion in sales of network - ing equipment, and growing smartphone sales.

A 6.6-magnitude earthquake struck Gansu province 6on Monday, leading to a death toll of 95, with more than 1,000 people injured. The city of Dingxi reported the bulk of the casualties and saw 127,000 homes se - verely damaged. The earthquake has caused direct eco - P h o t

o nomic losses of Rmb198 million, the Dingxi government

S o u r said on its weibo. President Xi Jinping called yesterday c e :

R e for an “all-out” rescue effort, making saving lives the top u t e r s Toys: soon less of these will be made in China priority, Xinhua reported. n 5 Week in China China and the World 26 July 2013

Abe ascendant Japan’s election result provokes China concerns

ans of author George RR Martin narrow strait that divides northern Fwill be familiar with the phrase Japan and Russia for the first time. “winter is coming”. In his best - This was seen as muscle-flexing by Read my lips, no concessions selling novels – now shown in the most onlookers, with a retired Chi - TV series Game of Thrones – it’s the nese admiral telling local media that sentment at Japan’s invasion in the rather gloomy motto of the com - such manoeuvres in the Sea of Japan 1930s. The era has cast a long bative Stark family. The words con - carried “a certain level of threat”. shadow, which makes the timing of note a warning of dark days ahead But Beijing has preferred to com - a new book on the subject more and the need for constant vigilance. plain about provocations from the telling. Written by Oxford Univer - Less expected is to see the same other side, especially when a cam - sity history professor Rana Mitter, phrase crop up in discussion of East paigning Abe visited two small islets China’s War with Japan 1937-1945 is Asian politics. But this week the near a group of disputed islands the first detailed account of the con - -based newspaper Ming which China claims as the Diaoyu flict in English. And as Mitter points Pao did just that, saying that “winter and Japan says is sovereign territory out in his opening chapter, it’s diffi - is coming” in Sino-Japanese rela - called the Senkaku (see WiC179). cult to understand the current ten - tions. The comment was made in Asahi Shimbun said it was the first sion between the two countries reference to Abe Shinzo’s resound - visit to the neighbouring islets of without comprehending the hor - ing victory in elections at the week - Ishigaki and Miyako by an incum - rors that took place: most infa - end and what it might mean for his bent prime minister since 1972. mously the massacre in Nanjing and goal of amending Japan’s pacifist Abe was then quoted by the Ky - the pulverising of Chongqing by aer - constitution. odo news agency as saying he would ial bombing. In an editorial the China Daily “never make concessions” over the In total around 20 million Chi - suggested that the Abe government islands and would protect “our coun - nese died in the conflict and 100 mil - is looking to realise “its covert am - try’s territorial lands, water and air lion became refugees. “China’s most bitions for a fully-fledged military”, space”. If the trip was intended as a fraught international relationship is while Xinhua ran an article on Sun - message, it hit the mark. The China still with Japan,” writes Mitter, “and day headlined “Japan’s future direc - Daily was soon fuming that Abe was the war remains central to the pres - tion is worrisome”. “staging provocative shows that are ent friction between them. Even for “Abe will likely work toward con - alienating Japan from its neigh - generations born many years after stitutional revision and recasting bours.” It went on to warn that he 1945, Chinese nationalist pride is Tokyo’s wartime history with a less was “leading Japan up a blind alley, shaped by anger at Japan’s invasion apologetic tone,” Professor Liu where it will be a pariah in the in - of their country.” Jiangyong, an expert in interna - ternational community” before In the coming years the rest of tional relations at Tsinghua Univer - adding that China wanted to shelve the world will need to understand sity, told the South China Morning the dispute and jointly develop this period better, knowing, for ex - Post, while the New Oriental Morn - nearby resources. Then it added a ample, what it means when the Chi - ing Post was also worried that Abe’s hint of steel: “There is no need for nese talk proudly about “right wing” ideas would increase China and Japan to go to war to set - Taierzhuang: China’s first military tensions with China. tle the dispute. But Japan must take victory against Japan after a week- P h o t

o Relations between the two coun - care that its military build-up does long battle in 1938 that saw as many

S o u r tries remain tense. Last week Japan’s not lead in that direction.” as 20,000 Japanese soldiers killed. c e :

R e defence ministry noted that Chinese Talk of war takes us back to a Mitter’s book is a reasonable u t e r s warships had passed through the longstanding theme: Chinese re - place to start... n 6 Week in China China Consumer 26 July 2013

Wanting cashback Will Hong Kong tycoon sell chain?

