Week in China

1 Talking Point 6 Week in 60 Seconds 7 Property Week in China 8 Agriculture 9 Auto Industry 11 Economy 13 China Consumer 14 China and the World 23 January 2015 15 Society and Culture Issue 267 19 And Finally www.weekinchina.com 20 The Back Page Road rage www.benitaepstein.com

China’s taxi strikes are about more than Uber. They’re linked to a broader push

to reform the Chinese economy Brought to you by Week in China Talking Point 23 January 2015

Driving reforms Why debates on taxi deregulation have gained nationwide attention

Flying pickets: cabbies in Nanjing surround a driver who has declined to join their strike

t was King Charles I who – The Knowledge – was introduced than 12,000 London cabbies went Ilaunched the world’s first taxi to make sure that cabbies were ex - on strike in protest against the service in 1638. Royal permission perts on the capital’s addresses. boom in unlicenced cabs. was given for 50 hackney carriages The Knowledge has since ac - Transport regulators in China, to “ply for trade” in London, al - quired a reputation as the world’s too, are embroiled in a heated debate though they were prevented from most difficult driving test, making about whether to deregulate the taxi carrying passengers on trips of less London’s taxi drivers almost as fa - industry. Meanwhile protests by cab than three miles. mous as the iconic black cabs that drivers have threatened to paralyse In 1833 restrictions on the num - they drive. major Chinese cities. ber of hackney carriages were re - But the 165-year system is now moved and the cab fleet kept being threatened by technology – How disruptive are the Chinese expanding until London’s Great Ex - such as the advent of satellite navi - taxi strikes? hibition of 1851. Dismayed by com - gation and Google Maps. Hailing Media reports on the taxi strikes are P h o t o plaints from visitors that drivers apps such as Uber, which allow free - being censored on a sporadic basis

S o u r c didn’t know where they were going, lance drivers with smartphones to and the scale of work stoppages is e :

I m

a a stern police commissioner de - link up with passengers, are also difficult to establish. What is g i n e

C cided that it was better to regulate threatening to force black cabs off known, however, is that protests by h i n a after all. A strict topographical test the roads. In June last year more cab drivers have been growing 1

Week in China Talking Point 23 January 2015

Time to scrap the existing system?

across a numbe of major cities this There were reports that some driv - make room for hailing apps in month. Guangcha, a portal for in - ers refusing to take part in the stop - China’s biggest taxi markets. dependent news commentators, page were assaulted, although local has even described the protests as authorities later claimed that police Why the road rage? the “biggest labour strike ever in the had arrested those involved in these News about the increasing threat transport industry”. violent acts and that most cabs were from online hailing services seems The first stoppage was reported back on the roads by January 15. to have prompted many of the in Shenyang, the capital city of But discontent spread. About strikes. Following Baidu’s $600 mil - Liaoning province, earlier this 8,000 taxis in Changchun were lion investment in Uber (reportedly month (see WiC265), with the parked in protest, as their drivers for a 1.5% stake) last month, each of Global Times admitting that “thou - demonstrated outside the offices of the country’s top three internet sands of taxi drivers” refused to the city government. firms is positioned to compete in take passengers in a one-day In Chengdu and Wuxi, photos the cab trade. Tencent and Alibaba protest at “illegal vehicles using car- from weibo accounts show angry have invested heavily in their own hiring apps”. drivers parking their vehicles in taxi booking services, Didi Dache Other cab drivers staged their long lines in an attempt to block and Kuaidi Dache respectively (see own protests. Hong Kong’s Oriental traffic. Riot police were called in as a WiC226). Daily reported this week that at precaution. Taxi-hailing apps are the latest in least 10 cities from nine provinces Local governments in top-tier a long list of grievances for the li - had seen stoppages and that the in - cities such as Beijing, Shanghai and cenced drivers, some of whom are dustrial action was threatening to Shenzhen seem to have prevented being described in the media as sprawl into an unprecedented na - similar disruption by announcing modern-day “camel lads” – a refer - tionwide campaign. conciliatory measures to crack ence to the overworked and under - The biggest demonstration so far down on “illegal taxis” supported by paid lead character in Rickshaw Boy , P h o t

o happened in Shandong’s Jinan, online booking services. a novel by Lao She that’s considered

S o u r where more than 70% of the city’s However, government bosses are a twentieth century literary classic. c e :

R e 10,000 licenced cab drivers under mounting pressure from in - Taxi markets in most cities are u t e r s

protested for two consecutive days. ternet firms and consumers to dominated by a handful of firms, 3 Week in China Talking Point 23 January 2015

typically state-owned enterprises under the local government. As a Planet China result, new competitors are rare. In Strange but true stories from the new China Beijing, for instance, two compa - nies control about 66,000 offi - cially licenced taxis. In spite of HERO TO ZERO. Aren’t heroes supposed to be unforgettable? Last week a Beijing’s tremendous population woman was spotted standing naked on a riverbank in Nanjing in Jiangsu growth over the past two decades, province, before jumping into the river. Despite the freezing water, a young these companies have only upped man dived in to save her. Once the girl was pulled out of the water, taxi numbers by 10% since 1994. bystanders rushed to help her. But no one seems to have remembered the (Only 1,157 Beijing taxis are op - rescuer himself. Pictures that went viral on weibo show him having to climb erated by private individuals, unassisted up a steep ledge out of the river. “Everyone was watching the mostly on licences granted before naked woman, but no one lent a hand to the rescuer,” one netizen wrote. 1994.) But the story gets worse. The Good Samaritan, a local student, wrote on his Supply-and-demand basics sug - personal weibo that after he had managed to drag himself back to shore, he gest that this should be a good sit - found that his wallet and smartphone had been stolen from his trousers, uation for the drivers. But they are which he had removed before jumping into the water. However, our hero took this philosophically: “I comfort myself, that to save one life is better than also required to pay monthly fran - building a seven-story pagoda… It’s still worth it.” chise fees to work for these local monopolies. Drivers in Beijing and Guangzhou pay about Rmb5,000 collective frustrations have been bad press too. “The present system ($815) a month, for instance, al - brewing for a while. Aside from the was designed to regulate the num - though fees for newer and larger ve - franchise fee issue, they gripe about ber of vehicles on the road. It has hicles can cost Rmb9,000. And fines from overzealous traffic cops, now evolved into an exclusive while these fees have been going up, and fuel costs. profit chain between local govern - fare levels have not kept pace. Be - ments and taxi companies,” Nan - cause drivers have to take care of ex - Is the public sympathetic? fang Daily complained. penses like repairs and fuel, In rows of this type, the general pub - Beijing News also weighed in: monthly incomes can be pitiful. lic usually stands with the protest - “Drivers make more money with Many “camel lads” work for 14 hours ers against local officialdom. But in the hailing apps. Passengers get a most days and the first eight hours the current case there is little sign of cab more easily. It is a win-win sit - of earnings go to their taxi compa - the drivers getting much wider sup - uation. Why not?” nies, one driver told Xinhua. port. Mostly that’s due to the poor Surprisingly it was some of the “I get up before 6am every morn - service on offer in many cities. With leading voices from the official ing and sit for about 14 hours a day, such limited supply, hailing a cab in media that led the charge against only to get Rmb2,000 a month. peak hours can prove a dreadful vested interests in the industry, in - That’s unbearable,” another driver experience. Beijing was even voted cluding the People’s Daily, which in - from Nanjing told the China Daily. the world’s second-worst spot for sisted that it was time to “break up Private car owners working with taxi services last year (trailing only the profiteering taxi monopolies” hailing app Didi Dache give 20% of Moscow) by 54,000 TripAdvisor after the unrest in Shenyang. It fol - each ride’s fare to the internet firm travellers. lowed up with two further com - but can earn as much as Rmb5,000 “Striking taxi drivers should look mentaries over the next two days, a month by working only three to in the mirror,” a guest columnist as well as nine articles on its weibo five hours a day, according to re - told Century Weekly this month. platform calling for a reform. ports in Beijing Youth Daily. “They often snub customers or The Xinhua news agency also Of course, the new competition force passengers to share a journey published articles suggesting that from the car-booking services with a stranger so that the driver Uber-like hailing apps are the “opti - means that the incomes of the li - can make extra money. Walking out mal tool” for regulators to make the cenced cab drivers are being further on the job does them no good be - taxi market more efficient. squeezed. Hence the slew of street cause it just alienates their cus - “Not only does high-end car-hail - protests. Mind you, Guangzhou tomers even more.” ing supply fall short of demand, the Daily suggests that while the apps But the local monopolies that basic travelling needs of Chinese were the catalyst, the taxi drivers’ control the cab trade are getting a people are not being met,” a re - 4 Week in China Talking Point 23 January 2015

