1 Talking Point 6 Week in 60 Seconds 7 Environment Week in China 8 Shipping 9 Banking and Finance 11 China Consumer 12 Property 13 Chinese Character 15 Media 11 April 2014 16 Society and Culture Issue 233 20 And Finally www.weekinchina.com 21 The Back Page Boom or bust? m o c . n i e t s p e a t i n e b . w w w

As the State Council announces another stimulus plan,

what does it mean for China’s hopes for economic reform? Brought to you by Week in China Talking Point 11 April 2014

Charge of the Li brigade Stimulus to the rescue? Worried about growth, government unveils new plan

Bring out the builders: Beijing announces plans for a mini-stimulus to boost the flagging economy

as Premier Li Keqiang just un - thresholds for the tax cut might be meeting growth goals. Li Keqiang Hleashed a weapon of mass con - raised too. talked at the National People’s Con - struction? That was the question on The renewed focus on low-in - gress last month about having some the minds of analysts last week after come housing was more in keeping flexibility around achieving this the State Council announced an - with Premier Li’s visit late last year’s 7.5% GDP target (see WiC230), other investment programme de - month to deprived areas of Chifeng, preferring to focus on a combina - signed to boost China’s slowing a large city in Inner Mongolia. tion of job creation, price stability, as growth. Will the plan work? Or There, Li publicised efforts to build well as growth figures as a better should the news dishearten reform - 4.7 million apartments in urban measure for economic perform - ers who say that China’s economy slums, telling residents: “We can’t ance. But the numbers for the first must shift to a more sustainable let our people live in shanty houses quarter look like they might test the model and avoid a return to stimu - while building skyscrapers on the limits of the new thinking. Growth lus spending? other side of the road.” The media is going to be down on the last three has reported that Rmb1 trillion months of last year, say Qu Hongbin What was announced? ($162 billion) will be invested in con - and Sun Junwei at HSBC, and in The main items were tax breaks for struction efforts this year. coming months might even slide small businesses, more investment The third promise was to acceler - below 7% (on a year-on-year basis) in railways and a further focus on ate railway construction. Another based on the current outlook. redeveloping some of the country’s 6,600km of line is to be started this That would be unacceptable to poorest shantytowns. year, an increase of 1,000km on last the State Council, especially as Li Under the extension of an exist - year, much of it in inland provinces. has indicated that 7.2% is the mini - ing policy – due to be dropped at the mum threshold for generating P h o t

o end of next year – small businesses Why is the spending seen as sig - China’s required 10 million new

S o u r will now hold on to their tax cuts nificant? jobs a year. c e :

R e until the end of 2016. The State In the short term, it looks like a re - So the measures announced this u t e r s

Council also seems to be saying that sponse to anxiety in Beijing about month are intended to stabilise the 1 In the future, finance will help new growth flourish.

There are grounds for cautious optimism in the real economy — but creating sustainable growth always needs careful encouragement.

New income streams should be built on opportunities that have longevity and new solutions prepared for technology that will continue to evolve.

In this era of transparency, HSBC is working with clients to help create conditions in which businesses can flourish.

By connecting the developed and the developing world, we can help you protect and cultivate real growth — and so create that success that lasts.

There’s more on the future of finance at www.hsbcnet.com/growth

HSBC operates in various jurisdictions through its affiliates, including, but not limited to, HSBC Bank plc who is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, The Hongkong and Shanghai Banking Corporation Limited, HSBC Securities (USA) Inc., member of NYSE, FINRA and SIPC, and HSBC Bank USA, NA.

Issued by HSBC Holdings plc. AC22067 Week in China Talking Point 11 April 2014

economic mood. But they also lead have subway transport. to questions about the broader ef - Beijing News says that more di - fort to restructure the economy – an verse sources of capital are being initiative sometimes referred to as drawn into the investment process Likonomics (for more on Li’s eco - too, another major difference to nomic thinking, see WiC186). 2008. China Development Bank will The Likonomics blueprint com - issue a special bond for shantytown prises three main parts – no new redevelopment, for instance, and will stimulus, as well as deleveraging raise capital from financial institu - and pushing through structural re - tions including the Postal Savings forms – the South China Morning Bank of China, commercial banks, so - Post noted this week. But Li now cial security funds and insurers. Pri - seems to be backing away from his vate sector funding will also be aversion to pump-priming the sourced for the railways, partly economy, and to be returning to the Keeping cool: Li Keqiang through a special fund worth up to more traditional box of policy Rmb300 billion, as well as through tricks. Does that mean that we agency explained this week. the issuance of Rmb150 billion of should forget about Likonomics as “China’s economy needs a little bonds to finance the build-out. a reforming agenda and that eco - stimulation but not a fully fledged By contrast, much of the 2008 nomic policy is all about stimulus stimulus. The tax breaks and accel - stimulus was funded with bank once again? eration of railway investment will loans. This is now seen as a mistake, certainly inject new blood into the not only because much of the lend - This time it’s different… faltering economy, but they do not ing was poorly conceived or waste - This is what the policymakers are forebode any massive spending or ful, but also because the payback saying. For a start, the proposed in - borrowing.” periods for the better projects have vestment is relatively limited in size. Others chose to highlight the dif - turned out to be longer than most Analysts haven’t come up with a ferences in how the money is being of the loans themselves. The new number for the total being prom - spent. China must avoid a repeat of plans look different, helping to shift ised, saying that there isn’t enough the worst excesses of the Rmb4 tril - the financial burden away from the information to support a calcula - lion campaign, warned ifeng.com, banks and local governments to a tion. But what’s clear is that it won’t which was hijacked by local govern - broader range of investors. come close to the Rmb4 trillion ments and state-owned firms. The (equivalent to $586 billion at the stimulus binge also bred overca - Will the mini-stimulus work? time) used to counter the global fi - pacity in industries like steel, real Underwhelmed is probably the best nancial crisis in 2008. estate and cement, and opened up word to describe the initial reaction The measures are being termed colossal new opportunities for to the plan (much less intervention as more of a “mini-stimulus”, even graft. But this time around, the from the central government than if government ministers seem re - measures are targeted at areas of anticipated, the Shanghai Securities luctant to say so openly. “They are the economy more likely to deliver News thought) and Chinese stock doing it quietly. They cannot use a return on investment. markets fell. Since then, the bourses the word stimulus, which has be - That’s especially so in the focus have done better and the key Shang - come a negative word,” Xu Gao, on railways, where HSBC has long hai Composite has rallied to a six- chief economist at Everbright Secu - argued that China is significantly week high on speculation that more rities, told Reuters. underinvested. One of its favourite measures may be announced. But Xinhua couldn’t avoid the datapoints: that the rail network at One reason for the lukewarm re - term entirely, arguing that this the end of 2012 (at 98,000km) was sponse to last week’s announce - year’s plan is very different to ear - about the same length as that of the ment is that it contained little that lier ones. “China has quit the habit United States in the 1890s. The sys - is genuinely new. Most of the policy of resorting to the so-called ‘mas - tem carries 24% of global freight steps didn’t sound very different to P h o t

o terpiece’ stimulus, which could be volumes on just 6% of world capac - proposals from last July, when the

S o u r as addictive and damaging for a na - ity, HSBC has also argued, and 100 State Council made a similar set of c e :

