0 200 Cover.FIN.qxd:WIC template 26/06/2013 11:00 PM Page 1

1 Editorial 2 200 issues in covers 4 Property Week in China 6 Economy 8 Telecoms 10 Society 12 Internet 14 China Consumer 5 July 2013 16 Energy and Resources Issue 200 18 Entertainment www.weekinchina.com 20 200 issues in photos

China as it happened... www.benitaepstein.com

A special issue to mark our 200th issue and look back at some of the

big themes and personalities we’ve written about Brought to you by

01 200 EditorsNote.FIN.qxd:WIC template 26/06/2013 11:01 PM Page 1

Week in China Editor’s Note 5 July 2013

200 issues and counting China has changed dramatically since WiC launched in February 2009

ver the past 199 issues (this being the 200th) we’ve been privileged to

2 Talking Point write about arguably the defining trend of our times: the growth of 5 Economy O 8 Environment Week in China 9 Society and Culture 15 China and the World China’s economy and that nation’s expanding influence in the world. Our 16 Energy 17 Auto Industry 19 Health 6 February 2009 21 Banking and Finance coverage has spanned serious topics (as when we revealed in February 2010 Issue 1 23 And Finally www.weekinchina.com 24 The Back Page Chinese media fears over the health of local government financing vehicles); has chronicled Chinese cultural mores (what is the latest hit TV show, and why) and has also delighted in the quirky (such as the diving pigs of Hunan, pictured in this issue on page 20). In this special edition we indulge in a little looking back, profiling a few of the personalities who have featured more prominently in our pages. It hardly needs saying that culling our initial list of candidates down to just eight was a challenge. Nor are we claiming that the eight are the most important peo-

ple in China (although, arguably, some might make that list). Instead we’ve se- www.benitaepstein.com lected our personalities on the basis that they represent a defining theme that

has recurred in past issues. The individuals and themes are: Yuan Yuan: I hear 2009’s the Year of the Ox. Tuan Tuan: Yes, but I'm still feeling bearish.

  n Xin and why real estate is the key to understanding China   Issue number one n and how Chinese corruption operates

n Ren Zhengfei and why China’s most global firm causes tension abroad

n Lee Kai-fu and why weibo has revolutionised public discourse

n Ma Huateng and why Chinese internet giants face little US competition

n Zong Qinghou and how China’s richest man rode the consumer wave

n Shi Zhengrong and what to do about growing Chinese energy needs

n Fan Bingbing and why Hollywood is seduced by China’s box office boom

Looking forward, rather than back, I’d also like to let you know that we will soon launch a new version of our website, with an improved look. Hopefully you will find the updated design useful for navigating back through our 200 issues worth of content.

Steven Irvine, Editor [email protected]

1 02 200 Covers.FIN.qxd:WIC template 26/06/2013 11:02 PM Page 2

Week in China 200 issues in covers 5 July 2013

Hold the front page A selection of some our favourite cover images

t is often said that a picture is Here we select 15 of our favourite struction site in an idyllic Chinese Iworth a thousand words. With covers from the past 200 issues. landscape, for an article we did that in mind we endeavour each Aside from their graphical quality, about the property market; another week to come up with a snappy they touch on many of the themes features a Hollywood sign by the cover image to illustrate our main raised in this special issue. Great Wall for a story about the story. For example, one features a con- growth of China’s box office. n

1 Talking Point 1 Talking Point 1 Talking Point 4 Economy 4 Property 4 China Ink 5 Banking and Finance 5 Banking and Finance 5 Economy 6 Online Gaming Week in China 6 Telecoms Week in China Week in China 7 Society and Culture 7 Society and Culture 7 Society and Culture 13 Energy and Resources 13 Economy 13 Industry 14 Banking and Finance 15 Telecoms 14 Energy and Resources 16 Environment 15 Environment 27 March 2009 15 Environment 9 April 2009 17 Energy and Resources 30 April 2009 16 The China Consumer Issue 8 16 And Finally Issue 10 18 And Finally Issue 13 17 And Finally www.weekinchina.com 17 The Back Page www.weekinchina.com 19 The Back Page www.weekinchina.com 18 The Back Page

China faces the dreaded “D” word Can China contain Kim Jong-il? Asia’s new boat people www.benitaepstein.com www.benitaepstein.com www.benitaepstein.com

“Do you think we’re deflating?”

Brought to you by Brought to you by Brought to you by

1 Talking Point 1 Talking Point 1 Talking Point 5 Telecoms 4 China and the World 4 Economy 6 China and the World 5 Economy 6 Banking and Finance 7 Healthcare Week in China Week in China 9 Energy and Resources Week in China 7 Banking and Finance 7 The China Consumer 10 Auto Industry 8 Telecoms 8 Society and Culture 11 Banking and Finance 9 Chinese Characters 12 Environment 12 China Consumer 11 Infrastructure 13 Forestry 13 Healthcare 12 Environment 3 July 2009 14 Internet and Tech 22 January 2010 13 Society and Culture 14 And Finally 4 December 2009 15 Society and Culture Issue 22 Issue 41 Issue 46 16 And Finally 15 The Back Page 19 And Finally www.weekinchina.com www.weekinchina.com 20 The Back Page www.weekinchina.com 17 The Back Page

Dambusters win battle, but perhaps not war Green or mean? ’s Copenhagen agenda Troubled landscape for China property? www.benitaepstein.com www.benitaepstein.com www.benitaepstein.com

China’s internet users claim victory over controversial online filter China, carbon intensity and climate change Building boom or just more bubble trouble... Brought to you by Brought to you by Brought to you by

2 02 200 Covers.FIN.qxd:WIC template 26/06/2013 11:03 PM Page 3

Week in China 200 issues in covers 5 July 2013

1 Talking Point 1 Talking Point 1 Talking Point 4 China Ink 4 The Week in 60 Seconds 4 The Week in 60 Seconds 5 Economy 5 Infrastructure 5 Banking and Finance 6 Energy and Resources 6 Railway Week in China Week in China 7 Auto Industry Week in China 6 Energy and Resources 7 Economy 9 China Consumer 7 Logistics 9 Banking and Finance 11 Essay 9 Economy 10 China Consumer 14 Environment 11 Chinese Character 11 Chinese Character 15 China and the World 13 Healthcare 13 Energy and Resources 16 China Tourist 5 March 2010 14 Society and Culture 23 July 2010 30 July 2010 14 Society and Culture Issue 51 Issue 70 17 Society and Culture Issue 71 17 And Finally 20 And Finally 18 And Finally www.weekinchina.com 18 The Back Page www.weekinchina.com 21 The Back Page www.weekinchina.com 19 The Back Page

How Beijing is restricting foreign firms China learns to tango Double-dip ahead or smooth sailing? www.benitaepstein.com www.benitaepstein.com www.benitaepstein.com China blamed for plunge in the Baltic Dry Index. Time for investors to abandon ship? International executives complain their businesses are being stymied in China China signs a $10 billion train deal and boosts relations with Buenos Aires Brought to you by Brought to you by Brought to you by

1 Talking Point 1 Talking Point 1 Talking Point 4 The Week in 60 Seconds 6 Week in 60 Seconds 5 Week in 60 Seconds 6 China Ink 5 Economy 7 China Ink 7 China Consumer Week in China 6 M&A Week in China 8 Property Week in China 8 Banking and Finance 7 Auto Industry 9 Banking and Finance 9 Agriculture 9 Banking and Finance 10 Energy and Resources 11 Telecoms 11 M&A 12 Healthcare 12 Summer Reading 13 China and the World 4 May 2012 13 Society and Culture 13 July 2012 17 Society and Culture 14 December 2012 15 Chinese Character 17 Society and Culture Issue 148 15 And Finally 20 And Finally Issue 176 Issue 158 20 And Finally www.weekinchina.com 16 The Back Page www.weekinchina.com 21 The Back Page www.weekinchina.com 21 The Back Page How Tinsel Town hit a Great Wall China’s slowdown jitters The war on graft www.benitaepstein.com www.benitaepstein.com www.benitaepstein.com