searcher told Xinhua. “The govern - unrest in the taxi industry as merely other sectors of the Chinese econ - ment should be more welcoming to the first skirmish in a broader bat - omy. Don’t be surprised to see internet innovation. This could be a tle – one that’s centred on the inter - Tencent and Alibaba pick further lever to force the irrational taxi net’s transformational power. They fights with long-protected rivals management system to change.” think internet firms can be used to in other industries too. For exam - dislodge cosy vested interests and ple, earlier this month the bosses And it’s not only about taxis? make the economy more responsive at Alibaba’s online payment sys - Obviously the taxi market isn’t the to market forces. “Strikes by taxi tem reignited their duel with only sector to be dominated by state drivers are in fact a protest against UnionPay, China’s domestic bank entities. But the national attention government-approved monopo - card monopolist, over its domi - currently being given to the issue lies,” the Economic Observer has nance of offline payment systems, suggests something bigger is at suggested. “The reform in the taxi reports The Paper. stake. The rise of China’s internet gi - market will be highly indicative of Similarly, executives at the state ants has long been viewed as a key how local governments implement banks are probably getting jittery plank in the transformation of the the central government’s other re - too. During a visit to Shenzhen this wider economy. Thus when Alibaba form initiatives.” month, Chinese Premier Li Keqiang and Tencent began buying compa - “The first gunshot on resistive officiated at the opening ceremony nies in a variety of industries last force to reforms has been fired, and of Tencent’s WeBank. Pushing the year, official media hailed the duo as this first gunshot is awesome,” Xin - button that approved the internet the “epitome of the private sector” hua agrees. bank’s first loan, Li called it a trans - and compared them to “a sword to The broader question is how formative moment, invoking com - break down resistance against re - the disruptive impact of new busi - parisons with Neil Armstrong’s forms” (see WiC230). Some see the ness models is going to be felt in moonwalk in 1969. n

Talking to the Taliban

There were no photos, no official statements and no reports in the newspapers. But, most importantly, Beijing has not denied the news reports. In December last year, a few weeks after the new Afghan President Ashraf Ghani made his first visit to China, Beijing reportedly also hosted a delegation of officials from the Afghan Taliban. According to accounts in the foreign media, the Chinese were interested in exploring the possibility that it might act as a negotiator between the Taliban and the government in Kabul. The Wall Street Journal quoted an Afghan official as China follows a policy of non-interference in other saying: “The Chinese are positioning themselves in how countries’ affairs. Yet as is often the case, this insistence they can support the reconciliation process… [they] weakens when Chinese interests are at stake. The could provide a venue for talks.” restive region of Xinjiang shares a short border with Pakistan media said that China’s special envoy to Afghanistan, for instance, and Chinese companies have Afghanistan Sun Yuxi had also met Taliban sizable investments in the country, like the Aynak copper representatives in Peshawar. mine. The only comment from the Chinese Foreign Ministry Additionally, the withdrawal of US troops at the end of I l l was: “China values its relationship with Afghanistan and last year has raised the possibility of further instability in u s t r a t hopes to see it achieve long-lasting peace, stability and the war-torn country. American officials are said to be i o n : w development at an early date. China supports the pleased that China is getting more involved in the w w . b ‘Afghan-led’ peace and reconciliation process and

e reconciliation process. n i t a e stands ready to play a constructive role.” Whether the Taliban is an organisation that the p s t e i n Nevertheless the meeting is an unusual one. Officially Chinese can do business with remains to be seen. . c o m

5 Week in China The Week in 60 Seconds 23 January 2015

First target missed since 1998 The major news items from China this week were...

The Chinese economy expanded 7.4% year-on-year in 12014, the slowest pace – in percentage terms – since 1990. It also missed the official target of 7.5%, the first miss since 1998. The growth rate is expected to decline in the coming years, partly as a result of a far larger eco - nomic base – GDP expansion of 7% this year is equiva - lent in absolute terms to 10% growth just a couple of years ago, said the Financial Times. The contraction in China’s previously overheated property sector, however, was particularly pronounced, with total investment up 10.5% last year compared with 19.8% expansion in 2013. Against this backdrop, HSBC reckons that “more aggres - Li: first Chinese premier to attend Davos since 2009 sive monetary easing and further growth-supporting re - forms will be deployed to anchor domestic demand”. three months after the trio were found to have improp - erly rolled over margin trading contracts for clients. In - Premier Li Keqiang, while speaking at the World Eco - dustry observers said the authorities’ efforts were aimed 2nomic Forum at Davos, said the power of “mass en - at squeezing out speculative froth. trepreneurship and innovation” will ensure China’s economy avoids a hard landing. He pledged to make sig - China Telecom is contemplating bidding for a con - nificant progress on structural reforms for the economy, 4tract to build and operate a new mobile broadband on welfare provision and in income distribution. “We will network in Mexico and is seeking local partners to join continue to move along the path of reform and restruc - it in a consortium. China’s third largest telco operator turing with great determination,” he said. has already secured several billion dollars of financing from Chinese banks, including the China Development China’s A-share market dropped 260.14 points, or Bank, for the project, which Mexico estimates will cost 37.7% on Monday, the biggest one-day decline in six $10 billion over 10 years, said Reuters. The proposed net - years, following a regulatory crackdown on margin trad - work is part of reforms designed to break billionaire Car - ing at three major brokerages. The government banned los Slim’s hold on Mexico’s telecoms sector, although Citic Securities, Haitong Securities and Guotai Junan Se - industry insiders reckoned that Chinese involvement curities from opening new margin trading accounts for could prove controversial and trigger new concerns from the US.

