1 Talking Point 5 The Week in 60 Seconds 6 Banking & Finance 7 Economy Week in China 8 China Tourist 9 China Consumer 11 Property 13 Environment 14 China and the World 21 October 2011 16 Chinese Character 18 Society & Culture Issue 126 22 And Finally www.weekinchina.com 24 The Back Page

Beijing bristles over Romney rant m o c . n i e t s p e a t i n e b . w w w

y b g u in New US Senate legislation targets China and could trigger a trade war o k y n o a t B s t l t h a e g b k u o r o l a r G M B C d B n S a H Week in China Talking Point 21 October 2011

The Senate’s scapegoat? New US bill could label China a currency manipulator with dire results

Facing off: the exchange rate of the Chinese renminbi has become a political hotcake in the US once again

“ o disgusting, so dirty and vile legislation aimed at curtailing im- Chuck Schumer. Sthat the reading of one page was ports – the Smoot-Hawley Act of the Most analysts agree that China enough for me… It is most same year – that the senator is now would take any US tariff action im- damnable! It is written by a man best-remembered. And he is now mediately to the World Trade Or- with a diseased mind and a soul so getting mention again, as the US ganisation. But the damage would black that he would obscure even Congress considers a new piece of already have been done, they say. the darkness of hell!” currency legislation that could also Tariffs would have been imposed in It doesn’t sound like DH lead to a major trade confrontation, the period leading up to any WTO Lawrence’s Lady Chatterley’s Lover this time with the Chinese. ruling, and the Chinese can be ex- was ever going to be bedtime read- pected to respond with counter- ing for Reed Smoot, US senator for The story so far… measures. Utah, who led calls in March 1930 The US Senate has voted in support The fear is that global trade will for a ban on the import of obscene of a new bill proposing tariffs on take a damaging hit at a time when literature. countries that purposely under- sentiment is already fragile. The campaign generated plenty value their currency. of media attention (“Smoot Smites China isn’t mentioned by name Is the legislation going to pass? Photo Source: Shutterstock Smut” was one headline), with the but there’s no doubt that it is the Talk of wider trade war between Bei- Kama Sutra, Casanova’s memoirs main target of the Currency Ex- jing and Washington isn’t new, and and even verse from Scottish poet change Rate Oversight Reform Act, has flared up repeatedly during nar- Robbie Burns also on his hit list. which is co-authored by Democrat rower spats in the past. Try WiC31 But it was for a different piece of senator and longtime China critic, (for tyres), WiC44 (for steel pipe) and 1 Week in China Talking Point 21 October 2011

WiC41 (for chicken feet). it would put Obama very much on The legislation – which started Similarly, tensions over the Chi- the spot to veto the proposals. out as a minor bill to appease farm- nese currency have also come in for ers hit by falling commodity prices – regular comment since the first edi- Why the push now? developed into a protectionist free- tion of WiC in February 2009. In part because the bill’s sponsors for-all, as interest groups pressured Back then it was presidential can- want to feed on American frustra- lawmakers into topping-up tariffs didate Obama playing the tough tion at its economic malaise, says on thousands of foreign goods. guy, with a plan to look the Chinese Michael Cohen at Foreign Policy The result was international fury. straight in the eye as he warned magazine. Also, tough times often America’s trading partners (with them to change their ways. “If you end up in the search for a scapegoat, Canada at the forefront) struck back guys keep on manipulating your Cohen says. Here he sees compar- with a series of retaliatory meas- currency, we are going to start shut- isons with the months following the ures. Global trade dropped sharply ting off access to some of our mar- Wall Street Crash of 1929, when Con- and American exports were seri- kets” was the message he said he gress passed the Smoot-Hawley Act ously hit. was going to deliver. (Smoot and Hawley were both Re- Xinhua also did its best to dust off Obama as president hasn’t gone publicans, as it happens). the history books this month and through with the threat. In fact, as Bob Davis at the Wall Street Journal points out, no administration since Clinton’s in 1994 has actually tagged China as a currency manip- ulator. Last Friday the Treasury De- partment again postponed a decision to label China as such. Nor has the White House ever taken the next step of imposing duties on China because of currency mal- practice.

This time is different? House Speaker (and Republican) John Boehner has said that he will seek to block the bill (a “dangerous” proposal) from reaching the House of Representatives. But unusually, he is starting to come under more pressure from his own side to sup- (Foreign Exchange) (Financing) (Trade) port the legislation. Republicans have traditionally rallied in support Renminbi spoken here of freer trade but they now seem We help clients trade RMB globally, find competitive and diversified funding sources and manage currency risk. more divided, and 16 of their party For more information, visit www.hsbcnet.com/rmb backed the Schumer proposals. Nor does Boehner seem to want to go out ahead of the crowd in quashing the bill, instead calling for Obama himself to indicate whether he will veto it. “It’d be nice for the president of the United States to make clear what his position is,” he has told re- Renminbi (RMB) is currently not freely convertible and conversion of RMB through banks in Hong Kong is subject to certain restrictions. Clients should be reminded of conversion risk in RMB products. In addition, there is a liquidity risk associated with RMB products, especially if such investments do not have an active secondary market porters. “It’s time for the president and their prices have large bid/offer spreads. RMB products in Hong Kong are denominated and settled in RMB deliverable in Hong Kong, which represents a market which is different from that of RMB deliverable in Mainland China. For individual clients, conversion of RMB is subject to the daily limit in Hong Kong, the clients may have to allow time for the conversion of RMB from/to another currency of an amount exceeding the daily limit. to lead.” HSBC operates in various jurisdictions through its affiliates, including, but not limited to, HSBC Bank plc, authorised and regulated by the Financial Services Authority, The Hongkong and Shanghai Banking Corporation Limited, HSBC Securities (USA) Inc., member of NYSE, FINRA and SIPC, and HSBC Bank USA, NA. 11-087 If the bill did progress this time, 2 Week in China Talking Point 21 October 2011

make the link to Smoot-Hawley days. “Comparing the current political and social situation with that of 80 years ago, we can find stark similar- ities: an economic downturn, a high unemployment rate, marked popu- lar discontent and growing political conflicts, especially when presiden- tial politics is getting hot,” the state news agency warned.

Ah yes, the politics… As we also wrote last year (WiC88) the China-as-villain theme tends to Don’t call me soft on China, Mitt: Rick Perry debates with Romney become more prominent during cer- tain phases of the US political cycle. American becomes more of a weak- operations – are also perturbed, and In a single week of campaigning ness. For example, Cheng Li, a warn of major upheaval should the for the US midterms last December, Brookings Institution China scholar, legislation pass. 29 candidates ran advertisements told the Wall Street Journal recently The China Daily reported on a let- suggesting that their opponents that the threats emanating from ter sent in late September to Senate were too sympathetic to China, and Washington have harmed the leaders by 51 business and industry that as a result Americans were suf- prospects of Vice Premier Wang Qis- organisations, warning that “unilat- fering. And this autumn the rheto- han, who pundits reckoned to have eral legislation on this issue would ric is being stepped up once again, an outside shot at getting the num- be counterproductive not only to the although this time it is Republican ber two slot in the government next goals related to China’s exchange presidential front-runner Mitt Rom- year. Wang has been more promi- rate that we all share, but also to our ney making much of the early pace. nent than others in calling for China nation’s broader objectives of ad- “Day one, I will issue an execu- to rely more on domestic consump- dressing the many and growing chal- tive order identifying China as a tion than exports – a position that lenges that we face in China.” currency manipulator,” Romney an- dovetails with Washington’s press- There were similar warnings in nounced in a debate last week. “Peo- ing for a stronger yuan. But as the 1930, when President Herbert ple who have looked at this in the terms of the debate grow more Hoover received a petition from past have been played like a fiddle emotive, it becomes a more difficult more than a thousand US econo- by the Chinese. And the Chinese are argument to make publicly – as it mists urging him not to sign the smiling all the way to the bank, tak- looks to Chinese eyes like a capitu- Smoot-Hawley bill. ing our currency and taking our lation to the American view. “Countries cannot permanently jobs and taking a lot of our future.” buy from us unless they are permit- Romney is shaping up to be one So does the US public back action ted to sell to us,’’ the economists ex- of the more outspoken presiden- over China’s currency? plained, “and the more we restrict tial candidates when it comes to No one seems to know for sure how the importation of goods from China relations. “If you are not far support would extend. Com- them by means of even higher tar- willing to stand up to China, you mentators wonder how long Amer- iffs, the more we reduce the possi- are going to get run over by ican consumers would stay behind bility of our exporting to them.’’ China”, he also warned. tariff action once the repercussions Of course, Beijing’s policymakers began to be felt in their wallets. In Some do back the bill, though? do not need to play to the electoral 2010, the US imported $365 billion Labour unions and domestic man- crowd in quite the same way as their worth of goods from China, and crit- ufacturers in the US have been call- Washington counterparts, although ics of the bill say it could put up im- ing for action for years, arguing they still have a political con- port prices by 20%-30%. That could that an undervalued yuan gives Photo Source: Reuters stituency that they need to impress, add up to Americans being as much Chinese competitors an unfair ad- including wider public opinion. as $100 billion out of pocket. vantage (see WiC82 for an overview And as the mood begins to po- US corporate bosses – especially of the debate). larise, being perceived as too pro- at larger multinationals with China But there are convincing 3 Week in China Talking Point 21 October 2011

