1 Talking Point 7 Week in 60 Seconds 8 Economy Week in China 10 Property 11 Energy and Resources 13 China Consumer 14 Banking and Finance 19 April 2013 15 Society and Culture Issue 189 19 And Finally www.weekinchina.com 20 The Back Page Time to reform Chen’s bank? m o c . n i e t s p e a t i n e b . w w w

An unexpected development? China’s most powerful banker is

replaced in a top level reshuffle Brought to you by Week in China Talking Point 19 April 2013

The bank that Chen built Control of the most powerful fiefdom in Chinese finance has just changed

End of an era: the 68 year-old Chen is stepping down as head of China Development Bank. Is he happy about it?

n the Beijing headquarters of forms (Chen preferred tighter cen - Henry Sanderson and Michael ICDB Capital, the private equity tral control and refused to visit the Forsyth. That’s because China De - arm of China Development Bank, experimental city of Shenzhen, velopment Bank (CDB) is run by the there are three busts in the lobby. such was its symbolism as the ac - deceased politician’s son, Chen One commemorates Mao Zedong, celerator pedal of the opening up Yuan. founder of the People’s Republic. era). He summed up his own view in Or rather, CDB was run by him at Another is of Deng Xiaoping, the a famous bird cage analogy. The the time Sanderson and Forsyth architect of China’s reform era. economy, he said, “is like a bird. You published China’s Superbank, their But readers of WiC will be less fa - can’t hold it in your hand, but you must-read book on the bank. That miliar with the third bronze, that have to let it fly. But it might fly changed this week when Xinhua re - of Chen Yun. away, and that is why you need a ported that Chen Yuan is stepping Who was he? Chen was another cage to control it.” down, a personnel move that marks prominent Party member in the Vogel writes that Chen’s policy a seismic shift in China’s bureau - founding of modern China in 1949. clashes with Deng, meant they were cratic landscape. Chen has run CDB Historian Ezra Vogel calls him the akin to “two tigers on the moun - since 1998, shaping it according to “father of Chinese economic plan - taintop”. But the rivalry did nothing his vision and having a profound ning” and notes that Mao once to lessen Chen’s prestige. “Although impact on the nation’s economy, as asked why only Chen seemed to be some considered him too conserva - well as those overseas. able to make the economy run suc - tive and cautious, he was generally Sanderson and Forsyth call Chen cessfully. respected for his political judge - “the world’s most powerful banker” Like many of Mao’s lieutenants ment, his independent analytical and CDB “the world’s most power - Chen faced a period as an outcast abilities and his principled dedica - ful bank”. during the chaos of the sixties and tion to the Party,” Vogel surmises. “China’s rise as a global economic P h o t o seventies but he made a comeback All great achievements, of course, superpower and the success of its

S o u r c in the eighties, enjoying a position but the main reason that Chen’s top companies is intricately tied to e :

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a of near primacy with Deng. Today bust enjoys pride of place in the CDB,” they write. “Understand CDB g i n e

C he is best remembered for opposing CDB Capital lobby is perhaps more and you understand the core of h i n a the rapid pace of Deng’s market re - filial, according to the authors China’s state capitalism.” 1

Week in China Talking Point 19 April 2013

Much of that is down to Chen - ATM of government.” himself, the authors add: “You can - Over the next decade his unique not understand the rise of combination of connections, JPMorgan in the nineteenth century willpower and vision would trans - without understanding the life of form CDB from a weak policy lender its eponymous namesake. Likewise, into a banking powerhouse. By 2012 the history of CDB’s emergence as the bank reported assets of Rmb7.37 the world’s most influential bank is trillion ($1.19 trillion), says 21CN closely linked with its longtime Business Herald. (To put that in per - leader, Chen Yuan.” spective, that’s more than double those of the World Bank.) The rise of Chen… Unlike his predecessor, Chen Chen Yuan was born in the revolu - sought to make CDB better resem - tionary capital of Yan’an in 1945 ble a well-functioning international (the Chinese Communist Party bank. He brought on board a new in - equivalent to being born in Buck - ternational advisory committee in - ingham Palace). The family’s elite cluding the likes of Henry Kissinger, position was secured as early as Zhu: gave Chen top CDB job and instigated new credit controls 1933 when Chen senior joined the and personnel policies (to weed out Politburo Standing Committee. vice-governor of the central bank. the incompetent). His father’s status was further Over the next decade his new role As one former staffer recalls: “He consolidated when he conquered would give him a new opportunity had influence. People respected the scourge of inflation in 1952, a to understand the workings of the him and feared him, so people feat that had eluded Chinese Chinese economy, as well as to gain started to work hard to evaluate the rulers for decades. an unrivalled international perspec - process rather than just issue loans Chen junior entered Tsinghua tive by travelling abroad and hob - to everyone.” University in 1965, where he studied nobbing with officials from Amazingly, by 2002 the NPL ratio engineering, specialising in au - multilateral agencies and other cen - was down to 1.78% and by 2006 tomation in particular. Like many of tral banks. Chen told a foreign visitor that CDB his generation, his career path was Many foreign observers thought had no bad loans at all. This was thrown off track by the Cultural that Chen would be promoted to achieved in two ways. Much of the Revolution. head the central bank, but in 1997 heavy lifting came from the central On graduation he worked at a fac - the then premier Zhu Rongji asked government, which shifted Rmb100 tory in Hunan, before returning to him to take over CDB instead. billion of toxic lending into a new Beijing in 1973 and getting a job as a asset management company. researcher at the Aerospace Min - What did he inherit? For the remainder Chen devised istry. It was at this point that he CDB was created in 1994 from an as - new ways to bring the NPL rate began to emulate his father’s inter - sortment of Soviet era institutions. down. Uniquely in the Chinese est in economics, studying foreign As that might suggest, it was a fi - banking landscape, he was allowed news sources to get a better sense of nancial basketcase. In 1997 the bank to convert Rmb21.7 billion of debt how the Federal Reserve worked. had a non-performing loan ratio of into equity. He was also very sharp After Mao died and a relative sense 42.7%, and such lax compliance pro - in working out how to work with of normality returned, Chen en - cedures that staff carried suitcases local governments to remedy debt rolled in graduate school, and fur - of cash around the country with positions. For example, in return for ther honed his English skills. them to pay their expenses. a new development loan, he per - With his princeling credentials, a When Chen arrived at the bank suaded the city of Tianjin to clean political career followed, first as a its loan book was a couple of hun - up a CDB bad debt owed by local car Party secretary in Beijing’s Xicheng dred billion yuan and it had just firm Xiali. District. However, in 1987 Chen one branch and a couple of offices. Using similar quid-pro-quo ap - P h o t

o failed to get elected to the city’s As he later told the Economic Ob - proaches, Chen had resolved

S o u r Party committee. This was a fairly server: “The first objective I set for Rmb90 billion of bad debt by 2003, c e :

R e major setback, but in an effort to myself, as well as for CDB, was to according to an interview he gave u t e r s

cushion the blow he was made a become a real bank and not just an Xinhua. 2 Week in China Talking Point 19 April 2013