R e tional economy as doping is for the cities with populations of more announcements (see WiC204). For u t e r s

human body,” the state news than 5 million people still don’t instance, Rafael Halpin, a China an - 3 Week in China Talking Point 11 April 2014

alyst for the Financial Times, told the Beyondbrics blog that the Planet China 6,600km of new railway track was a Strange but true stories from the new China pre-existing target and shouldn’t count as fresh investment. Nor is an uptick in affordable housing con - GRAVE CONCERNS. In his 2008 book The Corpse Walker , dissident poet struction going to be much help, Liao Yiwu describes a conversation with a former kusang or professional Halpin believes, as it will be over - mourner. “Most people who have lost a family member burst into tears and begin wailing upon seeing the body of the deceased. But their wailing shadowed by the slowdown in the doesn’t last. When grief enters their hearts they suffer shock or pass out. private housing market. Social But for us we get into the mood… and can wail for as long as required,” he housing accounted for 13% of total quotes the mourner, Mr Li, as saying. Li goes on to say that during the investment in urban homes last Cultural Revolution this profession all but disappeared. Now, however, a year, so an increase in spending new form of the service is available once more on China’s popular shopping doesn’t look likely to offset wider platform Taobao. For a fee, urbanites can hire professional sweepers to visit weakness in the sector. their ancestors’ tombs to pay their respects, as well as burn incense and Investment levels in much of paper offerings. One company promises that their employees “will dress the economy are slowing, espe - appropriately, bathe, and wear brown shoes and black socks to create a cially in manfacturing. This week solemn look,” the Guangming Daily reports. Other newspapers say that this the official government measure year’s offerings include replica villas, gold necklaces, mobile phone recorded a slight pick-up in manu - chargers and even mistresses to keep dead relatives happy. By burning the effigies, mourners believe their ancestors can use them in the afterlife. facturing activity for March (al - But for many Chinese, the new hiring service is a perversion of the though economists say this is country’s culture. The point of the Qingming Festival – celebrated last typical after Lunar New Year holi - weekend – is for people to show reverence for dead relatives by sweeping days in February). their graves personally, not paying for someone else to do it. But HSBC’s PMI scores fell to an eight-month low, indicating that the sector is continuing to contract. Investment in real estate has held ing or incentives for environmen - Social financing is down 3% in the up better but it could come under tal protection, as well as more first two months of the year on the pressure after weeks of slower hous - urban infrastructure (such as sub - same period in 2013. The People’s ing sales (new construction fell by ways), if needed.” Bank of China (PBoC) has also been more than a quarter in terms of Might that include monetary draining liquidity from the inter - floor space in January and February loosening as well? Despite assur - bank market in recent weeks, sug - too). Elsewhere the anti-extrava - ances to the contrary from Xinhua – gesting its focus remains on gance campaign is biting into retail “The smart ones have got it. There is containing excessive credit. sales, while consumers are the least no sign of a monetary and fiscal pol - confident about their future in - icy shift” – Beijing could reassess its Can China refashion its economy comes than at any time since 2001, options if the economy shows fur - and meet growth targets at the according to household surveys ther signs of frailty. same time? from the People’s Bank of China. One possibility would be to re - This is the question at the heart of With people preferring to save duce reserve requirements at the the economic debate, especially rather than to spend more, private banks, freeing up more capital for with signs that some of the policies consumption isn’t going to provide lending. Granting more credit is the initiated by Xi Jinping and Li Ke - much of a growth fillip. Hence the best way to goose up growth, ac - qiang are starting to work, albeit view that more capital might be cording to the FT’s Halpin, which is with economic side effects. pumped through the investment why the investment binge in 2008 One exhibit is the attack on waste - pipeline in coming months. was supported by a huge surge in ful spending among public sector of - “This may be the start of a slew new lending. Even last year’s uptick ficials. It is delivering savings for the of fine-tuning measures,” HSBC in spending was accompanied by an public purse, but it also seems to be concludes. “We think Beijing still increase of about a third in social fi - curtailing retail sales, which in - has other options in their toolkit, nancing in the preceding six creased by a multi-year low of 11.8% such as the lowering of the entry months. But the same credit condi - in the first two months of the year. barriers in various sectors, spend - tions don’t apply today, Halpin says. Another is the drop in manufac - 4 Week in China Talking Point 11 April 2014

turing investment, which includes credit, confront weaker global de - obverse way that these conditions reductions of capacity in bloated mand, fight corruption and push had accelerated growth.” industries like steel and cement. for the largest overhaul of the coun - Of course, this runs counter to This is another very deliberate pol - try’s economic model in more than the view that reform is going to icy from Xi Jinping’s leadership a generation. have a rapid booster effect. In fact, team designed to root out ineffi - This isn’t just about the com - Pettis is claiming the opposite: that ciency and oversupply. HSBC re - plexity of following such a chal - if the restructuring effort proceeds ports that investment in steel lenging path. Michael Pettis, a at a proper pace we will start to see production grew by just 0.7% last finance professor at Guanghua growth drop, probably quite sharply year (or 3.7% less than the year be - School of Management at Peking (he thinks growth rates will fall to fore), while another 270 million University, says there is a much an annual average of 3% before the tonnes of capacity is scheduled for starker choice ahead if China end of the decade). elimination this year. pushes forward with its economic For those who buy into this bear - Despite this, HSBC disapproves reboot – and that there has to be a ish outlook, a Goldilocks outcome of the notion that efforts to remodel period of purgatory before profit. isn’t on the agenda. the economy must necessarily hurt “Low interest rates, low wages, an However, in his most recent re - growth, even in the short term. In - undervalued currency, nearly un - marks – made at the Boao Forum on stead it believes that the “modest” limited access to credit for state- Thursday – Li again indicated he stimulus this month is important in owned enterprises, a relaxed wouldn’t be panicked into pulling a buying time for further reforms to attitude to environmental degrada - giant stimulus lever (even as export take hold. The view is that a proper tion, and other related conditions numbers came in well below expec - sequencing of policy changes will were both the source of China’s fe - tations for March). “We will not re - add up to reform dividends that rocious growth as well as of China’s sort to short-term stimulus policies then spur the economy forward. unprecedented economic imbal - just because of temporary eco - But the countervailing question ances,” Pettis warned earlier this nomic fluctuations and we will pay is whether China’s leaders will be year. “Reversing these conditions more attention to sound develop - able to maintain growth at levels will rebalance the economy, but will ment in the medium to long run,” Li they have stipulated as they rein in do so while lowering growth in the declared. n

The customer is always right

It is often said that the residents of the southwestern city of Chengdu can be as fiery as the food they eat. That adage appears to be true in the case of a Ms He who has used a new customer-friendly law to reclaim Rmb80 ($12.89) charged as corkage and private room hire at a local hotpot eatery last month. The new regulation – which has been widely mocked online – forbids restaurants from levying extra charges on customers for nicer tables or food and drinks brought in from outside. Restaurateurs, as one can imagine, are up in arms at the changes in the rules.“If consumers can bring their own alcohol and their own dishes, there will be no profit for the restaurant provides consumers with services. restaurants,” the Chengdu Daily quoted the losing hotpot It’s just that the price should be fair.” venue as saying. Rather surprisingly most eateries are complying I l

l “These customers are trying to enter a first class cabin with the new law, albeit sometimes creatively. u s t r a

t with an economy class ticket,” the spokesman added. After Ms He’s ruling, another Chengdu eatery i o n : w Many netizens agree. “Most restaurants aren’t bullies, hung a sign in its window inviting people to bring w w . b the bullies are those people who sit in other people’s places their own drinks into the venue. e n i t a e and drink their own wine, asking for free service,” wrote one. “You will understand, however, if we don’t give p s t e i n Another said: “It’s fair to ask for a corkage fee because you glasses,” it read. . c o m

5 Week in China The Week in 60 Seconds 11 April 2014

‘Through train’ arrives The major news items from China this week were...

Premier Li Keqiang has said once again that the au- 1thorities have flexibility in achieving their 2014 growth target. “Whether the economic growth [this year] is a lit- tle higher than 7.5%, or a littler lower, as long as we can en- sure relatively adequate employment, with no major fluctuations, it’s all within a reasonable range,” Li said in a keynote address at the Boao Forum of Asia on Thursday.

Long time no see. Former president Hu Jintao made 2a rare public appearance at Hunan University this week. During his visit, Hu toured parts of the campus including the Yuelu Academy, founded more than a Less shark fins are now being served thousand years ago in 976 and one of the four most prestigious academies in ancient China. Hu’s sudden Alibaba’s shopping spree continues. An investment appearance may have been designed to send the a mes- 5firm controlled by Jack Ma and Alibaba co-founder sage that he still wields political influence. Simon Xie has agreed to buy a 20% stake in Wasu Media, an internet TV company, for Rmb6.5 billion ($1.1 billion). A property unit run by Richard Li has sold a mixed- The two companies, both based in the city of Hangzhou, 3use property development in Beijing’s Sanlitun shop- already make television set-top boxes together. Ma has ping area to private equity firm Gaw Capital Partners for long talked about creating entertainment and games to $928 million. The sale came after a number of real estate attract internet users to Alibaba’s online platforms. disposals in China by Li’s father, Hong Kong tycoon Li Ka-shing. Li senior sold retail property Duhui Plaza in Big-screen theatre company IMAX plans to sell a 20% Guangzhou last year, as well as Oriental Financial Cen- 6stake in its Chinese business to China Media Capital tre, an office tower in Shanghai. and private-equity firm FountainVest Partners for $80 mil- lion. The deal will help to pave the way for an IPO by IMAX Taiwan has delayed a review of a trade pact with China Holdings in the next five years, according to chief 4China until a more formal oversight mechanism for executive Richard Gelfond. The sale also puts an initial val- such cross-strait agreements is enacted, as a concession uation on IMAX’s China business of about $400 million. to student protesters who barricaded themselves inside the legislature three weeks ago. Trade in shark fins from Hong Kong to mainland 7China dropped by almost 90% last year, a green group has revealed. Overall imports to Hong Kong also fell 35% compared with 2012, WWF-Hong Kong added.