counter-arguments. There is plenty of evidence of the trade deficit widening, even as the yuan has Planet China strengthened, implying that there Strange but true stories from the new China are factors other than currency in- volved. Over the past five years the MAKING A PIG’S EAR OF IT. Zhu Jianqiang is China’s most beloved pig. yuan has appreciated 20% against She earned her celebrity (as reported in WiC3) when she survived the dollar. But in August, China’s underground for 36 days after the Sichuan Earthquake in 2008 (hence her trade surplus with the US hit a name, which translates as ‘Strong-Willed Pig’). But the four year-old sow monthly record of $29 billion. now has another claim to fame, reports the China Youth Daily. Earlier this month her owner in Sichuan announced that the Beijing Genome Institute Also significantly, the trade had successfully bred six clones of Zhu. The pig had been unable to breed, numbers overstate Chinese suc- after being sterilised at an early age. So when the scientists offered cloning cess. Apple products are often used as an alternative, it was quickly accepted by Zhu’s owner, Fan Jianchuan, a as the example. Each iPad sold in rich Sichuanese businessman. A sample of Zhu’s ear tissue was used, and the United States adds as much as two 100kg sows used as surrogates to carry the embryo. The junior Zhus $275 to China’s trade surplus but were born last month and, as intended, look identical to their mother, with the value actually captured by the the same hallmark black, petal-shaped birthmark between the eyebrows. Chinese economy is much smaller Du Yutao of the Beijing Genome Institute says it is the first time that an – only about $10 or so of process- aging pig’s somatic cell has been used in a successful cloning. ing cost of putting each product together. In an age of globalised supply factories in the US. Indeed, a criti- ports a small fraction of gross do- chains, the data fails to reflect a cism being made of the currency mestic product. But today, the situ- more complicated reality. And bill in general is that it deliberately ation is very different, and that something similar applies to the over-simplifies a hugely complex raises the stakes on any confronta- claims that the currency bill will issue, especially in choosing to over- tion between the Americans and the protect American jobs. Not so. Even look the new interdependency of Chinese, as well as for the rest of the if the prices of Chinese goods go up, the global economy. global economy. If cooler heads fail many will be replaced by alterna- Back in the days of Smoot-Haw- to prevail and both sides do resort tives made in countries like Viet- ley, the US was not nearly as open to to a trade war, the consequences nam and Bangladesh – and not in international trade, with total im- will be serious. n

Taobao maul

Fresh from his controversial bust-up with ex-Yahoo boss Carol Bartz, Jack Ma has another fight on his hands. This time it’s with users of his popular Taobao Mall service (see WiC94 for more on Taobao’s history and growth). Traders who use the internet shopping site to sell their goods are furious that Taobao Mall has upped its annual membership fees from Rmb6,000 to between Rmb30,000 and Rmb60,000 ($9,400). Small business owners have protested at the hike by disrupting the website’s services. Thousands bought goods from bigger disruption was serious enough for the Ministry of Illustration: www.benitaepstein.com retailers and then asked for refunds. Apart from the Commerce to ask Taobao Mall to listen to the inconvenience, the bigger shops complained the grievances of its angry users. Owned by Alibaba tactic was a form of sabotage since a high refund Group, Xinhua says Taobao Mall now has 400 million rate “lowers the online rankings of the affected registered users, and hosts 50,000 shops selling shops,” reports the South China Morning Post. The anything from clothes to household appliances.

4 Week in China The Week in 60 Seconds 21 October 2011

Still growing, just less so The major news items from China this week were...

China has now surpassed the US as the EU’s largest 1trading partner. Trade reached $49.4 billion in July, ac- counting for 13.4% of the European Union’s total, ex- ceeding that with the US by $570 million. Xinhua also reported that China remains the EU’s second-largest ex- port market. EU exports to China totalled $16.1 billion in July, up 12.3% year-on-year, much higher than the EU’s total export growth of 4.1%.

Chinese economic data released this week showed 2third-quarter gross domestic product up 9.1% from a year earlier after 9.5% growth in the second quarter. That was slightly below analyst expectations of 9.2% and raised concern in markets. Domestic demand is partially making up for a softening appetite for Chinese exports. Newly listed Sinohydro built the Three Gorges Dam

Sinohydro, which constructed the bulk of China’s Taobao is raising the fees it charges vendors on its 3Three Gorges Dam, made a strong debut in its Shang- 5business-to-consumer site, Taobao Mall. The com- hai listing on Tuesday, closing at Rmb5.27, up 17% from pany said it will increase service fees by up to 10 times, the initial public offering price of Rmb4.50. The state- plus impose an increase of as much as 15 times the cash run company’s robust performance came despite an al- deposits it takes from vendors (see page 4). The news ready robust valuation, as well as weak outlook for the quickly led to protests on the internet against the e-com- general market, analysts said. merce giant. Jack Ma, the company’s chairman, had to fly back early from a trip and then announced a number China stands accused of dumping solar panels in the of measures to mollify some of the opposition. 4US, by a group of solar-panel makers calling for extra duties on Chinese imports. SolarWorld, a German-based Another internet firm was also in the news. Shanda company that makes solar panels in Oregon, said it “can 6Interactive Entertainment, which operates online compete with anyone in the world,” but that “illegal sub- games, announced a management-led buyout that sidies in China” have meant that Chinese firms have would take the Nasdaq-listed company private, says “come in to gut and own the US solar industry”. Dongfang Daily. Chairman Chen Tianqiao and his fam- ily have said they will buy out all Shanda’s publicly traded shares on Nasdaq. As of the end of last month, Chen and his family owned 68.4% of Shanda’s out- standing shares.

News about a two year-old girl in Foshan city who 7was run over by two cars dominated the headlines in China this week and got plenty of mentions in foreign media too. According to Xinhua, 18 people passed by the Photo Source: Reuters bleeding toddler but not one stopped to help. Finally a woman who collects street trash arrived to provide as- sistance. The girl is now in a coma and looks like she Are these solar panels getting “illegal subsidies”? may not survive. n 5 Week in China Banking and Finance 21 October 2011

Liquid markets Investors try out unorthodox asset classes; government buys bank stocks

ith the Shanghai Composite betting against the sector. WIndex down 20% in the last The effect on bank stocks on the six months, it’s enough to make in- domestic exchanges was more lack- vestors want to drown their sorrows lustre. Bank of China’s A-shares with drink. nudged up just 2%, while ICBC was Some are reaching for the bottle only 1.25% better off. In part that’s in a different way, reports Chengdu because bank shares in the domestic Business Daily. Last month, the market have not fallen as dramati- Sichuan United Liquor Exchange cally as their H-share equivalents in was launched, the first nationwide Hong Kong, leaving less room for re- spot-trading exchange for alcoholic covery. There is also much more drinks. Within 20 minutes of the limited short-selling on the main- opening bell, four major transac- land (which is only permitted in a tions were completed, with 350 small trial programme). tonnes of unblended liquor chang- The government has also hinted ing hands. that it intends to put more of its Investors are also speculating on Short stock, long Moutai money into the market, with re- the price of baijiu, a stiff drink that ports in late September that Rmb10 is a staple at Chinese business din- The most notable participant is billion of social security funds ners, after the launch of an online Huijin Investment, a subsidiary of could also be released for invest- trading platform operated by the China’s sovereign wealth fund, ment. The social security fund is Beijing Equity Exchange to trade which started purchasing shares in similar to Huijin in that when it is baijiu. Industrial and Commercial the Big Four banks early last week in used to intervene, it is usually seen Bank of China (ICBC) earlier this year a move described by some as a as an effort by the government to also started selling a wealth man- bailout (for more background on stabilise the market. agement product that is backed by Huijin see WiC62). Despite this, there is scepticism baijiu. Investors have the option of “Huijin is supporting the share on whether Huijin’s bailout can re- being paid returns in cash or in the prices of the state-owned banks,” ally have a meaningful effect. Past alcohol itself. one analyst told Bloomberg. performance does not point to any This recent craze for punting on In total, Huijin spent around definitive outcome: the first time baijiu is not as strange as it sounds Rmb197.5 million ($31.1 million), cal- Huijin tried to intervene in the mar- – prestigious brands like Moutai culates Bloomberg, a tiny amount ket, just days after Lehman collapsed and Wuliangye have been rising in considering the banks in question in 2008, the Shanghai Composite In- value, so you can think of it as the have some of the largest market dex rallied strongly for a day, before local equivalent of buying Bor- caps in the world. resuming its decline. When Huijin deaux wines en primeur (some- Despite the small size of the inter- again bought bank stock in the sec- thing rich Chinese have also been vention, Huijin’s actions seemed to ondary market in October 2009, the doing quite a lot of). It’s also part of have an immediate effect. In Hong index did move upwards. a more general trend of moving Kong, Agricultural Bank of China’s H- Back to the present day, and wor- out of traditional asset classes after shares were up 12.8% the following ries about deeper weakness in the disappointing performances. day. ICBC and Bank of China were up financial system will probably con- But just as everyone else is jetti- by 6.7% and 7.7% respectively. tinue to put downward pressure on soning stock, government buyers The gains helped repair some of banking stocks, in spite of Huijin’s are entering the market. the damage caused by short-sellers best efforts. n 6 Week in China Economy 21 October 2011