A new banking philosophy? powerbrokers to figure out how key transformed into a thriving me - When Chen took over at CDB he the urbanisation trend would be - tropolis. But the secret sauce for seems to have admired the US fi - come. the transition was perhaps Chen’s nancial system. He also wanted CDB But what marked out Chen’s fi - most incredible invention of all: to be profitable, an unusually com - nancial genius was that he spotted the local government finance vehi - mercial goal for a policy lender. But something nobody else had figured cle (for our first mention of LGFVs, Chen was no more the product of out. He knew that Zhu Rongji’s 1990s see WiC48). the Washington Consensus than his tax reforms had left local govern - The first one – Wuhu Construc - father had been. Years earlier he’d ments with less of the fiscal take, tion Investment – was created with put his name to a manifesto in the meaning they could spend less on CDB’s help. Backed by the local gov - China Youth Daily that said: “The infrastructure. But he also saw that ernment and CDB loans it was then Party should not only hold the barrel local government land sales were able to borrow from other state of the gun, but also take control of fi - counted as extra-budgetary revenue. banks, using land sales as collateral. nancial assets and the economy.” “Local governments were sitting This created huge leverage, enabling Correspondingly, he dismissed be - on one of the world’s most valuable the rapid construction of further lievers in the invisible hand of the resources with virtually no require - infrastructure projects. The Wuhu market as “utopians”. ment to be accountable about how debt vehicle would see its assets Once at the helm of CDB, Chen it was used,” Sanderson and Forsyth grow from Rmb319 million in 1998 coined the term “development fi - to about Rmb21 billion today. nance”. It sounds innocuous enough According to CDB’s official his - but what it really meant was state tory: “From then on, the Wuhu capitalism. Chen and a fast-growing model was extensively applied CDB would become a key cheer - across the country… leaving a pre - leader for the trend, helping state- cious legacy in the field of financ - owned firms to become national ing for urban infrastructure champions. construction.” In fact, in the past five years a The next major cities to get a new term was coined – guojinmin - dose of CDB’s financial wizardry tui (the state advances as the private were Tianjin and Chongqing. By the sector recedes) – to denote the inex - time of the 2008 stimulus package, orable rise of state capitalism (see many cities were using LGFVs, but WiC30). Much credit for this is owed the number would escalate dramat - to CDB which helped the larger Chen: built CDB into powerhouse ically thanks to the government’s SOEs get bigger and stronger. Huge order that Rmb4 trillion be spent to loans were a part of this, such as the point out. fend off the global financial crisis. $30 billion lent last year to oil giant Chen saw that if CDB helped fi - Sanderson and Forsyth observe: CNPC for foreign acquisitions. nance infrastructural investment “The bank’s creation of LGFVs was like roads and railways, the value of the key that unlocked the motor of Chen’s big idea: urbanisation nearby land would go up, thus giv - local government development, be - But while such marquee lending is ing cities a new source of income coming the force that has created the most visible aspect of CDB’s in - (primarily from selling parcels of China’s economic growth.” dustrial policy, Sanderson and land to developers). A virtuous cir - The authors say the numbers are Forsyth say the biggest impact was cle would then be created which staggering. There were around felt at local level. Here a menagerie of could not only finance the repay - 6,000 LGFVs by 2010, with debts of SOEs big and small would all benefit, ment of CDB loans, but also pay for at least Rmb10.7 trillion. Of the 341 from CDB’s backing for urbanisation. further rounds of new infrastruc - that had accessed the bond market, “From the beginning CDB got ture, thus expanding urban areas some 147 said they had received more deeply involved with local (another key beneficiary: SOEs bank loans from CDB, or had CDB as P h o t o governments than any other Chi - which built most of the projects). their bond underwriter, or had their

S o u r c nese bank,” write the authors, both Chen’s petri dish for these ideas bonds guaranteed by a CDB-funded e :

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a of whom are journalists with was Wuhu. In 1998 he provided guarantor. In all, these 147 LGFVs re - g i n e

C Bloomberg. Rmb1.08 billion of development ported loans and lines of credit from h i n a Chen was one of the earliest loans and watched as the city CDB amounting to Rmb929 billion. 3 Week in China Talking Point 19 April 2013

In short, Chen has left an indeli - more of a financial octopus are its The erosion of Chen’s powerbase… ble mark on the development of other activities. It owns a securities In the space of a decade Chen had China’s cities (as well as on their fi - venture and is a top bond under - built an organisation that was far- nances – more on which later). But writer. It has a leasing arm and a flung and powerful. Yet because of he doesn’t feel the job is anywhere credit guarantee company. And it has his parentage and personal con - near complete: at the bank’s annual a private equity arm, CDB Capital. nections, he’d been able to run work meeting in January he de - In fact, it seems that Chen’s ambi - CDB without much in the way of clared that over half CDB’s new tion was to create a financial colos - interference. loans this year would be earmarked sus. The extent of that ambition “Chen’s status as a princeling had for “urbanisation and related de - became clearer in 2007 when CDB allowed him to build something al - velopments”. paid £1.5 billion for a 3.1% stake in most as big as the Ministry of Fi - Barclays to help the UK bank finance nance, with little oversight or A hybrid bank? its bid for ABN AMRO. Had that bid regulation,” comment the authors As Chen’s empire grew, it became succeeded, CDB would have been re - of China’s Superbank . harder to describe CDB’s purpose. quired to invest a further $10.5 bil - In the context of China’s bureau - At the clear cut end of the scale, it lion. As it turns out, the acquisition cratic merry-go-round, it was un - gave out loans for projects consid - usual for one man to run a major ered a priority by the government. institution for 15 years (even the For example, it provided 60% of the president and prime minister only lending to the Three Gorges Dam have 10-year terms). And the first and underwrote Rmb43.4 billion of threat to Chen’s authority may have finance for the building binge resulted from his Barclays purchase, around the Beijing Olympics. which some senior government fig - Equally, when the government ures viewed as a case of overreach. called on China’s companies to go The initial indication that the au - out and become global players, CDB thorities wanted to rein Chen in was happy to oblige with financial came soon after: in December 2008 support. A case in point: Huawei, CDB was officially designated as a which got a $30 billion credit line. ‘commercial bank’. This was an indi - CDB’s financing meant that it could cation that its special ‘hybrid’ status then offer better terms than its (and the associated privileges) were competitors. One former European under threat. executive told his chairman: “We The next sign of trouble: in 2010 won’t die at the hands of Huawei; if CDB’s vice-president Wang Yi was we die, it will be at the hands of Got $30 billion CDB credit line sentenced to death for taking bribes China Development Bank.” (this was later commuted to a jail There were other policy goals that failed, but CDB still had to put more sentence). Wang granted a Rmb2.5 CDB assisted with too. It helped cash in when Barclays raised capital billion loan to Henan’s tourism in - African governments (and major Chi - in 2008. The investment has been a dustry, reports the Economic Ob - nese companies) pay for massive poor one (CDB bought Barclays when server, of which only Rmb200 new infrastructure projects (its its stock traded at £7.20, versus £2.94 million went to the projects in - African loans total $13.7 billion). It today). tended. made mega-loans to Venezuela ($40 Aside from planting flags on The Wang case would also have a billion, in this case) in return for the maps, it’s hard to see why a Chinese broader political significance (or so oil supplies China craved. And when development organisation would it would later emerge). The dis - Beijing prioritised new energy as a feel the need to buy into a Western graced official had formerly been strategic sector, CDB offered $47.3 bil - bank. Nor was this Chen’s only at - secretary to Bo Yibo, another of the lion in credit lines to support Chinese tempt. He also sought to purchase founders of the People’s Republic. solar and wind companies, according stakes in Citigroup and Dresdner This connection became more po - P h o t

o to Bloomberg New Energy Finance. Bank. But on both occasions the tent a couple of years later when Bo

S o u r All of the above can be understood State Council vetoed the move, per - Yibo’s son – Bo Xilai – was purged as c e :

R e as the typical territory of a policy haps mindful of how badly the Bar - Party boss of Chongqing. u t e r s lender. But what makes CDB look clays deal had gone. Chen and Bo were on friendly 4 Week in China Talking Point 19 April 2013