sia’s richest man Li Ka-shing tor: the South China Morning Post Alikes to stay ahead. He is said to reckons that Watsons opened more set his watch 20 minutes fast, for in - than 1,000 shops on the mainland Sale now on? stance. An early riser, he also wakes between 2007 and last year. In con - at 5am to listen to the news on the trast, ParknShop has enjoyed less only 20th in turnover in 2011 among radio (and also tries be the first to succcess in China. the foreign supermarket chains in make it onto the golf course so as to Although it entered the , taking only Rmb4.3 billion get a round in before work). market as early as 1984 with a store ($700 million) in sales, compared So when news broke that Li may in , business has been with Wal-Mart and , which sell the supermarket chain Parkn - rocky. So far ParknShop has only 48 both recorded over Rmb40 billion in Shop, which is owned by his con - stores in China, compared with Wal- revenues in the same year. glomerate Hutchison Whampoa, an - Mart, which opened its first store in Industry observers say Parkn - alysts were soon deciphering the 1996 and boasts over 370 outlets. In Shop’s problem is that the chain signals. Some reckon Li wants to sell Shanghai, where it focused a great didn’t have supply chain efficiency because Hong Kong’s grocery mar - deal of its expansion efforts, per - or scale advantage over larger rivals. ket lacks growth (“Hong Kong is a formance was poor. In 2000, Parkn - It has also had trouble defining its mature market, and the city is fully Shop sold all but one of its stores to commercial approach. “ParknShop saturated with ,” com - a local player. Six years later, the couldn’t seem to make up its mind mented Tom Holland, a columnist company opened again in Shanghai about its China strategy,” a senior with the South China Morning with a huge new megastore, appar - manager at Carrefour told China Post). Others say Hutchison needs ently turning its back on smaller su - Business Journal. to raise cash to fund growth in its permarkets. Hutchison insisted that Selling ParknShop could still telecoms business. Just last month hypermarkets were the future, with fetch as much as HK$30 billion it agreed to buy Telefonica’s Irish a fuller range that would better ap - ($3.86 billion) for Hutchison, with unit for $1.1 billion. peal to Chinese shoppers. But after China Resources, COFCO and Japan’s ParknShop, established in 1973, only two years of operations, Parkn - AEON Group all mentioned as po - has about 350 outlets in Hong Shop quietly closed this venture too. tential buyers, says Sina Finance. As Kong, Macau and China. As of last “The investment in building a mega - of last year, China Resources’ Van - year, the chain enjoyed a market store is very high but ParknShop’s guard Supermarket was the third- share of 33.1% in Hong Kong, sec - appeal to shoppers is not very largest supermarket player in Hong ond only to Wellcome, owned by ri - strong, so towards the end it was los - Kong with a 7.8% market share, val Dairy Farm, says research firm ing a lot of money every month,” a while AEON’s Jusco had a 2% share. Euromonitor. former staffer told the China Busi - If China Resources does acquire Compared with Hutchison’s re - ness Journal. ParknShop, it would become Hong tail siblings, ParknShop looks like Undeterred, Hutchison tried again Kong’s largest supermarket opera - the ugly sister. In addition to the su - in 2011, launching another new store tor. However, judging from the scan - permarket chain, the , which it positioned as a more dal in which China Resources is cur - also owns the beauty and healthcare upscale supermarket, also in Shang - rently embroiled (see page 15), the chain Watsons and electrical appli - hai. But Securities Times reported timing could be far from ideal. ances stores Fortress. Both busi - this week that this store will also be Then again, a sale may not be as nesses are higher return than gro - closing later this month. imminent as media initially cery, where ParknShop reportedly China’s supermarket sector is no - thought. On Wednesday, one of Li’s makes less than 1.5% in net profit toriously fragmented with no domi - top executives said the chain was margin. Plus there’s the China fac - nant player. But ParknShop ranked not for sale “at present”. n 7 Week in China China Consumer 26 July 2013

Browned off Russian tipple triggers bitter beverage row

hat’s the most popular Russ - the end of 2012 and it has been mar - Wian drink in China? Most keting its new product aggressively, would probably say vodka but re - including promoting it on Hunan cent trends suggest it’s actually a Satellite TV’s hit show I’m A Singer. bubbly brown beverage made from All its investment in the brand rye bread called kvass. seems to be paying off. Wahaha’s The drink was introduced in kvass surpassed Rmb1 billion ($160 China around 1900 by a Russian million) in sales by the end of June The latest craze in China merchant. Often likened to a very and is expected to reach Rmb2 bil - weak beer, kvass is usually flavoured lion for the full year. Qiulin reports the kvass drink every day to come with fruits like strawberries, raisins about Rmb300 million in sales an - up with the best product… Kvass is a or mint. Soft-drink giant Coca-Cola nually, says Nanfang Daily. traditional drink from Russia, Wa - even made a version of the drink To retaliate, Qiulin has been rude haha merely adapted it for Chinese when it attempted to crack the Russ - about Wahaha’s product, accusing it taste so whether or not it is authen - ian market in 2009. of merely repackaging an unpopular tic is up the consumers,” says Zong. Some say kvass is an acquired brand of beer and then passing it off “Enterprises should focus on the taste (the New York Times calls it as kvass. The company also posted product itself, rather than spread - “brackish”) but it is popular in an ad on its weibo showng adult bod - ing malicious rumours about other China’s northeast region, where ies with the faces of babies, a play products to elevate itself.” Russian cultural influence is on the first character of Wahaha’s Industry observers say the reason strongest, thanks to its proximity name (which means ‘children’). Qiulin is waging such a public battle and the region’s history. But kvass “Please, ‘wa.’ Even though it’s a with Wahaha is because it knows it is also becoming more mainstream copycat, you should still put some can’t compete against the giant on in other parts of the country as effort into it,” read one of the adver - financial resources or via distribu - more health conscious consumers tisements, adding punchily “How tion networks. By accusing Wahaha choose it over sugar-packed soda or dare you add a little malt and call it of ripping off its product, Qiulin is fruit juices. kvass? The real stuff is made with actually trying to raise its profile na - That was good news for Qiulin bread fermentation!” tionally, Xiang Jianjun, an analyst Food, the oldest producer of the Qiulin claims that its own kvass is from CIConsulting, told Qingdao Fi - drink in China. As kvass’s popularity authentically produced with rye nancial Daily. grew, Qiulin’s production quadru - bread using traditional Russian Wahaha won’t want to back pled from 5,000 tonnes in 2009 to techniques and so is much healthier down, however. It has been scram - 20,000 tonnes two years later. The than Wahaha’s version, which is bling to find new products to com - company commanded a market made from high-calorie malt. bat slowing growth in much of its share of over 90% in Heilongjiang, But Wahaha’s boss Zong denies core business. In fact, sales growth Jilin and Liaoning provinces. that he has copied Qiulin’s drink. In dropped to its slowest pace in 2012 But Qiulin’s near monopoly of the an interview with Sina Finance, the and the company missed its sales market has been short-lived, espe - tycoon says he has been familiar targets in both of the last two cially when the surprise success of with kvass for more than 30 years years. As raw material and operat - P h o t o kvass caught the attention of drinks but that the drink was usually sold ing costs continue to climb, Wa -