Glasses half full Government introduces measures to control Wenzhou’s debt crisis

hen Hu Fulin disappeared And to show that Wenzhou’s Wlast month, it looked as problems are not just a local con- though he might become the poster cern, Beijing has dispatched a senior boy of Wenzhou’s runaway bosses. team to show support. Premier Wen The so-called “King of Glasses” fled Jiabao, along with central bank head the country after racking up ap- Zhou Xiaochuan, and finance min- proximately Rmb2 billion ($312 mil- ister, Xie Xuren, interrupted their lion) of debt, leaving his eyewear National Week holiday to check up firm at the mercy of angry creditors on the situation. (for more on this story, see WiC124). Will that stem the rising sense of But it looks as though Hu might be panic in the city? Some analysts trying to reinvent himself as the have estimated that outstanding prodigal son. debt in Wenzhou could have Just as soon as locals had decided reached Rmb1 trillion, of which 10% that they would never see him again, to 15% is expected to default. This Hu was suddenly back in Wenzhou. Runaway boss returns: Hu Fulin bad debt would far exceed the His abrupt departure was actually a Rmb100 billion that the banks have trip to the US to seek financial help, formal lending. If so, that’s big. been ordered to lend to local com- explained 21CN Business Herald, and In order to restore confidence, the panies. And since much of the not an attempt flee. His factory re- Wenzhou government has intro- money lent out by private lenders mains closed but Hu is working to re- duced a series of measures designed originated in the official financial structure his debt. to help smaller factories, demand- sector, private debt defaults could Local officials will be hoping that ing that banks meet their annual cause problems for the banks too. Hu’s return will make him a role Rmb100 billion lending quota to Living up to the city’s entrepre- model for other bosses that have ab- small and medium-sized busi- neurial reputation, Wenzhou’s offi- sconded. Estimates vary but China nesses. It has also said they must cials are trying to make the best out Securities Journal suggests that the lend at no more than 1.3 times cen- of a bad situation. The local govern- owners of at least 90 other busi- tral bank benchmark rates. ment has already sent a proposal to nesses have done a runner, and that “All local banks must proactively the Zhejiang provincial government doesn’t include many smaller busi- seek lending quotas from more sen- outlining a plan to make the city ness owners. ior levels of their organisations... and into a pilot zone for special financ- Many of these businessmen owe tilt credit towards small and ing services that cater to small and money to private lenders outside of medium-sized companies,” the city medium-sized companies. The the established financial system, government said on its website. Shanghai Securities News says the and their absence jeopardises com- The local government has also plan includes the establishment of plex chains of debt, threatening cri- negotiated with underwriters, the 24 ‘private loan centres’ where sis in the shadow banking system. businesses who guarantee private debtors and private lenders can doc- Some believe that the chaos could debt, to take a more lenient atti- ument their transactions. This also spill over to the broader econ- tude towards their debtors. It has would be highly significant as it Photo Source: China Imagine omy. The Financial Times this week already succeeded in bringing to- would legalise private loans, and of- cited a central bank estimate that gether a group of 48 underwriters fer a first step towards interest rates the underground banking sector that will lend money to small and being determined by markets. had grown to Rmb4 trillion ($627 bil- medium-sized companies at a Whether the proposal is accepted lion), which is about 8% of the size of lower interest rate. or not remains to be seen. n 7 Week in China China Tourist 21 October 2011

Travelling salesmen Popular travel booking website Ctrip suddenly has a lot of competition

hina’s tourist officials had a revenue primarily from commis- Cbright idea in 1999. In order to sions on flight and hotel bookings. promote domestic tourism they The company also owns stakes in created a one week holiday sur- Home Inn and Hanting, large do- rounding the October 1 National mestic hotel chains. Day, and called it Golden Week. It Moreover, Ctrip has adapted from has been a spectacular success (al- its original online focus. That’s be- though those wanting a quiet break cause only 8% of China’s 500 mil- may disagree) and this year’s Na- lion internet users have used a travel tional Day holiday set a new record, website, compared with 35% in the with more than 300 million Chi- US, says China Internet Network In- nese taking holidays inside the formation Centre. And most of them country or abroad. are still reluctant to buy tickets on- According to the Boston Con- line. So Ctrip has hired 5,000 sales sulting Group, Chinese tourists Three of the 300 million representatives to handle hundreds now spend as much as 8% of their of thousands of calls every day. In annual discretionary income on Taobao, the country’s largest con- fact, 70% of Ctrip’s sales volume goes trips, much more than other sumer site, also beefed up its online through call centres, with only 30% emerging markets. So no surprise travel service platform. made online, says TechCrunch, a that many companies are now Qunar’s business model resem- technology blog. Many customers competing to snare some of that bles the B2C sales leader Taobao, want a real ticket instead of an elec- spend. One of them – Baidu, China’s says Century Weekly. Like Taobao, tronic one. So Ctrip sends out mo- largest search engine – has just an- Qunar serves as a shopfront and torcycle couriers to deliver them. nounced plans to list the shares of doesn’t complete any of the orders One threat to Ctrip’s revenues: travel service operator Qunar, on for tickets or hotel rooms itself (in- airlines. They don’t want to end up which it spent $306 million for a stead sending consumers directly to beholden to online distributors, if it majority stake back in June. the hotel and airline websites). means that they then have to pay Founded in 2005, the Beijing- That means that Qunar doesn’t higher commissions – they would based Qunar – in Chinese it means take commission, making money rather sell direct through their own “where to?” – is a search engine for primarily from advertising. Accord- websites. Qunar’s ‘referring’ model air and rail tickets, hotels, and tour ing to Zhuang Chenchao, Qunar co- suits them better than Ctrip’s. packages. The site now boasts list- founder and chief executive, 80% of Ctrip, meanwhile, has countered ings for more than 11,000 air the company’s revenue comes from by investing heavily in the business routes and 102,000 hotels around pay-per-click ads and the rest from travel market, an area it first entered the world. display revenues. Essentially, Qunar back in 2001 but then gave up on Baidu is now planning a Qunar is a media company. because the number of business IPO on Nasdaq, although it isn’t the That explains why Ctrip, the mar- travellers was small. Analysts now only Chinese internet giant eyeing a ket leader in the online travel in- say the market has been growing at piece of the travel market. dustry, doesn’t consider Qunar di- a compound annual rate of 40% in In May Tencent, operator of the rect competition. Ctrip, which is the last three years, reigniting Photo Source: Reuters popular instant messaging software listed on Nasdaq, controls a 52% Ctrip’s interest. Already, it has sur- QQ, spent $84.4 million for a 16% market share of online travel book- passed American Express to become stake in eLong, another Chinese on- ings and operates more or less like the largest corporate travel services line travel company. Last year an old-school travel agent, earning provider in China. n 8 Week in China China Consumer 21 October 2011

Failing in Berlin, try Beijing Huge store opening drive as Esprit shifts focus from Europe to China

nce a high street brand to be curiosity of consumers. Instead it Oreckoned with, clothing re- choose to invest more in Europe tailer Esprit has “lost its soul in the and in 2003 Esprit set up its global past few years,” company chief ex- headquarters in Germany, its ecutive Ronald Van der Vis admitted biggest market. in mid-September. He did so after So now Esprit has to play China announcing that Esprit’s full-year catch-up. Analysts say it has failed to profits dropped 98% on declining gain sales traction previously be- sales in Europe, as well as costs re- cause it charges relatively high lated to a series of store closures. prices for products not perceived to Perhaps all that bad news may be fashionable enough. have contributed to the clothing re- “Esprit’s merchandise is monoto- tailer also losing count of the num- nous, untrendy and undesirable… ber of stores it has in China. the same paisley print that was pop- Last week Hong Kong’s Next Mag- Can Gisele revive the brand? ular 10 years ago are still for sale to- azine accused Esprit of overstating day. It’s almost feels like its design- its store numbers on the Chinese its store presence to 1,900 locations ers are living in a world that’s a mainland. Out of 37 directly oper- in China over the next four years to decade behind,” is the dismissive ated stores and 35 department-store meet a sales target of $770 million. verdict of the Economic Observer. counters listed in Shanghai by the In the year ended June, it reported The company will also have to retailer on its website, seven didn’t $344 million in China revenue. compete with Sweden’s H&M and exist and 13 couldn’t be reached, That would be a major transfor- Spain’s Zara, which have both made Next Magazine claimed. mation. Currently Esprit derives headway as trendy retailers offering Similarly in Shenzhen, where the 80% of its sales from Europe but clothing at competitive prices. A cot- company declared a total of 37 out- says it now plans to close 80 outlets ton jacket in Esprit costs Rmb800. lets. Seven didn’t exist and a further there. It will also divest its North Zara sells similar products for three couldn’t be contacted. American operations completely, a Rmb500. After the news came out, Esprit’s symbolic retreat for a company “Esprit’s jacket may seem higher shares dropped 14% on the Hong founded in San Francisco in 1968. quality since it’s lined with silk but Kong Stock Exchange. Management “It’s a pity, but we have to be real- it still doesn’t justify the price dif- then denied the accusations, saying istic – China is our future,” Van der ference,” an industry veteran told that the magazine may have used Vis told Bloomberg in an interview. EO. “And besides, Zara releases new outdated figures. Esprit stock re- “The return on our investment is so styles almost every week.” bounded 16% the next day. much higher there.” The plan is to open a design hub Still, the recovery did little to bol- Esprit is certainly no stranger to in China, to cater to local tastes. But ster the apparently precarious state the Chinese market. It opened its Esprit will also rely on some star of Esprit’s commercial health. The first store in the country in 1992, at power to retake the initiative, re- company’s stock has fallen more a time when most of the locals wore cently launching a major global re- than 40% since it announced the clothes that might generously be de- branding campaign featuring Gisele drastic decline in full year profits. scribed as utilitarian, as opposed to Bündchen, the world’s most recog- Photo Source: Reuters In fact, the company is counting fashionable. nisable supermodel (and presum- on its China strategy to reverse its But as China opened up to inter- ably one of the most expensive). slump in fortunes. The retailer re- national influences, Esprit looked If she can’t make the stuff look cently announced that it would up well-positioned to benefit from the desirable, surely no one can? n 9 Week in China China Consumer 21 October 2011