terms – indeed CDB had helped with the finance for Chongqing’s own infrastructure splurge. The fall Planet China of a key ally was another sign that Strange but true stories from the new China Chen’s position on China’s political chessboard was weakening. (His SUITE LIFE. Regular readers of WiC will be familiar with Huaxi, the place in Jiangsu that terms itself as “China’s richest village” (see WiC130). Huaxi links to the Bo family don’t appear to has stunned local media with its economic success which has allowed its have receded. Sing Tao reported that 2,000 ‘shareholder’ families to enjoy free healthcare and fat annual Chen was seen visiting the grave of bonuses. Village elders even splurged $485 million on China’s eighth Bo Yibo in Babaoshan during last tallest building – a 328-metre tower containing a five star hotel. But as the week’s Qingming Festival.) Shanghai Daily reported this week, the plan to diversify into tourism is proving trickier for Huaxi than its earlier ventures. The Long Hope Black clouds as Chen departs? International Hotel is nowhere near full-occupancy and made just Rmb150 Officially, CDB’s bad loan ratio is million ($24.2 million) in revenue last year, leaving it “far from profitable” about 0.3% and has stayed below 1% according to its general manager, Dai Liming. for 31 consecutive quarters. But ana - Luckily the village’s plucky new head Wu Xie’en (he took over after his lysts wonder whether this healthy father Wu Renbao died) has a solution. Instead of paying out its usual cash rating masks more serious lending bonus to Huaxi residents, Wu has given them coupons that can only be spent in the hotel. Business has picked up as locals checked-in to the risks. There are two main areas of vacant luxury rooms: “Some families stayed as long as a month,” reports concern. The first is the bank’s enor - Shanghai Daily. It sounds like a neat one-off idea, but unless real guests mous exposure to Chen’s creation, turn up, Huaxi’s tower looks like becoming a white elephant. the local government financing ve - hicles. China’s banking regulator es - timates that CDB has Rmb2.3 trillion ing firm ShineWing. “Most don’t The newspaper quotes one local of loans to these entities, making it have strong debt-servicing abilities. analyst as saying, “Hu is widely re - the most exposed of any bank in the Things could become very serious.” garded in financial circles as a country. One of CDB’s senior execu - Nor is this CDB’s only question - strong advocate of market reforms.” tives Jia Tingren has even estimated able exposure. As reported in This suggests Chen – a champion of that the institution holds a quarter WiC187, China’s solar industry is state capitalism – is being replaced of all LGFV loans. now in serious trouble, with top with a figure more associated with There is increasing anxiety about player Suntech filing for bank - a freer hand for market forces. If so, whether these vehicles will be able ruptcy. 21CN reports that the bank this is likely to have major implica - to repay even a fraction of their has Rmb50 billion of loans out - tions for CDB. The hybrid institu - loans. For example, when Bo fell standing to the sector. You’d have to tion that Chen built could perhaps from power last year, CDB was take a very rosy view to assume that be reshaped into something resem - forced onto the defensive over its they will all be repaid in full. bling a more ‘normal’ commercial Rmb100 billion of lending to All of this suggests that CDB’s lender in the coming years. Chongqing’s LGFVs. With foreign NPL ratio of 0.3% can only go in one The personnel shift might there - media like Reuters questioning direction: up. fore signal a period of reform beck - whether the money would need to ons for China’s most powerful bank be written off, CDB replied vehe - Enter the new boss... – eroding its role as a financier to mently that the financial risk was Xinhua has confirmed that Hu SOEs and infrastructure-obsessed “under control” and that the bor - Huaibang will be replacing Chen at local governments. Indeed, given rowing entities had the capacity to the helm of CDB. Hu formerly ran CDB’s importance, it’s arguable that service their debts. Bank of Communications, the sixth the long heralded ‘rebalancing’ of But the fears have not receded, biggest bank and the South China China’s economy cannot happen with one of China’s leading ac - Morning Post has noted that the 58 unless the reform faction is able to counting bosses raising the spectre year-old is “a rare finance veteran” restructure Chen’s creation. of mass defaults in the Financial having worked at the central bank, The first thing to watch is CDB’s Times this week. “We audited some the banking regulator and the credit status – which makes the tim - local government bond issues and soverign wealth fund. He also had a ing of Chen’s departure all the more found them very dangerous,” noted stint as dean of the Chinese Acad - interesting. Another of the other Zhang Ke, the founder of account - emy of Finance. unique things about China Devel - 5 Week in China Talking Point 19 April 2013

opment Bank is how it is funded: CDB’s sovereign status is that some up his personal support. entirely through the bond market analysts predict it could cause chaos Meanwhile sections of the local (it is one of the biggest single is - in the country’s bond market. For media have attempted to burnish suers). State-owned banks recycle that reason Hu may argue against his reputation. “From financing their cheap deposits through CDB such shock therapy and ask for state-backed mega infrastructure, by purchasing its bonds, and then more time to gradually reform CDB to the pioneering of the financing making money on the spread. This before it loses it credit privileges. models of local government financ - funding mechanism is only possi - ing vehicles, to the battleship escort ble because CDB carries sovereign What’s happening to Chen? of Chinese firms venturing over - credit status. That means it has a Last year Chen proposed the idea of seas, the past 15 years have proven zero risk-weighting, allowing state a BRICS development bank, to be that Chen has the correct strategies banks to buy the bonds without set - funded by China, Brazil, Russia, In - for CDB,” wrote 21CN. ting any capital against them. dia and South Africa. Chinese offi - Of course, it may be a bit prema - However, when CDB was redesig - cials told the Wall Street Journal that ture to trumpet Chen’s legacy, espe - nated as a commercial bank in the 68 year-old has been asked to cially if the LGFVs turn out to 2008, its credit status became a bit lead the efforts to set it up. Of require a huge bailout. murkier. The State Council ex - course, China would like Chen to get Then again, it might also be too tended its sovereign status but indi - the top job, but the other countries soon to close the chapter on his cated this would not be an are yet to agree to this appointment. legacies. Over the past 15 years – indefinite arrangement, with an - Netizens have been discussing much like his father before him – nual reviews. Chen’s new role and the consensus is Chen has had a huge impact on the Last April CDB got a one-year ex - that it’s a face-saving way to dislodge Chinese economy. In the decade tension to its current terms, but him from his CDB fief. One potential ahead he could still enjoy great there has been no announcement sign of his dissatisfaction is rousing sway if he gets to run the new inter - this month as to whether its top- comment: Chen penned an article national development bank. CBN rated status will be renewed. last week for the People’s Daily prais - says the BRICS institution could be Clearly, CDB’s competitors would ing former president Jiang Zemin’s the largest bank in the world, and by like to see its privileges rescinded policies on electronic banking. While pushing for Chen to get the top job, and the bank pushed in the direc - the subject may sound esoteric, it the Chinese government is demon - tion of a more traditional institu - was interpreted by some as Chen strating its implicit confidence in tion. But the danger of not renewing playing factional games and shoring his abilities. n

The icewoman cometh

The visit of Iceland’s prime minister to Beijing this week was viewed as a landmark moment (and not because the world’s first openly-gay leader arrived in the Chinese capital with her wife, Jónina Leósdóttir, something that Chinese media didn’t mention). The bigger news was that Iceland’s PM Jóhanna Sigurðardóttir has signed Europe’s first free trade deal with China. Categorised rather unimaginatively by Premier Li Keqiang as “a major event in China-Iceland relations”, the Nordic country’s seafood industry is expected to be a major beneficiary of the deal’s lower tariffs. Many duties will be lowered to zero, Sigurðardóttir said, meaning that Icelandic consumers will benefit from cheaper Chinese-made goods. I l l u s t r But we probably shouldn’t get too excited about the ramifications a t i o n :

of the announcement for the global economy. According to China’s w w w

. National Bureau of Statistics, bilateral trade between the two b e n i t a countries was $152 million in 2011 (although China Daily points out e p s t e enthusiastically that the figure was up 35% on 2010). i n . c o m

6 Week in China The Week in 60 Seconds 19 April 2013

GDP growth slows to 7.7% The major news items from China this week were...

China’s first-quarter economic growth slowed to 7.7% 1on a year-on-year basis, below analyst expectations. China’s new premier Li Keqiang remarked a day before the release of the data that “many uncertainties, both at home and abroad, still persist and make the overall sit - uation quite complicated.”

Hong Kong’s first billion-dollar IPO this year is about 2to reach the market. Sinopec Engineering, a spinoff from state-owned oil and gas giant Sinopec Group that constructs refineries, is aiming to raise about $1.5 billion from the sale of 25% to 30% of its share capital. The Hong Kong Stock Exchange also gave the green light to a sim - ilar-sized IPO by Galaxy Securities. Likes the Lion City: Vanke’s chairman Wang Shi Meanwhile, China may be ready to resume IPO ap - 3provals after cracking down on weaker aspirants to China’s largest residential developer Vanke will help restore investor confidence. Xinhua reported this 5spend $109 million to acquire a 30% stake in a resi - week that authorities may be preparing to let companies dential development project in Singapore, according to list, even though the country’s stock market remains its strategic partner Keppel Land. The project, compris - lacklustre. The move came just after China Securities ing 726 residential units, is expected to launch in the sec - Regulatory Commission’s reform-oriented head Guo ond half of 2013. Keppel Land and Vanke have also Shuqing was reassigned as governor of Shandong. entered into a partnership that will see both companies jointly develop properties in both Singapore and China. Many of those who have tested positive for a new 4strain of bird flu H7N9 appear to have had no con - Zoomlion stock dropped 10% on Monday after it re - tact with poultry, the World Health Organisation said. A 6vealed that first quarter net profits would be 77% scientist at the China Disease Prevention and Control lower than last year, triggering renewed fears about how Centre said that nearly 40% of patients with H7N9 don’t it has been financing sales (see WiC157), as well as the have a clear history of poultry exposure, adding mystery wider impact of a slowing Chinese economy. Zoomlion’s to a virus that has already killed 17 people. main rival Sany Heavy also saw its stock fall 2.4%. Mean - while, a cheaper yen has helped Japanese competitors like Komatsu, Hitachi and Kobelco make deeper inroads into the Chinese excavator market, taking around 3.6% market share from the Chinese firms in the first quar - ter, Bloomberg reckoned.