S o u r c giant Wahaha, owned by China’s in large bottles that could easily go haha badly needs a boost from e :

I m

a richest man Zong Qinghou (see off in the summer. drinks like kvass to stave off pres - g i n e

C WiC200). The Hangzhou-based bev - “Since then we have had hun - sure on its margins, reckons Ten - h i n a

erage maker began producing it at dreds of researchers who worked on cent Finance. n 8 Week in China Banking and Finance 26 July 2013

A rate still to go Central bank frees up lending rates amid concerns over shadow banking

arlier this month, people started Eto gather outside the People’s Bank of China branch in Beihai, a coastal city in Guangxi province. They had heard that the central bank would soon be offering interes- free loans of up to Rmb500,000 ($81,478), reports HK Daily News. What started out as a small crowd grew to more than a thousand peo - ple looking for cheap credit. The branch soon had to be pro - tected by local paramilitaries and a barricade was set up, which the ap - plicants tried to break through. Shocked by the scene, the central Removed his floor: China’s central bank governor Zhou Xiaochuan bank felt the need to clarify that its role as lender of last resort only ex - terest rate regime since caps on lend - ble lending rate will have as 89% of tends to financial institutions, not ing rates were removed in 2004”. actual lending rates are still at or retail customers. Without a doubt, it is a signifi - above the benchmark, according to To make the point in plainer cant step in Beijing’s effort to get HSBC research. The cost of borrow - terms, it sent out a SMS message lo - credit allocated more efficiently ing could also be on an upward cally saying that it wasn’t in the loan across the real economy. trend, as liquidity is expected to be business. “Interest-free loans are At the same time, analysts ac - tight in the second half of the year. purely rumour, beware of being knowledge the process still has Others believe that this latest in - fooled,” it advised, according to re - some way to go: “It signifies that terest rate reform could require ports from China News Service. the easiest part of market-oriented banks to seek fresh capital in order The incident is another reminder interest rate reforms has been to maintain their capital adequacy of the edgy mood in China’s bank - completed, and that reform offi - ratios, according to ChinaScope Fi - ing system, as well as some rather cially now enters the deep end,” nancial research cited by exaggerated expectations of the Gao Shanwen, chief economist of Fx678.com. central bank’s role in addressing fi - Essence Securities told Economic The Shanghai research firm said nancial challenges. So perhaps it Information Daily. that the banks will have to ask in - should be less of a surprise that the The greater challenge lies in al - vestors for as much as $100 billion PBoC’s recent move to get rid of the lowing market forces to dictate the as net interest margins shrink, while lending floor in bank interest rates rates paid on deposits. As the FT assets increase. Smaller municipal is getting so much attention. points out, the nation’s banks are banks will need more capital than This latest move to liberalise in - against such a move because their their larger peers, the report said. terest rates means that there is no profits are dependent on the dif - Further fundraising could also be limit to the discount that banks can ference between the deposit rate a painful procedure, if the banks P h o t

o offer on the benchmark rate for (that is kept low) and the lending have to tap the market at a time

S o u r commercial loans, a move that the rate on offer. when investors are worried about c e :

R e Financial Times describes as the As things stand now, it is not clear the robustness of the financial sys - u t e r s “biggest change to the country’s in - how much impact the more flexi - tem in general. 9 Week in China Banking and Finance 26 July 2013

The government will prefer to antees and bundling funds together Rmb6 million of unpaid debt, re - look at interest rate reform more into wealth management products, ports Century Weekly. No money positively, arguing that it will reports Century Weekly. was ever returned. dampen the growth of the shadow The central bank highlights two According to 21CN Business Her - banking industry, which has ex - websites in Chongqing that aggre - ald, the central bank is stepping up ploded in size since the financial cri - gate money from a number of its efforts to establish greater over - sis. Making the official banking sys - smaller lenders to make larger loans sight, after calling a meeting in May tem more competitive could be an with higher returns. Customers are to work out further regulatory important part of achieving that. told to send money to the website’s measures to cover P2P loans. Some There are fresh signs of PBoC account but are given little infor - of those present thought it was too anxiety about underground lending mation about where the capital early to impose regulations on the too. That’s after the central bank re - ends up. industry, the newspaper suggests, cently released a report on peer-to- These kinds of activities come especially when there are more peer (P2P) lending – an industry that with a wide range of risks. As with pressing problems, such as how to has grown to be worth Rmb60 bil - many wealth management products handle trust company lending (see lion in a very short period. there is the problem of short-term WiC177). The idea behind these P2P web - funding being used to back projects This shows that the PBoC has sites is that they provide a venue for that will take several years to start plenty on its plate when it comes to small lenders to lend directly to po - generating a return. There is also the regulating the amorphous world of tential borrowers. The loan rates are leverage risk: many of these compa - shadow banking. high, between 10% and 20%, but bor - nies then borrow themselves and Interest rate reforms could turn rowings are supposed to be small are lending out more than 10 times out to be a key tactic: transforming amounts. But t he PBoC report points their investor capital. the banking system into a more ef - out that it is common for some of Investors have already lost fective competitor to its unofficial these websites to branch out into money on P2P websites. In 2011, a cousins, before one of the many riskier areas of finance, including site called Angel Plan shut down risks in the shadow banking sector taking deposits, offering loan guar - and its founder disappeared with are realised. n

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10 Week in China Property 26 July 2013