Hong Kong tycoon Li Ka-shing’s Cheung Kong Hold - 5ings, and its infrastructure-focused unit, Cheung Kong Infrastructure, will team up on a $1.5 billion deal to acquire Eversholt Rail, one of the UK’s three makers of trains. Hutchison Whampoa, likewise owned by Li, has also announced that it is exploring a purchase of Tele - fonica’s wireless unit O2 in the UK. Hutchison, which al - P h o t

o ready owns the Three mobile network, may pay as much

S o u r as $15 billion for O2. If combined, O2 and Three would c e :

R e constitute the biggest mobile operator in the UK with u t e r s Li Ka-shing: the biggest foreign investor in the UK more than 31 million subscribers. n 6 Week in China Property 23 January 2015

Cash call Wanda courts new funding a month after IPO

ou know life is tough for Wanda Commercial will be re - YChina’s property firms when sponsible for site selection, con - big name developers make plain struction, tenant prospecting, as they want to get out of real estate. well as the management of the 26 Now 20% Chinese-owned A prime case is Dalian Wanda which new Wanda Plazas. Meanwhile, the recently announced plans to lower rental income will be split 60-40 be - have severely “tightened” their lend - the revenue contribution from tween the investors and Wanda, says ing to property developers, which property to less than 35% by 2020 the Financial Times. makes it very difficult for them to from the current 66%. The com - The partnership won’t be the last. raise funds and obtain favourable pany says it wants higher sales Wanda says it is talking with several lending rates. from its film studio and theme local and international investment “Other than providing support parks instead. Wanda’s boss Wang banks, insurance companies and in - for small businesses, commercial Jianlin remains keen on diversify - vestment funds about putting property loans have become few ing outside China too. Last year he money into its property projects. It and far between. The e-commerce bought a landmark building in expects to announce similar deals industry certainly has an impact but Spain’s capital. And this week he in the first half of this year. the truth is, bricks-and-mortar is ba - sealed a $52 million deal to buy a Wanda is not the first developer sically shrinking,” one senior exec - 20% stake in Spanish football side to adopt this strategy. Vanke, for in - utive at a state-owned bank told The Atletico Madrid. stance, has partnered with US pri - Paper. “We are worried that the op - Investing in soccer clubs does not vate equity firm Carlyle to develop erating income for developers can - always have happy outcomes (see nine malls in China. Separately, it is not cover the repayment, even if the page 16), but the logic of Wang’s di - also working with Blackstone in real developments are in first-tier cities.” versification is sound enough. estate projects linked to the logis - There are reasons for the banks to China’s housing market is in the dol - tics industry. be worried. Century Weekly re - drums. In December, official data “By relying on partnerships to ported that Wanda has had trouble suggested home prices fell for the fund its projects, Wanda is following finding tenants for a retail-office fourth consecutive month. a path blazed by China Vanke and complex in Putian, a city in Fujian Commercial property, too, is not other developers in adopting an ‘as - province. Another commercial mall as lucrative as it once was. In a sign set-light’ strategy which allows it to in Zhejiang’s Yuyao was fully ten - that the developer has turned in - spread its project risks to investors anted till recently, but is now less creasingly bearish here too, Wanda while collecting a premium for its than 80% occupied. Commercial, which last month development expertise,” says Ming - Early this month, Wanda also raised $3.7 billion in a Hong Kong tiandi, a property blog. closed 10 of its department stores listing, has just partnered with four Another practical reason behind due to poor sales (it plans to re - domestic firms to finance the con - the partnerships: Wanda can rely structure 20 more). struction of 26 new commercial less on bank loans for financing. As “Commercial properties are more projects. Notably it’s the first time mentioned in last week’s Talking problematic compared with resi - Wanda has brought in third-party Point, property developers have dential,” the banker continues. capital to fund real estate ventures. been replaced by internet firms as “That’s because the main source of The four investors – which include the new darlings of local govern - revenue for commercial properties P h o t

o the property investment arm of ment officials (who often give the is rental income. At the moment,

S o u r China Everbright – will bring in a nod to local bank branches on key with the economy in a downturn, c e :

R e combined Rmb24 billion ($3.9 bil - lending decisions). The Paper, a state this income source for developers u t e r s lion). news portal, says that Chinese banks has become very unstable.” n 7 Week in China Agriculture 23 January 2015

Spilt milk Why farmers are giving milk to pigs

“ have a dream to provide every rising at around twice that rate. IChinese, especially children, with As a result, China’s dairy prices sufficient milk each day,” former were on a steady uptrend from 2013, premier Wen Jiabao declared in thanks in part to a disease that hit 2006. Almost a decade on, it ap - supply as well as industry consoli - pears that Wen’s dream has not only dation. Milk prices jumped to more Don’t have a cow come true but now there is enough than Rmb5 ($0.8) per kg in Decem - milk to feed all the pigs in China ber 2013 from Rmb3.4 per kg a year dairy brands – keen to ensure qual - too. According to CBN, in provinces earlier. The dairy boom prompted ity after so many scandals in the like Hebei and Shandong – large domestic farmers to invest heavily past – have also moved upstream production bases for dairy – pigs are in cowsheds while purchasing large and invested in their own farms, now being fed fresh milk. numbers of dairy cows to boost pro - thus shunning local milk suppliers. Why the new diet? Well, it has duction. Mengniu, for instance, has invested nothing to do with trying to make But this boom proved to be short- in 14 modern ranches and will in - better pork. Plagued with oversup - lived. The market price for milk vest further so that its facilities pro - ply, dairy prices have plummeted. started to drop last March, when duce all the milk it needs within Many farmers are now having to sell global milk prices fell drastically ow - three years, says Century Weekly. their milk at extremely low prices – ing to high inventory levels around Bright Dairy and Inner Mongolia Yili sometimes to local pig farmers to the world and a supply glut caused have also built ranches overseas. reduce inventories. by Russia’s ban on US and European That’s bad news for small-scale But selling to pig farmers is not a food imports. farmers, one of whom told Xinhua: long-term solution. “Those pig farm - Milk prices fell for 10 consecutive “If we cannot get through the win - ers who used to come here to buy months starting in February 2014. ter, our farm probably will shut.” milk have stopped recently. They say In the first three quarters of last Meanwhile, industry observers even if they want to buy more, pigs year, prices hovered around Rmb3.8 counsel that as they wait for the cy - can’t digest so much lactose,” a dairy per kg down from Rmb4.3 per kg, cle to turn, dairy farmers should farmer told the Beijing Times. and the trend showed no signs of strive to improve their milk quality Other dairy farmers simply stopping in the last three months – by using better feed, for example – throw the milk into the gutter – of 2014, says the Ministry of Agri - if they want to survive. since they’ve few other means to culture. “Only in this way can we prevent deal with the supply glut. Some Local dairy experts calculate that situations like dumping milk and have even killed their cows to pre - is not enough to cover an average create a prosperous dairy industry,” vent further losses. “The cost of farmer’s cost of production. says Zhang Yuan, deputy director- keeping them is just too high,” an - Taking advantage of the global general of the Dairy Association of other farmer sighs. “No one can downturn, Chinese dairy companies China. think of another option.” have been buying large quantities But while the current environ - The downturn has come as a sur - of cheaper milk abroad – China’s an - ment is proving tough for farmers, prise to the industry since, para - nual dairy imports rose 36.5% in the drive to increase quality is a doxically, China is consuming more 2014 versus the year before. They, in boon for China’s long-suffering con - milk than ever. turn, cut back purchases from small sumers. Ironically the quality of the Euromonitor, a market re - local suppliers, causing milk prices milk drunk by pigs today may well searcher, says dairy consumption at home to drop even further. be higher than that which humans has been growing about 10% a year, Another reason dairy farmers are were drinking in early 2008 when with demand for premium brands struggling is because large Chinese the melamine scandal broke. n 8 Week in China Auto Industry 23 January 2015