Why US authorities are investigating Hollywood’s business practices in China The magic 8% has been breached. How worried should we be? New leaders say corruption could be the Party’s undoing – but is the problem

Brought to you by Brought to you by too big and too widespread to fix? Brought to you by

1 Talking Point 1 Talking Point 1 Talking Point 6 Week in 60 Seconds 6 Week in 60 Seconds 5 Week in 60 Seconds 7 China Consumer 7 Internet and Tech 6 China Ink Week in China 8 Banking and Finance Week in China 8 Economy Week in China 7 Healthcare 10 Property 9 Property 9 Media 11 Internet 11 China Consumer 10 Rail and Infrastructure 12 China and the World 12 Shipping 12 Auto Industry 13 Society and Culture 13 Energy and Resources 13 Cross Strait 18 January 2013 18 And Finally 15 February 2013 14 Society and Culture 12 April 2013 14 Society and Culture Issue 178 19 The Back Page Issue 182 17 And Finally Issue 188 18 And Finally www.weekinchina.com www.weekinchina.com 18 The Back Page www.weekinchina.com 19 The Back Page Choking point Votes for the proletariat? goes global... www.benitaepstein.com www.benitaepstein.com www.benitaepstein.com

Something’s rotten in the state of China: the air News that Foxconn will allow its 1.2 million workers to But faces revenue pressures on the home front, as China Mobile

Brought to you by vote for union representatives causes stir Brought to you by looks to clawback cash from its WeChat service Brought to you by

3 Week in China Property 5 July 2013

Living in a bubble? One of the big beneficiaries of China’s property boom is Zhang Xin

he lyric “We’ll take Manhattan” Twas penned almost 90 years ago. But it might still resonate with Zhang Xin and her husband . Why? Because that’s exactly what the two are doing. The billionaire real estate moguls announced last month that they were bidding with a Brazilian bank- ing tycoon for a 49% stake in New York’s iconic GM Building. The $1 bil- lion purchase for the 50-storey tower overlooking Central Park makes it the most expensive office building in the United States. In fact, this is the third New York purchase for the co-founders of property developer SOHO China. Late last year they bought the Sony Tower on the corner of Madison Av- enue and 56th Street; while in 2011 they acquired a 45% stake in Park Avenue Plaza. The is symbolic of a trend that WiC has written about frequently: affluent Chinese buying property overseas, particularly in the US. We Zhang: billionaire property developer, now buying buildings in US first touched on the theme in issue 4 and discussed it as recently as is- With her mother, Zhang then went working with prominent interna- sue 193. to , where she worked in tional architects like Zaha Hadid, and Zhang herself is also a symbol: a factory, and by age 20 had saved focusing on Beijing and Shanghai. she’s regarded as one of the most enough money to fly to the UK. A A timely Hong Kong listing in successful people in one of China’s scholarship to Cambridge Univer- 2007 helped the company to raise key industries, real estate develop- sity followed, and after that jobs in enough cash to turn the subsequent ment. Her life story also speaks vol- investment banking with Barings global financial crisis into a buying umes about the transformations and Goldman Sachs. opportunity. As we reported in one that have occurred in China over the In 1994 she returned to China, of our earliest issues (see WiC17) past three decades. She wasn’t born where she met her husband Pan, and Zhang announced a plan to acquire rich: far from it (as she told the Daily together they established SOHO. The office buildings in Beijing and Telegraph she spent her childhood plan was to build stylish apartments Shanghai from other developers Photo Source: Reuters in a grim block on the outskirts of in Beijing for the country’s growing facing a cash-crunch. SOHO has Beijing, eating canteen-cooked rice middle class. As SOHO evolved over stayed one step ahead of many of from an iron bowl alongside the the next decade and a half, it its competitors. As we noted last Au- children of other toiling workers). switched focus to office complexes, gust, the firm reacted to further 4 04 200 Property.FIN.qxd:WIC template 26/06/2013 11:05 PM Page 5

Week in China Property 5 July 2013

change in the local market by adopt- similar transition in the decades ing a new strategy. Rather than fo- ahead. In our Talking Point in issue cusing on selling units in their de- 171 we detailed the arguments of velopments, Zhang said SOHO was these property optimists. transitioning to a buy-and-hold ap- In truth, what WiC has come to proach – leasing out its prime office realise is that making generalisa- and retail space to corporate ten- tions about China’s real estate mar- ants. This made sense, she said, be- ket is the trickiest thing of all. One cause rising rents offered more pre- city may be experiencing a rapid dictable cashflows. The move also run-up in prices, while another has enabled the firm to monetise the hundreds of thousands of empty brand value attached to their dis- units. China’s size and diversity tinctive buildings. means that it has thousands of dis- Zhang’s name has cropped up tinct property markets, each of frequently in WiC (she’s appeared in which is different. 17 articles, while SOHO China has For the central government this been mentioned in at least 30). creates a quandary, not least as local That’s a substantial proportion of governments have long depended the 80 or so pieces we’ve written on on land sales to prop up their rickety the property market, explaining why finances. we selected her for this special issue. Building an empty city in Erdos Yet the ‘property market’ is also a Equally, in coming up with the social issue, stirring anger among key themes that have dominated camp claim there is massive over- those who can’t afford to buy (a hit our coverage over the past five supply in the market, pointing to TV series called Dwelling Narrowness years, real estate was arguably top of cases like the Kangbashi New Cen- was aired on this theme) as well as the list. As we pointed out in tral District in Erdos. It was ambi- causing frustration for those forced WiC166, it’s not glib to say China’s tiously designed for a million peo- to live in cramped rental conditions economy ‘is’ the property market. ple – and paid for by the proceeds of (see more on the “ant tribe” in Everything from the international the city’s coal boom – but the dis- WiC58). Various rounds of policy ini- price of iron ore to car sales seems to trict lies eerily empty. We profiled tiatives designed to dampen prices have a connection with it. Not sur- another city with a vacancy prob- have tried to make flats more af- prisingly construction of new apart- lem too: Guiyang in Southwest fordable but the measures can also ment blocks across the country China (see WiC168), which saw have bizarre consequences. For ex- drives demand for steel, concrete prices for flats plummet after de- ample, outgoing prime minister Wen and glass. As South China Morning velopers built too aggressively. Jiabao’s final attempt to cool prices Post columnist Tom Holland also Monthly housing data has also via new regulations for second noted last September there is “an al- been used to make the case that homes led to a spike in divorces (see most perfect correlation” between prices in cities like Beijing and Shang- WiC184 for an explanation of why). the state of the real estate market hai have ‘bubbled’ into unaffordable Meanwhile that last round of and GDP growth. (and unsustainable) territory. property controls – launched in But for those trying to get a steer Against this, the more bullish an- March before Wen stepped down – is on the economy, the real estate mar- alysts point to another narrative – a major reason why China’s GDP has ket is also something of an enigma, that the building boom is part of a been slowing. The new government prone to dispute between pundits megatrend, China’s rapid urbanisa- finds itself in a delicate position. Data over whether China is experiencing a tion. Taking a more positive view, from 70 or so of the biggest cities in- property bubble. We’ve lost count of they claim this new housing is dicate that prices remain stubbornly the number of times we have ex- needed and will also become afford- high. But if policymakers push for plored this topic. Early into the fray able for more people as incomes con- measures that bring prices down fur- was hedge fund manager Jim Chanos, tinue to rise. They have some com- ther, the risk is that GDP growth falls who described the sector as “Dubai pelling statistics too. The percentage and the economy stumbles. Photo Source: Photo Reuters times a thousand – or worse” and of Chinese living in towns and cities That being the case, expect more predicted the Chinese economy was edged over 50% for the first time in articles in WiC in the months ahead resultantly on a “treadmill to hell”. history in 2011. And around 300 mil- poring over construction data and Chanos and others in the bearish lion more are expected to make a apartment sales… n 5 06 200 Economy.FIN.qxd:WIC template 26/06/2013 11:05 PM Page 6