Despite a move to enforce a tax on home-sale prof - 7its, the overall average price for 70 Chinese cities was up in March from the previous month and from a year P h o t

o earlier, with new homes in major cities showing the

S o u r largest gains. The latest data suggests that recent gov - c e :

R e ernment efforts to control the property market are hav - u t e r s Zoomlion: stunned investors with profit fall ing little effect. n 7 Week in China Economy 19 April 2013

Who’d eat chicken? Bird flu sees sales drop for KFC

“ lmost all flu infections begin slaughtered and shipped in vacuum- Ain China and then spread to sealed packaging.) Europe,” Christoph Scholtissek Airline stocks have also felt the told the Wall Street Journal this pang of flu fever. Flag carrier Air month. Scholtissek, a retired virol - China fell 9.8% last Friday, its biggest ogist and one of the first to link one-day decline since 2009. China China’s farming practices with the Southern dropped 8.5%, while evolution of new strains of in - Cathay Pacific in Hong Kong saw its Sales fell 13% last month fluenza in the 1980s, said that stock drop the most in almost eight “only in China do you have cohab - months. Unsurprisingly, attendance Industry observers agree that itation of pigs, humans and water at the Canton Fair, China’s leading consumer sentiment could take birds” – the perfect conditions for trade show, is expected to be well some time to recover, even once the breeding such viruses. below peak, as buyers shy away worst of the avian flu crisis has After all, two of the more recent from attending. passed. “Based on past experience, flu pandemics, in 1957 and 1968, Restaurant operator Yum Brands, with bird flu already hitting the both began in China, as did the 21st which owns the KFC chain, is also country twice, the negative impact century’s most frightening epi - struggling, reporting much lower on the catering industry will last demic so far: the 2003 outbreak of March sales for its China division. about six months,” Bian Jiang at the severe acute respiratory syndrome Total sales at outlets open for at least China Cuisine Association, told the (SARS). This time round it’s no dif - a year fell 13% last month, mainly China Daily. In response, Jiang sug - ferent, though the new avian flu driven by the 16% decrease in gests that Yum focuses on promot - H7N9 has stayed within Chinese turnover at KFC (Pizza Hut, also ing other foods like fried shrimps borders. But it is still deadly: the lat - owned by Yum, saw its revenues in - and mushroom dishes. est count is 17 fatalities. crease by 4%). But judging from the comments The spread of the flu is also hurt - For Yum, the flu outbreak follows on Sina Weibo, chicken-heavy Yum ing China’s chicken industry, the an awkward period. In December has plenty more educating to do. world’s second largest after the KFC was accused of serving up “Go vegetarian! A vegetarian diet United States. In Shanghai, the city chicken laced with excessive chem - avoids all the risks,” one weibo user government has halted live poultry icals. It was later cleared of any claimed. trading in wet markets and slaugh - wrongdoing but publicly apologised “I used to go to KFC at least once tered thousands of birds to prevent over its handling of the affair. Then a month for the chicken burger,” the virus from spreading. Suppliers again, that didn’t prevent accusa - wrote another. “But now every time are suffering too: one farmer in ru - tions in the state media that it had I have a KFC my heart panics a little. ral Zhejiang province, near Shang - behaved in an arrogant manner. The spread of H7N9 has made every - hai, said his sales had fallen from To combat the downtrend in one develop a fear of poultry.” 100 birds a month before the out - chicken sales, Yum says it will con - At least there is one sector break to “almost zero now”. tinue to educate consumers that which might look on H7N9 in a Sale of poultry is also banned on - thoroughly cooked meat is safe to more benign fashion. Last week a line, with Taobao, China’s largest eat. Still, the crisis could end Yum’s number of China’s carmakers saw consumer site, among those to sus - 11-year winning streak of double- a jump in their share prices as in - P h o t

o pend operations. (It may seem odd digit profit growth in what has be - vestors speculated that more peo -

S o u r that consumers would buy poultry come its most lucrative market. ple will buy their own vehicles to c e :

R e online, but producers claim the birds China contributed 42% of Yum’s avoid exposure to the virus on u t e r s are live at point of order and are then overall operating profit in 2012. public transport… n 8 Week in China Economy 19 April 2013

Ratings game Fitch downgrades China’s sovereign debt

s one of the world’s most suc - vestors Services has sent a similar Acessful investors, George Soros message, cutting China’s outlook to can claim to have made the right stable from positive. Of course, that call more often than the wrong one. doesn’t mean that disaster is just But even he might have been sur - around the corner. Moody’s Aa3 rat - prised to see his most recent views ing gives China a rating bettered on China boosted so quickly by the only by a small group of wealthier, support of a third party. developed economies. But it does Speaking at the Boao Forum ear - highlight growing concerns over lier this month, Soros compared how the country is tackling the the growth of China’s shadow bank - murky world of shadow banking. Debt crisis pending? ing sector with the US subprime The fear, chronicled previously in mortgage market that’s usually WiC, is that much of the expansion in shown itself capable of managing blamed for triggering the global fi - credit has occurred in the largely un - debt blowouts in the past. In the late nancial crisis in 2008. regulated world of trust companies nineties, Beijing responded to a bad Soros claimed that China’s lead - and social financing. Most of this loan crisis by establishing four asset ers needed to be aware of the paral - debt appears off balance sheet, but management companies to absorb lels too. “If the American experience China’s banks could ultimately have Rmb1.4 trillion of non-performing is any guide, the authorities have a huge exposure to the sector. loans. Each fund was given Rmb10 couple of years to bring shadow In addition, there is a belief that a billion of capital and a decade to get banking under control,” he told the large chunk of shadow financing rid of the bad debt. The plan largely conference, according to Century loans have gone to risky industries – worked. One of the four, China Weekly. including some borrowers in the Cinda Asset Management, is even Just a day later, Fitch Ratings property industry – or to local gov - planning to raise $3 billion in a downgraded China’s local currency ernments that have spent the pro - Hong Kong listing, although scep - debt to A+ from AA-, the first down - ceeds on projects unlikely to gener - tics say the listing process will throw grade since 1999. ate enough cash to service the loans. more light on how bailouts of this Citing concerns over the rapid Some of the borrowing simply type really work. “They’ll need to tell expansion of credit since 2009, looks spurious. Tom Holland in the investors how much profit they Fitch also claimed that bank credit South China Morning Post gave an have each year, where it comes from to private companies is now worth example of a steel company in and what their long-term strategy 135.7% of GDP, the third highest Lanzhou which has borrowed is,” an analyst told Bloomberg. level in any of the emerging mar - Rmb2.5 billion ($404 million) via a If more debt does start to go bad, kets that it covers. trust loan for earthquake recon - perhaps the asset management Furthermore, if loans from the struction. The odd thing about that? companies will be asked to repeat shadow banking industry are in - The US Geological Survey says that the trick they performed in the cluded, total debt could be as much there hasn’t been a significant earth - nineties. Lai Xiaomin, president of as 198% of GDP. quake near Lanzhou since 1995. Huarong Asset Management, told a “The proliferation of other forms Critics will say that the ratings meeting in Beijing that local gov - P h o of credit beyond bank lending is a agencies are being unnecessarily ernment debt is a major problem t o

S o u source of growing risk from a finan - fearful, scarred by their experiences and that growing levels of bad loans r c e :

S cial stability perspective,” Fitch said in failing to forewarn of the global in the banking system could prove h u t t e r in a press release. financial crisis in 2008. to be another new opportunity for s t o c k One week on, and Moody’s In - Another view is that China has his firm, Bloomberg reports. n 9 Week in China Property 19 April 2013