Hamming it up Officials slap Wal-Mart on pork labelling

hen pork prices hit an all- substandard or expired food, says Wtime high in June, premier Xinhua. Most recently in March, it Wen Jiabao reverted to familiar re- was fined for selling out-of-date assuring mode, promising shoppers duck meat. Bloomberg reports that that prices would come under con- Chongqing’s director of law en- trol in three separate speeches. forcement is far from pleased. “Wal- It may strike a few non-Chinese Mart has been quick in admitting as a little odd that one of the most their wrongdoings, but slow in cor- Caught telling porkies: Wal-Mart senior political figures should recting them,” chided Tang Chuan. bother himself with such matters. “Every time, it feels like we are began fining consumer goods mak- But as we’ve mentioned before, punching our fists into cotton.” ers for price hikes earlier this year the price of pork is a big deal in Foreign food retailers do try to (see WiC106). China (see WiC116). So imagine the police their supply chains but not “What becomes obvious in this vitriol after a retailer (and help- always successfully. One problem Wal-Mart situation is that foreign fully enough, a foreign one too) is that their buying staff are rou- companies operating in China have was exposed for subterfuge at the tinely bribed by suppliers to stock no effective remedies—judicial, ad- meat counter. their products. In 2008, eight Car- ministrative, or political—to counter The supermarket villain was Wal- refour employees were prosecuted what might be capricious govern- Mart, which has been discovered to for awarding contracts to fresh mental activities,” James Zimmer- be selling ordinary pork as a more food suppliers in exchange for cash man, a Beijing-based lawyer for expensive organic variety. Last week incentives. Sheppard Mullin Richter & Hamp- the local government in Chongqing Still, mislabelling ordinary pork ton, warned the Wall Street Journal. detained 37 employees and ordered as organic might seem like a rela- Chongqing has also undergone a the temporary closure of all 13 Wal- tively minor offence in a country patriotic makeover recently, under Mart stores in China’s most popu- prone to much more serious food its Communist Party secretary Bo lous municipality. Wal-Mart was scandals. Regulators continue to bat- Xilai. The claim is that Bo has been also fined $420,000. tle against poisonous baby milk, for using a ‘red culture’ campaign to The world’s largest retailer by instance. More specifically for pork, bolster his chances of joining the sales had little choice but to eat it has been a struggle to keep the ad- nine-person Standing Committee of humble pie, also issuing an apology ditive clenbuterol (see WiC66) out the Politburo – China’s highest de- to customers for the closing of of the country’s hoggeries. cisionmaking body (see WiC101). stores. It said it was working with lo- But analysts also say Wal-Mart’s Commentators say the crackdown cal officials to improve its opera- latest mishap again highlights that on Wal-Mart could be another move tions in Chongqing, which employ multinationals get a much rougher to whip up popular support, says 3,000 of the company’s almost ride from officialdom than their Hong Kong’s Sing Tao Daily. 100,000-strong China workforce. Chinese competitors. That can mean The scandal comes at a difficult Then this Monday it was an- being judged more stringently in time for Wal-Mart. The retailer re- nounced that Ed Chen, president terms of quality control and labour cently reported a quarterly loss and chief executive of Wal-Mart rights. And it might result in swifter from its Chinese operations and China, had resigned. punishment for practices that seem said the number of visitors to its

Photo Source: CFP Wal-Mart has problems with the much more widespread. stores was dropping. Last year Wal- regulators in Chongqing before, and It’s not just retailers in the fir- Mart sales in China reached $7.5 bil- has been punished 21 times for mis- ing line – foreign firms also seemed lion, accounting for just 2% of its leading advertising or for selling to be prominent when authorities global revenue. n 10 Week in China Property 21 October 2011

Getting panned As sales slow, property developers’ finances are looking shaky

hen news broke of the death Wof Steve Jobs, SOHO China’s chairman Pan Shiyi wrote on his weibo that Apple should consider selling its iPhones and iPads for under Rmb1,000 to commemorate Jobs’ life. The post was quickly reposted by netizens, but with a twist for the property tycoon. “When you pass away, your com- pany should also release apart- ments that cost only Rmb1,000 a square metre. Over one billion Chi- nese people would commemorate you too.” What a pane: an unfinished apartment block, lacking windows Though China’s housing prices are not likely drop to Rmb1,000 a square that the trust companies too have quently” to other real estate devel- metre anytime soon – the average concerns about developer cashflow. opers, he added. home price in September was “These days we have been keep- With limited options, developers Rmb8,877 per square metre ($1,392) – ing a close eye on property trust then turned to trust companies (for there are signs that Beijing’s meas- loans,” one manager at a trust com- a guide to their activities, see ures to bring down bubbly prices are pany told CBN. “We review the de- WiC98). Trusts don’t take on the finally working. velopers’ cash situation and sales risk of an investment themselves, A nationwide index of property projections every month and but funnel funds from other com- prices published by Soufun, a leading sometimes every two weeks to as- panies and wealthy individuals into real estate website, edged down sess the risk.” a wide range of investments in- 0.03% in September, the first fall in a Developers turned to trust com- cluding private-equity, loans and year. Tianjin-based property devel- panies for financing after access to (in this case) direct stakes in prop- oper Sunac reckons prices could even bank lending narrowed, and many erty development. fall 10-15% next year, reports the of the opportunities for domestic Trust financing in the property South China Morning Post. stock and bond issuance began to sector almost doubled in the sec- No surprise then that property de- dry up. Even for the larger develop- ond quarter from the first three velopers are complaining that new ers like Vanke and China Overseas months of this year to Rmb136.7 home sales have slowed to a crawl. Land, accessing credit is tough. billion ($21.4 billion), says the China The squeeze spells bad news for a Vincent Lo, chairman of Shui On Trustee Association, eclipsing the lot of developers. In issue 124, we re- Land, the developer of Shanghai’s Rmb42 billion lent by banks, which ported that China’s banking regula- Xintiandi project, told Bloomberg was down by about 75% from the tor was already looking into the fi- that a Chinese bank recently with- quarter before. Photo Source: Reuters nancing that developers have been drew one loan that it had earlier “Nobody expected the kind of obtaining through trust companies approved for the company citing growth in trust companies to the as part of a broader evaluation of “policy change”. Such cancella- scale that we saw in the past three systematic risk. And now it seems tions are “happening quite fre- years,” says Patrick Chovanec, a fi- 11 Week in China Property 21 October 2011

nance professor at Tsinghua Uni- also why prices for primary hous- tres, which is Rmb30,000 per versity in Beijing. “In a way, the reg- ing (where developers are selling to square foot – adding up to far more ulators are now playing catch-up on homeowners) seem to be falling than an average property). the industry.” more than those in secondary mar- To compound his point, Ren Analysts say one of the reasons kets (where homeowners are selling added gravely that a bra “can’t shelter Beijing is cracking down on trust to other homeowners). you from the wind and rain either”. lending is to push cash-strapped de- Developers are having to sell to There are other indications that velopers to lower the prices on their raise capital. But existing home- the cash-crunch has seen a slow- inventories. Bosses have tried to re- owners, many of whom have paid down in new construction. This has sist, betting that the cooling policies cash for their homes, don’t face the knock-on effects, particularly for will not last and that the govern- same pressures. Hence there aren’t the commodities that go into build- ment will ease restrictions. That’s the same price drops for secondary ing tower blocks. Sina Finance, for what happened in the last tighten- housing. example, reports that the price ing cycle in 2008. Under the cosh, some of the de- paid for iron ore has declined for This time around, the squeeze is velopers are responding rather four consecutive weeks, a trend not being sustained. Falls in transac- strangely. seen since the financial crisis. tion volumes – especially for new That includes Ren Zhiqiang, China News Week reports that this home sales – are hurting develop- chairman of Huayuan Property, who is a consequence of a fall in de- ers, forcing them to cut prices in has been trying to rebut the widely- mand for steel, which is reflected order to generate the cashflow to held perception that property prices in dropping prices for that metal stay afloat. are too high. too. The magazine reports some “There are some developers who To illustrate his point Ren told his mills are dropping their own prices are facing funding pressure or have 5.2 million weibo followers that the three or four times within a week. even been cut off. This is something price per square metre of real estate “Steel prices are under great down- we are happy to see,” one official is actually less than that of a high- ward pressure,” it notes. “The told the Financial Times. end bra (Ren says an expensive one Shanghai construction steel mar- As Chovanec points out, this is costs Rmb600 for 0.02 square me- ket has fallen sharply.” n