Week in China Economy 5 July 2013

Little Bo peep No sign of ’s favourite businessman, as scandals roll on

u Ming, formerly the head of Xthe conglomerate Shide, is an unlikely pick for some- one personifying a theme in China. Why? Because he’s been out of the news completely since he disap- peared from public view in March last year. But Xu is significant as the most prominent businessman to fall from grace after the purge of Bo Xi- lai, the disgraced Party chief of . Xu’s case is also an interesting one in showing how closely the worlds of politics and business can become intertwined, as well as how widely the ripples of a cor- ruption case – real or imagined – can reverberate. When the dominoes started to fall Chin up? Xu Ming hasn’t been seen in public for months in the Bo scandal, the impact was felt first in Dalian and Chongqing, the day,” she seethed. the self-styled “Robocop” police two cities in which he had built most But what happened to Xu Ming, chief from Chongqing (who started of his reputation. But as the investi- the businessman? WiC first wrote out as Bo’s enforcer but ended up gation widened to include , about Xu long before his downfall in betraying him) seems to have cut a Bo’s wife, and , his one of our Who’s Hu columns on deal in getting 15 years in jail. Bo youngest son, the ripples reached prominent business people. The himself has been hidden from wider further afield. Bo junior was soon in 21CN Business Herald reckons that view although there is speculation hiding at Harvard where he was Xu’s fortune was built on his rela- that he could be tried later this year studying, for instance, while Gu’s in- tionship with Bo and especially an (see WiC145 for a fuller dramatis per- volvement even dragged order from Bo that 175 residential ar- sonae of the Bo case). And Xu has Bournemouth, a sleepy seaside town eas in Dalian had to switch their win- disappeared, with some Hong Kong in England, into the spotlight. dow frames to a type made by a firm newspapers even claiming that he There, the news was that the boss that Xu owned. He would use this has died in prison. of a hot air balloon firm had refused opportunity to go on to become the Despite this (or perhaps because to pad out his invoice so that Gu world’s biggest maker of PVC metal of it) Xu’s name has resurfaced re- could move money surreptitiously windows and doors. peatedly in a number of unsavoury Photo Source: Photo China Imagine out of China. Furious at his imperti- But the political ties that Xu once cases to make the headlines. nence, she later threatened the man. enjoyed have evaporated. Gu Kailai In June last year, a prominent ac- “I know very powerful people in is in jail, found guilty of murdering tress sued Hong Kong’s Apple Daily, government, we can get you thrown , a fixer who used to for allegations that she had slept in jail, you’ll never see the light of be a Bo family friend. , with Bo Xilai for money. The reports 6 06 200 Economy.FIN.qxd:WIC template 26/06/2013 11:06 PM Page 7

Week in China Economy 5 July 2013

claimed she did so under arrange- verely that most Chinese will need ments made by Xu. The rumour to see a lot more evidence of a new quickly lost credibility, but still re- approach before they believe that quired unwelcome effort on her part change is possible. “That’s unbeliev- to scotch it. able!” one weibo contributor scoffed During Wang Lijun’s trial, Xu’s when Huang Sheng (of 45-mistress name came up again when the fame) was finally sent for trial on the court was told that the former po- grounds of embezzling Rmb12 mil- lice chief had freed two detainees lion (or less than $2 million). “A vice at his request. governor of a province who takes so Shortly afterwards, the sports little money, less than the price of pages brought news that Dalian two houses?” Shide, formerly bankrolled by Xu Similar cynicism is fuelling accu- and once China’s most successful sations that a system for registering football team, had gone bust now property ownership is being delib- that its patron was no longer around. erately held back because officials Back in the financial pages, Xu are dragging their feet. was then linked to a scandal in- “If our mobile population [of mi- volving casinos in Macau that saw Bust: Dalian Shide’s team grant workers] can be properly sur- Yang Kun, vice president at Agri- veyed, why not fixed assets?” a cultural Bank, come under formal Licentiousness has led others to prominent economist told the investigation. ruin as well. In WiC180 we wrote Southern Metropolis Daily earlier Of course, the wider story is about how a construction boss from this year. “The resistance lies in mu- China’s struggle with corruption, a Chongqing employed girls to black- nicipal officials who don’t want to battle that is fought increasingly in mail 11 local bigwigs into giving him declare their multiple property the public glare. Helped by eagle- sweetheart deals by filming their holdings.” eyed netizens on China’s Twitter- trysts with hidden cameras (the re- In the meantime, there have been equivalent weibo, a flood of new ports last month were that 21 Party signs of more arrests of high-profile cases has come to light. In some of officials are now under investiga- people. The latest scalp is Liu Tienan, WiC’s favourites, public bosses have tion). The sting was discovered but a deputy director at the powerful been exposed for wearing watches kept quiet until graphic footage of a economic planning body, the Na- worth multiples of their salaries or middle-aged mayor with a much tional Development and Reform going on hectic home-buying sprees. younger woman finally got onto the Commission. Apart from providing One man (later nicknamed ‘Grandpa internet. A seducer of six of the hap- yet another salacious story – featur- House’, see WiC182) was caught forg- less men, the girl in question even ing an attempt to have a mistress ing identities to purchase almost became an unlikely heroine, receiv- killed – Liu’s case gives hope to those 200 apartments. ing nominations as the who believe that Wang is ratcheting Then there are the mistresses who ‘person of the year 2012’. And guess up his campaign. seem to accompany every story of what? Xu Ming’s name was again in Indeed, it looks like the new graft. Last year a university in Bei- the frame, with rumours that he had regime may be trying to set a fresh jing published an academic paper bought cheap land in a district run course. But longtime China watch- suggesting that 95% of the officials by of one of the officials caught. ers fear that the problem of graft is exposed for corruption have been Mindful of how pervasive the so widespread that solving it may keeping girlfriends on the side. In a problem of corruption has become, be an impossible task. Certainly the crowded field, special mention must new leader Xi Jinping has appointed international press had a field day go to Huang Sheng, a senior official one of the Politburo’s most re- in the past year in revealing the fab- from province, who is said spected figures, Wang Qishan, as his ulous wealth made by the relatives to have conducted at least 45 illicit anti-corruption tsar. Wang is seen of many of the Party’s most power- relationships before he was caught. as a respected crisis manager, para- ful people. Photo Source: Photo Reuters “Allegedly, Huang Sheng likes the chuted into problem situations Hence WiC also made the point ladies” is how the Yangcheng throughout his career (see WiC176 that if the childless Wang cannot Evening News put it, with careful for more). But corruption has un- win the battle against corruption, understatement. dermined public confidence so se- perhaps no one can. n 7 08 200 Telecoms.FIN.qxd:WIC template 26/06/2013 11:06 PM Page 8

Week in China Telecoms 5 July 2013

Ringing true? As Ren Zhengfei mulls succession, Snowden case reignites Huawei row