Poly-opoly The Poly Group is one of China’s more mysterious companies

n April this year, Christie’s be - Icame the first foreign auction house to operate independently in mainland China. In the same month it emerged that Francois-Henri Pinault, CEO of the company that owns Christie’s, had pledged to return two antique bronze heads to China (see WiC191). A government agency described the act as “an expression of friend - ship to the Chinese people.” The rat and the rabbit were part of a set of 12 heads, each represent - ing a sign of the zodiac, taken when French and British troops looted Yuanmingyuan, the Old Summer Palace, during the Second Opium War of 1860. Five of the heads are still missing. Pinault’s gesture was welcomed. But it is small fry in comparison to the contribution made by China Poly Group Corporation, a con - glomerate with its own auction house, which has returned four of the heads to the homeland. The state-owned firm spent Rmb30 million ($4.88 million) on Heir to Deng Xiaoping’s legacy? Poly’s boss Chen Hongsheng the heads which included a cow and a monkey. However, it also managed terious conglomerates. leader’s son-in-law, reports the to exploit the move to its advantage It traces its routes to Poly Tech - South China Morning Post. This by holding an exhibition on the nologies Corporation, which was gave Poly an important place in the 150th anniversary of the Summer founded by CITIC and the army, re - military-industrial complex. By sell - Palace’s destruction. The event, held ports Talent. From the start, this was ing weapons abroad, it was able to at one of the company’s real estate no ordinary venture, getting the supplement the army’s budget. At projects, attracted thousands of peo - blessing of Deng Xiaoping to trade the same time, it was able to bring ple, reports Talent Magazine – help - in military equipment. From the foreign technology into China, ing it sell the apartments. outset there was also a deep family which over the years has included P h o t

o Serving the national interest and connection between Poly and Deng. Black Hawk helicopters from the

S o u r profiting from its culture are noth - That’s because one of the com - United States as well as aircraft, mis - c e :

R e ing new to the company, which is pany’s founders, He Ping, was a gen - siles and submarines from Russia. u t e r s one of China’s largest but most mys - eral and the former paramount Today much of the weapons are 11 Week in China Property 26 July 2013

going in the other direction, with these business areas to contribute China exporting them to other na - much more to China’s GDP in fu - tions (Sri Lanka’s leaders, for ex - ture, with Poly well positioned to ample, credit Chinese weapons as a benefit from this trend. crucial factor that helped them de - Other growth areas include nat - feat the Tamil Tigers after decades ural resources. Talent says that of warfare). Poly owns two oil blocks in Africa, “China’s export of weapons is as well as gold mines abroad and an important part of the nation’s coal mines in Xinjiang. That fits foreign affairs and diplomacy,” with China’s ‘going out’ policy, al - Chen Hongsheng, a former soldier though a resources division does - and the chairman of Poly Group, n’t seem to offer too many syner - told Talent. gies with the world of the auction Chen – a co-founder of the group house and theatre. – remains proud of how the com - Pig head brought home by Poly No matter: the magazine adds pany’s military arm has served the that Chen’s main goal is to own a country. the 116 biggest state-owned compa - bank (he is not alone, see WiC192 for “Although at present the military nies, reports China Daily. how state oil giant CNPC is pushing trade business accounts for only a Real estate became a focal point. into financial services through Kun - small part of Poly’s assets, revenues Han Qingtao, general manager of lun Bank). So far the authorities and profits, we will always regard Poly Real Estate, said the firm was have thwarted Poly in this particular serving the national defence as Poly’s quick to see the market opportunity ambition but with Rmb140 billion glorious mission,” he said. after the government withdrew in outstanding borrowings, Chen is - Poly Group has extended its many of its commitments to wel - n’t giving up easily. “If the Poly char - reach into many other sectors. In fare housing. That opened the door iot is equipped with a financial en - the early 1990s it opened hundreds for property developers to go on a gine, it must be able to run faster,” of companies in many different in - building binge. he comments. dustries including real estate, ap - In addition, the company had a Last year the firm made profits parel and advertising. It even put on head-start on much of its competi - of Rmb18.77 billion, although its crit - elephant shows in southwest China. tion, with lots of land and the ability ics gripe that Poly’s status as a state- In 1999, it became a more typical to raise capital quickly from state owned enterprise has given it extra state-owned enterprise when super - banks. The conglomerate’s property advantages – a charge that its chair - visory control was moved away arm is now China’s second-largest man is keen to refute. from the military, reports China developer by market capitalisation, “Outsiders always think Poly Daily. At that point its haphazard di - according to IFR. Group’s rapid growth has been the versification came to an end and the With property already an estab - result of government support. The company shrunk its 18 business ar - lished subsidiary, attention is now truth is that Poly Group’s develop - eas into just five subsidiaries. It also turning to another branch of the ment has coincided with the coun - proved a tough time for the former business – Poly Culture. A sprawl - try’s reform and opening-up,” soldiers who ran the business: prof - ing division covering theatrical per - Chen insists. its amounted to just Rmb100 mil - formance, antique collections, art - It will be interesting to watch how lion and many managers were works and auctions, as well as film Poly does in the new era of ‘Liko - forced to resign when their divisions and TV production and cinema nomics’. In spite of Chen’s denials, were closed down as untenable. management, Poly Culture is al - the firm was a big beneficiary of the Those who remained attended ready one of China’s largest busi - lurch towards state capitalism that workshops on executive leadership. nesses in its sphere, with revenues occurred in the last administration. “We learned how to run a modern topping Rmb1 billion, reports the Now it seems Premier Li Keqiang enterprise, and about the market China Daily. wants to rein-in the behemoths of economy and laws,” recalls Chen. This is a small amount relative to the state sector and level the playing P h o t

o Some of the lessons must have the group’s total revenues of field to help the private sector thrive

S o u r sunk in. Poly continued to grow, al - Rmb100 billion. But Poly Culture’s instead. c e :

R e beit with greater focus, and now general manager Jiang Yingchun If so, Chen may be waiting quite a u t e r s ranks 25th in terms of assets out of told the China Daily he expected while for that bank... n 12 Week in China Rise of the RMB 26 July 2013