Musk mystified by China State Grid opens Beijing to Shanghai charging network, but not to Tesla

Gone flat? The electric carmaker’s share price has been damaged by sagging sales in China

oosters of China’s electric vehi - network’s launch (and Tesla’s exclu - com and China Merchants Bank. The Bcle industry got some welcome sion from it) couldn’t have been spokesperson says the charging net - news last week. State Grid an - much worse for Elon Musk, Tesla’s work has already expanded rapidly nounced that it had installed 50 new founder and boss. At the Detroit Mo - and the company will build a charg - charging stations, which now makes tor Show last Tuesday, he conceded ing network nationwide. it possible to drive a battery-powered his firm was struggling in China As WiC has written before, when car between Beijing and Shanghai. with sales in the fourth quarter “un - Tesla launched in China last year it Well, to be accurate it makes it expectedly weak”, blaming “misper - enjoyed much hype and initially possible to drive ‘some’ electric cars ception issues” over its charging fa - strong sales. However, that was between China’s two major cities. cilities in the country. His admission quickly followed by local news items State Grid told Xinhua that the tech - of a weaker sales in China saw Tesla about disgruntled consumers who nology works with cars made by lo - shares experience a single day drop had problems recharging their cars. cal firms BAIC and BYD, as well as of 7.7%, according to Bloomberg. The State Grid also showed reluc - with BYD’s joint venture with Daim - A Tesla spokesman in China told tance to work with the pioneering ler and Sino-Japanese firm Tencent’s tech news portal that American firm on charging stan - Dongfeng-Nissan. State Grid’s fast ‘range anxiety’ issues are being dards – preferring a domestic plan chargers can top up a battery in overstated, but are putting Chinese that better suited Chinese electric around half an hour. consumers off purchasing its bat - vehicle makers like BYD. Conspicuous by its absence from tery-powered Model S sedan. But he What Musk may now face in State Grid’s announcement was any added these concerns were at odds China is something akin to the per - P h o t

o mention of the US firm Tesla, which with the facts: it now has 800 charg - sonal computer wars of the nineties.

S o u r uses a different battery charging ing stations in over 70 cities, with His fast-charging technology may c e :

R e technology. more being built in partnership be the more elegant option – as Ap - u t e r s In fact, the timing of the charging with local firms such as China Uni - ple’s Mac operating system was – 9 Week in China Auto Industry 23 January 2015

but it could be edged out by the and expressed high hopes for the sheer scale of the 19,000km net - graphene industry”. Deals are fol - work the state-owned utility is cur - lowing. Last week the CHINT Group rently building in China. State Grid (see WiC119) announced it had could be the Microsoft Windows to bought 80% of Shanghai Simbatt, a Tesla’s Apple OS. leading professional supplier of However, not everyone thinks graphene powder. that Tesla’s sagging sales in China The central government is also can be blamed entirely on standards expected to approve a plan for a wars and the mercantilist attitude Changzhou industrial park to be - Beijing is taking to the electric vehi - come China’s first graphene high- cle industry. Hedge fund manager tech industrial base. A Rmb2 billlion Jim Chanos told CNBC that he reck - fund has already been raised by the ons the high-profile cars have also park and Ingenious Ene-Carbon New been caught up in the fallout from Materials to invest in projects. President Xi Jinping’s corruption Tesla expects no profit until 2020 Graphene’s potential is a topic probes. “The real problem is an aw - the New Yorker also wrote a long ful lot of people who can afford a shareholders’ meeting his ultimate and informative article on last Tesla right now in China have some goal is to produce a battery-powered month. It noted that there is a lot of bigger problems on their hands – vehicle in the $15,000 price range. In research now going into its poten - that is, where did they get the that respect, Tesla is unlikely to be tial applications, with particular ar - money and who is looking over the competitor from which Gou eas of interest including super-fast their shoulder. The anti-corruption hopes to take market share. Analysts smartphone chargers and ultra- drive. The high-end market for lots instead think it is BYD which is most clean fuel cells. of things in China right now is very at risk from Foxconn – especially Graphene was discovered at the soft,” he told the channel. given this would dovetail with Gou’s University of Manchester in Eng - And if Musk was already worried desire to gain retribution after a land just over a decade ago by Russ - about rival carmakers enjoying an messy intellectual property dispute ian-born scientist Andre Geim. Since advantage in China – a country he with the Shenzhen-based carmaker. then the three biggest filers of last week described as “a wild card In fact, intellectual property con - graphene-related patents have been that seems to change for reasons we tinues to be one way in which Tesla South Korea, China and the US. A don’t understand” – he may also be exerts an outsized influence on Chi - Korean university working with pondering whether an ally might nese manufacturers. According to Samsung holds the single largest turn into a competitor too. Terry Xinhua, Tesla has been experiment - number, with the New Yorker point - Gou’s Foxconn, a contract manufac - ing with graphene-based anodes in ing out that two Chinese universi - turer most closely associated with its batteries. These have been con - ties hold the second and third spots, making Apple’s iPhones, has been nected with a remark Musk made in while Rice University in America working with Tesla to make the 17- December that “it will be possible to holds the fourth. inch touch screens for its cars. But have a 500-mile range car, in fact It interviewed the professor who the 21CN Business Herald reported we could do it quite soon”. Graphene runs the graphene lab at Rice, and earlier this month that the Tai - technology can reportedly quadru - he described how competitive the wanese tycoon has now become the ple the density and output of Chinese have become in the field. second largest shareholder of Hong lithium-ion batteries, says website “We don’t wait very long before Kong-listed China Harmony Auto, Business Insider. we file,” Professor James Tour told having invested $78 million in the Indeed, the “Tesla effect”, com - the magazine, adding that he en - Chinese car dealership. ments 21CN, has led to graphene be - courages his students to write up The newspaper thinks that Gou coming “hot” again in China’s in - their patentable discoveries within will use China Harmony’s sales out - dustrial planning circles. Last 48 hours of a breakthrough – since lets to distribute Foxconn-made month President Xi visited the speed is of the essence in this new P h o t

o electric cars. Last September it Jiangsu Research Institute of High- field. “I was just told by a company

S o u r emerged Gou had already invested Tech Industries to study graphene that has licenced one of our tech - c e :

R e Rmb5 billion ($803 million) in the development, the newspaper says, nologies that we beat the Chinese u t e r s industry and the tycoon told a where he “asked about the details by five days,” Tour revealed. n 10 Week in China Economy 23 January 2015