aybe Ren Zhengfei was right Mall along. After refusing to give media interviews throughout his ca- reer, the 68 year-old boss of Huawei, the telecoms networking and equip- ment giant, finally relented last month in New Zealand. And almost immediately something went wrong. “Can you be confident that if the Chinese security agencies ap- proached any of your staff and asked them to conduct espionage on your behalf that your staff would al- ways be in a position to refuse,” he was asked at the news conference in Wellington. “No”, Ren responded through his translator, smiling broadly. Ren: built China’s most successful and arguably most controversial firm Huawei later dismissed the re- mark as a “simple translation error”, Whatever his early career choices, an example: in WiC90 we wrote saying that Ren’s answer was the op- Ren now has a solid claim to have about how Huawei was asking staff posite, a definitive ‘yes’. But for a built China’s most successful global to sign a declaration in which they man seen by some as an extension firm, with Huawei earning two- classified themselves as either a of the People’s Liberation Army – thirds of its revenues outside the ‘Striver’ or a ‘Labourer’. What was the intent on bugging the telecoms net- Chinese market. But he remains an distinction? Strivers committed to works of China’s rivals – it was an enigma, with an old-school, pater- giving up paid leave and overtime awkward moment. nalistic style and a penchant for pay but stood a better chance of a In fact, Ren had countered the ru- dropping the occasional Maoist year-end bonus and promotion. mours of military ties during the in- phrase into conversation (“sur- Labourers were free to go home on terview, pointing out that he had rounding the cities from the coun- time. But their prospects at the firm left his job as an army engineer be- tryside” was one example, used to looked dimmer. fore he founded Huawei in Shen- describe Huawei’s push for more Yet Ren gets results. He’s built zhen in 1987. sales in rural areas). Huawei into a stellar success story Becoming a member of the Com- Ren can also come across as se- with revenues of $35 billion last year, munist Party in 1978 was also a sign cretive, especially about Huawei’s supported by a workforce of of the times more than 30 years ago. ownership structure, in which em- 150,000 (and that includes as many All “exceptional people” joined the ployees are said to own shares in the as 40,000 non-Chinese nationals). Party, Ren explained. “At the time my privately-held firm but in a manner Huawei is the world’s second largest Photo Source: Photo China Imagine personal belief was to work hard, that seems to have left Ren with manufacturer of telecoms equip- dedicate myself or even sacrifice my- tight, overall control (see WiC155). ment after Ericsson and now trails self for the benefit of the people. Join- He’s a hard taskmaster too, re- only Apple and Samsung as a man- ing the Communist Party was in line warding workers who do well but de- ufacturer of smartphones too. with that aspiration.” manding their total dedication. As Similar to other industries in 8 08 200 Telecoms.FIN.qxd:WIC template 26/06/2013 11:07 PM Page 9

Week in China Telecoms 5 July 2013

which Chinese firms now compete they saw as a lack of evidence that internationally, Huawei’s rivals they constituted a security threat. grumble that it is a copycat and has Further, they argue that the glob- shown little capacity to innovate. alised supply chain means that it is Not necessarily, said James Cheng, almost impossible for non-Chinese a fund manager and a regular WiC firms to offer products without Chi- reader in an essay in issue 76. Argu- nese parts, heightening their suspi- ing for a more nuanced view, Cheng cion that they are being singled out agreed that Chinese firms like by US legislators more concerned by Huawei might not be changing the the commercial threat from China world by creating too many new than the security risk. technologies. But he felt that they Of course, the recent revelations have had a huge impact by making about NSA monitoring activity things much more cheaply. Increas- from whistleblower Edward Snow- ingly, they also own the intellectual Ready to conquer the world den has done little to improve the property for the processes that en- Chinese mood. “We can see… that able them to do so. chase equipment from Huawei, the when American politicians and Much of that comes from a com- result is that US communications businessmen make accusatory re- mitment to research and develop- will travel over switches, routers and marks, their eyes are firmly fixed ment, Cheng said at the time, in- other equipment that was manu- on foreign countries and they turn cluding a 40,000-strong R&D team factured and designed in China and a blind eye to their own misdeeds,” at Huawei that is double the size of may be remotely accessed and pro- thundered the People’s Daily. And Ericsson’s but which operates at less grammed from that country.” as we reported in WiC198, Snowden’s than half the cost. This has been cru- Huawei has persistently denied disclosures offered a classic “I told cial in delivering lower-priced prod- these claims but they have meant you so” moment for China’s ucts, particularly to less developed that it has been blocked from ac- telecommunications equipment parts of the world, where Huawei has quiring companies in the US. It has makers. A senior spokesman for grabbed market share. “This is not also lost the opportunity to win sup- Huawei was quick to point out that innovation but it is critically impor- ply contracts with American firms. not a single company in its industry tant in making products available to Huawei’s response has been two- had been named as cooperating with the 5 billion people who have not fold: a charm offensive, with lobby- the PRISM spying programme. been part of the global economy in ing in Washington, and an open in- “Why? Because equipment vendors the past,” Cheng wrote. vitation to the House of build the ‘pipes’ that form the net- Of course, there are other markets Representatives Intelligence Com- work, but they do not manage the where millions of people aren’t so mittee to examine the company di- information that flows through the reliant on Huawei products, and rectly, and put its fears to rest. But as network or that is stored in data nowhere is that more true than the we reported in WiC168, if the hope reservoirs, like internet company United States. In Washington the po- was to clear the air, the plan back- servers,” said William Plummer, litical resistance to Chinese net- fired. Instead, after an 11-month vice-president of external affairs. working equipment has been loud probe into Huawei and its smaller ri- Whether this improves Huawei’s and determined, on fears that val ZTE, the committee’s verdict was prospects in the US remains an open Huawei’s alleged military ties might that the two firms “cannot be question, as does the issue of who see eavesdropping devices embed- trusted to be free of foreign state in- will eventually take over from Ren. ded into telecoms infrastructure. fluence and thus pose a security He has been coy about his replace- There’s also a suspicion it will insert threat to the United States and our ment, although he has denied ru- ‘kill switches’ which could immo- systems”. Correspondingly, US net- mours that his CFO (and daughter) bilise US communications should work providers were “strongly en- Cathy Meng is in the frame. the two countries ever go to war. couraged to seek other vendors for Ren has said that his own ambi- Such concerns were expressed by their projects”. tions are much more limited. “My Photo Source: Photo Reuters five US senators in a letter to the Huawei and ZTE were incensed, life aspiration is to open a coffee Federal Communications Commis- bristling at the criticism that they shop or maybe a restaurant,” he told sion three years ago: “When had not cooperated fully in the in- Kiwi reporters, “and then have a telecommunications carriers pur- vestigation, and furious at what farm of my own.” n 9 10 200 Society.FIN.qxd:WIC template 26/06/2013 11:07 PM Page 10

Week in China Society 5 July 2013

A widely followed guy Lee Kai-fu epitomises a revolutionary change: open discussion on the web

ven though he is best known Eas the former head of Google China, long before his stint at the search firm Lee Kai-fu actually worked at Apple, where he headed several R&D projects for Mac com- puters in the 1990s. He left Apple and went to SGI, the 3D graphics firm, that would later be bought by Computer Associates. Looking for a job, Lee then received an offer from Microsoft’s research di- vision that required him to move back to China. But the story wasn’t that straight- forward. When he got home his wife told him “Steve from Apple wants you to call”. Which Steve? Not Jobs surely? After all Lee had worked at Apple before Jobs returned to run the company (or as Lee likes to put Lee: around 45 million read his blog comments online it: “I was at Apple between Jobs”) and the two had never met. But Today, Lee remains one of the word – authors can pack a lot more when Lee called the number, it was most prominent figures on China’s meaning into a message than Twit- indeed Jobs on the line, saying that internet scene. That’s not only be- ter allows. The microblog service he wanted him to come back to Ap- cause he is helping to fund new tech quickly took off. Last year it sur- ple. But as Lee told Tech Crunch, a start-ups. Lee’s embrace of social passed 500 million registered users, blog, he felt compelled to take Mi- media – especially the world of 46 million of which were active on a crosoft’s offer because his father – a weibo (or microblogs) – has trans- daily basis. Taiwanese official – had asked his formed him from business execu- Lee, too, has remained active on- son to return to China one day. tive to one of the most powerful line accumulating almost 45 million Chance or not, his timing was pundits online. followers, far more than any other perfect. China’s internet culture was In fact, Lee became one of China’s business leader and matched only just starting to take off and Lee was first microbloggers when the inter- by half a dozen celebrities in the en- soon moving on from Microsoft to net portal Sina invited him to sign tertainment industry. become the founding president of up for one of the first 20 accounts To help put that in perspective, Google’s operations in China. With on its new Twitter-like service, Sina Li is ‘followed’ by the equivalent of such a star-studded roster of former Weibo, in 2009. Like its Western the population of Spain. His read- Photo Source: Photo China Imagine employers behind him, Li switched counterpart (which is blocked in ers are usually 20-something, direction again in 2009, resigning China), Sina Weibo allows 140 char- mostly male, and often tech-savvy from the search giant and founding acter messages but due to China’s students. Innovation Works, an incubator for ideogram-based writing system – “Thirty million followers is like a Chinese tech start-ups. where a single character is often a provincial radio or TV station,” says 10 10 200 Society.FIN.qxd:WIC template 26/06/2013 11:07 PM Page 11