The ‘through train’ has arrived. A new link between 8the Hong Kong and Shanghai stock exchanges will be launched within six months, according to regulators. It will sweep aside Chinese capital controls on Rmb550 billion ($88.5 billion) of stock transactions annually, Photo Source: Reuters meaning Chinese investors can buy Hong Kong stocks and vice-versa. HSBC’s China strategist Steven Sun reck- ons it will have a “big and lasting impact on the Hong Imax: sold a stake in its China business Kong stock market”. n 6 Week in China Environment 11 April 2014

Chemistry class Students praised for protecting paraxylene

hat is PX? This was the ques - The Chinese authorities have Wtion posed by the anchor of been fighting a losing public rela - CCTV’s evening newscast on Sunday. tions battle over PX – a chemical The chemical has become a “pop - used in the production of polyester ular word with public attention” the and plastic bottles. Plans to build Not in my backyard anchorman continued. So the chan - new plants in Xiamen, Ningbo and nel had decided to take a closer look Kunming have all been scrapped af - Another argued: “The protest is at the contentious hydrocarbon. ter public protests, while a facility in not about the PX project alone: it is Cue a stirring story about 10 the port city of Dalian was also because of the government. The sit - chemical engineering students from closed on public concerns that it was uation here is more complicated Beijing’s prestigious Tsinghua Uni - built too close to the sea. than anyone can imagine.” versity who stayed up all night on As a result China is being forced Locals say the surroundings have March 30 “battling” with misin - to import more than half of the PX already been damaged by oil and formed netizens who kept changing that it needs, Xinhua has claimed. ethylene refineries in the area. an online definition of paraxylene Many Chinese believe that pro - “PX might be low-toxic, it doesn’t from “low” to “high toxicity”. duction of the chemical poses mean that it is non-toxic” wrote one “These things are related to what health risks to the surrounding pop - local resident. “When the govern - we have studied in school. When we ulation, although there is little to ment first launched the petrol proj - saw this happening, we felt we suggest that is the case under nor - ect we were told there would be no needed to stand up… and defend the mal circumstances. Other countries pollution but just look at the air truth of science,” one of the students produce huge amounts of the hy - now,” he added. explained to the broadcaster. drocarbon, while BP, one of the Against this backdrop, a thou - Another student – shown work - world’s largest producers, says it has sand people decided to protest out - ing with a bottle of PX in the lab – never suffered a major accident at side government offices on March said the chemical was “no more car - its PX plants. 30. Having declared the demonstra - cinogenic than ethanol”, despite the Opponents of PX facilities fear tion illegal, the local government efforts of netizens to define PX as a that these indicators mean less in then sent in the riot police. In the vi - dangerously toxic. China, especially when coupled with olence that followed, a police check - “The people who changed this are the weaker safety culture and cor - point was set on fire. Yet in the six trying to mislead others. We want ruption they believe exists in places days afterwards neither Xinhua nor to stand up for the correct toxicity like Maoming. In the last 12 years CCTV mentioned the protest. Online of PX and the image of the chemical the town has seen two Party secre - censors also blocked all mentions of engineering sector in general,” he taries sentenced to death for em - Maoming when combined with added. bezzling close to Rmb60 million. terms like ‘PX’, ‘protest’ or ‘bloody’, Throughout the CCTV report Another 300 officials have been in - while Guangdong media were lim - there was no mention of the fact vestigated for graft. ited to few paragraphs on the dis - that – on the same night that the “How can we talk about monitor - turbance. All of which has made students pulled their all-nighter to ing this project with such a corrupt CCTV’s report on the Tsinghua stu - correct the online encyclopedia – government? I believe that Maom - dents (plus a People’s Daily editorial P h o t

o more than a thousand people in - ing’s future will only be better when praising them as “guardians of the

S o u r Maoming were protesting against the central government does some - truth and responsibility”) seem like c e :

R e plans to open a Rmb3.5 billion ($563 thing about it,” wrote one Sina a carefully timed attempt to alter u t e r s million) PX plant in the town. Weibo contributor. the public mood... n 7 Week in China Shipping 11 April 2014

Man overboard? Even Rongsheng’s rivals don’t want it to fail

he Yangtze River Delta has a Cosco still reported a Rmb1.5 billion Tlong history as China’s most ($242 million) loss for the year. important shipbuilding area. Adja - Weak market conditions feed cent to Jiangsu, it was home to the through to the order book for new first commercial contract gained vessels. One of the companies strug - Happier times for Zhang Zhirong from an overseas customer: two gling most is Rongsheng. Once the 27,000-tonne freighters were built world’s biggest shipmaker in terms without trace. Ren Yuanlin, chair - for Hong Kong shipping magnate of orders, Rongsheng said last week man of Yangzijiang Shipbuilding, a YK Pao. The order was taken so seri - that its net loss had ballooned to local rival listed in Singapore, is said ously that Margaret Thatcher went Rmb8.7 billion in 2013 from Rmb572 to have assisted Rongsheng in ne - to China to launch one of the ships million a year earlier. (Rongsheng’s gotiating with the banks and finish - in 1982, naming it World Goodwill market cap is Rmb7 billion.) The ing some of its contracts on hand. as a symbol of Sino-British ties hefty loss came after a Rmb5.1 bil - “If Rongsheng falls, financial in - (Thatcher attended the ceremony lion provision made against its re - stitutions will lose confidence in the on her way to Beijing to hammer ceivables, which turned sour after industry. It affects the reputation of out the issue of Hong Kong’s return “an increase in default in payment Chinese shipbuilders globally,” Ren to China). by customers experiencing the cur - told Singapore’s Lianhe Zaobao Today Jiangsu remains home to rent market downturn”. newspaper. “We don’t want to see the biggest cluster of Chinese ship - Adding to the grim picture, Rong - Rongsheng fail.” yards, with its firms accounting for sheng’s cash position had eroded to Rongsheng bondholders will also a third of the country’s shipbuild - Rmb117 million by late 2013 (from breathe a sigh of relief on seeing the ing contracts. However, many of Rmb2.1 billion a year earlier), leading company get some local support. So them are struggling. The Securities to a candid acknowledgement as to too a lot of local firms who are Daily says the market has wors - whether it had “sufficient financial caught up in a complex web of mu - ened to a point that prices for new resources to continue as a going tual guarantees (instances in which ships have fallen to levels last seen concern”. Management has cut two or more companies take recip - in 1991 – the year that YK Pao died. wages and taken on a Rmb3 billion rocal responsibility for each other’s Symbiotically the yards are suf - interest-free loan from major share - debt, see WiC160). A Rongsheng de - fering because their clients, the holder, the tycoon Zhang Zhirong. fault could prove disastrous for shipping firms face dire times. De - Further fundraising is expected these lending networks too. clines in freight rates mean that through convertible bond issuance. But the picture in Jiangsu still even the strongest state firms are The most crucial lifeline, how - looks pretty bleak. In the past finding the downturn barely navi - ever, may have to come from state month we have reported on a bank gable. Nanjing Tanker, a marine- lenders. Rongsheng says it has run in the province (see WiC232), freight unit under logistics giant reached a debt restructuring agree - while Sainty Marine, another ship - Sinotrans, has reported three years ment with more than 10 Chinese builder backed by the Jiangsu gov - of consecutive losses. It is set to be banks in Jiangsu. This involves re - ernment, found that its entrusted delisted from the mainland stock ducing interest rates on its borrow - loans to local property developers P h o t o market (see WiC227). State giant ings and extending repayment were turning bad (see WiC229).