Founding fathers Why investors are sweating over Peking University graft case

ost Chinese newspapers are Mput together using a desktop publishing system called Beida Founder. Beida is the Chinese name for Peking University, and Founder is the name of the company founded by that university. In fact, it is China’s biggest university- backed enterprise. Founder was established in 1986 by Beida professor Wang Xuan, who invented a means for laser photo - typing Chinese characters. The in - novation was a bestseller and Wang, who died in 2006, is remembered as the modern-day equivalent of Bi Sheng, the Chinese inventor of mov - able type-printing technology, which he pioneered some 1,000 Being questioned: Founder’s CEO Li You years ago. Should Wang have been alive to - ness interests spanning technology, tive Conference and the political day, however, he would have been brokerage, real estate, pharmaceu - fixer for former president Hu Jin - dismayed by what the newspapers ticals and commodity trading. By tao. Ling is currently being investi - have been printing about Founder. the end of 2013, the conglomerate gated by anti-graft officials. The trouble started in early No - employed more than 30,000 staff Troubled by the negative public - vember last year, when property and had assets worth Rmb96 billion ity, the share prices of Founder’s six firm Beijing Zenith began making (or $15.6 billion, more than all but listed units all tumbled. major allegations against Founder four of the endowment funds at There hasn’t been any official executives which included claims of American colleges). confirmation on Founder’s alleged insider trading, money laundering Needless to say Founder tried to ties with Ling. But a week after the and even links to mafia groups. fight back, dismissing Zenith as a powerful official’s arrest was made “Founder Group’s chairman Wei disgruntled former business part - public in December, Founder filed a Xin and its chief executive Li You ner and labelling its accusations as statement announcing that its own have been manipulating the group’s akin to “a martial-arts novel fantasy chairman (Wei Xin), its chief execu - companies for years … and embez - about nabbing a bad guy”. tive (Li You), plus a president and zled tens of billions of yuan,” one of Founder reported its accuser to vice president from the company Zenith’s statements warned. “This the police, while Zenith made a legal had all been detained by authorities has not only hurt shareholders’ in - claim seeking Rmb3 billion in com - to “assist with an investigation”. terests… but also led to the loss of pensation related to a brokerage At least Rmb1.7 billion of funds P h o t o state-owned assets.” that it sold to Founder in early 2014. were also said to have been frozen in

S o u r c It is extremely rare for an unher - Rumours then spread that the Founder’s bank accounts. e :

I m

a alded private sector company to Founder executives were linked The full story may not become g i n e

C take on a state goliath. About 70% with Ling Jihua, vice president of the clearer until Ling’s investigation is h i n a owned by Beida, Founder has busi - Chinese People’s Political Consulta - completed. But what is more imme - 11 Week in China Economy 23 January 2015

diately obvious is that President Xi Jinping shows no sign of slowing his anti-corruption drive. If anything the net seems to be widening. Last week, Ma Jian, one of China’s most senior spymasters was also placed under investigation for “seri - ous disciplinary violation”, a bu - reaucratese phrase usually used in China to indicate graft. Ma is the vice minister of the Ministry of State Security, which is responsible for gathering intelligence overseas as well as maintaining surveillance of dissidents at home. Citing unidentified sources, the South China Morning Post reported that the probe into Ma was trig - The company’s headquarters at the Beida campus in Beijing gered by the investigation into Founder, and added that Ma is “be - Ling brothers, there has never been conjecture? How about the reports lieved to be close to Li You, who al - any form of connection or business that Founder’s chief executive Li had legedly financed hugely profitable dealings,” the statements read, be - gifted Ling’s wife two properties in securities trades carried out by one fore confirming that Zhang had re - Japan worth $500 million? This al - of Ma’s relatives”. mained on Chinese soil. legation has had its plausibility un - The Financial Times has also re - More firms may need to publish dermined. After sending a journalist ported that Ma has been detained similar denials in the months ahead to Tokyo, Century Weekly magazine for alleged corruption tied to Ling, as the investigation of Ling and his has just reported that the houses in as well as the Founder Group. allies continues to unfold. question are nowhere near the value Founder isn’t the only business The corruption cases are proving that has been cited, and that one of empire to become embroiled in particularly untimely for the prop - them was actually bought by a Chi - Ling’s case. The shares of construc - erty sector, with developers now ex - nese investment banker for about tion firm Zhejiang Guangsha have periencing difficult conditions in Rmb20 million ($3.22 million). been suspended since the first trad - the debt markets, with investors That prompted Hong Kong’s ing day of 2015, for instance, with spooked by Kaisa. The Shenzhen- Ming Pao newspaper to warn in - The Paper, a state news portal, re - based company could become the vestors to be cautious in how they porting that Guangsha’s founder first developer to default on an off - react to fresh accusations of graft. may have maintained close busi - shore bond, after its chairman In some cases “insiders” have ness ties with Ling’s wife. abruptly resigned in December. been spreading unfounded allega - Investors in the shipping firm It has since emerged that Kaisa is tions about how disgraced politi - Rongsheng Heavy and the devel - being probed for alleged ties to a lo - cians are connected to listed firms oper Glorious Property were also cal official accused of corruption too and then profiting from the subse - made to sweat last week after spec - (see WiC265). The question being quent market moves. ulation that their biggest share - asked in the bond markets? Who Another problem is that com - holder Zhang Zhirong had fled to might be next? panies with no connection to the the US to avoid the investigation re - But beware: plenty of the ru - graft cases are being caught in the lated to Ling. mours linking Founder to the Ling crossfire. With shares at the two firms tak - investigation are yet to be substan - “Investors are now treating all P h o t o ing an immediate dive, both Zhang’s tiated. One has Founder serving as a Chinese property firms with suspi -

S o u r c companies were forced to make a key financier for the Xishan Club, a cion,” The Economist offered as an e :

I m

a quick denial through the stock ex - clandestine group of senior officials example. “There is no easy way for g i n e

C change. and business tycoons linked to companies to prove that they are h i n a “Mr Zhang does not know the Shanxi province (see WiC265). Mere safe from investigations.” n 12 Week in China China Consumer 23 January 2015

Caffeine fix South Korean coffee chains become trendy in China

hen the South Korean hit chains won’t pose a direct threat to Wshow You Who Came From Starbucks. But Taiwanese coffee the Stars went viral in China last chains – whose model is more simi - year, it sparked a local craze for fried lar to the lounge-and-linger model – chicken and beer – a culinary combo may see their business suffer. championed by the heroine in the “As soon as you step into a Tai - drama. In Jiangsu a pregnant wanese coffee shop it is so noisy. woman nearly suffered a miscar - Customers are playing cards and riage from eating too much fried talking very loudly. It is also filled chicken. Another couple in Liaoning with cigarette smoke. It kills the also ordered so much of the stuff mood for those wanting to slowly they were admitted to the hospital enjoy a cup of coffee,” one patron for pancreatitis. complains. The fried chicken and beer craze A place to escape the urban jungle Casual dining restaurants like may have waned, but Korean coffee Pizza Hut are also worried, since chains have now become some of end of 2013, according to China Busi - most Korean chains also offer food. the fastest growing franchises in the ness Network. At Caffe Bene, customers can order country, posing a threat not only to So what’s so special about Korean spicy chicken pizza and bacon many Taiwanese coffee shop opera - coffee chains? Generally speaking, cheese toast. Hollys Coffee also of - tors like Ueshima Coffee Lounge they are more spacious than those fers waffles and soups, says Entre - and Manabe Café but also to casual operated by the likes of Starbucks preneur, a magazine. dining restaurants like Pizza Hut. and Costa Coffee. One reason is that Industry insiders say the appeal Take Zoo Coffee. The South Ko - unlike Starbucks, which tends to se - of Korean coffee chains is also linked rean chain has opened over 100 out - lect prime retail locations and to the craze for Korean pop culture, lets in China in just two years. Caffe Grade-A office buildings, Korean which is considered trendy by Chi - Bene, South Korea’s largest coffee coffee chains usually target less nese. A decade ago, Taiwanese cafes chain, says it plans to open as many busy sidewalks and quieter areas. were also very popular thanks to the as 1,000 outlets (it currently has Korean cafe operators also pay proliferation of TV dramas set in 400) by the end of this year, doing less attention to the customer Taipei. But some of those chains have so largely through franchising. turnover rate. In fact, they encour - seen their popularity wane partly Maan Coffee, a domestic coffee age their patrons to linger for hours. due to poor management and over- chain opened by a South Korean, “In Korean coffee shops, customers expansion. also boasts 60 stores. can sit there all day. It’s a strategy be - “The expansion of Korean coffee There had long been doubts cause they will probably call up chains is very similar to what the whether coffee chains would take their friends at some point. When Taiwanese did 10 years ago, only off in China, where tea, not coffee, is their friends arrive they will also that the former is the improved ver - a mainstay. But those concerns have have a coffee, or order something to sion. Taiwanese cafes started to go dwindled as younger consumers eat. So our customers will bring us into decline after the entry of Star - embrace the coffee-drinking cul - more business. Even a low table bucks and other European brands.