Week in China Society 5 July 2013

Bill Bishop, an independent tech- Pan Shiyi began posting air quality nology consultant. “I don’t know data published by the US embassy in how many other people have that Beijing (information that the au- many.” thorities had previously tried to One reason for Lee’s popularity block from reaching the public). is that he tweets frequently. On a Eventually the city government typical day, he will post about 10 changed tack, agreeing to start pub- times, touching on topics from cur- lishing data from its own monitoring rent events to career advice for of PM 2.5, fine particles considered young people. to be among the most hazardous pol- Last year he was in the spotlight lutants (see issue 134). for several weeks when he These incidents all point to a new launched a war of words against reality: weibo as an undeniable so- short sellers in the United States cial force and one that can’t be com- that were attacking publicly listed pletely controlled or ignored. Its Chinese tech firms. But that same Lee Kai-fu’s Sina Weibo page popularity is also fundamentally year Lee also initiated a petition on changing communication between his microblog to boycott a reality must realise that social media is in- the people and their government, TV show for humiliating a job- finitely more open than other me- especially in freeing up access to seeker who fainted on stage. Over dia in China… As a result, Sina Weibo news that would previously have 400,000 people signed up and the has become the media of choice for been stifled, as well as allowing the producers of the show later apolo- people to find or share information, public to demand more accounta- gised to the contestant. and to voice or hear opinion,” he bility from officials, especially at Nevertheless Lee has won over wrote in a later post. lower levels of government. most of his fans for his occasional Although the Chinese authori- Of course, the authorities aren’t criticism of the Chinese govern- ties continue to exert broad con- prepared to give weibo users com- ment, including joining a number trol over the country’s traditional pletely free rein. In seeking to con- of other weibo celebrities to post media, Lee is right to say that the trol more of what is said on weibo, support for staff at newspaper rapid dissemination of news and they have demanded that Sina and Southern Weekend during a stand- views via weibo presents much Tencent, which also operates a mi- off with government censors early more of challenge. croblogging service, adopt real- this year. Lee later admitted that Take the high-speed train crash name registration for everyone authorities had “invited him to in Wenzhou in 2011. Outrage at the wanting to post. That’s killed tea” – internet slang for being accident and especially the govern- anonymity and much of the former called in to explain himself by ment’s slow response soon spread protection for those who revealed state security officers. widely on Sina Weibo, overwhelm- more sensitive information. But that hasn’t stopped Lee from ing the efforts of the censors to shut On the flipside some local gov- posting further criticism. A month down the story. The authorities tried ernments have taken to the service later, he spoke out against the Peo- to keep the story off the front pages with aplomb, using it to try to com- ple’s Daily search engine Jike and its the following day, but weibo quickly municate with their local citizens. director, former ping pong cham- spread the news, along with lots of Weibo usage is now too embed- pion Deng Yaping, saying that photographs. When a railway min- ded to be curtailed. For every effort they’d spent huge amounts of tax- istry spokesman failed to provide to develop new rules and regula- payer money on a site that has convincing answers, he was tions, there are hundreds of thou- miniscule market share (see pounded online. Anger rose at the sands of weibo fans working on ways WiC183). Again, the onslaught was conduct of his employer, formerly to circumvent them. And the drive not without consequences: Lee’s a powerful ministry, which has since to control the weibo culture has weibo account was suspended for been reorganised (see WiC133). done little to dent the medium’s vi- three days. Similarly, when record-breaking brancy and growth. Even for the Lee – who has written a book smogs blanketed northeastern China hardliners in government, the real- called Weibo Changes Everything – in January, they sparked a massive isation must have dawned that the refuses to be silenced for long. weibo debate – particularly when weibo world is too big and too pop- “While the controls are tighter, one celebrities including property tycoon ular to shut down completely. n 11 12 200 Internet.FIN.qxd:WIC template 26/06/2013 11:08 PM Page 12

Week in China Internet and Tech 5 July 2013

Always ready for a chat Ma Huateng has built the most valuable web firm, and it’s now going global

uring a routine baggage check Dat an airport, an anxious secu- rity guard stopped Tencent’s co- founder and chief executive Ma Huateng in his tracks. There was nothing wrong with Ma’s baggage, the guard explained, but he wanted to know whether WeChat, Tencent’s popular mobile messag- ing system, would be offered free for much longer. Responding, Ma reassured the man that WeChat wouldn’t cost any- thing, says Caijing magazine. The as- surance was soon being circulated in cyberspace, to the delight of Ma Huateng stands next to the iconic penguins used in Tencent’s logo many of WeChat’s 350 million users. The fact that an airport security tion of WeChat that has tightened Then again, Tencent’s growth guard would even recognise Ma says Tencent’s stranglehold as China’s doesn’t please all. For example, something about his growing king of chat. WeChat combines ele- there has been a dispute with China celebrity status. He now runs one of ments of WhatsApp and Mobile, the country’s largest telco. China’s most powerful internet in its design but analysts have been The mobile carrier complained that firms and the biggest by market cap- struck by the innovative manner in WeChat was threatening its rev- italisation. Tencent is the fourth which it packages so many features, enues from traditional text messag- largest internet brand globally by as well as by its ease of use. All told, ing system and that heavy WeChat market value – only Google, Ama- it marks a first for China’s internet: usage on smartphones was over- zon and Facebook stand above it. a homegrown product with a com- burdening its network. It then de- Ma, 41, was born in Guangdong petitive edge over the offerings of manded that Tencent enter into a province and studied computer sci- its Silicon Valley rivals. revenue sharing agreement. ence at Shenzhen University. In 1998 As a result, since its introduction The move stirred a furious re- he came across AOL’s chat service in 2011, WeChat has grown with stag- sponse from China’s mobile users, ICQ. He realised there was no Chi- gering speed, particularly in allow- with many accusing the telco of nese language equivalent and de- ing users to send text, photos and looking for a scapegoat for its own cided to design one, founding Ten- audio messages for free to other lacklustre performance. Soon after, cent with Rmb1 million ($163,000) subscribers. Tencent has also added China Mobile backed down and of capital. some distinctly Chinese features: for stopped pressuring Tencent to Since then the company has example, in issue 145, we reported charge fees (see WiC188) – the issue grown at a blistering pace. Ma made that many WeChat subscribers use that so worried that airport secu- his next move by leveraging the its “look around” function, which rity guard. Photo Source: Photo Reuters popularity of his chat service QQ to helps singles hook up in bars (the But WeChat’s success has now drive traffic to other product areas initial chat-up line being digital). made it a target for other rivals too. like online games and social net- The most recent addition is e-com- Worried about Tencent’s move into working sites. But it is the introduc- merce (more of which later). online shopping, ’s 12 12 200 Internet.FIN.qxd:WIC template 26/06/2013 11:09 PM Page 13