Gimme five Latest HSBC survey hints at a lucrative benefit if exporters use renminbi

he renminbi was top of the of England signed one recently, of immediately after the Chinese au - Tagenda at HSBC’s fifth Global course. It’s not just the central banks thorities first allowed cross-border Connections event in Guangzhou at being active: the London Metal Ex - settlement of trade in renminbi. De - the end of June. The conference, at - change has just signed a memoran - spite this we are still seeing growth tended by more than 70 of the dum of understanding with the Chi - in percentage terms but it’s also im - bank’s corporate clients from nese to start settling metal trades in portant to focus on the absolute around the world, brought together renminbi too, which I think will be amount of China’s two-way trade a selection of high-growth busi - significant because China is such a that is denominated in renminbi, nesses in the southern Chinese city. major commodity importer. because trade flows keep growing. It also offered a sneak preview of Another factor worth mention - the bank’s latest RMB Survey, which But hasn’t there been a bit of a ing is that HSBC thinks imports will was released officially last week. In slowdown in the growth of Chi - start to overtake exports in quan - it, more than 700 companies con - nese trade denominated in ren - tum as domestic consumption ducting international business with minbi? grows in China. This is going to drive China were asked about their ren - It has slowed but that’s because the uptake of the renminbi in paying minbi usage. Fewer than one in 10 pick-up was so rapid in the period for trade. If you are an importer into firms thought that they had a “very China, you are likely to be selling good” understanding of how to use goods to your customers priced in the Chinese currency, 40% reported the Chinese currency. If you buy the quite a good understanding, while goods in the same currency, you another 40% felt that their under - take out the foreign exchange risk. standing was poor. This is going to be another major Perhaps more companies will im - factor in increasing the share of the prove their awareness of the ren - renminbi in cross-border trade. minbi after noting one of the sur - vey’s key findings: that 53% of the How about outside China: what are Chinese companies contacted were you seeing with your clients? ready to offer price discounts of up There is certainly more awareness to 5% for renminbi-denominated of the renminbi as a trade currency. transactions. For instance, three years ago we ran WiC caught up with Simon Con - an event in Macau with a number stantinides, HSBC’s regional head of of Indian clients to talk about how global trade and receivables finance the Chinese currency was going to for Asia-Pacific (pictured right), for become a major factor in global his view on the renminbi’s interna - trade. Most of them told us it would tionalisation story. never happen in India and that there was no way they would settle Is the renminbi still making business in renminbi. But many of progress as a trade settlement cur - these same clients are starting to do rency? so. More recently we began a similar It is continuing to grow, helped by exercise in Bangladesh and we have factors like more currency swap just seen our first major trade trans - lines being put into place. The Bank action with a client there. And we 13 Week in China Rise of the RMB 26 July 2013

are seeing other new trends, like a against the renminbi in six months Admittedly, the whole idea of us - German client with operations in time. Usually that means that the ing the renminbi is still very new to China that repatriated its dividends vendor will factor in some kind of most people outside China. For in - back to headquarters in renminbi. premium to cover the exchange rate stance, if you are an Indonesian firm Of course, there’s a long way to risk. I call this the “hedge factor” and trading with a Chinese partner, you go as less than 1% of global pay - Chinese companies are very good at will probably have a history of trans - ments are denominated in ren - building in additional margin on acting exclusively with dollars. If minbi at the moment. But China this basis. that is going to change there are var - has accelerated this process much But if the firm invoices in ren - ious questions to resolve like: “Does faster than most people thought it minbi it takes this currency risk out my supplier know how to invoice would. For trade settlement, it of the equation. Sophisticated buy - me in renminbi?”; “What do I need started out with a scheme open ers, especially those with a good to do to get Chinese currency to only to a few hundred enterprises in sense of the costs that go into pro - make a payment into China?”; and a few cities. Now it’s a much fuller ducing the goods they are purchas - “If I take payment in renminbi, how universe of companies – and the au - ing, have a new opportunity to do I manage my exposure?” thorities only maintain a list of the push for lower prices with the ven - firms who aren’t allowed to use the dor. It gives them more grounds for So it’s more likely that larger com - renminbi for trade. They’ve flipped negotiation. panies will be first to settle trade the situation on its head. Of course, not every exporter will with renminbi? be interested in invoicing in ren - Yes, probably. Larger firms often How about traction in places like minbi. Some will want to keep deals have more opportunity to try it out the US and Europe, which are more dollar-based because it gives them a as a trade settlement currency. It is a used to trading in their own cur - little more margin and because they harder for SMEs to find the time and rencies? are confident that they can manage resources to go through the same It is slower-going in these markets the currency risk. But some vendors process, although the task isn’t as than in the Greater China region or will be keener on doing business if tough as some people think. among some of China’s more im - the offer is made to pay them in ren - But the general mood is chang - mediate trading partners in geo - minbi. As I said, it opens up new op - ing. Two years ago, it was a case of graphical terms. But HSBC is spend - portunities to negotiate. HSBC going to its clients to talk ing a lot of time educating North about China’s currency. Now more American and European clients that What reasons do you hear from clients are approaching us to ask have regular trade flows with China. companies who haven’t settled about it or coming back after an ear - Often, this isn’t just about how to trade using the renminbi yet? lier conversation and saying, “We’re settle trade, as there’s also the in - One response is that their account - ready to try it”. vestment angle. Clients are asking ing systems can’t handle renminbi HSBC is playing its part too. We “If I take receipt of payment in ren - payments. Another is that they are run lots of road shows and client minbi, what can I do with it?” delaying because it would mean events presenting the benefits of changing their hedging policies. transacting in the renminbi. Once a Why does using the renminbi Others tell us “we just deal in dol - client shows an interest, we go into make sense in trade terms? lars, we want to keep it simple”, es - more of the detail about how they For international buyers there is a pecially smaller firms or those with actually do it. Sometimes these con - real opportunity to make savings. thin margins, who say they can’t versations can take weeks or The surveys that we have conducted take the risk of currency volatility, months: I met one client recently suggest that exporters from China which might wipe out their profits. who told me that it had taken a year are prepared to give a discount as It’s not just the finance people of dialogue before it completed its high as 5% if the buyer is prepared who are cautious. A company that first trade with the renminbi. to pay in the Chinese currency. wants to switch might also have to But fortunately, HSBC is ‘RMB-en - Take a typical company in China convince its sourcing teams. Many abled’ in 58 markets and we have striking a deal with an international of these guys will only have experi - currency specialists in all our rela - buyer in which it expects to be paid ence of negotiating contracts paid tionship management teams ready in six months. If it prices the deal in in dollars and they will argue that to talk to companies who are inter - US dollars, it has got to think about their comparative base is priced in ested. The opportunity is there to where the dollar is going to be dollars too. be taken. n 14 Week in China M&A 26 July 2013