Buying up Motown An unloved American city attracts Chinese buyers

his week California governor emergency manager in an effort to TJerry Brown wrapped up his heal its finances and the city is trip to China, during which hun - struggling to shoulder more than dreds of business cards will have $14 billion in financial liabilities. It been exchanged and plenty more also faces a declining tax base due to Chinese see value in Detroit California wine poured. Six memo - a sagging population and the con - randa of understanding were signed tinuing travails of many of its re - abroad (see Talking Point in issue to boost business ties between Chi - maining car firms and component 184). “Before, most Chinese who nese firms and the Golden State, manufacturers. In many neigbour - bought overseas properties did so, and there was provisional agree - hoods the evidence of such a decline especially in the UK, the US, Canada ment for $2 billion of Chinese in - is more than apparent: vacant and Australia, for their children’s vestment, much of it in the homes, empty blocks, darkened education or to emigrate to. But af - property sector. streetlights, street crime and over - ter the central government further But while California is one of the burdened police officers. tightened real estate policies, more more well-known destinations in the But is one man’s junk another are tending to diversify their in - United States for Chinese investors, man’s treasure? vestment portfolios,” suggests Mau - another city reporting Chinese inter - A local property agent named Jas - reen Yeo, at property consultancy est is a much more unexpected can - mine McMorris caught CCTV’s at - Knight Frank in Beijing. didate: Detroit has suddenly ap - tention with news that she had pur - But there were also warnings for peared on the radar screen for chased over 360 Detroit-area anyone suddenly enthused by the Chinese homebuyers. properties in the last two years for thought of packing up and heading After years of snapping up prop - an average price of just $2,500. This for Michigan. erty in cities like New York and year, the city native has kept on buy - “Downtown Detroit’s housing Boston, Chinese investors are now ing, often picking up properties for market has been in a slump for a turning their attention to a more as little as $500. long time,” one weibo user wrote. challenging property market. CCTV After the segment was aired, “De - “It’s a famous ghost town and it’s reported last week that Chinese troit” quickly became one of the frightening there”. Nanfang Daily money is now reaching the down- highest trending topics on Sina also noted that buying property in and-out neighbourhoods of Detroit, Weibo as over a million people the United States incurs costs other a place where even most Americans tweeted about housing prices that than the purchase alone, such as would think twice (or longer still) were “cheaper than cabbage”. property taxes, inspection and about investing. Not missing a beat, property bro - maintenance fees and the expense Price is the major attraction. The ker Soufun quickly began promot - of refurbishing homes if owners People’s Daily reported that because ing a tour for Chinese investors on hope to rent them out. of the deterioration in Detroit’s eco - the frontpage of its website. The re - Then there’s the crime... nomic fortunes, some properties sponse was overwhelming. Soufun As another netizen bluntly com - can be bought for $100 or less. In told Hangzhou Daily that over a mented: “Do you have your gun some extreme cases, houses are on thousand people had signed up to ready? Better get in some practice P h o offer for just $1. make the trip within two days. before you get there. We can sell you t o

S o u But there’s a reason why it’s so Industry observers say Beijing’s a thousand houses. But do you have r c e :

S cheap to buy a piece of the Motor latest policies to dampen down res - a lawyer? If your house ends up un - h u t t e r City. Earlier this month Detroit was idential property sales may be used it’ll become a hangout for s t o c k placed under the supervision of an prompting more investors to look tramps.” n 10 Week in China Energy and Resources 19 April 2013

Iron lady required MIIT’s latest policy push in the steel sector will lack Thatcherite bite

argaret Thatcher was laid to Mrest this week but the polar - ising debate about her legacy looks likely to live on for years. Much of the disagreement reflects rival responses as to how she sought to reshape Britain’s industrial her - itage. Although Thatcher is best re - membered in this regard for her struggle with the miners in 1984/5, her first confrontation with the unions at a national level actually came in 1980 with the steel sector. Targeting an industry led by the British Steel Corporation (a state gi - ant which had earned itself a place in Not a hot sector: steel firms are struggling with losses the Guinness Book of Records that year for inefficiency, says the Daily Ministry of Industry and Informa - dustry onlookers like Daniel Rosen at Telegraph, after requiring £1 billion tion Technology (MIIT), with the is - the Peterson Institute, is that this of taxpayer support to produce a sue of another round of guidance just isn’t going to happen. Despite turnover of just under £3 billion), her on consolidation in nine key sectors. all the talk about consolidation, the government then oversaw a drastic True to form, the steel industry number of steel enterprises actually retrenchment in which thousands of was included as a candidate, with doubled between 2002 and 2006. jobs were lost at underperforming stipulations that 60% of output Nor has there been much sign of re - plants across the country. should be concentrated among the trenchment since – in fact, the Until Thatcher took office, many top 10 corporations by 2015 (they growth of ferrous metals firms in of those plants were maintained for make up about 45% of production general has been relentless: from political rather than economic rea - currently, says the Hong Kong Eco - 7,000 in 2005 to about 11,000 today. sons, something that strikes a chord nomic Journal). Could things change with the lat - in discussions of consolidation in Additionally, up to five major cor - est missive from MIIT? Rosen’s the Chinese steel sector today. porations are expected to achieve view is that they won’t and that any Talk of retrenchment has fea - sufficient scale to make more of an call for reduced numbers will strug - tured frequently in WiC, from an international impact (bulking up gle for traction while provincial of - early mention of the central gov - will help in getting financing for ac - ficials rely on tax revenues and ernment’s unease at overcapacity quisitions and winning more over - other payments from state-related (see WiC29), through reports hint - seas business, the Journal says), firms to help finance local health - ing that reform was underway (see while six to seven other steel pro - care and education. WiC70 or 74), to more recent recog - ducers are required to be large “If you consolidate the steel com - nition that progress has been slow at enough to have a regional presence panies in 10 Sichuan counties, you best (see WiC166). at home. leave nine of them bankrupt and be - P h o t

o In a similar spirit, the early part But meeting those objectives will nighted,” Rosen warns by way of

S o u r of this year saw claims of redoubled require that other steel firms are provincial example. “And that, in a c e :

R e efforts by a group of government merged, absorbed or simply allowed nutshell, is why this [consolidation] is u t e r s agencies under the leadership of the to go bust. And the problem, say in - so hard. To quell local resistance Bei - 11 Week in China Energy and Resources 19 April 2013

jing has to fix the mismatch between for the sector. Yet despite the awful Angang’s stock price is doing bet - revenue and local responsibilities – conditions, few firms are actually ter this year on news that a cost-cut - otherwise this is all just prattle.” cutting production because they ting programme should bring it Prattle perhaps, but MIIT is still fear losing market share to com - back into profit in the first quarter. ratcheting up the verbal pressure, petitors, Francis also warns. But this fails to mask a more funda - publishing a list this month of op - Perhaps these straitened circum - mental failing at similar state giants, erators that meet national standards stances will create blow-up condi - says Shirley Yam in the South China in areas like product quality, envi - tions, in which the weakest mem - Morning Post. She warns that mar - ronmental protection, energy con - bers of the industry finally go to the ket signals matter less than political sumption and scale of production. wall. But the problem in allowing ones for the leading SOEs, picking Acknowledging that previous meas - the market to do its worst is that state shipping giant China Cosco as ures have failed “to stop the indis - state champions might get caught a prime example. It did even worse criminate development of the steel in the crossfire. For example, a than Angang in each of the last two sector”, Miao Zhimin, a deputy di - shakeout of the worst performers years, losing Rmb9.5 billion and rector at MIIT, said the ministry will Rmb10.6 billion respectively, mak - now focus on supporting the com - ing it the poorest performing state panies mentioned as part of the enterprise of all (see WiC182). But its wider restructuring effort. boss Wei Jiafu seems unperturbed, Consisting of 30 state-owned en - Yam says, because he knows his first terprises like Baosteel and Angang task is to show loyalty to his political Steel, plus 15 private firms, the bosses rather than to shareholders group had combined output last in general. year of 300 million tonnes, or 41% of Wei, who has run into criticism the national total. from some of his shareholders, By contrast, companies who don’t seemed to be making a similar point feature on the list face a squeeze via about this relationship, by men - higher electricity prices and stricter tioning that he had travelled per - administrative measures, Miao sonally with China’s new president warns. An industry not on a roll Xi Jinping to a BRICS summit in Sceptics can be forgiven for think - South Africa last month. ing that this latest bout of policy would include a giant in the sector – “If I am as bad as suggested by prodding is unlikely to be particu - and a leading candidate for the elite some people on the internet, could I larly forceful. “We’ve seen that in - grouping favoured by the planners have accompanied the state leader dustry overcapacity has been diffi - at MIIT. Its financials are so atro - to the summit?” he asked. cult to solve by relying on cious it’s on a ‘special treatment’ This close bond between business government-led mergers and reor - watch list drawn up by the Shen - heads and political bosses mean ganisation, and that only market zhen stock market. that much of the debate about state pressure will lead to substantive in - The company is Angang Steel, the enterprise reform is empty talk, tegration,” Hu Yanping, a steel ana - largest supplier to the domestic rail - Yam suggests. And WiC’s guess is lyst told Beijing Business News. way industry, as well as China’s sec - that what happens at a national level So could a dose of Thatcherite ond largest steel producer with a ca - is reflected in similar ties between market forces really result in what pacity of 21 million tonnes. Despite hundreds of smaller steel mills and policymakers have failed to achieve: its status, Angang reported Rmb4.16 their political backers around the a permanent rationalisation of an billion ($673 million) in losses last country. In principle the market will overcrowded industry? year, following a Rmb2.1 billion loss drive change if left to do so, as many Steelmakers are currently strug - the year before. That means that its nostalgic Thatcherites will be recall - gling with a market of almost ‘per - stock now has an embarrassing new ing this week. But in China the po - fect competition’, says HSBC’s Asia- label as ST Angang on the Shenzhen litical realities look like complicat - Pacific head of metals and mining bourse as a warning to investors (ST ing the process. Or as Wei summed P h o t