Week in China Internet and Tech 5 July 2013

Jack Ma orchestrated a deal with in- ternet firm Sina shortly before step- ping down as the company’s chief executive in May (Ma is staying on at Alibaba as executive chairman). The deal saw Alibaba pay $586 mil- lion for an 18% stake in Sina Weibo, China’s most popular microblog- ging platform. It also includes the option of increasing Alibaba’s stake to 30% at an unspecified price (see WiC191). Alibaba, China’s leading e-com- merce firm, hasn’t been able to keep pace with Tencent in products and services for mobile phones – a prob- The other Ma, Alibaba’s Jack lem given that more online shop- pers are making purchases through ter of this year, its e-commerce sales player after Youku Tudou, another their smartphones. Buying a stake efforts accounted for Rmb1.9 billion, combination of two former rivals. in Sina Weibo, with its over 500 mil- up 10.3% quarter-by-quarter. What is clear is that China’s in- lion registered users, will help boost Meanwhile, search giant is ternet is moving into a new stage of Alibaba’s efforts to defend its turf another to look nervous at the development. In the past 199 issues in the e-commerce sector. changing landscape. The Beijing- WiC has chronicled the growth of Alibaba isn’t used to playing based firm dominates China’s PC- the country’s internet firms. They’ve catch-up. Last year more than $200 based internet search market, mak- thrived largely in the absence of for- billion was spent online (not includ- ing it the local equivalent of Google. eign competitors – for example, ing food and travel). That’s 10 times But it doesn’t enjoy a similar share Facebook and Twitter have been de- as much as in 2008. The company’s of search on smartphones. In fact, nied access, while Google opted to shopping sites and TMall Baidu’s market share of search on withdraw from the search business dominate the e-commerce market mobile devices is only 35%, says Bei- on Chinese soil in 2010 (after a fairly and last year’s Singles Day (China’s jing Daily. And less than 10% of the laboured process, see WiC54). equivalent to the shopping frenzy on company’s total revenue came from What’s emerged is a triumvirate Black Friday in the US) saw more mobile ads last year. of dominant domestic brands: Ten- than 213 million shoppers flood the Nor has Baidu done as well as Ten- cent, Alibaba (plus Sina) and Baidu. two sites, spending $3.1 billion in a cent in diversifying from its core One key trend is the new competi- single day (see WiC94). business. Last year it shut down its e- tive dynamic among the trio as they The impact of China’s e-com- commerce platform, a joint venture seek to invade each others’ turf. Of merce boom has been profound. with Japanese firm Rakuten, only two the three, Baidu seems to have lost Beneficiaries include ancillary in- years after it began operations. Simi- the most ground (see WiC59). dustries like the courier companies larly, its ventures in social networking But there is another question too: that deliver all the online purchases. and online recruitment service have can these online giants ever become But the phenomenal growth in on- not delivered as Baidu bosses hoped. as big outside China? So far Tencent line sales has also led to speculation Still, Baidu is not giving up. Just has had the most success. It says about the outlook for bricks-and- last month it announced its acquisi- there are over 40 million users of mortar retailers. Alibaba’s founder tion of online video platform PPS for its WeChat platform in countries Ma even had a public bet with a about $350 million. The plan is to like Indonesia, Malaysia and the shopping mall tycoon on when on- combine PPS with its own iQiyi Philippines. It has also opened an line sales will overtake those in tra- video sharing service, a move that office in the US to promote the ditional stores. apes Google’s purchase of YouTube. product. Meanwhile Alibaba is said Photo Credit: Photo Reuters Tencent is hoping to take a chunk The combination of PPS and iQiyi to be preparing for an IPO later this out of the online pie itself, increas- delivers market share of 17% in ad- year which could exceed $15 billion. ing investment in its own e-com- vertising revenue in online video, Then its own plans for going global merce functions. In the first quar- rendering it the second-largest may become clearer too. n 13 14 200 Consumer.FIN.qxd:WIC template 26/06/2013 11:09 PM Page 14

Week in China China Consumer 5 July 2013

The winner takes it all Zong Qinghou is China’s richest man and its archetypal business tycoon

ew would turn down a dinner in- Fvitation from Her Britannic Majesty. Unless, perhaps, you can lay claim to a title of your own as China’s richest man. One man who did just that, Wa- haha’s chairman Zong Qinghou, has said that he declined the invite from the Queen to attend a February event celebrating the anniversary of her accession to the throne. How about dining out with British Prime Minister a few days later? Sorry, Zong had no time for Downing Street too. Zong: too busy to dine with Britain’s prime minister or even its monarch “Flying more than 10 hours, have a dinner, and then come back? It is- heard, even as many other delegates stake in the company was “more n’t worth it,” Zong told the China En- were nodding off in boredom. Zong than double previous estimates”. Ac- trepreneur magazine in an inter- raised an objection to the distinc- cording to earlier disclosures, Zong’s view. tion drawn between state-owned shareholding in Wahaha was only Time is a luxury that Zong can’t and private firms. Why not view 29%. But Bloomberg had to redo its really afford. The 68 year-old spent them all as Chinese firms, he asked? calculations after being told by a Wa- 15 of his prime years in the country- “All enterprises founded by Chinese haha spokesman that Zong actually side during the Cultural Revolution. citizens are effectively enterprises owns an 80% stake. That made his He worked as a school teacher until of our nation,” Zong suggested, net worth $21.6 billion, or $13.4 bil- he turned 42. Only then did he start adding that current definitions have lion more than Robin Li, the founder his own business, growing Wahaha grown outdated, dampening the de- of popular search engine Baidu. into the third largest beverage firm velopment of the market economy. What had changed? Nothing re- by sales in China. Zong’s motivation for making ally. The truth is that there are two Chain-smoking Zong’s schedule is such a remark? Presumably he was Wahaha groups that we are talking a little more flexible when it comes calling attention to the need for about. Both operate under the same to networking with Communist fairer treatment, hoping for similar brand name (and neither is listed). Party officials. Like many of China’s deals on the bank loans or govern- One is closely held by Zong, the other leading firms, Wahaha has a Com- ment subsidies that seem to be made has origins as a state firm. He holds munist Party committee inside the more available to SOEs. But perhaps stock in both. company. And for 11 consecutive inadvertently he had also stumbled This story brings us back to 1987 years, Zong has attended the coun- on a more profound point: the diffi- when Zong first began in business: try’s annual parliamentary session culty of distinguishing between what selling children’s health drinks at as a delegate. This year in March, af- is state-controlled and privately- schools in the Shangcheng district Photo Source: Photo Reuters ter turning down Buckingham owned in China. The Bloomberg Bil- of Hangzhou. The venture was Palace, Zong again spent a fortnight lionaires Index renamed Zong as named Wahaha, supposedly to in the Great Hall of the People. And China’s richest man last September, recreate the sound of a laughing as usual, he was keen to get his voice for instance, after learning that his child. At this time every enterprise 14 14 200 Consumer.FIN.qxd:WIC template 26/06/2013 11:10 PM Page 15

Week in China China Consumer 5 July 2013

was technically a state firm and in sets”. To set a patriotic example he Wahaha’s case, it was 100%-owned has given up his own US residency by a holding company of the rights (although seems less keen to Shangcheng government, which is explain why he wanted them in the now known as the Shangcheng In- first place). But many less well-con- vestment Group. Thanks to incen- nected Chinese businesspeople tives and subsidies – and Zong’s en- aren’t following Zong’s example, trepreneurial skills too, of course – taking the opposite route in buying Wahaha expanded quickly. By 2001, assets overseas and, in some cases, when private ownership was no moving there. longer an ideological albatross, Private sector bosses have also Shangcheng Investment had trans- complained about the guojinmintui ferred a 29.4% stake in Wahaha to trend of the past five years. The term Zong, and 24.6% to Wahaha staff. means the ‘state advances as the pri- By then, Wahaha had attracted in- vate sector recedes’ and refers to a vestment from Danone too. Start- Bottle job: a Wahaha factory process in which state-owned enter- ing in 1996, and through a series of prises have increased their presence further joint ventures with the Chinese economy towards domes- thanks to access to cheap bank loans French food giant, Wahaha grew to tic consumption should benefit Wa- and via windfalls from lucrative 39 businesses, earning billions in haha in future too (today it classes contracts generated by the gargan- bottled water and fruit juice sales. Coca-Cola as its main rival, as well as tuan 2008 stimulus plan. The wider But the partnership turned sour in Tingyi of ). suspicion is that the families of top 2007 and would eventually be dis- Others say Zong is the definitive government officials enjoy shadowy solved (see WiC39). Chinese-style tycoon. Such types control over these SOEs and have One of Danone’s main gripes: it grew up in chaotic, fast-changing been beneficiaries of spectacular fi- alleged Zong was operating parallel business environments in which nancial gains. When political ana- firms that directly competed with rules and regulations were treated lysts talk vaguely about ‘vested in- their JV. These, it argued, were sell- ‘pragmatically.’ The abiding philos- terests’ acting against free market ing products practically identical to ophy was often one of ‘he who dares reforms, these are usually the kind those in the Danone-Wahaha deal. wins’ although some went too far: of forces that they mean. Zong countered that there was GOME’s Huang Guangyu, for one, Since taking the premiership Li nothing blocking this in the origi- who has topped various tycoon Keqiang – an economist by training nal agreement, throwing in for rankings in the past but is now in – has indicated that he favours good measure that the Danone JV jail. To get the balance right, the wil- changing course and doing more to had no claim on the Wahaha trade- iest tycoons cultivate government promote the private sector (see mark either. ties furiously. According to Hurun, WiC195). That would be in keeping Zong played the nationalist card 83 billionaires attended this year’s with Zong’s call for a more business- too. He told Sina.com “the Chinese legislative session in Beijing as dele- friendly environment for entrepre- have stood up and the era of inva- gates, Zong amongst them. Some neurs. But a China where tycoons sions by foreign armies is long have even been admitted to the in- succeed without political capital gone”. It worked. In what amounted ner core of the ruling Party. Liang seems a distant prospect. Indeed, to a lucrative victory Zong bought Wengen, chairman of heavy ma- reckons one rea- back Danone’s stake for $450 mil- chinery maker Sany, was one of the son that Zong made so much of lion in 2009. Forbes named him privileged few to elect the nine-man turning down his dining invitations China’s richest man a year later. Standing Committee at the 18th Na- in London was that it did his repu- Controversies aside, a simpler ex- tional Party Congress this spring. tation no harm in Beijing (especially planation of how Zong got so (Liang was named as China’s richest as the British government was in the wealthy is that he picked the right man in 2011 .) bad books after row over Tibet). In- industry and did so long before his Zong told the delegates this year deed, the newspaper questions Photo Source: Photo Reuters domestic competitors. He antici- that when entrepreneurs emigrate whether Zong ever really snubbed pated changes in consumer tastes with their money – a trend we Britain’s Queen, pointing out that and rising disposable incomes. Now pointed out in WiC185 – they are the dinner is mysteriously absent a policy push to skew more of the “the biggest loss of state-owned as- from the court circular. n 15 16 200 Energy.FIN.qxd:WIC template 26/06/2013 11:11 PM Page 16