Getting shafted Investigators to look at murky coal deal

“ he pen is mightier than the preferred jargon for corruption. Tsword” was a phrase first Last week there was a fresh stir, coined by Edward Bulwer-Lytton when another senior journalist took in his 1839 play Cardinal Richelieu . to his weibo to cry foul too. This The drama was a study in adminis - time it generated even more atten - trative power, but the maxim now tion: the accusation has been made In the public eye: tends to be regarded by newspaper against a prominent state-owned reporters as a professional mantra: firm and its bosses, but the writer is scoop, Wang’s accusations on weibo encapsulating how investigative also a chief correspondent for Eco - reignited interest in the case. Specif - journalism can check abuse by nomic Information Daily, which is ically, Wang said China Resources governments and other powerful part of Xinhua. Power paid Rmb5 billion more for entities. Wang Wenzhi addressed his the coal assets than the value as - For Americans this style of jour - weibo posting to the Party’s Central signed by Datang Coal – another po - nalism reached its apogee with the Commission for Discipline Inspec - tential bidder – just three months newspaper reporting of Bob Wood - tion: “I hereby report that the vice- earlier. Following Wang’s broadside, ward and Carl Bernstein on the Wa - ministerial level official China Re - ’s shares fell tergate scandal. But in current day sources Chairman Song Lin and 15.6% in Hong Kong over the next China ‘the pen’ has more of an on - other senior officials deliberately two days. line feel, thanks to the internet and manipulated the acquisition of The company has denied Wang’s the Twitter-like service Sina Weibo. Jinye Group assets in 2010, allegations (describing them as And while not yet on a par with resulting in billions of yuan in losses speculation and slander). But China bringing down Richard Nixon, some in state-owned assets. The acts of Resources is already in trouble over pretty big scalps are being had by Song Lin and other relevant officials the transaction with minority share - journalists using weibo. involved in the acquisition consti - holders, who are furious that an ac - The trend began with amateur tute misconduct and are suspected quisition of this size wasn’t ade - bloggers outing the activities of cor - of huge corruption.” quately disclosed. Six key rupt local officials (posting photos The case that Wang was address - shareholders have brought the mat - of bureaucrats wearing Swiss ing has been discussed before. Other ter to Hong Kong’s high court, where watches and such like). But it took a media had looked into the Jinye it will be heard early next month. new twist late last year when a sen - deal, with WiC first citing it in issue According to China Business News, ior editor at a prominent magazine 187. It had involved one of Shanxi’s the stockholders are suing 20 cur - took to his widely-read weibo to ac - richest coal barons, Zhang Xinming, rent and former directors of China cuse the deputy director of the whose subsequent whereabouts Resources Power, based on the price NDRC, the powerful economic plan - soon proved mysterious. Of the 10 paid for “flawed” assets. ning body, of graft (see WiC195). The coal assets Zhang had sold to Hong The impact of all the bad news has Caijing journalist’s source was the Kong-listed China Resources Power, started to spread to other areas of official’s ex-mistress and initially two did not even belong to his com - the business too. On Monday, the the story was met with blanket de - pany, one held exploration rights company’s shareholders rejected nials. Then there was silence until that had expired, and the largest China Resource Power’s proposed P h o t o mid-May when state media re - mine needed its licence renewed, ac - merger with

S o u r c ported that the official in question, cording to China Business Journal. Group. Separately, its controlling e :

I m

a Liu Tienan, had been dismissed and Nor was the deal a cheap one, at shareholder Sasac (see WiC45) has g i n e

C would face punishment for “serious Rmb7.9 billion ($1.28 billion). started an investigation into the h i n a disciplinary violations”, the Party’s Although it wasn’t exactly a Jinye deal. n 15 Week in China Society and Culture 26 July 2013

Not so real, after all In the battle for ratings, some reality TV shows are using unwelcome tactics

hen Kim Kardashian filed for Wdivorce from her husband of 72 days, court papers revealed the fuller truth of the reality show that has turned the Kardashians into household names (well, in some homes, at least). During a deposition, a producer of the show admitted that some scenes had been added or reshot for dramatic purposes. For instance, in one episode Kim was captured hav - ing a heart-to-heart with her mother about her marriage falling apart. But apparently it was shot two months after she had filed for divorce and was only added to make Kim appear more “sympathetic”. Recently Chinese viewers have got a jolt of reality themselves, in finding out that shows they love aren’t based on quite so much real life after all. It all started with the singing competition The Voice of China , which began its second season on July 12. In addition to a more ex - A-Mei: new judge on the top show The Voice of China travagant set the show also boasts two new coaches, Taiwanese pop fact, some had even signed contracts low,” a Beijing music producer told star A-Mei and mainland rock singer with talent agencies. For example, China Business Journal. Wang Feng. Producers have also 31 year-old performer Yao Beina Reports then started circulating made much of the fact that they sang the theme song for one of that the coaches were introducing they hired more than 200 casting China’s most popular TV dramas some performers that they knew directors to scout talented singers The Legend of Zhen Huan . Another personally. One contestant, Ye not just in China but from around contestant, Jin Runji, was found to Binghuan from Taiwan, was quickly the world. be the lead singer of pop performers spotted by netizens as having met Once again the show has domi - Alilang Group. coach Harlem Yu at a different talent nated the ratings and the season “This season’s The Voice of China show a few years before. Despite this premiere was the most watched has significantly raised the bar. It’s both of them pretended that the show on July 12, setting a new record not only about having a good voice “blind audition” was the first time