Who’s Hu: Ma Weihua Profiles of China’s business leaders

Early life In 2010 earnings rose 41% to Rmb26 billion and its NPL ratio was Ma Weihua was born in 1949 in Jinzhou, Liaoning province and less than 1%. Ma is said to have encouraged a spirit of was one of many students sent to country farms during the salesmanship unexpected from a longterm civil servant. He sent Cultural Revolution. Afterwards, Ma was more bankers to visit corporate clients (rather than the usual fortunate, becoming one of the first batch of practice of waiting for them to visit the branch). He students permitted to go to university. In 1982 he was also the first to introduce online banking in China got his degree in economics from Jilin University in 1999. and his meteoric rise began with as a junior member Between 2000 and 2006, CMB listed in the A share of the Planning Commission of Liaoning province. He market, issued convertible bonds and also listed in was directing it within three years. Hong Kong (as a result, founding shareholder state- In 1988 Ma joined the central bank and owned China Merchants Group today holds 18% of the witnessed the early stages of sector reform. In 1992 bank). In 2008 CMB acquired Hong Kong’s Wing Lung he was made president of the central bank’s Hainan Bank for HK$13.9 billion, a bold move during a period branch. He oversaw the first ever closure of a state- of uncertainty. But Ma insisted it was CMB’s owned bank, which he had deemed insolvent. opportunity to go international (he also opened a New York branch) and by 2011 Wing Lung was delivering Banker first half profits of HK$973 million.

Photo Source: China Imagine From 1999 Ma switched from bureaucrat to banker proper, becoming president of China Merchants Bank (CMB), which had Need to know started out in 1987 in Shenzhen. Under his leadership he At CMB’s board meeting in June this year the 61 year-old was transformed CMB from a small bank burdened by a non- reappointed president. His next task: to successfully replenish performing loan ratio of 13.3% into one of China’s most profitable. CMB’s capital with a forthcoming $5.4 billion rights issue.

12 Week in China Environment 21 October 2011

Problem masked Beijing air quality plummets, controversy ensues

ost of China takes a whole fine particulate matter. The finer Mweek off to celebrate its Octo- the particulates, the more damag- ber 1 National Day, and tourists flock ing the health consequences are to landmarks like Beijing’s Tianan- thought to be. men Square and Forbidden City. The city government has long re- This year everything started out sented the embassy’s pollution re- well under a blue autumn sky. But ports, as they invariably find the by day four of the holiday the air air quality to be worse than the of- was thick with a grainy-looking, ficial figures. In 2009 the embassy grey pall. was asked to block Chinese traffic By Sunday, October 9 a foreign from visiting the website, accord- Air of despair in the capital doctor at the upscale Beijing United ing to recently leaked Wikileaks Family Hospital was alarmed documents. It declined, and rela- his microblog, Chinese doctors, local enough to issue a warning on his tions remain tense. residents and the Municipal Envi- Sina Weibo account, China’s most Reaction to Saint Cyr’s smog ronment Protection Bureau seem popular microblog. warning was swift among ordinary less worried,” it said. “Beijing’s air pollution levels are Chinese. “Scary”, wrote one user Du Shaozhong, deputy head of right now astonishingly high and named dodo_zq. the local bureau, assured the news- very hazardous to anyone,” Richard “Beijing is my hometown. Al- paper: “It was only slight pollution, Saint Cyr posted in English. though I worry about the situation which was not bad enough for peo- “Please, everyone take care!” here, I can’t run away...” wrote a user ple to wear masks.” His concern: air quality was named Feichai de youshou. “The suggestion to wear masks measuring over 500 for fine partic- Meng Xianle, who said he works will make trouble out of nothing, as ulate matter, literally off the charts at the People’s Daily-owned Health we’ve had polluted air for a long (500 is the maximum reading, ac- Times newspaper, posted: “In one time, and we shouldn’t be living cording to American air quality day I have referred two sick people with an American standard,” said an standards). Saint Cyr advised: wear to the doctor. I’ve all along sus- anonymous doctor, and specialist in a mask. pected air pollution is the leading respiratory diseases at the People’s Chinese users quickly translated reason for this.” Hospital of Peking University, whose and reposted the warning widely. In September, the World Health view was quoted. But Saint Cyr wasn’t getting his Organisation ranked Beijing the 10th There was more chastisement information from the Beijing Mu- dirtiest capital city in the world, from ordinary citizens. nicipal Environment Bureau, which based on government readings. Ren Shaokang, from the city’s reported in contrast that pollution Meanwhile Saint Cyr’s warning Huilongguan suburb, was also dis- that day was only “slight”. then turned into a public spat, with missive of the more pessimistic Instead he was relying on Beijin- the Global Times challenging his data: “I believe in the Chinese official gAir, a Twitter feed run by the advice. data and don’t think the air seriously United States embassy that delivers Advising Beijingers to wear face affects us. Even when we can see the hourly readings from measuring masks was “unnecessary scare- air is bad, white collar workers like us machines within embassy grounds. mongering”, the state-run news- don’t have the time to think about Photo Source: Reuters And unlike the government’s offi- paper wrote. wearing masks anyway.” cial readings, which measure PM10, “Though many web users showed Ren’s defiance is all the more sur- or coarse particulate matter, Beijin- great concern over the deteriorating prising – given he suffers from tra- gAir records readings for PM2.5, or air quality in Beijing after reading cheitis, a respiratory tract disease. n 13 Week in China China and the World 21 October 2011

Bear hug Russia wants China’s cash – but is also anxious about Beijing’s rising power

n three key occasions Russia Ohas had a decisive impact on China’s worldview. The first was in 1689 when both countries signed the Treaty of Nerchinsk. It was a humiliating mo- ment for Chinese mandarins, schooled in Middle Kingdom think- ing. For the first time they recog- nised the sovereignty of another na- tion rather than designating it a mere tributary. The second was in 1917 when Rus- sia’s revolution proved the catalyst for China’s own dictatorship of the proletariat in 1949. And the most recent was 1989, when Mikhail Gorbachev allowed Pipe dreams: Russia’s Vladimir Putin in talks with China’s Hu Jintao the Berlin Wall to fall, a move that would result in the loss of Commu- low tide,” pointed out Xinhua. But Chinese badly want: oil and gas. For nist Party control in the former So- the state news agency went on to Putin’s visit, Beijing was ready with viet Union. warn: “Its relationship with China’s sweeteners. There were $7 billion in Beijing policymakers then drew interests will be complex.” trade pacts, plus China’s sovereign a vital lesson from Russia’s fall from The Global Times also thought it wealth fund CIC announced it superpower status: that its political was significant that China was the would inject $1 billion into the reforms and rapid economic over- first country that Putin had visited newly launched Russian Direct In- haul brought gangsterism and after announcing he’d run (yet vestment Fund (RDIF). This vehicle weakness. China instead took a dif- again) for the Russian presidency. has Putin’s backing and is designed ferent course, embarking on sweep- The newspaper thought the point to encourage foreign investment in ing market reforms but maintain- was clear: Russia would be focusing Russian industry. ing strict political control. The on relations with China for the next Kiril Dmitriev, the RDIF’s general strategy was that rapid GDP growth 12 years. manager, told Xinhua that CIC was would validate the Communist That would not be a great sur- being viewed as a role model: “We Party’s right to govern. prise. Last year China became Rus- are learning from CIC’s operating ex- Russia, then, has arguably had a sia’s biggest trade partner, and this perience and applying these experi- greater influence over China than year the pair want to increase trade ences to the operation of the RDIF.” most other foreign states. And last to $70 billion. Channel News Asia re- The biggest potential deal re- week’s visit to Beijing of Russian ports that both countries want trade mained unsigned, however. Since prime minister Vladmir Putin has to grow to $100 billion by 2015. 2009 both governments have been Photo Source: Reuters put the enigmatic relations be- As the world’s second biggest working on a natural gas contract tween these neighbours back in the economy, China looks to be the involving Gazprom and CNPC. This spotlight. heavyweight in the pairing. But has been mired in disagreements “Russia’s strength is at a historic Russia does have something the over pricing, with the Russians 14 Week in China China and the World 21 October 2011