Week in China Energy and Resources 5 July 2013

Waste of energy Shi Zhengrong’s failed push for solar domination has broader lessons

s far as symbolic steps go, it Awas quite a potent one. Shi Zhengrong’s family returned home one day and were surprised to find that their swimming pool had been filled in with concrete. Shi told them that he had ordered this be- cause the pool was a waste of energy and resources. This is what you might expect from a scientist with a mission to end our reliance on fossil fuels. And just as Shi was calling in the cement mixers, his company Suntech Power was emerging as the world’s biggest maker of solar panels. Shi said his goal was to wean power stations off their reliance on coal and help the world in its battle against global warming. In January 2009 Shi and his firm Shi: once China’s richest man, he’s been ousted from his bankrupt firm had reached a peak: Suntech’s New York-listed stock hit $90, valuing his the US in early 2006. For a short pe- net debt was 10 times its market personal stake at $1.7 billion. He was riod Shi was even ranked as China’s capitalisation. being cited as a model example of richest man. However, the past The Chinese authorities then con- China’s new class of globally influ- eighteen months have been bleak fiscated Shi’s passport to stop him ential tycoons. for Shi and Suntech. As we reported going abroad. Local newspapers Shi was actually born to a poor in WiC187, the firm was declared in- thought this had something to do family called Chen in 1963. But he solvent by a Chinese judge in March with his control of Asia Silicon, a was given away by his parents and after it was unable to repay massive Suntech supplier. CBN described as his surname was changed. A smart debts to its banks, and it also de- “suspicious” a contract Suntech had child, he was able to enroll in uni- faulted on a $500 million interna- signed with the firm to buy polysil- versity at 16 and earned a scholar- tional bond. icon at “high prices”. There was also ship to study under the Australian The problem? In the last couple scrutiny over advance payments solar scientist Martin Green. By of years the price of solar panels and interest free loans Suntech 1995, Shi had already registered 10 collapsed, leading the formerly made to Asia Silicon. patents relating to solar cell tech- high-flying Suntech to go deep into Nor was Suntech the only clean nology, and in 2001 he returned to the red. Shi was initially ousted as energy firm in trouble. In WiC 196 Photo Source: Photo China Imagine China planning to use its low cost CEO last August and subsequently we noted that the wind turbine manufacturing expertise to com- lost the company chairmanship maker Sinovel was also experienc- mercialise his innovations. role early this year too. By the time ing problems. Its charismatic Suntech was soon selling its pan- of the firm’s bankruptcy, Suntech’s founder – like Shi – had grabbed an els in over 80 countries and listed in stock was trading at $0.39 and its opportunity to build a firm with 16 16 200 Energy.FIN.qxd:WIC template 26/06/2013 11:12 PM Page 17

Week in China Energy and Resources 5 July 2013

staggering speed. But Sinovel also sank into losses, much of these stemming from industry overca- pacity. Indeed, after going public in Shanghai in 2011 at Rmb90 ($14.65) per share, Sinovel’s stock had dropped to about Rmb4 in June. Two rounds of chairmen have suddenly resigned and the company has been forced to admit to an accounting er- ror that overstated 2011 profits. Investors were further spooked when the regulator announced that it was launching a further investi- Not a sunny outlook gation into the company. Sinovel is struggling with Rmb8.5 billion of export. But output surged just as de- clean power and had a “breathtaking unsold inventory and analysts mand in places like Europe was commitment” to winning the race worry that, like Suntech, it could go falling away. Panel prices collapsed to dominate alternative energies. under too. to a point where production was But while resources can be mar- How has this happened in clean lossmaking after debt servicing was shalled quickly, they are rarely mo- energy, an industry that Beijing has taken into account. bilised in an efficient way or in a determined to be a priority? The To make matters worse Chinese manner in which businesses in the hope was to focus on the solar and producers were then hit by tariffs in sector can survive without cheap wind sectors as a means to leapfrog the US after allegations of dumping. loans or government subsidies. from low-value manufacturing to Threats of European levies have fol- The other flaw in the system is industries more likely to benefit lowed (sparking talk of a trade war the way in which rival provinces from scientific innovation and with the EU and reprisals from plunge headlong into encouraging worldwide sales growth. But it was China on wine, see WiC197). their own local champions to build also because of China’s own envi- By last year it was obvious that more and more capacity. The ab- ronmental concerns. As we reported the commercial situation for wind sence of market-based lending is in WiC178, air pollution is now a ma- power firms was also deteriorating. somewhat to blame, leading to seri- jor problem. For instance, the capital Again, the rush to manufacture tur- ous misallocation of capital. Indeed, Beijing was suffering from a toxic bines meant that there was more in the same article featuring Immelt smog this January that produced output than customers were de- and Doerr three years ago (headline: PM2.5 readings (PM2.5 is a type of manding. Another problem was Green but is it sustainable?), we soot) around 25 times greater than identified by planners in China’s cited a warning from local magazine levels said to be safe in the US. energy industry: turbines were be- Oriental Weekly that a bubble was Much of China’s air pollution can ing installed on wind farms across already inflating in China’s solar be explained by the way that it gen- China that weren’t being connected panel production. erates power. Around 75% of elec- to the power grid in what looked Of course, some companies will tricity is made by burning coal. So if like another classic case of wasteful ultimately prosper. Renewable it is to improve air quality, China spending. power remains hugely important as needs to bet big on renewable This points to one of the central China and the world tries to combat sources like solar and wind. contradictions in Beijing’s industrial global warming. The problem? Having seen re- policy. China has shown it can scale But in the shorter term, it looks newable energy classed as a strategic up in new industries quicker than like a painful round of consolida- industry, the banks and local gov- others. As we pointed out in WiC30 tion is required. The overcapacity ernments rushed headlong into fi- back in late 2009 GE’s Jeff Immelt isn’t going away soon, and a smaller nancing it. This led to overcapacity and venture capitalist John Doerr number of stronger players will be Photo Source: Photo Reuters in both solar and wind. In the case of jointly penned an opinion piece for better placed to tough it out. The solar, Chinese firms made panels ca- the Washington Post in which they question is whether local govern- pable of generating 37.66 gigawatts said China was already investing 10 ments will thwart takeovers to keep of solar power, much of them for times as much as the Americans in control of the firms they backed. n 17 18 200 Entertainment.FIN.qxd:WIC template 26/06/2013 11:13 PM Page 18