P says CSM Media Research. but also a very distinctive sound. So they’d met. Wang Feng, another of h o t o

S However, it was soon revealed in a sense, for grassroots competi - the coaches, is also rumoured to o u r c e that several contestants on the show tors who want to become a singer, have brought a few singers he knew :

C F P are already professional singers. In the chance of being selected is very to the audition. 16 Week in China Society and Culture 26 July 2013

wards showing him and Tse as With such uncertainty over who best buddies. is number one, a spokesperson for It’s not the first time that reality Zhejiang Satellite TV subsequently show producers have been accused played down the rivalry, telling of scripting conflict to keep the newspapers: “We don’t want to com - viewers interested. Back in June pete with others, we just want to do Zhang Ziyi and Lo Ta-yu, judges on our best.” Hunan Satellite TV’s The X Factor: Who knows: perhaps even this China’s Strongest Voice , are sup - ratings row has been manufactured posed to have got into a fight be - to earn a few more moments in the cause Lo was overly critical of a con - media spotlight too... testant. The incident led Zhang to walk off stage in tears, with imme - diate speculation that the feud was also faux drama. Critics say the networks are des - In danger of Argumentative guy: Nicholas Tse perate to boost ratings in a very blowing up? crowded field of television talent “In short, students can act and contests. For the victors, the poten - Two prominent cases trigger coaches can fake it. This lays a very tial spoils are still huge. According to criticism of security officials good foundation for the second sea - industry estimates, The Voice of son of The Voice of China : can act China is charging up to Rmb1.2 mil - very language has at least one and can fake,” one netizen wrote lion ($195,520) for a 15-second com - Eword that can’t be fully trans - mockingly on weibo . mercial and China Economic Net lated because the concept hasn’t Meanwhile, another singing reckons that the season could gen - been precisely identified elsewhere show Super Boys is also being tar - erate as much as Rmb1 billion in ad - or because it simply doesn’t exist. geted on weibo for manipulating TV vertising revenue for Zhejiang Satel - Schadenfreude – taking pleasure audiences. A few months ago its pro - lite TV. The commercial revenue in the misfortunes of others – is a ducers revealed that they had signed from S uper Boys could also surpass famous one from German. Jayus is Hong Kong pop star Nicholas Tse to what some of the smaller provincial a brilliant word from Bahasa In - be one of the guest judges, along - networks make in an entire year. donesian (for moments when a side actor Chen Kun and singer Tao With so much at stake, perhaps it joke is told so badly you can’t help Ching-ying. The series was then said should come as little surprise that but laugh). to have got off to an explosive start Hunan Satellite TV declared that Su - China has its own share of outliers when Tse and Chen had a con - per Boys had ranked first in last too. But the one that has been in the tretemps during taping. The con - week’s national ratings. In doing so it spotlight this week is chengguan. frontation arose when Chen tried to was challenging Zhejiang Satellite Chengguan are somewhere be - catch Tse’s attention during a con - TV’s earlier claim that The Voice of tween police officers and security testant’s performance. After being China was the number one hit. The guards. Sometimes translated as ‘ur - ignored several times, Chen threw problem is that the statistics are ban enforcement officers’ or ‘city his headphones at Tse. The Hong not totally comparable. The main management officers’, they are Kong singer fought back with a difference between the two sets of hired by municipal governments on round of name-calling. data is that Hunan Satellite TV, short contracts to carry out unpop - Sure enough, the spat soon be - which samples about 8,000 house - ular jobs such as evicting people came more talked-about on weibo holds, includes more rural viewers from buildings slated for demoli - than any of the vocal perform - in its figures so it is sometimes tion or keeping the streets free of ances. But industry insiders now deemed more representative. On beggars and hawkers. say the feud was staged to boost the other hand, Zhejiang Satellite Because of their notoriously ratings (which airs in the same TV uses rating data from CSM, thuggish ways they are almost uni - P h o t

o time slot as The Voice of China ). which has a much larger sample versally hated too.

S o u r Any attempt to maintain the cha - size but mostly in urban areas (de - Comments online often compare c e :

R e rade wasn’t help by a picture that mographics that advertisers are chengguan to bandits or wolves. u t e r s Chen posted immediately after - usually more interested in). Comparisons to dogs or pigs are of - 17 Week in China Society and Culture 26 July 2013