o Simon Francis, who cites excess ca - stands for “Special Treatment”). it up rather succinctly: “As long as

S o u r pacity, weak supply-side discipline Should it announce another loss China Cosco is fully understood by c e :

R e and competition based largely on this year, Angang could even face Party central and the State Council, u t e r s price as factors in a bleak outlook the humiliation of a delisting. it’s enough for me.” n 12 Week in China China Consumer 19 April 2013

Against the grain Milk and wine producers struggle to regain consumer confidence

CTV’s annual auction of prime - for the China market. a similar mistake with winemakers Ctime advertising slots has long By producing overseas, Synutra suggest they probably haven’t. The been considered a useful economic is one of a number of local dairy pro - Economic Observer reported last indicator. Last year, companies spent ducers hoping to win back the con - week that new rules lifting the min - a record $255 million for ads. But just fidence of domestic consumers. imum levels of chemical plasti - as exposure on the country’s various One interpretation of the mes - ciser permitted in liquor prod - rich lists might not be a cause for cel - sage is that it’s a pretty desperate ucts are about to be announced. ebration for the very wealthy (the one: that the best way to guar - To the relief of baijiu makers, rankings are known as “pig killing antee quality is to produce says the Beijing News, 80% of ex - lists” by more bashful billionaires abroad. But it’s no more than isting products will meet the fearful of being called in for ques - Chinese shoppers already be - new standards. Share prices at tioning), so too CCTV airtime can lieve, as they spread further baijiu producers surged on the turn out to be a poisoned chalice for afield in search of what they re - news. But onlookers, including some bidders. gard as safer milk powder for some in the state media, were Take Confucian Wine, a liquor their kids. Where once they concerned that the rules maker that lodged the highest bid at alighted in Macau and will be too loose to be ef - CCTV’s first ad auction in 1994. It Hong Kong, they are now fective. “The baijiu indus - went under within 10 years. A coun - flying long-haul: the try may suffer the same terpart called Qin Wine, the top bid - British have just joined a confidence crisis as do - der in 1995, suffered a similar fate. growing list of countries mestic dairy,” China Na - And the founders of Aiduo VCD and imposing restrictions on tional Radio warned. Panda Mobile, top spenders in 1997 Chinese tourists buying Perhaps that’s why bai - and 2002 respectively, were both milk formula in bulk jiu makers are also fol - jailed at a later date. from supermarkets. lowing in the footsteps of There are other trends worth not - So what happened to regulatory dairy firms by venturing aboard. ing too. For instance, baijiu makers efforts to boost consumer confi - Rather than making stuff overseas, have replaced dairy firms as the dence in the sector? A new national Chinese winemakers seem keener biggest spenders during the more standard for infant formula was in - on luring foreign consumers. Wu - recent auctions. Few WiC readers troduced in 2011. But instead of im - liangye, China’s best known liquor will be unaware of the problems in posing stricter standards, the per - brand after Moutai, plans to invest the Chinese dairy sector. But could ception is that the rules have been Rmb70 million ($11 million) this baijiu bosses risk incurring a similar watered down in an effort designed year to expand overseas. And like curse, as safety concerns grow? to give breathing space to the bat - the spending on CCTV in the past, The dairy industry’s challenges tered domestic producers. most of the money will be spent on are well documented, leading to de - Central authorities say 99% of do - TV commercials. cisions like that of Qingdao-based mestic dairy products now meet the Cynics doubt it will be money Synutra International last week to new standards but CBN reckons con - well spent. They question whether obtain regulatory approval to invest sumers are no longer interested in baijiu executives might learn more $130 million in building a new milk such assurances. from the experiences of their coun - factory in the Brittany region of “The confidence crisis hasn’t terparts in dairy. Before spending France. The Nasdaq-listed formula been soothed by high pass rates un - big on promoting the benefits of maker expects to start production der the relaxed rules,” it warns. their products, they might be better in France in 2015, to supply cheese So have any lessons been learned? advised to be doubly sure about get - to Europe as well as whey powder Concerns that regulators may make ting the quality right first. n 13 Week in China Banking and Finance 19 April 2013

Open sesame Food firm bucks dividend trend with special offer

hen “sesame and mung About 13,000 shareholders qual - Wbeans” are at stake, goes a ify for the unorthodox payout and Chinese idiom, very little of value is the largest institutional share - likely to be up for grabs. holder, China Asset Management, is Fancy a dividend of tortoise jelly? The A-share market has just given entitled to receive over 60,000 jars the old saying a new lease of life. of black paste. According to the Eco - “the most generous dividend pay - Under scrutiny from regulators, nomic Observer, none of the top 10 out” in Chinese history. Among the listed firms have been under pres - shareholders in Nanfang Foods has 1,269 listed firms that have reported sure to increase dividends. Normally confirmed that it wants its dividend financial results, 80% have returned that means cash. But not in the case delivered. something to shareholders. Yields of Nanfang Foods which instead de - Some see the move as a smart are up a fraction too, and 64 firms cided that it would send sharehold - marketing exercise and there are are offering divided yields higher ers some black sesame instead. The signs that other firms may follow. than 3.25% (the one-year deposit move swiftly grabbed national at - Shenzhen-listed Quantum Hi-Tech rate set by the central bank). tention, with the little-known grabbed a little of the limelight by Some of the biggest payouts sesame maker becoming something declaring a distribution plan for tor - came from financial services firms, of a laughing stock. toise jelly, a Chinese medicine and the most profitable sector. Among In a regulatory filing earlier this dessert accumulated by boiling tur - the top 20 yield plays, seven are month, Nanfang said 12 boxes of tle shells for hours. Humanwell state-controlled banking giants. At black sesame seeds – which are used Healthcare, a healthcare product current share prices, the big five to make sesame paste – would be firm, then made the kind offer of a state lenders are all offering divi - distributed for every 1,000 shares complimentary condom to each of dend yields higher than 5%. held. The Shenzhen-listed firm said its shareholders. Or if that wasn’t to Of course, sweeter yields can the exercise is intended to solicit their liking, investors could receive a sometimes be a more bitter reflec - feedback from shareholders on a free HIV-test kit instead. tion of a weaker underlying share new product. But as the company If it all sounds a little ridiculous, price. ICBC, the world’s most prof - hasn’t returned a penny of its earn - the dividend plans does raise seri - itable bank, is currently trading at a ings to shareholders for 11 years, it ous accounting issues. “These aren’t market value of Rmb 1.4 trillion. was also the first case of asset dis - free lunches,” the Beijing Times de - ($226 billion). That is only six times tribution to shareholders in China’s clared sagely (although presumably its 2012 net profit. But ICBC will re - financial history. the tortoise shell dessert might turn more than 40% of last year’s “Several thousand dollars [the qualify). The newspaper warned that earnings to shareholders (a “re - price of 1,000 Nanfang shares] for a some firms could simply unload spectful” ratio, says the Investor bowl of sesame paste. Isn’t that a their inventories to shareholders, Journal, as long as banks stop going vivid illustration of our stock mar - complicating their financial state - back to shareholders to recapitalise ket?” one commentator griped in ments in the process. themselves via massive right issues). Shenzhen Economic Daily, feeding Dividends have been a focus for The CSRC is now seeking to off widespread frustration that the the China Securities Regulatory boost the trend with a differential A-share market has been good for Commission (CSRC) for a while and tax on dividend income, which fundraising but offers paltry returns it has issued numerous administra - came into effect in January. The for minority shareholders. tive guidelines trying to encourage longer investors hold a stock, the “At least you’ll have something larger payouts. Apparently the ef - lower the tax on dividend streams, sweet to chew on,” a netizen forts has been paying off. According in a rule change also aimed at curb - laughed. to the Investor Journal, last year saw ing short-term speculation. n 14 Week in China Society and Culture 19 April 2013