Week in China Entertainment 5 July 2013

Screen queen China’s box office could soon surpass US. That’s a boon for Fan Bingbing

Another night, another dress: actress Fan out on the town in LA

an Bingbing knows how to make ality and ability to stand out,” says mutant, Blink). That follows a small Fan entrance. For the opening Brian Buchwald, chief executive of role in Marvel’s . ceremony at the Cannes Film Festi- Bomoda, a website focused on Chi- Fan’s rise has coincided with val in 2010, the Chinese actress nese luxury consumers. China’s own leap up the global box chose an imperial yellow silk gown Born in , Fan, 31, first rose office rankings. In 2008, ticket sales embroidered with dragons and to stardom in 1999 for her role in in Chinese cinemas were only ocean waves. The next year, she the first two seasons of the popular Rmb4.8 billion ($781 million). But turned heads again with another TV series Princess Pearl. Since then, that number jumped to more than traditional Chinese gown, red but she has focused more of her efforts Rmb16.8 billion by 2012, says the embroidered with white cranes. on film, appearing in Feng Xiao- Chongqing Economic Times, sur- Fan’s Cannes appearances have gang’s Cell Phone (2004) and other passing Japan and positioning China helped to take her career into the features like (2007) as the world’s second largest box of- style stratosphere. She is now an am- and (2010). She was fice. The cinema world has become a bassador for L’Oreal (not surprising recently named number one on proxy for China’s commercial given her porcelain skin) and has also Forbes China’s Celebrity 100. oomph. Last year Chinese property signed with luxury brands Chopard But Fan’s ambitions are more developer Dalian Wanda also Photo Source: Photo China Imagine and . global. After signing with Holly- grabbed headlines when it bought “Fan represents products that a wood talent agency WME last year, AMC Entertainment, the second- Chinese consumer would want to she has just been cast in next sum- largest American cinema chain for buy because she wears them, but mer’s X-Men: Days of Future Past $2.6 billion to become the world’s also she represents a girl’s individu- (where she will play a teleporting biggest cinema owner. 18 18 200 Entertainment.FIN.qxd:WIC template 26/06/2013 11:13 PM Page 19

Week in China Entertainment 5 July 2013

Industry experts say it won’t be Hollywood in local receipts. In the long before China’s box office sur- first quarter, US films saw cumula- passes the US too. Jeffrey Katzen- tive gross fall by 22%, while Chinese berg, chief executive of Dream- language films soared 128%. The re- Works Animation, told the Chinese sult: American films are now per- media: “As the second-largest film forming at about the same level market in the world, China’s box of- they did three years ago, when the fice will reach Rmb22 billion this box office was half the size it is now. year, and it will overtake the US to For the successful moviemakers, become the number one in the the rewards can be attractive. En- world within five year’s time.” light Media, currently China’s The Hollywood bosses are taking hottest property in studio terms, heed, forming partnerships with do- has seen its share price nearly triple mestic studios to add more of a Chi- in the last six months. Another stu- nese flavour to their movie fare. For dio , is trading at its instance, Marvel partnered with Bei- all-time high, up more than 240% jing-based DMG to produce Iron over the same period. One reason Man 3. DMG helped Marvel to get Katzenberg: bullish on China for their success is that the Chinese clearance to release the film in studios are becoming savvier, China and also assisted in incorpo- And then there’s the issue of cen- avoiding bigger budget historical rating Chinese elements – like cast- sorship. Django Unchained, the epics and focusing on budget films, ing Fan – in the film to appeal to lo- Quentin Tarantino film about a particularly romantic comedies cal cinemagoers (see WiC147 and slave out for revenge, was abruptly that take place in a contemporary WiC192). pulled from cinemas after China setting. So Young and Lost in Thai- Other Hollywood studios have Film Group issued a notice instruct- land both cost relatively little to followed suit. Paramount has cho- ing operators to stop showing it, cit- make but enjoyed huge takings (see sen to set the next Transformers ing “technical” problems. No one WiC195). film in China and partnered with was able to explain the move, be- However, although Chinese films state-owned China Movie Channel yond speculation that the film reg- are doing well at home, they are yet and Jiaflix to co-produce it. It has ulators had overlooked a brief bit of to enjoy similar success overseas. A even launched a reality TV show to nudity in the film (see WiC189) and report from the Institute for Inter- pick Chinese extras for the antici- suddenly had to backtrack. It reap- national Communication of Chinese pated blockbuster (see WiC188). Last peared on screens in early May, by Culture, which was set up by Beijing month media reported actress Li which time audience enthusiasm Normal University and IDG’s China Bingbing will also join the Trans- had already waned. Django grossed Media Fund, shows that China ex- formers 4 cast. only $2.8 million in China (it took ported 59 film titles in 2012, a 13% in- However, as Hollywood studios $424 million worldwide). crease from the year before. But re- have also been discovering, the Chi- Another problem for Hollywood ceipts, including box office and nese market comes with pitfalls too. is a competitive one: Chinese-made copyright sales, were only Rmb1 bil- While the leading studios get to films are quickly gaining traction. lion, about half of their 2011 gross. keep around half of box office re- Offerings like , Bei- “China’s domestic box office has ceipts in the US, they only retain jing Meets Seattle, So Young and been booming in recent years, but about 25% in China. The Chinese American Dreams in China have at- Chinese film’s exposure and influ- government also imposes blackout tracted huge local audiences by co- ence in the global market has not periods for imports in key holiday opting Western storytelling tech- lived up to many people’s expecta- periods to boost domestic produc- niques but tailoring scripts, stars tions,” concludes Huang Huilin, pro- ers. Last year it even scheduled the and styles for Chinese filmgoers fessor of Beijing Normal University. release of three Hollywood films – (Beijing Meets Seattle drew compar- Perhaps as Fan Bingbing and her The Amazing Spider Man, The Dark isons with Sleepless in Seattle and ilk build more of an international Photo Credit: Photo Reuters Knight Rises and Prometheus – in Americans Dreams in China with following via outings in Hollywood the space of a few days. Some say it The Social Network). blockbusters, their star power will was a conspiracy to reduce their to- So far this year Chinese produc- entice the global audience to give tal takings (see WiC161). tions have largely caught up with Chinese films more of a chance... n 19 Week in China 200 issues in photos 5 July 2013

The fuller picture A few of our favourite images from the past 200 issues

Inventive farmer turns robotocist

Home delivery, with Chinese characteristics

He refused to move A law-abiding society Photo Source: China & Reuters Imagine

Diving pigs taste better says Success is... being dressed as a Chinese emperor and fed a banana in a tub Hunan hoggery boss 20 WiCad.FIN.qxd:WIC template 26/06/2013 9:03 PM Page 1

How well do you know China?

Week in China is an easy-to-read publication that’s specially designed to help the busy executive better understand China and its 1.3 billion consumers. Each week it offers an unbiased, insightful and efficient digest of what’s happening in China. The main focus is business: Week in China covers over 20 industries and sheds light on what has led to success and failure – both for local tycoons and multinationals. However, the magazine also analyses important social trends and offers occasional insights on subjects as diverse as the origins of Chinese tea and the battle strategies of Zhuge Liang. Thanks to a team of locally-based researchers, Week in China publishes content you won’t read in your morning newspaper. And by scanning the local press, Week in China is often first to pick up on a big policy change that could affect your industry. Now in its fourth year, Week in China can be read in a variety of formats: via an iPad app, on an iPhone or on a Blackberry, as well as online. If you would like a COMPLIMENTARY SUBSCRIPTION (you will receive our weekly PDF magazine and gain access to our website containing over 2,500 articles) go to the web page below:

www.weekinchina.com/welcome/cmb/

Week in China Congratulations Week in China on Issue 200.