S o u r c Cosco narrowly escaped the same terms to the end of 2015. Despite Rongsheng getting the e :

I m

a fate, returning to the black in 2013 Apparently even Rongsheng’s worst of the headlines, plenty of g i n e

C with some timely asset sales to its competitors don’t want to see the other firms are in the same boat, it h i n a unlisted parent. At operating level biggest private-sector shipyard sink seems. n 8 Week in China Banking and Finance 11 April 2014

Red alert More signs of stress in the corporate debt markets

company announces that it is Aon the verge of default. The fi - nancial authorities allow it to fail. And the financial markets worry that it represents the first in a long line of distressed credits that could disrupt the wider economy. If this sounds familiar, it is not just because it reflects a pressing theme in China today. The same thing happened back in 1998 as well when Guangdong International Trust and Investment Corporation (GITIC) defaulted on an $8.75 million coupon payment on one of its inter - The trouble started with a solar firm’s bond default national bonds. GITIC’s case subse - quently became China’s largest defaults might damage the real private sector debt. bankruptcy even though the provin - economy too badly. But there are Instead, they have been flocking cial government could easily have two short-term concerns, which back to state-owned enterprise (SOE) covered its debt. could change that view if they start bonds. Ironically, this is due to the Why? Because then premier Zhu to have a snowballing effect. One belief that the government has to Rongji was determined to punish a surrounds the heavy spike in re - stand by “implicit guarantees” to wayward province, as well as to payments due during 2014. This in - that sector. This is a perverse out - teach the financial markets to price cludes Rmb4.5 trillion of Rmb10.9 come for a government that has credit on its own merits, without as - trillion in trust payments and stated that it wants more funding suming an implicit government Rmb2.75 trillion in corporate bonds. to be made available to entrepre - guarantee. The trust payments are a concern neurs and less to its SOEs. Given the manner in which his - because of a maturity mismatch be - The Beijing Put, it seems, is still tory seems to be repeating itself, it tween when the debt is due (now) very much alive and kicking – if you seems that Zhu’s lesson has largely and when the projects will start to are an SOE. One WiC reader and a been forgotten. The government is generate income streams to fund former Hong Kong investment trying to get the same message repayments (some years in the fu - banking head believes this is deeply across to investors once again. Only ture, if ever). unfair on privately-held firms. As he now the stakes are higher. Out - Anxiety about corporate bonds is pointed out in an email: “How can standing domestic bond market similar. Over half the debt was the private sector and market forces debt was Rmb30.9 trillion ($4.99 tril - pretty short-term in the first place – ever have a leading or relevant role lion) at the end of December. commercial paper taken out in 2013. in China if the Beijing Put creates While there have been plenty of The second concern has been such a tilted playing field?” he asks. headlines about bond defaults, most prompted by the way investors have The view has been borne out by a of the industry commentators seem responded to recent events. As HSBC considerable widening of the spread P h o t

o relaxed about the situation. Many points out in a recent research re - between public and private sector

S o u r see defaults as a healthy and long port, Beijing’s apparent readiness to debt since Shanghai-based Chaori c e :

R e overdue step on the road to pricing to let some companies fall by the Solar Energy defaulted on an u t e r s risk correctly. Few seem to fear that wayside has led investors to shun Rmb89.8 million coupon payment 9 Week in China Banking and Finance 11 April 2014

in March – the first onshore bond application with the Shanghai pal – the market may not shrug it off issuer to do so (see WiC229). courts. In Hong Kong, IFR reports as lightly as recently, when default - There was an immediate spike in that two other companies have had ers have failed on coupon payments. spread between private sector is - their shares suspended and are close In particular, HSBC highlights 35 suers and SOEs, amounting to 178 to breaching their loan covenants. companies which owe a total of basis points (bps) for double-A (lo - Share trading in chemicals group Rmb5.88 billion this year. None of cally) rated private sector compa - China Lumena New Materials Corp this group has guarantees; all are nies and an even higher 215bps for was also halted after it announced locally-rated at AA or below; all re - single-A rated ones. that it needed extra time to finalise ported net losses in both 2012 and The premium that private firms its annual results. It will be in breach the first three quarters of 2013. The are paying over their public sector of its loan covenants unless it an - list includes 10 listed entities. peers has stayed at that level, as the nounces them by April 11. Telling Telecommunications leads list of defaults has grown longer. Likewise, Labixiaoxin Snacks the pack with Rmb429 million to re - In mid-March Xingrun Real Es - Group has asked lenders to waive pay, followed by Sinovel Wind on tate in eastern Zhejiang collapsed covenants after failing to publish Rmb168 million. with Rmb2.4 billion ($565 million) its own financial results on time. To date, the debt markets are still of debt. The 21CN Business Herald Both companies have had the accu - open for public sector entities. Last says the government plans to as - racy of their financial reporting week, four counties in Liaoning sume 70% of its liabilities, forc - questioned recently – Lumena by province raised Rmb2.2 billion ($354 ing banks to write off the remain - Glaucus Research and Labixiaoxin million) for urban construction via a ing 30%. by China Weekly. collective bond, although the com - Last week 21CN also reported that The Hong Kong Monetary Au - bination of the four counties in the construction materials group thority has responded to signs of fundraising implies that they Xuzhou Zhongsen Tonghao New credit stress by issuing new guid - wouldn’t have been able to issue on Board Company had failed to make ance to reduce lending to Chinese a stand-alone basis. Local invest - an interest payment worth Rmb18 entities. China’s central bank also ment bank CICC reports too that lo - million. This marks the first default continues to drain liquidity from cal government financing vehicles in the private placement high-yield the domestic interbank market to (LGFVs) raised a record Rmb90 bil - bond market set up two years ago to try to curtail credit excesses. A lion last month, adding to their pre- give smaller companies better access seven-week drainage of liquidity is existing debt pile. to funding. the longest period of tightening Analysts say the government In this instance there was a guar - since April 2010. wants to see private firms play more antor, Sino Capital Guaranty Trust, As ever the question is how much of a role in ensuring that the bulk of although it has tried to wriggle out pain the government thinks it can credit is allocated to the most pro - of its responsibilities on the inflict on delinquent borrowers and ductive sectors of the economy. grounds that its head office had not creditors before the knock-on ef - How will it do that? The afore - approved the original guarantee. fects start to have a wider impact on mentioned WiC reader has two ideas. By last Friday, however, the the real economy. “The Beijing Put can’t continue in - stock market regulator, the CSRC Most analysts believe that macro- definitely because it perpetuates in - had stepped in with an announce - economic weakness means that efficiency in the state sector and en - ment that Sino Capital would be there will be more defaults over the courages dumb investment,” he meeting its obligations within the coming months. HSBC has tried to concludes. “One alternative would be next 30 days. quantify them in its research report. to charge the state sector for guaran - Is this a foretaste of problems to It notes that SOEs are responsible teeing its debt. Another would be to come among other guarantors – an for about 90% of repayments falling reduce the cover, either on the ‘AIG moment’ that might prove the due this year, with the heaviest bur - amount of debt covered, or withdraw successor to what some have likened den falling on four capital-intensive cover from those SOEs that aren’t to China’s version of the Bear sectors: industrials, materials, en - considered essential.” Stearns collapse, i.e. when Chaori’s ergy and utilities. The danger? That if the govern - bonds defaulted? It also says that about 80% of the ment abruptly changed its ap - Chaori itself has moved closer to - repayments are principal rather proach, it might precipitate a new wards bankruptcy following news than coupon-related and argues that wave of bankruptcies among that one of its creditors has filed an – if a company defaults on princi - smaller SOEs. n 10 Week in China China Consumer 11 April 2014