wanting to sell gas at $300 per cubic metre, but the Chinese willing to pay closer to $200. The stakes are high, with the 30 year long arrange- ment estimated to be worth $1 tril- lion to Russia. During his visit Putin said progress had been made in the talks on the deal and that they were now into their “final stages”. China is thought to have upped its offer to $250 per cubic metre. He also said that an oil dispute has been settled (Russia has been selling China 300,000 barrels per day since Janu- ary but complains it has been un- derpaid to the tune of “tens of mil- A Russian city with Chinese characteristics: Blagoveshchensk lions of dollars”). How did the trip play back home sources said more than 15,000 local are now Chinese. Alongside the Or- to Muscovites? residents were killed,” writes thodox church and the statue of Rather ambiguously: Russia’s RT Jonathan Fenby in The Penguin His- Lenin, there is also a Chinese pavil- television station described Putin as tory of Modern China. ion, as well as enough apartment being “in the red dragon’s warm em- For the next 90 or so years few blocks built by Fujianese and Shan- brace” and, for a Russian leader, a Chinese would inhabit the area. That dongese entrepreneurs to make it rising China is clearly a dilemma, changed in 1989 when an entrepre- look like any other city in China. It with economic benefits weighed neur named He Wenan arrived from takes just 15 minutes to get back into against balance of power concerns. Fujian to work as a labourer in the China from Blagoveshchensk. Russians tend to resent Chinese construction industry. Through Moscow is 6,000 kilometres away. moves in Central Asia, for example, hard work, He soon came to domi- The Russian capital is also some- a zone they traditionally consider nate the business life of what distant in superpower terms, their own sphere of influence. Blagoveshchensk. He now owns the wrote the Global Times in an edito- Further to the north east, swathes Huafu Centre, as well as the city’s rial last week. “China may become a of Siberian territory near the Chi- chief landmark, the Asian Hotel, as ‘superpower’ in the eyes of the nese border also have a complex his- well as several shopping malls, world, but this possibility is much tory, and Sino-Russian ties have of- apartment blocks and a granite further away for Russia,” it warned. ten been fraught. mine. According to the magazine, “Today’s Russia has gradually In an article last month, China En- the “rich, mysterious figure” is adapted to the power ‘equality’ be- trepreneur magazine visited the worth billions. tween China and Russia. But if border city of Blagoveshchensk. For Also notable is the formidable Chi- China’s national strength goes sig- most of the Qing Dynasty it was part nese presence in the strangely named nificantly beyond Russia, the social of China, and the area was known Friendship Library – in fact a whole- and psychological impact on Russia as Hailanpao. That status changed sale market for fruit and vegetables cannot be determined.” in 1856 when Cossack troops occu- now one of the largest in the region. The Moscow intelligentsia still re- pied the town, forcibly relocating Local law states that each stall must calls that in the 1950s Russia sent Chinese inhabitants south of the employ a Russian, and indeed they advisors to China to explain how Heilongjiang River (called the Amur can be seen doing most of the heavy best to modernise its economy and by Russians). In 1900 the ‘Hailan- lifting. But the owners of the stalls build new industries. But as discus- pao Massacre’ then occurred, an are Chinese, points out the magazine, sions over oil and gas megadeals Photo Source: China Imagine event masked by the chaos of the and source their produce across the continue, its current nomenklatura Boxer Uprising. “The Russians took border to sell inside Russia. must contemplate instead how Rus- advantage of the situation by Hence Blagoveshchensk is now sia best hitches itself to Chinese launching savage attacks along the Sinofying once again. Of the city’s growth, perhaps ending up as Amur River on the frontier; Chinese 230,000 inhabitants, over 10,000 China’s Saudi Arabia to the north. n 15 Week in China Chinese Character 21 October 2011

What a rice guy! Meet Yuan Longping, the Chinese rice king who is worth billions

“ hinese people have two ‘Pings’ Cto thank for having enough to eat. One is Deng Xiaoping and the other is Yuan Longping,” remarked Xinhua recently. The state newspaper was quoting a Chinese admirer of the two men, although you will have heard of the former, who is Yuan, the second ‘Ping’? The 81 year-old agricultural sci- entist is lauded for developing the world’s first hybrid rice. Hybrid rice – rather than genetically-mod- ified versions of the staple – is pro- duced by crossing two parental lines with distinct genetic back- grounds. The result is a high-per- formance plant that promises higher yields. Yuan recently grabbed headlines for cultivating a new type of hybrid rice that broke the world record for rice output. The strain, DH2525, produced a harvest of 13.9 tonnes a hectare from its trial planting in Longhui county in Hunan province. Accord- ing to the National Bureau of Sta- Likes hybrids: scientist Yuan has broken world record for rice yields tistics, the country's rice yield stands at 6.3 tonnes a hectare on av- Born in 1930 to a poor family in hybrid seeds were improved enough erage, about half of the new breed. Beijing, Yuan was accepted into to release to farmers, says the Peo- “This breakthrough means our Southwest Agriculture College in ple’s Daily. In 1979, Yuan’s hybrid hybrid rice [technology] is well Chongqing when he was 23. There he was transferred as China’s first agro- ahead of other countries,” says studied agricultural education and technology patent to the US and in Yuan. research. After graduation, he began 2004, his hybrid blend reached a More than 60% of China’s rice his teaching career at an agriculture top-performing yield of 12 tonnes crop is now under hybrids, and its school in Anjiang, Hunan Province, per hectare. rice yield is now double that of In- where he first developed an interest But Yuan had bigger goals in dia, which has less than 3% of its in hybrid rice. By 1975, Yuan had suc- mind. For the next seven years, he Photo Source: China Imagine own crop under hybrids. China pro- ceeded in developing the technique worked to raise yields further, tar- duces almost 200 million tonnes of of hybrid rice seed production. geting more than 13.5 tonnes per rice from 29 million hectares, com- Yuan admits that the original hectare. pared with India’s 150 million quality of the hybrid rice was “terri- “I finally made it. Honestly, last tonnes on 44 million hectares. ble” and it was not until 1976 that night I was too excited to sleep. I 16 Week in China Chinese Character 21 October 2011

didn’t fall asleep until 2am,” the sci- entist told CCTV in an interview. Yuan’s contribution to improved yields shouldn’t be overlooked. Re- ports indicate that rice supply in China may decline this year after both drought and then flood dam- aged crops. According to Bloomberg, areas of Hunan, a major rice-pro- ducing province, are among those worst affected by drought. Output may plunge as much as 40% from last year. Officials also acknowledge that maintaining near self-sufficiency in rice will become harder as the pop- ulation grows and arable land shrinks, a problem WiC highlighted in issue 40. “China has a large pop- Prolific paddies: China produces 200 million tonnes of rice per year ulation but a relatively small area of farmland, using technology to boost lysts say overall stock levels in China these stations so that they can con- productivity is a must for the coun- are comfortably higher than they centrate on promoting new tech- try to remain self-sufficient in food have been in years. “Increases in the nologies and new species.” supply,” says Fang Fuping, a re- international price of food should News about Yuan’s latest achieve- searcher at the China National Rice have an only marginal impact on ment also led to speculation that the Research Institute. China’s domestic food prices,” writes scientist could be worth Rmb100 bil- On September 20, the Ministry of Frederic Neumann, co-head of Asian lion, much of it through his com- Agriculture released a five-year plan economics for HSBC. pany Longping High-Tech. Yuan for grain production. Under the plan, Yuan does have his critics, how- claims not to measure science in China is aiming for 100% self-suffi- ever. In April, Li Changping, a re- terms of financial return. “That fig- ciency for rice, wheat and corn be- searcher on rural issues, wrote an ure means nothing,” he told the state tween 2011 and 2015, compared with open letter asking him to rethink media. “I’m satisfied with my life. 95% self-sufficiency in the 2006- his work on hybrid rice because it Too much money means a burden. 2010 period. was dominating the seed market My mind is on my research only.” n Certainly, planners do not want and farmers could no longer get reg- to be overdependent on imports. ular seeds (Li thinks traditional rice “Unlike soybeans and corn, rice is tastes better). Experts also question Keeping track not so widely planted in other coun- how effective Yuan’s breakthroughs tries. China’s rice demand is too are in helping ordinary farmers In WiC122 we discussed tensions huge to depend on imports from the achieve higher yields. Yuan admits between China and India, and in international market,” Ma Wenfeng, that his experimental fields are in WiC111 we looked at disputes in the a senior analyst at Beijing Orient better condition than others and South China Sea with Vietnam. Both Agribusiness, told the China Daily. that average yields would be 20-25% spats converged this week, reports the Financial Times, when China warned Higher-yielding harvests at home lower if his seeds were planted on a India to halt joint energy projects with should take some of the pressure of larger scale. His methods for grow- Vietnam in the South China Sea. A prices in periods in which supply and ing rice also have to be taught to front page article in China Energy demand fall out of sync. Bloomberg farmers on a wider scale, not always News sent out an aggressive message was reporting this week that the an easy task. Many will be resistant. to New Delhi, albeit with a nautical