Quentin’s chained in China Tarantino film pulled from cinemas in last-minute scramble

n what could easily double up as Ian elocution test, the merging of the press and broadcasting regula - tors (GAPP and SARFT) has sired a new super censor: the State General Administration of Press, Publica - tion, Radio, Film and Television (or GAPPRFT, to use its acronym). The name change was greeted with a sprinkling of ridicule locally, enough for a swift announcement that GAPPRFT’s Chinese version is to be shortened from 14 characters to 10. Even so, the renaming still has a SMERSH feel about it, although the Stalinist acronym was much more functional (conjoining two Russian words to mean “Death to Spies”, making for an admirably direct mis - sion statement too). SMERSH was a genuine entity and not just a figment of Ian Flem - ing’s imagination. But very little was known about its work until the fall of the Soviet Union. This sense of mystery has a tenuous parallel with GAPPRFT too, on news that Quentin Tarantino’s latest offering Django Unchained just disappeared dra - matically from Chinese screens. A bloody revenge story set in America before the Civil War, Django was pulled from Chinese cinemas at the eleventh hour. In fact, it was an even more last- minute decision than that in some cities, says China News Service, with some cinemas hearing the directive In the flesh: Kerry Washington’s naked scenes irked Chinese censors just after shows had started, forcing them to call an abrupt halt to per - further insights, leaving the indus - first of his productions to be cleared P h o t

o formances. try to speculate about what really for distribution in China. But a ny

S o u r GAPPRFT then explained that the happened. sense of celebration was short- c e :

R e release was cancelled for “technical Tarantino’s films are famous for lived. “We regret that Django Un - u t e r s reasons” but failed to provide any their violence and Django was the chained has been removed from 15 Week in China Society and Culture 19 April 2013

theatres and are working with the Chinese authorities to determine whether the film can be resched - uled,” Steve Elzer, a spokesman for Sony Pictures Entertainment said in a statement. He then declined to discuss the possible reasons for the cancellation. Certainly, the last-minute nature of the decision was surprising. Po - tential problems are usually identi - fied and addressed by the Chinese censors long before the film’s open - ing. Some are speculating that the film – also a tale of a peasant upris - Big hit in Augusta: 14 year-old Guan grabbed headlines at golf’s Masters ing – touched on a sensitive nerve with the authorities. Judging from is a very minor incident,” Gao some sections of the international reports, the film had already gone claimed. “It’s just that Hollywood press might do well to learn from. through a process of self-editing be - films aren’t that popular in China The youngest ever competitor fore its anticipated release. In an ear - right now. People prefer to watch at last week’s Masters tournament, lier interview with Southern Me - Chinese-made films.” as well as the youngest to make tropolis Daily, Zhang Miao, a Moviegoers sounded uncon - the cut, the 14-year old handled director at Sony Pictures in China, vinced. “The unchained Django is everything that was thrown at him said Tarantino had agreed to “slight chained in China by GAPPRFT,” one with aplomb, even the storm sur - adjustments” which included “ton - weibo user wrote, while another rounding his one-stroke penalty ing down the bloody scenes to questioned how Hong Kong-made for slow play. darker colour and lowering the narco-thriller Drug War , which fea - “I respect the decision they height of the splatter blood”. But tures scenes of a policeman snort - made,” Guan acknowledged, appar - others say it might have been ing cocaine, as well as a man being ently unruffled. “They should do it scenes of nudity which caused con - given the death penalty by lethal in - because it’s fair to everybody.” cerns, something that GAPPRFT jection, was given the green light His father Guan Hanwen may have overlooked first time for showing. sounded equally calm. “A rule is a around. Certainly, both Jamie Foxx “This kind of non-uniform, lying- rule,” he said. “It’s OK.” and Kerry Washington reveal a lot with-eyes-wide-open, approve-and- Despite the hullaballoo about more skin than censors would nor - rescind censorship is undoubtedly Guan in the golfing media, were Chi - mally approve. making [the system] a big pile of nese golf fans similarly stirred by Industry bosses weren’t im - dog dung,” he wrote. Still, those hop - his achievement? Mark Dreyer, a pressed by the sudden embargo of ing to see Django shouldn’t have to sports journalist based in Beijing, the film. “The unexpected cancella - wait too long. Chongqing Morning has a hunch that Guan’s success tion will do far more damage to Post reported that the film is likely may have been greeted with more China’s image than the sight of to reappear later this month after interest outside China than at home. Jamie Foxx’s bare bottom could do further editing. The teenager’s weibo following to a Chinese audience,” Shi Chuan, swelled from about 20,000 in the vice president of the Shanghai Film week before the tournament to Association, told the Global Times, 28,000 by its conclusion. In per - expressing further annoyance that centage terms, that’s a decent in - the “sudden pulling” of the film was Not masters yet crease. But stars like Li Na, the tennis “disrespectful to both the market Golfer Guan impresses, while player, have more than 21 million and the audience”. boxer Zou waits for his shot fans, giving the teenage golfer’s pop - P h o t

o But Gao Jun, former president of ularity a little more perspective.

S o u r Beijing’s New Film Association, a uan Tianlang’s debut at the Also getting mention was that the c e :

R e leading film distribution company, Masters last week was calm - Chinese media didn’t travel in num - u

t G e r s played down the suspension. “This ness personified, behaviour that bers to cover the Masters, often re - 16 Week in China Society and Culture 19 April 2013

lying on reports from the interna - sounds pretty sure that his boxer tional press. And although state-run will pull in massive audiences. newspapers like the China Daily did “Will he ever become a superstar carry prominent stories in their in the United States? Of course not. English-language editions, most Not a chance,” Arum told ESPN. “But Chinese-language titles focused on in China? Yes. I signed [Zou] because domestic football or last Sunday’s I realised that he was so famous in Chinese Grand Prix instead. China that I could not only promote How about the other rising Chi - him, but I could also introduce fight - nese star of the moment, Zou Shim - ers from all over the world and get ing, the light flyweight boxer? At the Chinese caught up in the sport least Zou is plying his trade in a of boxing. That’s the plan. I know sport that appeals to those lacking this is the start of that.” the financial means to aspire to Arum also seems to think that Guan’s success on the greens. Zou’s rise will sell plenty of pay-per- After claiming China‘s first view subscriptions in China too Olympic boxing medal, a bronze, in (perhaps, but paid content is not a 2004, Zou went on to win its first concept that many Chinese sports Life’s a trial for Huang these days gold in front of the home crowd in fans are familiar with; see last Beijing, before winning once more week’s edition). Shandong province, have felt the in London last year (see WiC22 for Arum is undeterred. “I guaran - urge to declare his 46 mistresses or our first mention of Zou). tee you that before he retires, he his predilection for entertaining In contrast to the young age at will make more money in a fight them in what has been dubbed as a which Guan is likely to turn pro, Zou than Pacquiao [the hugely popular ‘pleasure palace’? has started his own professional ca - Filipino boxer] has ever made in Aside from speculation about reer at almost 32, with a four-year any single fight, more than $28 mil - his demanding social life, when contract with Bob Arum’s Top Rank. lion, because I know what is hap - Huang’s case first came to light al - That means that he will need to be pening in that market,” the pro - most 18 months ago there were fast-tracked into a world title shot, moter insisted. suggestions online that he had ac - following fights with underwhelm - cumulated a massive $9 billion ing opponents like the 18 year-old haul from illegal activity. Wonder - Mexican Eleazar Valenzuela, who ing more if Huang’s detention Zou defeated unspectacularly in might herald a wave of corruption Macau earlier this month. In hot water scandals in advance of China’s Zou’s promoters are still hopeful “$9 billion” mayor now better leadership handover, WiC actually that he will hit the big time, some - known for his bathing habits expressed caution about the spec - thing reflected in the hype sur - tacular sum (see issue 131). Lately rounding the fight, as well as his camper van worth €1,000 the Chinese press has been looking $300,000 purse, well above average A($1,305) and a scooter valued back on the figure with more scorn for a first professional bout. at just €900 were two of the more too, saying that the locals would Media headlines also celebrated mundane assets disclosed by have had to give up most of their his debut as a smash with the televi - members of Francois Hollande’s money for years if Huang was re - sion audience, with claims that 300 government this month, following ally to collect such a vast ransom. million Chinese tuned in. But that a scandal in which a colleague was So how much did Huang man - figure is unproven, apparently exposed as holding a Swiss bank age to purloin? The sum cited in pulled from mischievous comments account. the case that opened against him made by Michael Buffer, the pre- Quite what some of the political in Nanjing this month now sounds P h