P ture. The number of cafes has nearly turnover rate is not a problem,” It’s only a matter of time before Ko - h o t o

S doubled over the past five years, Maan Coffee’s Zi Xiangshuo told The rean coffee chains also lose their ap - o u r c e while the franchise industry has re - Paper. peal and are replaced by something :

C F P ported a 25% growth rate as of the That also explains why Korean else,” CBN predicts. n 13 Week in China China and the World 23 January 2015

Greenland gambit China gets first Arctic resources project

ne has to marvel at the string about seven years ago when China Oof events that led to Tianjin- began to invest in its polar pro - Ready to welcome Chinese funds? miner General Nice buying a $2 bil - grammes, in particular, its ice - lion iron-ore deposit in western breaker vessel Xue Long. Then in countries and even less evidence to Greenland late last year. 2011 Chinese billionaire Huang suggest it plans to rely on Arctic First the global price for iron ore Nobo tried and failed to buy a chunk shipping lanes – indeed its new dropped, largely because of weak de - of Iceland for a luxury hotel and eco Maritime Silk Road might do a far mand from China. Then a deadly resort. better job. disease, namely Ebola, broke out in A year later and the Xue Long Last year in a bid to counter the West Africa, affecting, amongst sailed to Iceland via the Northern Sea negative press China was getting many other things operations at a Route – the first time a Chinese ship about its polar activities, the Arctic mine belonging to a British based had done so, and stoking hysteria Council put out a report pithily titled company London Mining. over Beijing’s Arctic intentions. China How We Learned to Stop Worrying Those two factors led to London was asked to join the Arctic Council, about China’s Arctic Ambitions . Mining going bust. Administrators although some Western accounts Similarly the London-based In - deciding to sell off some of its as - claimed it had “demanded” to be ternational Institute for Strategic sets, including the undeveloped granted a seat as a permanent ob - Studies has said that “while China’s Isukasia project in Greenland. server (which it got in 2013). intensifying activity in the Arctic Luckily for the administrators, A paper by a People’s Liberation is often viewed with suspicion, it is General Nice wanted to buy it and on Army think tank last year reiterated part of a strategy of general expan - December 21 Greenland’s govern - China’s interest in the region. W idely sion of its maritime interests and ment, known as the Naalakkersuisut, quoted by the domestic media the capabilities, seeking a level of in - approved the licence transfer. Defence Policy Research Centre of the fluence to match its global eco - “An indirect transfer of the licence Academy of Military Sciences ob - nomic status”. means that the structure around served: “The Arctic region has rich oil Last week the Xue Long – which London Mining Greenland is the and gas resources, quick and con - means ‘Snow Dragon’ – refuelled in same, but the ownership behind the venient shipping conditions, which Christchurch after a trip to Antarc - company is now General Nice De - has important meaning for ensuring tica. And in attempt to boost rela - velopment Limited,” it said. “It is the the sustained development of China’s tions it welcomed New Zealanders assessment of the Government of economy.” aboard for a look around. The head Greenland that the company will be Why do people get so upset by of New Zealand’s Antarctic pro - able to raise the necessary financ - Chinese involvement in the Arctic? gramme Peter Begg welcomed the ing, including equity financing and Partly it is to do with its terrible en - move, saying China’s involvement additional debt financing, for the de - vironmental record at home. In ad - in polar research was of great assis - velopment of the exploitation li - dition there is an unpleasant irony tance to smaller countries like his cence at Isukasia,” it added. to the world’s largest carbon dioxide own that were strong in expertise The move is a boon for Greenland emitter benefiting from the effects but less so in hardware. which wants to develop its natural of global warming – the Northern “We have a much more modest resources, but the investment will Sea Route is navigable because sea budget, and for the Chinese to help us P h o t

o likely play into fears that China is temperatures have risen. with their vessel means we can have

S o u r trying to increase its strategic pres - But there is little evidence to sug - a much stronger science programme c e :

R e ence in the Arctic. gest that China is behaving less re - in more complex places,” Begg told 3 u t e r s That narrative started to emerge sponsibly in the region than other News . n 14 Week in China Society and Culture 23 January 2015

By the book Alibaba to make new film with Hong Kong’s Wong Kar-wai

t took director Richard Lin - n’t have to wait so long for his Iklater more than a decade to next post. The very next day complete the filming of B oy - Wong initiated a live chat on hood , a coming-of-age drama weibo, during which they could that was finally released late last send in questions. year. Linklater came up with a Southern Metropolis Daily novel approach: shooting in reckons the art-house director short instalments over 12 consec - answered 25 queries in just 65 utive years. Ellar Coltrane played minutes. the maturing boy, with the cast Like his films, Wong’s answers reuniting to shoot scenes for a were often lyrical and hard to few days every 12 months. fathom. One fan asks which of Linklater’s unorthodox ap - Leslie Cheung and Tony Leung proach may strike a chord with was his favourite actor. Wong Wong Kar-wai. The Hong Kong- replied: “The night should be based director also works to his spent getting drunk. Drunken own rhythms (usually very slow snow at night has a different ones). As WiC reported in issue taste. To be able to encounter is 175, it took Wong 10 years to com - my luck.” plete his last feature The Grand - Wong’s sudden awakening on master (2013). Similarly, 2046 weibo is probably an effort to (made in 2004) suffered from so drum up interest in The Ferry - many delays that the studio was man . Last week, Alibaba Pictures, worried that it wouldn’t be com - the film studio owned by the e- pleted until the year of its title. commerce giant, announced that Actors who have worked on proj - Wong will produce the film, the ects with Wong have also com - first to be released by the studio plained that he rarely gave them since it was established last year. scripts. Instead, scenes are written Tipped to star: Wang Luodan Based on one of the most popular on set as he seeks inspiration from tales from Zhang Jiajia’s I Belonged one day to the next. he added over 100,000 followers on to You – a collection of short sto - Given Wong’s unpredictable his weibo account. ries – it is expected to premiere at timekeeping, it shouldn’t come as a “I will never forget the day Janu - the end of the year. great surprise that his debut mes - ary 13, 2015. From this day on, you Zhang’s collection of stories has sage online was a little tardy too. (Wong) and I are friends. You can’t garnered over 4 billion views on - “Hello everyone, Happy New Year in change it because it is now a fact. I line since it was first released in 2015. I am very happy to meet with will come back tomorrow,” one ad - July 2013. The book, which was pub - you on weibo,” he announced. mirer gushed. lished at the end of that year, also Even though his felicitation was a “With your tendency for procras - went on to sell more than 2 million few weeks late, Wong’s simple mes - tination, the next time you post an - copies within six months, says the