Photo Source: Shutterstock flourish. “India’s energy strategy is widespread flooding in Thailand – “It’s because they are underpaid, slipping into an extremely dangerous the largest rice shipper in the region and [working] conditions are poor,” whirlpool,” it warned. “India should – could lead to price increases of 19%, Yuan told CCTV. “I’m calling upon turnaround at the soonest opportunity as the Thai government starts a state- the government to provide more and leave the South China Sea”. purchasing programme. Other ana- preferential policies to cadres in 17 Week in China Society and Culture 21 October 2011

Driving around China Rory McIlroy finds going tough during Chinese golf odyssey

“ eave it on the ground” was Rory LMcIlroy’s wry remark, when a caddy accidentally knocked a tile with his score off the leaderboard. McIlroy had just finished the Shui On Land China Golf Challenge with a score of six-over par, a figure he’d rather not be reminded of. The incident in question (see photo) occurred when the Northern Irish golfer posed for a post-match photo, next to his playing partners Lee Westwood, Ian Poulter and Liang Wen-chong. The four had just spent a week playing in China as part of a whistle-stop tour of more than 5,600 kilometres, teeing-off at some Very clubbable chaps: McIlroy, Liang, Westwood and Poulter of the country’s best courses. The final day’s play took place at rowly missed McIlroy – which would WiC first reported on this golfing Caesars Golf in Macau on Sunday have been a bizarre end to his un- extravaganza in issue 119. The idea and WiC was invited to watch. Per- fortunate week – instead hitting a was based on an American concept, haps showing his frustration with nearby spectator. where four top golfers jetted around his score – McIlroy was eight-over After that error, Liang gave the the US playing the country’s 18 after eight holes – the US Open initiative to Westwood. The English- greatest holes. The idea of doing champion absolutely belted his fi- man – who has twice been world something similar in China was nal drive. To the delight of specta- number one in the last 12 months – hatched by golf pro and entrepre- tors he almost reached the green at then birdie-putted from 12 feet to neur Marc Boggia. He approached the 356-yard par four, far out-dri- win the inaugural China Golf Chal- Vincent Lo, the boss of property de- ving Westwood, Poulter and Liang. lenge event. veloper Shui On (and a keen, low- The final day was always going to Seven days earlier, and most pun- handicap golfer). But logistics dic- promise some drama, with China’s dits would have favoured the in- tated that the tournament would top golfer Liang tied with Westwood form McIlroy to win this event. He have to be modified. Rather than 18 for first place at two-under. was clearly quite excited by the different courses, only eight would And so it turned out – although prospect when he landed in Shang- be played, even that a challenge the drama got a bit closer to specta- hai. “To play eight different courses, within a one-week timeframe. tors than they’d anticipated. With 18 different holes, in seven cities all The eventual winner Westwood the pair still tied after 18 holes, they over China is going to be a very wasn’t even slated to play. Ernie Els returned to the tee for a play-off. unique experience,” the 22 year-old was to make up the four but had to Westwood made the green after said at the outset. “To have these op- pull out in September for personal Photo Source: China Imagine playing an inspired bunker shot. portunities to discover new parts of reasons. As it turned out, Westwood Liang on the other hand overhit his the world, to discover China, to dis- stepping in meant that two of the shot. Standing at the back of the cover different cities that I haven’t world’s top four golfers would make green, Poulter was first to realise it been to, are things that not a lot of the trip. and cry out ‘four’. The ball then nar- people get to do.” For Shui On the event offered the 18 Week in China Society and Culture 21 October 2011

chance to promote the game of golf in China. And for Lo there was an added benefit: a TV documentary to accompany the tournament gave the opportunity to showcase his real estate developments in cities like Shanghai and Dalian. For example, after playing at Sun Kingdom Golf Club, Lo took the players to his Chongqing Tiandi complex, where he has a bar featur- ing three nine-foot long tiger sharks. Poulter was sufficiently impressed to dance on stage with a troupe of girls, with the sharks staring on in Liang congratulates Westwood on victory the background. “I’d usually rather have a couple jing’s Topwin which he triple-bo- next year Poulter will return with of drinks in me before I start cutting geyed). two goals: to win the tournament some shapes, but it was a very cool The geographical spread of the and locate the world’s longest wall. bar,” he later explained. trip also made the weather an issue. One of the attractions of the doc- Said Westwood: “All the players were umentary – which will air next commenting about how much the month – is to see what top players temperature and conditions have talk about off the course. Watching changed over the last few days, but Grass roots their reactions as they visit places when you think about it, there are politics that they have probably never heard thousands of miles of flying in- of should also make for an enter- volved. It’s like going from Scotland Two independent candidates taining travelogue. to Spain, so you wouldn’t expect the get elected Poulter was the early leader of same weather.” the China Golf Challenge, before Westwood also says the trip has “ ach radish has its pit,” runs a ceding the lead to Liang on day been an eye-opener on China’s po- Econtemporary saying. It means three. This was an unexpected tential to produce golfing winners of that when it comes to getting a job bonus for local crowds and likewise the future: “If golf booms in this or promotion, the candidate for Liang, who probably rated his country, then it will be huge and favoured by local powerbrokers is chances of beating the higher- they will be a force to reckon with.” likely to prevail. ranked players as low. But as McIlroy agrees, seeing the event’s The saying comes to mind again China’s leading golfer, Liang’s in- broader significance. when looking at the widespread en- clusion was critical: playing the “The Shui On Land China Golf thusiasm among ordinary Chinese part of host, he said his role was Challenge is about spreading the for the National People’s Congress not just to compete but to intro- game in China and letting people elections this year. Across the coun- duce his playing partners to his na- see what golf has to offer over here. try, hundreds of so-called ‘indepen- tive land. That’s the most important thing. I dent candidates’ have put them- Perhaps thanks to home advan- couldn’t care if I was eight-over or selves forward for seats (see WiC107 tage, he nearly won. Westwood only eight-under.” and 109 for earlier references to this joined Liang at the top of the leader- In fact all four have expressed in- phenomenon). They want to fix a board after 16 holes had been com- terest in playing again in the China range of ills such as homes lost to pleted. And the Briton was keen to Golf Challenge in 2012. For Poulter development, cronyism in distrib- emphasise how challenging the there is an added incentive: a chance uting jobs, or the damage being Photo Source: China Imagine event had been, including the mas- to see the Great Wall. He’d tried to wreaked by environmental pollu- sive 678-yard par-five at Sun King- visit it with Liang last week, rising at tion. Candidates have come from a dom (presumably McIlroy would 6.20am. But their chauffeur, some- wide variety of professions includ- endorse that view, especially with what unusually, couldn’t find ing lawyers, academics, journalists respect to the tough par-three at Bei- China’s leading tourist attraction. So and IT workers. 19 Week in China Society and Culture 21 October 2011

In Beijing even a fashion model, local people and to provide social Cheng Yuting, is standing, according and old age insurance; Secondly, to to the Aboluowang.com website. use the law to protect the interests Cheng, just 23, won an “Angel” award and rights of the Sanshan people, for volunteering at last year’s Asian building happy future generations,” Games in Guangzhou, and said she he told the newspaper. wanted to spread democracy, rule of Whether this pair turn out to be law, and “give back to society”. outliers among a wider group of dis- In fact, the candidatures repre- appointed candidates remains to be sent the biggest grass roots democ- seen. racy movement in years, Beijing Zhang, the university lawyer, University law professor Zhang wrote on 21ccom.net: “The appear- Qianfan wrote on the 21ccom.net ance of these candidates is natural, website. and is the beginning of democratic This has all taken the govern- elections.” However, as we discussed ment by surprise. As candidate lists in issue 98, the National People’s are finalised by Communist Party- Congress consists of 2,987 ‘elected’ run committees, it has been busy deputies. sorting out exactly which “radishes” The inclusion of a handful of in- should fit into which “pits”. dependent candidates will have lit- Many candidates have been told tle impact on how the country is they can’t run because they aren’t run, in the near term at least. Communist Party members, even though according to China’s district congress election law, all citizens Vote for me: Cheng Yuting over 18 are permitted to stand. Independent candidate Liang Dongfang Daily and Southern Me- Preoccupied Shuxin in Guangdong, who cam- tropolis Daily report. Both were also How Occupy Wall Street is paigned on a promise to build a lo- elected to Nanhai district People’s viewed in China cal food market after the previous Congress in Foshan city in Guang- one was knocked down by develop- dong province, long considered a ew York, Boston, Chicago and ers, was even told he was disquali- politically liberal part of China. Nnow Zhengzhou. It makes for fied because he was a man, a sur- At the end of September, Guo an odd list. But even before the Oc- prising development given the Huojia, a 59 year-old ex-farmer and cupy Wall Street movement was masculine bent of Chinese politics. Foshan resident, won a resounding spreading among major world cities Overall, it’s hard to get a precise victory, according to the Dongfang last week, a group of pensioners and picture of the outcome of this wave Daily. Of 7,718 valid ballots cast in state workers in the capital of of independent candidacies. Liang his district, Guo won 4,827, or a solid China’s central Henan province had is now declining to speak to the me- 63% of the vote. came out in solidarity with the dia, for instance, and many others Li Youzhou, 37, an official at American protesters. who initially stood for election have nearby Xiaxi village, won 3,232 votes On the morning of October 6 a now given up on the process. in a voting district of 6,389 people, group of several hundred assembled Others are persisting, like the Southern Metropolis Daily re- in a small park in Zhengzhou to un- worker’s rights activist Zhou Decai ported. furl a banner reading “Resolutely in Dengzhou, Henan province. An “Uncle Jia”, as Guo is fondly support the American people’s great election committee official in known in his Sanshan district, is a Wall Street revolution” and to chant Henan told Aboluowang.com that popular figure who has long cam- slogans such as “United, proletari- “the provincial officials have not yet paigned against illegal land grabs. ans around the world!” reported decided on the province’s ‘spirit’ in “In the eyes of local farmers he is Chinese leftist websites and the the election”, i.e. whether inde- a hero,” wrote the Dongfang Daily. Global Times newspaper. pendents will be allowed to stand. Guo’s platform, like that of many Two days later there was a similar Still, two men seem to have suc- independents, is straightforward: gathering in the neighbouring city ceeded in getting onto the ballot, “Firstly, to protect the interests of of Luoyang. 20 Week in China Society and Culture 21 October 2011