House rules Sanpower bids for one of Britain’s oldest stores

n 1849, Hugh Fraser and James the Financial Times. Sanpower has IArthur started a small drapery also been on something of a shop - called Arthur and Fraser in Glasgow, ping binge. In the past six months, it Scotland. With Fraser’s death in has purchased the International Fi - 1873, Fraser & Sons was then born. nance Centre (IFC) in Nanjing, Is - The company grew steadily. But rael’s largest pension services com - after the Second World War, a num - pany Natali, and the US-listed online Attracted a major Chinese shopper ber of major acquisitions trans - apparel site Mecox Lane. The flurry formed it into a national retail of acquisitions has been enough to products are branded,” he suggested chain known as House of Fraser. make some analysts nervous that to National Business Daily. Now, 165 years after its founding, Sanpower may be biting off more Meanwhile, the deal puts an end the firm could soon fall into the than it can chew, says Xinhua. a two-year period in which House hands of a Chinese retailer. In late Yuan sounds unfazed by the crit - of Fraser was searching for a buyer. March, news surfaced that San - icism. “Most of the private enter - The retailer, which has 61 stores in power has agreed to buy a majority prises in China like us have no the UK, also considered an initial stake in House of Fraser. shortage of desire to move up - public offering on the London Stock Sanpower, the owner of Nanjing wards and grow bigger. However, Exchange and held talks with other Xinjiekou, one of China’s oldest and what we often lack is the idea of potential acquirers like Galeries largest department stores, is con - ‘balance’. In other words, private Lafayette of France. trolled by multimillionaire entre - enterprises tends to over-eat but Still, the acquisition is hardly a preneur Yuan Yafei. Yuan will pay rarely do they suffer from starva - done deal. This week Sir Tom Hunter $332 million for an 89% stake in tion. ‘Balance’ is a state of mind (see WiC172 for an interview with the House of Fraser, says CBN. The deal is that we should always keep as pri - Scottish entrepreneur) sold his 11% Sanpower’s first investment in the vate enterprises,” he told Xinhua. stake in House of Fraser to billion - UK retail sector. If successful, it will The rationale behind the deal, aire and Newcastle United owner be the biggest offshore deal in the says Yuan, is to exploit Sanpower’s Mike Ashley, rather than throwing retail industry by a Chinese buyer. existing retail distribution to help in his lot with the board-approved Yuan, a former government offi - House of Fraser’s expansion in Chinese takeover. cial, founded his conglomerate in China as an affordable luxury brand. “Why did we sell our shares to 1993. Sanpower’s empire has grown Yuan is using Nanjing Xinjiekou, Sports Direct? They offered cer - to span property, retail and technol - a Chinese department store, to pur - tainty of cash today, and we bal - ogy. According to the company web - chase the stake in the British firm. anced that up against what we con - site, it holds assets that were valued This, he says, will also help to raise sidered was a highly conditional at Rmb50 billion ($8 billion) at the the Nanjing department store’s pro - offer from the Chinese,” Hunter ex - end of 2012. file at home. Moreover, Yuan says plained. But to hear Shaun Rein, manag - that acquiring House of Fraser could Most analysts expect that San - ing director of China Market Re - assist him in his efforts to transform power will persevere with the deal, search Group, put it, Yuan is a Nanjing Xinjiekou’s business model living with the Sports Direct owner “smaller tycoon” who is trying to – specifically in relation to the re - as a minority shareholder. Besides, P h o copy Fosun, China’s largest private tailer selling more of its own label House of Fraser’s articles of associa - t o

S o u conglomerate. Shanghai-based Fo - goods. “House of Fraser’s own pri - tion include “drag and tag provi - r c e :

S sun has concluded a number of vate label accounts for up to 40% of sions” which mean that the Chinese h u t t e r overseas deals, by diversifying out - all the merchandise in the stores. could eventually force Ashley to sell s t o c k side of the Chinese market, Rein told But in China, almost 100% of the them his stake. n 11 Week in China Property 11 April 2014

Paying out Evergrande dividend shocks analysts

or years soccer fans wondered pay down debt. Special dividend Fwhy billionaire Xu Jiayin, the payments are for companies with chairman of property developer lots of cash and nothing better to do Evergrande, was ready to spend with it, says the South China Morn - millions of dollars luring foreign ing Post. For Evergrande, that is not players to his football club exactly the case. Guangzhou Evergrande. In 2012, he The company’s debt ratio fell to even hired Marcello Lippi, a World 69.5% from 84% a year ago, accord - Cup-winning coach from Italy. Crit - ing to CICC, although that ratio is ics stopped questioning the spend - well over 140% if perpetual capital ing when Xu’s team beat FC Seoul securities are included. Evergrande last November to become the first also has a Rmb28 billion loan to re - Chinese team to win the AFC pay by June. And if the company is Champions League – the Asian so cash-rich, some investors are ask - Dividend delight: Xu Jiayin equivalent of the European crown ing why it issued a $1.5 billion senior worn by the likes of Bayern Munich note carrying an interest rate of Vanke in Huishang Bank). But Xu’s and Barcelona. 8.75% last November. other pet project is more left-field: Xu had people scratching their “Unusual payouts [like Ever - a Rmb10 billion investment in heads again last week when he an - grande’s] are surprises that can be Evergrande Spring, a mineral wa - nounced the most generous divi - scary rather than pleasant,” the ter brand that that sources its wa - dend payout ever for a Chinese Hong Kong Economic Journal con - ter from Changbaishan (which property developer, reports Beijing cluded. “Investors should calm translates as “Ever White Moun - Daily. down after the euphoria and care - tain”) in northeast China. Ever - The Guangzhou-based developer fully study this extraordinarily high grande says each 350ml bottle will announced that revenues for 2013 dividend.” be sold at an “affordable price” of went up 44% from a year ago to Evergrande’s main focus is on Rmb3.80 and that there are syner - Rmb93.7 billion ($15.08 billion), and property projects in lower-tier cities, gies with its real estate business that net profit rose by 49.3% to which have seen some of the biggest because it can set up water systems Rmb13.7 billion. Because “the com - declines in home prices. It has been to deliver its own brand of water pany is [financially] resourceful, and trying to balance its portfolio by in - into its property projects. it makes retail investors happy”, he vesting in more first and second tier At a recent press conference, Xu has also decided to pay out a gener - locations, although the Economic told reporters that this would help ous dividend of Rmb0.43 per share. Observer reckons that at least 70% sales of Evergrande Spring reach That’s a dividend yield of 15%. of Evergrande’s revenues (and a sim - Rmb10 billion by the end of this Some analysts are questioning the ilar proportion of its land bank) is year and that they would more than premise behind the payout. The away from leading cities. triple in size again within two more Hong Kong Economic Journal was One way to manage some of its years. That would correspond to one of those to class it as “over the risk might be to diversify further about a third of current revenues in top”, noting that Xu, who has a 63% out of real estate. Early this year the property business, although P h o t o stake in the firm, took home nearly Evergrande announced that it has sources at Evergrande have even

S o u r c Rmb4.4 billion as a result. taken a stake in domestic lender suggested that sales from the water e :

I m

a Others wondered why Ever - Huaxia Bank for $528 million (the business might even surpass those g i n e

C grande is being so generous when it move is in line with a similar in - from property at an unidentified h i n a could use more of the proceeds to vestment by property developer point in the future. n 12 Week in China Chinese Character 11 April 2014

Back in the spotlight Former aluminium boss climbs the political ladder

“ hina has too many engineers Cand we have too many lawyers. Let’s trade.” That was the quip from former US President Bill Clinton on a trip to Beijing in 1998. Although said in jest, Clinton’s observation about the career paths of the last two generations of China’s leaders bears out the dominance of the en - gineering mindset. The likes of Jiang Zemin, Li Peng, Zhu Rongji, Hu Jintao, Wen Jiabao and even current central bank boss Zhou Xiaochuan were all engineering alumni before becoming part of the political elite. Years of focus on industrial de - velopment makes it less surprising that China’s technocrats have en - joyed a rapid rise up the career lad - der. But as the People’s Daily has noted, the “era of engineers’ rule” looks like it might be coming to an Xiao Yaqing: once boss of Chinalco, now a rising political star end as the country seeks more bal - anced growth. In keeping with Clin - flight MH370. According to reports gen of Sany Heavy Industry and ton’s observation, the lawyers are on the Chinese language website of BYD’s Wang Chuanfu – would go on fighting back too. Premier Li Ke - the Financial Times, Xiao’s arrival to top Hurun’s Rich Lists. qiang studied law at Peking Uni - was timely and he needed only “a Xiao has devoted his career in - versity, while Chinese president Xi microphone and a few sentences” stead to the public sector, starting Jinping is said to have a doctoral to win over family members linked out with a government-assigned job law degree, according to his official to the missing plane. at a light alloy plant in Harbin near biography. Born in 1959 in Beijing, Xiao is a the Russian border. Known locally But there is an exception to every member of the famous 1982 cohort, as “Factory 101”, it was founded dur - rule, and in this case it might be the first college class to graduate af - ing China’s first Five-Year Plan and Xiao Yaqing. An engineer by trade ter the reopening of the universities had strong links to the military. Re - and former head of state alu - following the end of the Cultural search conducted by its engineers minium giant Chinalco, Xiao is a ris - Revolution. The 1982 class grew up contributed to the making of ing star in the Chinese cabinet. Al - amid political chaos but came into China’s first atomic bomb and, at though he has largely stayed out of the workforce at precisely the mo - one time, the plant supplied 60% of the public eye over the last four ment that China started to experi - the aluminium used by the Chinese years, he was back in the headlines ment with market reforms. Xiao’s aircraft industry. Xiao climbed the

P last month when he was sent as rep - major was engineering which he ranks to become chief engineer and h o t o

S resentative of the central govern - studied at the Central South Uni - was appointed as the factory’s gen - o u r c e ment to console the families of the versity. Two other alumni from the eral manager in 1998. :