o bout announcer. Again sports jour - elite would have to reveal should a almost trivial (a little over Rmb12 t o

S o nalist Dreyer urges caution, saying similar exercise be undertaken in million or less than $2 million). u r c e :

w that the buzz on weibo would have China is a game of guesstimate – for “That’s unbelievable!” one weibo w w . c been much greater if the TV audi - now, at least. contributor scoffed. “A vice gover - h i n a . o ence had reached such heights. For instance, would Huang Sheng, nor of a province who takes so little r g . c n Still, Zou’s promoter Arum the former deputy governor of money, less than the price of two 17 Week in China Society and Culture 19 April 2013

houses?” But the Yangcheng their quality time together (“Al - Huang Sheng and other officials Evening News suggests that Huang legedly, Huang Sheng likes the have taken Mandarin Duck baths made most of his cash during a ladies” is how the Yangcheng here many times.” long stint as mayor of Dezhou, of - Evening News puts it, with careful Less lurid but similarly revealing ten from fees charged for political understatement). is that the Chinese public doesn’t appointments. A more senior pro - Others have felt freer to enjoy this seem particularly enraged by motion to county-level Party sec - aspect of the story, particular the Huang’s conduct. Writing for Tea retary was billed at Rmb500,000, mentions of “Mandarin Duck baths” Leaf Nation, a blog covering China’s for instance, while a lowlier post - in Huang’s case. Derived from an social media, Liz Carter says this is ing to deputy mayor in a township original meaning of a couple of because the case has been covered might cost the applicant perching ducks, the phrase has by the newspapers rather than Rmb50,000. Huang and his ac - earthier connotations of shared emerging as the kind of do-it- complices also struck deals with baths, often of an illicit nature, with yourself online discovery that has property developers, Legal Weekly nubile ladies. whipped netizens into a self-right - has alleged, usually in approving And if the domestic media is to eous fury in the past. land bids at low prices. Sometimes be believed, Huang kept himself very Her other suggestion is that it’s Huang may have asked for proper - clean indeed (after office hours, ad - increasingly hard to shock a jaded ties himself in exchange for the mittedly) at a local hotel in Dezhou. public – at least where deviant offi - clandestine arrangements, with al - “Once you get off the elevator on the cials are concerned. Indeed, the re - legations that his ex-wife Yan fourth floor, you will be confronted action to Huang’s 46 mistresses has Qianzi played a role, threatening with multiple big bathrooms for been studied nonchalance. demolitions if an appropriate in - guests,” the Yangcheng Evening However, there may be more of centive wasn’t made available. News reports an unnamed source as an impact when revelations start to Perhaps it’s just as well that Yan recounting. “In addition, there is a emerge from former railway minis - kept busy, as her husband’s philan - bar, a ballroom, a billiard room, a ter Liu Zhijun’s trial. He allegedly dering must surely have cut into dance studio and an archery room. took Rmb1 billion in bribes... n

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18 Week in China And Finally 19 April 2013

Private kitchens Banquet clampdown leads to creative solutions

t first glance, number 71 looks WiC182) – it has become increas - Amuch like any other Qing dy - ingly popular. nasty building in Beijige San Tiao Number 71 is far from alone. Dis - hutong, an old alley way in central crete clubs in parks, historical build - Beijing. With walls made from grey ings and other hutongs across the brick, it sports a traditional tiled city are all benefitting from Xi’s aus - roof and its heavy double doors are terity drive, according to media re - Knock twice, and bring napkin painted a deep red. ports, as officials seek to enjoy fine But this particular building is dining away from the public gaze. have also been encapsulating the brand new. And when shiny black “High quality restaurants report lengths to which some officials will cars begin pulling up outside each they are hosting fewer official ban - go to continue feasting at taxpayer evening, its purpose is revealed. quets now. However some people expense. One shows a table on “It’s a private club owned by the have changed their strategy from which there is only a thermos and agricultural ministry,” a man who eating publicly to eating secretly. several small bowls for tea. But then owns a nearby shop told WiC. “You Private clubs and secret restaurants a waiter lifts up an edge of the table - can’t just go in. You have to be in - have now become the new place for cloth to expose the real banquet un - vited.” ‘mouth corruption’,” an investiga - derneath. The caption says “internal The club consists of two ornate tive report on state news channel canteen” – a reference to the claim courtyards, divided by a modern CCTV 13 claimed last week. that some officials have even been glass cube which functions as a din - The coverage — which was given inviting chefs from five-star hotels ing room for those who don’t mind massive play across all CCTV’s news to come to their office canteens to being seen by other members (but channels — showed official cars cook for them. not others). The development also parked outside clubs (some with their But first prize for culinary sub - has a state-of-the-art kitchen and an number plates removed) and fea - terfuge goes to a group of police - elevator for cars to reach an under - tured a waitress saying that banquets men from Henan province. ground garage. could run to as much as Rmb6,000 When a Xinhua reporter turned For the first year of its existence ($971) per head in her establishment. up to document an extravagant Lu - the club was fairly quiet, but since “During the NPC and the CPPCC nar New Year banquet and tried to last December and Xi Jinping’s we had lots of officials come here,” see their booking on the hotel’s Eight Provisions — new rules to she said, in reference to the nation’s computer, the policemen simply or - prevent officials from spending annual parliamentary session. dered that the power be turned off. public money on luxury items (see Cartoons circulating on weibo Then they arrested the reporter. n

Dressing for success in China

P “We think becoming number one in China means becoming number one in the world” h o t o

S o u

r * Pan Ning, CEO of Fast Retailing in China. The Japanese operator of Uniqlo is set to open c e :

S its biggest store globally in Shanghai, measuring 6,600 square metres. It opened its first shop h u t t e in China in 2002 and has 189 retail outlets. r Uniqlo Beijing s t o c k

19 Week in China The Back Page 19 April 2013

Photo of the Week In Numbers 850,000 The number of soldiers in the Chinese army, while the navy and air force have a strength of 235,000 and 398,000, according to the Chinese military. Xinhua says this is the first time such information has been disclosed publicly. 1/3

P The share of purchases made at Louis h o t o

Vuitton stores in Europe by Chinese S o u r tourists. Louis Vuitton recently raised prices c e :

I m for its handbags and leather goods in a g i n Europe because its merchandise was e

C h

i roughly 50% more expensive in China than n a in Europe at one point last year. The happiest place in China? A smile made by 3,800 students in Jilin wearing an assortment of red and blue raincoats 300,000 tonnes The weight of peanuts China is expected to import from the US – that’s half of expected US exports. In Georgia, peanut- Where is it? shelling companies have been on hiring sprees to staff factories that are running 24 Some of the places referred to in this issue hours a day to keep up. China’s appetite comes from a combination of cheaper prices and demand for peanut oil. Beijing Tianjin Shandong Rmb6,000 Amount a woman from Chengdu paid for China Henan her belongings after she haggled with a Shanghai robber who had stolen her purse (he Zhejiang Chongqing demanded Rmb8,000). The heated exchange highlights the superior business skills of the Sichuanese, boasts the Chengdu Business Daily. The purse Shenzhen Hong Kong contained an Omega diamond watch, BMW car keys, a LV wallet and an iPhone.

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