P sage, his first since joining Sina other message Weibo may have Global Times. This helped the au - h o t o

S Weibo in 2008, received over 22,000 been closed down already,” a more thor top the rankings last year in o u r c e ‘likes’ and generated thousands of concerned fan responded. the annual list known as China’s :

C F P responses from his fans. Overnight But surprisingly, Wong’s fans did - Richest Writers. 15 Week in China Society and Culture 23 January 2015

The Ferryman is considered one of the most dramatic stories in the collection, telling the tale of a young girl named Xiao Yu who has an un - requited crush on a middle-aged artist in Changchun. Heavily ru - moured to play Xiao Yu is Zhang’s real-life girlfriend, the actress Wang Luodan. Wong’s long-time collaborator Tony Leung, will play the lead male role. Zhang, meanwhile, will write the screenplay and also direct the film with the help of Wong. He is now the third writer-turned-director get - ting national prominence, follow - ing in the footsteps of Guo Jingming (of the Tiny Times franchise) and Han Han (who made The Continent ). Similarly, another writer called Lu - Dramatic exit: Yin Mingshan no longer wants to own a football club oluo announced this week that she will direct the film Queen Stain , cash in 2008 brought world class 2012 it was put into administration. based on her own book of the same players to a club that had suffered As a punishment, the club was rel - title, starring Shu Qi in the lead role. from decades of underachievement. egated to the Scottish league’s Wong says that being a writer will So ingrained were the emotional fourth tier. actually help Zhang’s directing. safeguards against failure that a Even today the sense of crisis “Even though Zhang Jiajia is not a lifelong City fan once told WiC “I can hasn’t lifted, with a variety of par - film school graduate, he has been a cope with the disappointment; it’s ties vying for control. screenwriter and is really good at the hope I can’t bear”. He’s a differ - Over in China and another saga telling stories. In my experience, ent man today, with City winning is ongoing over a change of owner - only he can give the film the best the English Premiership twice in ship at a big club. In this case it is narrative,” Wong told Kaifeng the last three years. That would provoking the wrath of fans in Evening News. have been unimaginable before Chongqing, a municipality with “Of course, I will make sure he Mansour’s purchase. more than 30 million citizens. Late doesn’t fall behind the production More of a cautionary tale in re - last month news began to circulate schedule,” he added, jokingly. spect to ownership changes is Glas - that the 77 year-old owner of gow Rangers, a team that’s won the Chongqing Lifan wanted to sell the Scottish league 54 times, and a club. Yin Mingshan, who made his record nine titles in a row between fortune in motorcycles (see WiC84), 1989 and 1997. was ready to quit the team that he’d Ownership That golden era of success was backed for 15 years. issues overseen by local industrialist According to Xinmin Weekly, the David Murray. But when he sold in decision to exit was a monetary one, A bad week for Chongqing 2011 – having suffered severe losses given that “Yin’s real estate and fi - football fans in his property portfolio during the nancial sector businesses had not global financial crisis – a succession developed as healthily as he hoped”. hanges of ownership at football of new owners sent an already in - The newspaper added that “by clubs can be tectonic moments debted Rangers into what the Fi - conservative estimates” Yin had

P C h o t

o for a team’s long-suffering fans. nancial Times terms a “financial spent Rmb600 million ($96.6 mil -

S o u r Sheikh Mansour’s transformation freefall”. lion) of his own cash developing the c e :

R e of Manchester City is one of the Under new boss Craig Whyte, the team over the years. But funds have u t e r s more notable cases. His infusion of club failed to pay its tax bill and in been getting tighter. Apparently his 16 Week in China Society and Culture 23 January 2015

most recent annual dividend from ing season. But Xinmin Weekly says that Chi - Lifan Industry was estimated by me - (Another mark of how much nese football clubs have yet to evolve dia to be about Rmb112 million. more costly it’s becoming to operate business models along the lines of Another problem? Chongqing a top-tier club: last week Guangzhou Real Madrid and Manchester United Lifan won promotion last season Evergrande signed Brazilian striker – both of which use their successful to the Super League. Ordinarily Ricardo Goulart for Rmb110 million, franchises to generate a diverse that should be good news for any China’s record transfer fee.) range of revenues. owner, but over the last couple of Of course, broadly-speaking much Nor do the Chinese clubs enjoy years the costs of fielding a team in of the money pumped into football monies from TV rights on anything the top division has surged thanks in recent years has had a positive out - like the scale paid out in Europe. This to an influx of money from high- come (though Didier Drogba might means that their viability depends profile tycoons like real estate disagree, see WiC181). Attendances at on the finances of their backers (a mogul Xu Jiayin and internet bil - grounds have grown, as have televi - potential concern, points out Xinmin lionaire Jack Ma. sion viewing figures. Corruption Weekly, when 14 of the 16 clubs in the Xinmin Weekly reckons that Yin seems to have been reduced and the Super League last season were backed is reluctant to spend the Rmb300 quality of play has risen – a fact by real estate companies or firms million required to keep the club nowhere better illustrated than at closely related to the property in - competitive, noting that other Su - Guangzhou Evergrande, which trans - dustry, which is going through a per League teams have upped their formed itself under Xu Jiayin’s own - rough patch). budgets to between Rmb500 mil - ership from match-fixing villain to Yin’s snap decision to sell in lion and Rmb1 billion for the com - Asian championship winner. Chongqing demonstrates the risks

World of Weibo: Pot luck for pensions?

Pension reform is not normally the stuff of social Iron Rice Bowl! I support this move wholeheartedly,” media. But starting from last Wednesday it has celebrated one impassioned weibo user. keeping netizens busy in China. How so? “Few perks means fewer corrupted officials!” Because the central government has finally another proclaimed. decided to make its 40 million state employees pay In total, there were over 3.4 million weibo retirement-fund contributions along with everyone messages on the reforms. Many of them missed a else. key point: the struggle to keep China’s pension The split-system whereby private sector workers system solvent. And it is not clear how much this gave up 8% of their salaries every month, and latest change will help with that – if at all. doctors, teachers and civil servants didn’t, has been Collecting contributions from state players should a bone of contention for some time. mean more money in the pot. Indeed as several Now both state employees and their employers reports pointed out last year, cash is already tight, will have to make a monthly contribution just as those with the government plundering the personal in private sector do. For state firms that will mean accounts of today’s payers to fund its current paying out a fee equivalent to 20% of employee outgoings. salaries every month. An aging population means this is not a But why did such an issue – millions of weibo sustainable model. Perhaps for this reason the comments have been made so far – generate so Human Resources Ministry has decided to put the much chat? new public sector payments into a separate fund Firstly it speaks to the love-hate relationship most designated for public employees. That will ringfence Chinese have with the civil service. Millions apply for it from the underfunding of the existing system, public sector jobs every year because they are still meaning the state employees will still be at an perceived to be an “iron rice bowl” opportunity – advantage versus the bulk of the workforce. reliable, well paid, and a relatively easy life. But these As one netizen pointed out: “They want to make perceptions also mean that many others feel that the sure their pensions are safe. They don’t want to put system needs to be overhauled. “Another dent in the their money where other people can spend it!”