C F P passengers on Malaysian Airlines Hunan-based college – Liang Wen - In the following year Xiao was 13 Week in China Chinese Character 11 April 2014

sent to resuscitate another alu - minium firm based in Chongqing. Xiao turned it around and his suc - cess won him accolades from an - other engineer: then-President Jiang Zemin. The aluminium firm was subsequently absorbed by Chinalco and Xiao was appointed commer - cial head of the state giant in 2004, becoming the senior Party figure at the firm. At 45, Xiao stood out as the youngest SOE boss. Xiao led Chinalco on a spending spree, taking over other troubled state-owned aluminium firms. It During his tenure at Chinalco, Xiao attempted to buy Rio Tinto grew from a seven-plant company into a quasi-monopoly in the alu - bad news for China, the world’s work. Foreigners who opposed Chi - minium industry and by 2007, it biggest metals consumer. In this re - nalco bid for Rio said Xiao’s pro - was among the 10 most profitable spect Beijing saw the deal in na - motion proved what they had long state firms with a net profit of tional security terms, as a way of been saying – that the aluminium Rmb20 billion ($3.21 billion). When providing a stable supply of natural producer was a front for the state commodity prices collapsed in resources. And for Xiao, there were and that its aspirations for interna - 2009, Xiao convinced the State also lessons to be learned on the tional M&A should be monitored Council to get the State Reserve Bu - global stage. “A Chinese firm is sit - accordingly. reau to buy up aluminium and ting at the bargaining table with top For Xiao it was a timely exit. In other metals. Chalco, Chinalco's global firms,” he said. “This seat the years that followed Chinalco listed subsidiary, was the most ob - doesn’t come easily. We’ve never had would turn from one of the most vious beneficiary. such status in the past.” profitable state firms into one of the Before then, Xiao had been as - The next phase of the deal saw worst lossmakers, weighed down by signed another bold project: an at - Chinalco launch what amounted to a debt burden inherited from ear - tempted takeover of mining titan a rescue bid for Rio, which was lier mergers, plus a much less for - Rio Tinto. Following a number of struggling as a result of the down - giving environment of lower com - smaller acquisitions in Peru and turn in the commodities market. modity prices and significant Australia, Chinalco went for its The $19.5 billion bid was set to in - overcapacity in the aluminium sec - biggest prize in 2007, splashing out crease Chinalco’s shareholding in tor (see WiC229). $14 billion for a 9% stake in Rio Rio to 18% and also give it direct By then Xiao had left the scene, Tinto and becoming the biggest stakes in a number of iron ore, cop - becoming an example of a SOE boss shareholder of the Anglo-Australian per and aluminum assets. Chinalco that had successfully transitioned firm. It also had an option to double picked Lehman Brothers as its key to the centre of political power in its stake, although critics ques - advisor. But in June 2009 the deal Beijing. tioned whether Chinalco had paid started to unravel, with Rio walk - The Party Congress in late 2012 over the odds. But Xiao was ing away to agree a separate ven - further reinforced his career adamant that the deal had to be ture with BHP. It was a major set - prospects when he was picked as done. “We are the latecomer and a back for Chinalco, despite the $195 one of the members of the Party’s latecomer has to pay a higher price. million break-up fee. powerful Central Committee, and he If we don’t do it now we may not Xiao wasn’t around to handle the was also given a role on its anti-cor - have the chance again in the next 10 political fallout. While the the sec - ruption watchdog, the Central Com - years,” he told the Talent magazine. ond Rio bid was still awaiting ap - mittee on Discipline Inspection. Chinalco’s bid was also seen as a proval from Australian regulators, As deputy secretary-general in P h o t

o strategy to prevent Rio from being he was made deputy secretary-gen - the Chinese cabinet, Xiao looks well-

S o u r acquired by its rival BHP Billiton. eral of the State Council in February placed for further elevation. One of c e :

R e Any merger between the two lead - 2009, with responsibility for coor - his predecessors in the role, Wang u t e r s ing iron ore firms was regarded as dinating the body’s day-to-day Yang, is now a vice premier. n 14 Week in China Media 11 April 2014

Reel changes Is Beijing about to loosen its grip on Hollywood imports?

hina’s movie industry looks set lowing the announcement. Cfor a major shakeup. Han San - Taiwan media is excited too. The ping, the boss of China Film Group Commercial Times noted that Corp, has just retired from the key China allows a maximum of 34 Hol - state-owned monopoly (for more lywood releases every year. Until on which, see WiC231) and Dong now, the quota line-up has been Ping, Han’s private-sector equiva - solely decided by China Film Group lent, sold the controlling stake in his Corp. These imports took 41% of the media flagship to internet giant Al - country’s total Rmb22 billion box ibaba last month (see WiC230). office in 2013. The extra licence for But what has got Hollywood most CNCAC means that “competition excited is an announcement by an - between two state firms would be other state-backed firm that it will highly anticipated”, the newspaper break China Film Group Corp’s ex - suggests, meaning that foreign stu - clusive grip on movie imports, cre - dios could bargain for a bigger cut ating another distribution partner of ticket sales. for foreign studios. The response in the Chinese me - “A seismic shift is set to hit the Chi - dia was more restrained. Sina Enter - nese film distribution sector,” Amer - tainment reported that media ican entertainment magazine Vari - In Beijing: Scarlett Johansson watchdog State Administration of ety reports. “The current system is Press, Publication, Radio, Film and not seen as being very efficient, and lywood Reporter. It also emerged Television (SAPPRFT) has even de - there is a belief that this new set-up that Xue has been appointed as hon - nied that a second licence has been will improve the industry for both orary chairman of China Railsme - issued. “We have heard nothing Hollywood and domestic players,” dia, CNCAC’s business partner in the about these companies,” a SAPPRFT Hollywood Reporter agreed. new initiative. official told Sina Entertainment, re - The news emerged during a con - That firm’s name doesn’t sound ferring to CNCAC and its Hong Kong ference at Hong Kong’s Four Seasons very Tinseltown, which is because partner China Railsmedia. Hotel late last month. Xue Qiliang, a historically it has had little involve - Given the policy goals to open up member of the Publicity Depart - ment in the entertainment industry. the movie sector further, according ment of the Party’s Central Com - China Railsmedia is a Hong Kong- to Sohu Entertainment, it would be mittee, announced that a new li - listed firm that started out as a re - natural for “certain central authori - cence for the import and furbisher of buildings, which ties” to promote an industry shake- distribution of overseas movies is switching tack to railway advertis - up. But even if an additional licence about to be granted to China Na - ing. Now it has big screen ambitions. is granted, the impact will be re - tional Culture and Art Corp (CNCAC). It told investors this week that it duced if the 34-film import ceiling is - Founded in 1987, CNCAC is directly would spend HK$2 billion ($257 mil - n’t removed. “Early this year, for - under the Ministry of Culture. Pre - lion) on the exclusive rights to co - eign media was suggesting that the viously it helped to organise cul - operate with CNCAC on film import quota would be raised by 10. But tural events such as a concert by the and distribution. The market value central authorities eventually de -

P late Luciano Pavarotti in Beijing. of China Railsmedia – soon to be re - nied the report,” Sohu Entertain - h o t o

S “We’re very happy we can open a named China National Culture ment notes. “The only certainty is o u r c e new chapter for the industry,” Xue Group – surged more than 15% to that a new player (CNCAC) now also :

C F P told the gathering, according to Hol - HK$4 billion on the trading day fol - wants a bite of the huge cake.” n 15 Week in China Society and Culture 11 April 2014

Licences and liposuction Why the Chinese are so keen to visit South Korea

ince 2012 the Chinese have sur - Spassed the Japanese as South Korea’s largest inbound tourist group. Many go for the shopping or to pay homage to Korean pop cul - ture. But others have been flying to Seoul for another reason: to get their driving licence. Last year China’s driving test got more difficult. Applicants not only have to pass a written exam – 90 of 100 questions to be answered cor - rectly – they must also take 78 hours of driving lessons at a cost of about Rmb4,000 ($645), according to the Financial Times. Even then, many learner drivers have not been mak - ing the grade. Conversely, South Korea relaxed its own driving test rules three years ago, meaning that a less ex - perienced driver – local or foreign – can typically acquire licences with just 13 hours of tuition at a cost of about $420. The pass rate is as high as 98%. As a result, Chinese tourists have been opting to travel to South Korea for the one-day licensing process (and then convert it to a China per - mit on returning home). According to the FT, the number of Chinese re - ceiving South Korean licences rose more than threefold on 2010 to 24,687 last year. Other tourists have been decid - ing to get some nip-and-tuck work done on the same trip. China News Went under the knife for big screen role: Bai Baihe Net reports that travel agents now tailor-make tours for people who 30,000 Chinese nationals visited reported that more than 60% of the