stream news sites. Of course, the media was freer to cover events outside the country, largely following the government line that the protests are a danger- ous distraction at a precarious time for the global economy. Some newspapers still managed to echo the criticism that the protests exposed flaws in Western- style capitalism and democracy. “America’s democractic system doesn’t care about people’s happi- ness, it only cares about ‘obtaining success from the competition’,” the Proletarians unite: Henan leftists back Wall Street uprising Guangming Daily decreed this week. “American democracy has in Though the demonstrations were nowhere left where we can live and essence degraded into a barter sys- largely dismissed by the Western die as people,” Sima wrote. tem of money and power, it can’t media as a bunch of confused pen- Last year social inequality in help 99% of the people, and can only sioners with little understanding of China as measured by the Gini coef- serve 1% social elites. It can’t solve what the “99 percenters” in America ficient passed that of the US and or- significant social issues, and only were protesting about, the gather- dinary Chinese have become much willingly be manipulated by capital ings will have been noted in Beijing. more voluble in their expressions strength,” it added. Organised by members of China’s of disgust on each new case of the Despite this, other online con- New Left movement – nationalists flamboyant lifestyles of the coun- tributors saw things differently. who are usually unswerving in their try’s rich (see WiC88). “Whatever [the US protesters] support for the government in in- This month some Chinese were problems, they can be happy that at ternational affairs but who want to also angered by government’s deci- least they can stand there and ex- see China roll back on some of its sion to bailout businessmen facing press their discontent and anger,” economic reforms – the demonstra- a liquidity crunch in the coastal netizen Helensha wrote. n tions were as much a criticism of city of Wenzhou, with many com- China’s current economic policy as paring it to the US government’s America’s. $700 billion rescue package for Keeping track “Chinese government officials, Wall Street in 2008. wake up!” one blogger wrote on a left- “Too big to fail, this is exactly In WiC118 we reported on the multi- ist website Maoflag.cn last month. the replica of Wall Street,” netizen million dollar hiring of top Spanish “Take a look at what’s happening on Kentedekafuka wrote on his weibo football coach Jose Antonio Camacho. Wall Street! Stop practising Marxism last week. The former Real Madrid manager’s new job: to turn around the fortunes of China’s on the stage but with capitalism back- “The American government is in woeful national football team. But any stage. Fixing wrongdoings and re- the service of capitalists – this is not early expectations from fans have already turning to socialism is the only cor- hard to understand – but we are a been dashed. In last week’s home World rect way!” people’s government, how come we Cup qualifier, China lost 1-0 to a 10 man Another essay by popular leftist are in service of capitalists too?” Iraq team. That puts China third in its group, making qualification for the 2014 writer Sima Pingbang called on the As interest in the “Occupy” World Cup in Brazil look tough. According Chinese people to support the protests began to mount online last to the Beijing Evening News, thousands American protesters and gathered week, posts containing the terms of livid supporters surrounded the team 43 signatures of support from aca- “Wall Street protest” and “Occupy bus after the game shouting “Chinese demics, editors and even one senior Beijing” began to be removed by team, dog faeces; Chinese team, Photo Source: Reuters disbanded”. The newspaper said that the Party member. censors. Leftist websites also be- chant was translated into Spanish for “Rule by the capitalist elite is just came harder to access and footage of Camacho, who looked very solemn for as described by the ‘Wall Street Rev- the Zhengzhou and Luoyang gath- the rest of the journey. olution’ – it’s everywhere. There is erings was removed from main- 21 Week in China And Finally 21 October 2011

Model village? Huaxi back in the headlines after building spree

hen you think of the classical golf ball, it is hard to miss. glimpse the “beauty of the world”– Wvillage in rural England, im- Regular readers of WiC will be fa- as well as to boost tourism – Huaxi ages of thatched roofs and well miliar with Huaxi, known through- has put up replicas of various iconic maintained gardens spring to mind. out China as the country’s ‘richest buildings. These include China’s But China’s ‘ideal’ village takes a dif- village’. We first mentioned it back own Great Wall, as well as the Tem- ferent view. Not for it the quaint. In- in issue 27 and renewed our cover- ple of Heaven in Beijing. But adding deed, it recently signalled somewhat age in issue 87 when news emerged an international flavour are some- loftier ambitions when it built a sky- that the wealthy villagers had de- what less successful attempts to scraper taller than the Eiffel Tower cided to buy 20 private jets. And knock-off Washington’s Capitol Hill, (see photo below). The Zengdi now Huaxi is back in the headlines the Sydney Opera House and the Kongzhong New Village Tower yet again, after China News Service Arc de Triomphe in Paris. opened earlier this month and carried photos of a series of ambi- Huaxi is located 85 miles from stands at 328 metres tall. Topped tious construction projects. Shanghai and houses 60,000 resi- with what appears to be a golden To give local residents a chance to dents – all of whom have a per capita

Opera House, but no Darling Harbour Photo Source: China Imagine

Taller than Eiffel Remind you of Beijing? 22 Week in China And Finally 21 October 2011

Great effort to copy the Great Wall? Huaxi’s very own Capitol Hill

income seven times the national av- erage. Its economic success stems from an early decision – during the eighties – to embrace the reform era and convert farmland to factories. So successful has the formula been that government officials from across China now regularly visit it. Even before it opened its new sky- scraper and knock-off Capitol Hill, Huaxi was receiving around 2 mil- lion visitors annually. But what makes Huaxi’s success all the more interesting is that it re- mains a commune. That means that villager wealth is mostly of the pa- per variety. Residents must put 95% For those who can’t get to the Champs Elysee of their dividends and 80% of their bonuses back into the village. The new skyscraper is a case in success of Huaxi over the past three “Our assets belong to the com- point: it cost Rmb3 billion ($469 decades, some will wonder if its lat- mune not to the individual,” says million), with each household ex- est efforts at reinvention merely re- Sun Haiyan, a member of the local pected to invest their share of divi- flect China’s broader construction government. “We have a local say- dends in the project. For that they mania and the bubble that it ing that your dividend lasts only as get new residential apartments, presages. long as you stay in the village and plus a stake in a five star hotel. Check out the photos and judge the factories keep running.” However, for all the economic for yourself... n

Systemic problems

“China’s got an imperfect system working at 90%. America’s got a better system but it’s only

Photo Source: China Imagine working at 50%.”

* Thomas Friedman, speaking at an event in Hong Kong about his new book That Used to Be Us. The author said he preferred American democracy to China’s system of government. But he was worried that US is falling behind because of political gridlock and an inability to take long term decisions. Friedman

23 Week in China The Back Page 21 October 2011

Photo of the Week In Numbers 16% Percentage of Apple’s sales from Greater China in the third quarter of this year. Greater China, which includes China, Taiwan and Hong Kong, accounted for 12% of Apple’s revenue in the full fiscal year just finished, up from 2% two years earlier. The iPhone 4S, which has yet to be officially released in China, is already flooding into the grey market, at as much as six times the suggested retail price for the device. Photo Source: Reuters

$36.5 billion The net decrease in China’s holdings of US Treasury debt in August to $1.137 trillion, says the China Daily. That was the biggest He lives: Jiang Zemin and Hu Jintao (left) at an event to remember the sell-off this year, following net buying of 1911 Revolution. This quashed rumours the former president had died more than $8 billion in July.

6,000 miles The amount of railway line work currently Where is it? suspended as funds dry up in the tight Some of the places referred to in this issue monetary environment, according to a senior railway company executive.

Beijing 1 in 25 Tianjin The number of people in China that wash their hands properly, a Ministry of Health Huaxi China Henan survey has found. The figure gets even Shanghai worse among men, shrinking to one in 35. Zhejiang Many people do not wash their hands at all Hunan after going to the toilet, and others do not bother using soap or clean water, the Guangdong Ministry reports. The study was published Shenzhen Hong Kong to accompany last Saturday’s Global Hand- washing Day.

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