The funeral for melon seller Deng Zhengjia

ten shouted down as being insulting atives gathered around the body to tured the mood best in a powerful to the animals concerned. prevent the police or other cheng - essay. If a simple water melon So it was with a sense of dull hor - guan from removing it, fearing they farmer couldn’t grow and sell his ror that many read last week about would destroy the evidence. At 4am crop, what hope is there for Xi Jin - how a 56 year-old melon farmer the following morning the street ping’s Chinese Dream, Li asked (see from the southern province of Hu - lights around the site were dimmed WiC192)? nan had been beaten to death by lo - and riot police moved in to disperse Others took up a similar theme, cal chengguan . It happened in broad the crowd. Deng’s body was later especially after another major in - daylight and in front of witnesses. found dumped on a road leading into cident last Saturday night in which Deng Zhengjia and his wife his village. a wheelchair-bound petitioner set Huang Xixi had travelled to the That morning the authorities also off a bomb in Terminal 3 of Bei - town of Linwu to sell their melons issued a statement saying that an jing’s airport. Ji Zhongxing, the last Wednesday. According to me - examination of Deng’s body showed bomber, is said to have been paral - dia reports they encountered a that he had “suddenly collapsed and ysed by a beating from government group of chengguan and were or - died”. The phrase became a rallying security officials in 2005. This was dered to move their wares to a des - cry online, causing much the same to punish him for running an ille - ignated spot. ridicule as other examples of offi - gal taxi service in Xintang in This they did, but a few hours cial double-speak in the past, such province. later more chengguan appeared at as the term ‘temporary rape’ (or the Both incidents had netizens the market and an altercation broke incident referred to in WiC20 when speculating that too many ordinary out over the chengguan contin - an inmate of a prison in Jiangxi was citizens were feeling unsafe and un - gent’s refusal to provide a receipt said to have died “after having a heard. There was also the fear that for a Rmb100 fine they had levied. nightmare”). people with grievances pose a risk Huang was then knocked uncon - Millions began following the case to more than themselves when they scious. When she woke up, her hus - online and China’s opinion-leading take matters into their own hands. band was dead. Witnesses said a bloggers took up the cause. “In the past 10 years, we have accu - chengguan hit him over the head Zuoyeben, with 6.2 million follow - mulated as many ready-to- with a heavy metal object. ers, was particularly prolific. As the explode bombs as there are desper - Several people then posted im - story broke, he emphasised how in - ate people who’ve been denied ages and accounts of the event on dividual cases might end up having justice. Why we should care about P h o t o China’s popular microblogging plat - a wider impact, warning: “Each un - them? Because to care about them

S o u r c form Sina Weibo and Deng’s death fairly treated person is a potential is to care about ourselves. One case e :

I m

a soon became headline news. bomb for the country.” of justice done is one bomb re - g i n e

C The violence did not end there. But it was Li Chengpeng, another moved,” wrote another weibo h i n a After Deng had died, friends and rel - prominent social critic, who cap - celebrity, Jia Zhuang Zai Niu Yue. n 18 Week in China And Finally 26 July 2013

By George! Britain’s new royal baby causes stir in China

he royal wedding, the Queen’s tributor, evidently with a good Tdiamond jubilee and most re - knowledge of British royalty. cently the birth of a new heir this For a republican country, few dis - week – in short, it has been a good played anti-royalist sentiment, couple of years for the British while women marvelled that Kate Now a proud mum monarchy. was allowed to leave hospital so But how are such events per - soon. Chinese women often z uo One wit said this must have been ceived in China, a region which yuezi or “sit a month” at home or in chosen with the luxury goods ousted its last emperor in 1912 and hospital after giving birth. world in mind. “George Armani + which was never part of the British Unlike in the UK, where Kate was Alexander McQueen + Louis Vuit - Empire (bar Hong Kong)? hailed for coming out in a dress that ton,” he wrote. Another com - As with William and Kate’s wed - showed off her post-pregnancy plained it was a boring name, as ding in 2011 the reaction to their bump, Chinese netizens seem to common as if a Chinese called their son’s arrival has been positive, have expected her to act more like son Wang Xiaoming (arguably the though it didn’t initially generate the celebrities who often squeeze most common Chinese name). He massive amounts of online discus - into ‘shapewear’ for their first post- would have preferred Arthur, in sion. On Tuesday, when China baby media greet. case you’re wondering... woke up to discover the birth, the Other netizens were a bit sur - Still, after two years of news issue trended on Sina Weibo for a prised that William “handled the lit - about the British monarchy, there is while but quickly dropped off the tle prince like a basket of vegetables” also the occasional sign that all the top 10 list. during the photo call, although they pageantry surrounding the royals “Really excited! It is a happy royal were more complimentary that he has made the institution more ap - story,” wrote one weibo user, while seems to have changed the little pealing to Chinese tourists. another simply said: “Congratula - boy’s first nappy. “Britain has so much history,” tions! I wish the mother and baby “English men are very impressive,” gushed one person, explaining that health and long life.” wrote one woman. “Maybe I should this was why she would be visiting Another pointed out that the new go there to try find one,” she added. the UK later in the year. Although arrival will have a long wait to be - Renewed interest online was when pressed on exactly what she come king. “Your great grandma has piqued later in the week when the meant by the comment, the visitor a long life and your grandpa is still royal parents announced their son’s soon admitted that she was also very waiting to be king...” wrote the con - name: George Alexander Louis. excited about the shopping. n

Vital signs?

“Although the GDP growth rate is not as high as that of last year, we are seeing more jobs created and more investment directed into the service industry. That shows the increasing vitality of the economy” P h o t o * Finance Minister Lou Jiwei talks to Xinhua at the G20 meeting in Moscow. Lou said other finance

S o u r ministers hoped Beijing would boost growth but he ruled out fiscal stimulus measures, saying the focus c e :

R was on structural reforms. e Lou Jiwei u t e r s

19 Week in China The Back Page 26 July 2013

Photo of the Week In Numbers $237 billion The market value of Wells Fargo on Tuesday, making it the biggest bank by market cap globally, and displacing China’s ICBC, number one since July 2007. Its market value is now $225 billion.

5 The number of years before Beijing will P h allow local governments to put up new o t o

S headquarters, according to the China Daily. o u r c e The ban is an attempt to stop vanity :

I m a projects. g i n e

C h i n a $35.4 trillion Green fingered: a man covered in algae on a beach in Qingdao The value of all the public and private property, plus infrastructure, built in China by 2012, trailing only the US, which had the largest stock of built assets at $39.7 trillion, according to Global Built Asset Wealth Index. The study compared 30 Where is it? countries in terms of their roads, airports, Some of the places referred to in this issue power plants, homes and apartment buildings, malls and other structures.

Beijing 110 The score on China’s consumer confidence Shanxi index, according to Nielsen. It rose from Zhengzhou China 108 in the last quarter. Shanghai Hangzhou Chongqing Zhejiang Rmb1.7 trillion Changsha Hunan The amount to be spent fighting air pollution, says environmental minister Zhou Guangxi Shengxian. A priority is to curb excess Hong Kong capacity in industries that emit high levels of pollution, including steel, cement and glass.

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