P want to split their time in Seoul be - South Korea on medical tourism international visitors getting plas - h o t o

S tween a driving test and a spot of visas in 2012, with nearly two-thirds tic surgery in Seoul are from China. o u r c e plastic surgery. The Korea Tourism paying for cosmetic procedures, The plastic surgery craze has even :

C F P Organisation estimates that at least while the Oriental Morning Post has become the subject matter for a 16 Week in China Society and Culture 11 April 2014

film. The Truth About Beauty , re - leased in China last week, tells the story of Guo Jing, played by Bai Chicken delight Baihe, who decides to go under the New record for porcelain cup knife after being dumped by her boyfriend. Guo soon moves from ow much will it cost to drink double eyelid surgery to a nose job, Hfrom a wine cup used by a Chi - lip enhancement and facial slim - nese emperor? The answer emerged ming injections. Her quest for phys - this week: HK$281.24 million (or a ical perfection soon starts looking little over $36 million). like an obsession, with Guo explain - That was the price paid on ing in one sobering scene that she Wednesday for the Meiyingtang has to “work hard to make money so Chenghua ‘Chicken Cup’. I can have more work done”. As you might have guessed, that’s The popularity of Korean soap op - a world record for a piece of Chinese eras like You Who Came From the porcelain, according to Sotheby’s Stars has even inspired Chinese men which arranged the sale during its to pay for surgery so that they can The $36 million ‘chicken cup’ spring auction in Hong Kong. look more like the show’s male lead The small cup, which features a Kim Soo-hyun. Last week Xinhua said through a series of amendments with colourful rendering of chickens, was that male patients have been show - the censors. While the film doesn’t purchased by Liu Yiqian, the art col - ing up at clinics in Seoul clutching have scenes of sex or violence, the lector first profiled in WiC26. It is pictures of Kim. regulators aren’t keen on stories that thought Liu intends to display it in If The Truth About Beauty is any - endorse “negative” values. Plastic sur - his Shanghai museum. thing to go by, people who are phys - gery is on the awkward list –The So what’s so special about the ically attractive – artificially or not – Truth About Beauty is one of the first cup? According to the Beijing News do better in the workplace. The ‘en - films to address the topic. it was made in Jingdezhen’s impe - hanced’ Guo quickly gets a job at a In an interview with China News rial kilns during its finest produc - large company after catching the Net, Guo Xiao, vice president of the tion period in the Ming Dynasty. eye of her (male) interviewer. With Association of Aesthetic Plastic in This particular piece was produced her almond-shaped eyes and newly Sichuan, said the number of people some time between 1464 and 1487 delicate nose, Guo also finds herself electing to have surgery is increas - during the reign of the Chenghua being promoted faster within the ing. “Since 2013, the industry has emperor. Unlike much of the blue workplace. grown at a rate of 20-30% from a and white porcelain made in the The film also deals with some of year ago. The most requested pro - Ming era, this particular style was val - the hypocrisy surrounding plastic cedure that women ask for is a nose ued for its colours and simplicity. surgery. When Guo’s new boyfriend job,” Guo advised. Beijing News adds that such cups finds out that she has had work But Aubrey Lam, the director of are a scarce commodity, largely be - done, he tries to call a halt to their The Truth About Beauty , warns cause they were made exclusively relationship. “The role of Ronald about expecting too much from cos - for the emperor’s usage. Cups Cheung (who plays Guo’s love inter - metic treatment. Lam says she wit - deemed as flawed were smashed and est) represents the voice of many nessed this firsthand while she was buried, so not many were made. men today. On the one hand, they researching the film. “I once saw a 19 Sotheby’s says that only 16 survive wish that their girlfriends are beau - year-old girl who felt that her nose today (the British Museum and the tiful. But once they find out that wasn’t beautiful so she decided to New York Met each have one, for they have had plastic surgery, they have rhinoplasty [the technical term example, while six are in Taipei). want to break up,” says Hong Kong for a nose job]. After just 10 minutes Of these, only three are in perfect filmmaker Peter Chan, the producer of consultation with the doctor, she condition. The one sold in Hong of the film. decided to go for it. But after the sur - Kong this week is among this elite P h o t

o According to Chan, filming of The gery was done, she just sat there and group (it comes from the Meiyin -

S o u r Truth About Beauty was completed cried. So many people are so hope - tang Collection, one of the most im - c e :

R e two years ago. But it wasn’t released ful about the operation, but most of portant European holders of Chi - u t e r s until this month because it went them end up disappointed.” nese porcelain). 17 Week in China Society and Culture 11 April 2014

Chicken cup auctions have bro - ken records before – in 1999, for in - stance. But on this occasion, the sale supplants that of a Qianlong Dy - nasty vase, which went under the hammer in 2010 for $32.4 million. The value of these Chenghua era pieces has soared in recent decades. Famously, the Hong Kong collector Qiu Yanzhi picked one up in 1949 for HK$1,000. Qiu (whose grandson Nicolas Chow is Sotheby’s head of Chinese ceramics) sold it in 1980 for HK$5.28 million. Another cup sold in 1999 for HK$29.17 million. WiC got the chance to see the cup up close at a press briefing held after Controversial co-stars: Wen Zhang with Yao Di the auction. Given its petite size and fragility, we asked how much it ments and was reposted more than were generally unimpressed: “Wen weighed. Sotheby’s Chow replied a million times within 10 hours – Zhang deceived all of us. He gained that the auction house doesn’t sell setting a new record for Sina Weibo. popularity by presenting himself as items based on weight, and hadn’t Wen, who has an image as a sen - a good man and a good dad. But he put it on the scales to check. Insofar sitive family man, has been married has now turned out to be a hyp - as records go, WiC wonders if that to actress Ma Yili since 2008. The ocrite,” one netizen wrote. wasn’t an oversight – on the basis couple starred in the hit TV series “We don’t care whether you really of the price paid per gram, the cup Struggle (see WiC18) and have two have had an affair. We also don’t care must be one of the most expensive children (their second child born who you love. We, too, don’t care if items ever sold at auction. just over a month ago). your wife, your daughter and even But Wen’s reputation as a faithful your father-in-law have all forgiven husband was shattered when he was you. You are nothing to us. We don’t caught on camera enjoying a date care about your TV series, movies with actress Yao Di, his co-star on and product endorsements. You Woe on weibo another TV series Naked Marriage . have nothing to do with us,” another Is the public’s fascination with That show – which was broadcast unforgiving fan decried. stars’ love lives healthy? three years ago – tells the story However, much of the anger ap - (somewhat ironically) of a young pears to be directed at Wen’s former hen Chinese singer Faye couple trying to keep their strug - co-star Yao, with many calling her a WWong broke up with Li gling marriage alive. home-wrecker. Some blamed the ac - Yapeng, her husband of eight years, “I have brought this upon myself. tress for the affair: “If Yao Di didn’t she took to her official Sina Weibo ac - A mistake is a mistake. This has seduce Wen Zhang, would he have count to make the announcement. nothing to do with anyone else,” derailed? And even if Wen tried to The post – “Our destiny as hus - Wen wrote on weibo after the pho - seduce her, she should know that he band and wife ends here. I’m well. tos of their rendezvous were pub - has a wife and a family. You know You take care, too” – quickly became lished. “Today, I am willing to accept you are going to break up a family the most-talked about topic on the all the consequences. I have let and still you pursued it. Can you microblogging platform and was re - down Ma Yili and our children. My blame anyone else?” one netizen posted over 770,000 times. mistake does not deserve to be for - thundered. Another wrote: “Those But Wong’s record was broken given, and it will be difficult for me who agree that Yao Di is garbage last week when the actor Wen Zhang to make amends for all the harm I please ‘like’ this post”. Over 15,000

P posted a weibo entry pleading for have caused. But I want to do it. I users did just that. h o t o

S his wife’s forgiveness (he’d been have to do it. This is what I‘ll do for As WiC has observed in the past, o u r c e caught cheating on her). The post the rest of my life.” Chinese society often seems to hold :