17 Week in China Society and Culture 23 January 2015

for a club when its future is so closely tied to an owner’s personal fortunes (football fans in Dalian were among the first to realise this, when their club’s owner Xu Ming was jailed for his links to Bo Xilai, see WiC181). But Xinmin Weekly says that what shocked Yin was that when he shopped the club around, he dis - covered that there weren’t many buyers at a decent price. With no high-profile tycoons stepping forward to take over the Chongqing club, Yin dropped his Supporters of a richer and more successful club: Guangzhou Evergrande asking price from Rmb150 million to Rmb10 million, Xinhua claims. Time Weekly made a net profit of deal on the basis that the paperwork He then sold to a little-known en - just Rmb160,000 in 2013. was incomplete. That seems to have tity called Chongqing Chang - Others speculate that the new left the club in limbo. With the Su - sheng. According to Chonqing company is being positioned for a per League due to start on March 7, Business News, it only has two em - stock market listing (fuelling this the club may not be eligible to par - ployees and currently works out rumour is the State Council’s recent ticipate, and even the governor of of a hotel room. recategorisation of sport as priority Chongqing is getting involved in the No matter: as of January 1, the sector for economic growth). negotiations over the team’s future. team was renamed Chongqing However, the team’s fanbase in In fact it’s all a bit humbling for Changsheng Football Club. Chongqing is far from impressed at the city of Chongqing, once a Speculation about Changsheng’s the change of ownership. Xinhua re - high-flyer under its princeling background has been keeping the ports that many supporters turned boss Bo Xilai. local media busy. For example, Time up at the ground to protest, with a “How is it possible there isn’t Weekly says the firm is connected few even threatening suicide if Li - even one good company in to Beijing Huaxia Guorui Football fan didn’t rescind the takeover. Chongqing which can take over Club. This is not one of China’s bet - More serious still for Yin, the Foot - from Lifan,” lamented one of the ter-known teams and according to ball Association has rejected the team’s supporters on Sina Weibo. n

Your China website keeps getting bigger

ith an archive that has just surpassed 3,500 articles, WiC's Wwebsite is the place to go to find out about China. Over the past five years we've covered all the big business stories and trends, making our site a comprehensive and trusted resource. Readable, uncluttered and easy to use, you can use the site to look up our articles by industry, or even by company. Plus you can download back issues, as well as our book on China's Tycoons and our in-depth Focus reports.

Access is free to Week in China's subscribers, using their logins. www.weekinchina.com Week in China

18 Week in China And Finally 26 January 2015

Red alert Investors left high and dry as wine plan wilts

he county of Harqin in Liaoning third-party producers for their Tprovince sits on a similar lati - grapes. Farmers are also paid by tude to some of France’s greatest weight, so quantity trumps quality. wine regions. Realising this seems to The problem in Harqin was dif - have been enough for a posse of local ferent. Xu built his plant and hired government bosses to make a fact- his staff. But his winery was getting finding trip to Europe. On their re - no grapes at all. On a trip back to Turned sour in Harqin turn they announced they would be the county he discovered why: local following the French example by farmers had replanted their fields their livelihoods, they soon turned growing Cabernet Sauvignon grapes. with corn. back to their traditional crop as the Tempted by promises that wine Xu is said to have 10 years of ex - first grape harvests failed. was going to become a pillar indus - perience in the wine industry, al - Harqin’s wine plan sounds like try in the region, a businessman though he seems to have taken hubris on the part of the local gov - called Xu Shaolin signed a contract some major risks in Harqin. The ernment. But when does fierce ambi - to make Harqin’s first vintages. The worst of the winter temperatures in tion become fraud? On his early tours plan, state broadcaster CCTV re - the wine-growing regions of France of the region Xu was shown vines ported this month, stipulated that don’t fall much below -5 celcius. In that (it now seems) had been planted local farmers would grow a guaran - Harqin they drop at least three less than a year earlier. Later he was teed tonnage of grapes for the new times as low. As we mentioned in sent grape samples that were deemed winery every year. There was excited The Little Red Book , it’s not impossi - “highly satisfactory”, according to talk of Rmb4 billion ($644 million) ble to make good wine in wintry media reports. Xu’s co-shareholders of sales within four years. conditions and we even featured an might well ask where these grapes As we reported in The Little Red up-and-coming winery that sur - came from. Perhaps they might re - Book – a look at how China is start - vives the deep-freeze winters of Xin - flect on why the plan’s promoters ing to make its mark in the wine jiang (its wine scored well at a blind failed to find a single expert who world (see the Focus Editions and tasting last November too, see thought that the business was feasi - Books section of our website) – the WiC261). But perhaps the winter ble, Liaoshen Evening News adds. In Chinese are already the fifth largest chill was too much for the grape the meantime Xu is on the hook for wine maker globally. The quality of growers of Harqin. Many of its farm - loans to the project. Despite selling most of that vino is mixed, at best, ers seemed reluctant to cultivate his production line he is still short and one reason why is that the grapes in the first place, having al - and the local banks are chasing him wineries tend to be dependent on ways planted corn. Faced with losing for repayment. n

Beware of the bogeymen

P “In 2004, it was outsourcing. In 1989, it was Japan. Now it’s China. There’s always some h o t o bogeyman. I think the destiny of the US is in our hands.”

S o u r c e :

S Netscape founder and tech investor Marc Andreessen tells the Financial Times that America h * u t t e always needs a threat to worry about, although he considers most of them illusory. r s t o c k

19 Week in China The Back Page 23 January 2015

Photo of the Week In Numbers 10.7 million Number of jobs China added last year in urban areas, versus a target of 10 million. See last week’s Talking Point for our assessment on the economic situation.

60.8 million Number of tourist arrivals in Hong Kong last year, up 12% in spite of the Occupy Central

P demonstrations. Of that number, 47.2 h o t o

million came from mainland China. S o u r c e :

R e u t e r s

4% Suitable attire? Models wear traditional costume during a promotional Share of world metals consumption accounted for by China in 1980, according event at a ski resort in Henan province to the Financial Times. The figure today is 40%. Where is it? 33,500 Some of the places referred to in this issue Changchun The number of new toilets that will be built at tourist spots in the near future and Liaoning another 25,000 will be renovated as part of Hebei Beijing a three-year nationwide plan, says Li Shandong Jinzao, head of China’s National Tourist

Lanzhou Administration. Li admitted that the current China state of public toilets in the country leaves Shanghai much to be desired. The goal is that by Sichuan 2017, China’s toilets will boast a “three- Chongqing star rating” and will be “of adequate quality, hygienic, free of charge and effectively managed”. Guangzhou Hong Kong

Want to sign up for Week in China’s website, the Friday email and our digital magazine? Go to www.weekinchina.com/welcome and fill out our subscriber form. It only takes a few moments and subscriptions are free. Invite friends to register too? Just send them the same link. Need to change your subscriber email address? There’s a button at the bottom of the weekly email that allows you to change email address. Or just send an email to [email protected] and we can do it for you. Want the iPad and Android apps? If you type Week in China into the search function in the Apple App Store and/or the Google Play Store you will be able to download our app respectively for your iPad and Android smartphone devices.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.