C F P had attracted over 2.5 million com - Despite his remorse, netizens women to a different set of stan - 18 Week in China Society and Culture 11 April 2014

dards to men in cases of illicit rela - dia scholar Yang Bo. “Meanwhile, become a cancer in our society,” tionships. young people in Taiwan were fight - the state news warned. “Does society treat men and ing for democracy,” he added, refer - But Zhan Jiang, a journalism pro - women so differently in terms of ring to student protests on the island fessor at Beijing Foreign Studies Uni - the level of tolerance and public (see WiC231). versity, has defended netizen interest opinion?” a weibo user also mused. “While protests were reported in in the story. He says that internet in - Interest in Wen’s affair seemed Taiwan, Hong Kong and Guang - terest in gossip about the country’s to dwarf other major news stories, dong, most Chinese netizens were celebrities is understandable because including a protest against a petro - more excited at Wen Zhang’s extra - it is one of the public discussions left chemical plant in Guangdong’s marital affair,” Offbeat China wrote largely untouched by government Maoming city that resulted in vio - on Twitter. censorship. Social commentators are lent clashes and arrests (see page 7). Xinhua, too, is concerned about also reading too much into the re - “China’s youth pays much more another trend. “We need to call on sponse to Wen’s troubled love life, attention to the private lives of society for more tolerance, kind - Zhan thinks. “It doesn’t mean Chi - celebrities compared to topics such ness and positive energy. We ab - nese readers don’t care about poli - as the rule of law, corruption, envi - solutely must not let this ‘pa - tics,” he told the South China Morn - ronment and democracy,” writes me - parazzi culture’ wreck havoc and ing Post. n

Red Star: The White Wolf

Who is he? In Taiwan’s bipolar world of blue (the Kuomintang) and green (the Democratic Progressive Party, or DPP), Chang An-lo stands out as one of the island’s most colourful politicians. The 66 year-old is the president of the China Unification Promotion Party, which promotes closer ties with mainland China. Better known for his nickname White Wolf, Chang has also told media that he is the gang leader of the island’s biggest triad group, Bamboo Union. Born in Nanjing, Chang moved to Taiwan with his family after Mao Zedong’s rise to power in 1949. Joining the Bamboo Union Wolfish grin? as a teenager, he climbed the ranks while studying history at Tamkang University. Arguably Taiwan’s most educated gangster, but embrace us as brothers at night time,” Chang shouted Chang even studied at Stanford for a period before he was jailed through a loudspeaker at DPP lawmakers. “You don’t deserve to for 15 years for kidnapping and extortion in the United States in be called Chinese.” the 1980s. He served two thirds of his term, finishing another two “We aren’t Chinese. Get lost gangster!” protesting students college degrees in the process. screamed back. Chang had been on Taiwan’s most wanted list for nearly 17 “You were born because of the [expletive] Chinese!” Zhang years since he fled to the mainland in 1996. Returning last year to countered. turn himself in, he was immediately arrested as he stepped off Reportedly some of Chang’s followers roughed up students as the plane. As he was cuffed, he showed off his book Peaceful tensions flared. Police had to step in to separate the two groups. Unification, One Country Two Systems . (Chang was bailed out four Chang’s stunt earned him rave reviews in the mainland’s hours later and reporters gathered to watch him enjoying a meal social media. “What a forceful show from the big brother,” a of beef noodles.) netizen wrote on weibo . “If a gangster manages to get so many university degrees, there is no reason for those students not to go Why is Zhang in the news? back to college and study.” But Taiwanese media was less Thousands of students stormed government buildings in Taipei impressed. “The public is now considering the difference between last month demanding the scrapping of a controversial trade pact freedom of expression for students and for organised crime, and

P with Beijing (see WiC231). The White Wolf saw red, rallying 2,000 where the limits should be drawn for the freedom to issue h o t o supporters of the trade pact to confront the occupants of the threats,” the Taipei Times wrote.

S o u

r parliament building. He also had scornful words for some of the Meanwhile Chang has said he will stand for election to c e :

R politicians present at the scene. “You call us gangsters in daylight parliament. e u t e r s

19 Week in China And Finally 11 April 2014

Off the charts Chinese perplexed by Merkel’s gifting of map

hen a delegation from Paris And sure enough, the German gift Wvisited Beijing in 1964, it was soon causing controversy back wouldn’t have been impressed to in China, because of the territory hear Mao Zedong question France’s that it omitted. As The Economist stature, describing the nation as points out: “Whether by error or de - What was she thinking? small. But Mao told the French that sign, Mrs Merkel gave Xi an eigh - he considered China to be small too. teenth century map that excluded Europe.” The Hong Kong Commer - “Only an inveterate underdog such Tibet, Xinjiang, Mongolia and cial Daily said that the response as Mao could describe France and Manchuria from China’s domains; from netzens also indicated that China as ‘small’ countries,” explains it also seemed to exclude the islands many Chinese favoured retaking Alexander Cook in the introduction of Taiwan and Hainan. Official Chi - land from Russia, much as Moscow to the recently published Mao’s Lit - nese media either ignored the map had annexed Crimea. tle Red Book: a Global History , “but or substituted it with a nineteenth Somewhat differently, others in - his point was that nuclear arsenals century one that showed China ex - terpreted the map as evidence that had made the US and Soviet Union tending all the way into Siberia.” Germany supported China’s case seem ‘big’ in a way that was qualita - Media and bloggers have offered against the Japanese over disputed tively different.” various takes on the ‘Merkel map’ islands in the East China Sea. Fast forward 50 years, and the de - but one of the most popular is that That seems a stretch, but there bate about China’s size has resur - it was a sly nod to the situation in was another theme to the feedback faced, this time courtesy of a Ger - the Ukraine, designed to remind on the gift: a great deal of anger. man politician. China of Russia’s hegemon past. A lot of the weibo community felt During Xi Jinping’s visit to Berlin Hong Kong’s Oriental Daily News that the map belittled China and last week, Angela Merkel gifted him said the map showed that Tsarist was an insult to Chinese president with a 1735 map of China produced Russia had grabbed around 3.17 mil - Xi Jinping (often referred to online by a German cartographer. It was an lion square kilometres of Chinese as Dada, or ‘big big’). One said the odd choice of gift, to say the least. territory. As a netizen also com - gift was “a bitter herb” that Xi had to When WiC last year visited an exhi - mented: “Facts talk – it’s self-evident “suffer in silence”, while another bition at the National Museum dis - who is China’s enemy. Thanks to cursed Chinese diplomats for allow - playing gifts given to China’s leaders, Merkel’s map, we are reminded again ing Xi to lose face by accepting a de - we did not spot a single map, while how strict, accurate and wise the Ger - fective map. “Is this friendly?” an - any China expert at a foreign min - mans are.” other peeved contributor wondered. istry might have cautioned about Another pointed out: “Obviously “If you want to show friendship why Beijing’s sensitivity to its territorial Merkel was trying to arouse China’s not return one of the treasures borders, and thus why gifting maps. hatred of Russia. That will benefit robbed from China…” n

Safe as houses? P h o “There are only two possibilities to explain why people are predicting a collapse in Chinese real estate. t o

S o Either they have ulterior motives or they have insufficient intelligence.” u r c e :

R e u * Wanda’s Wang Jianlin tells local media that he’s dismissive of property bears. t e r s

20 Week in China The Back Page 11 April 2014

Photo of the Week In Numbers 6.6% Percentage decrease in Chinese exports in March from a year earlier, according to data from the General Administration of Customs. This was an improvement from February’s 18.1% decline but still well below analyst forecasts.

109 tonnes

P China’s gold imports from Hong Kong in h o t o

February. That is a big rise on the 61 S o u r

c tonnes imported the previous February. e :

R e u t e r s

Chinese takeaway: America’s defence secretary, Chuck Hagel lunches 8% Tencent’s market share in the global games with students at a military academy in Changping market, says research firm Newzoo. Tencent is expected to have generated approximately $5.3 billion in game revenues last year, an increase of 45% on 2012. The Where is it? global games market is thought to be worth Some of the places referred to in this issue $70.4 billion.

Xinjiang Inner Mongolia Beijing Dalian Rmb88 The cost of a box of ‘Pan Apples’, which weighs about 3 kilogrammes. Pan Shiyi, the China Jiangsu chairman of SOHO China, a property Nanjing Shanghai developer, has been branding apples Ningbo Chengdu Zhejiang planted in his hometown of Tianshui in Hunan Gansu province. The varieties of Pan Apple on sale include Fuji, Golden Delicious and a Xiamen Kunming Guangdong local species called Huaniu, which wasn’t Hong Kong well known until Pan’s endorsement.

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