1 Talking Point

4 Week in 60 Seconds

Week in China 6
5

7
8
China Ink
Telecoms
Energy and Resources
China Consumer
9 Economy
11 Chinese Character
13 Banking and Finance
20 August 2010 14 Society and Culture
Issue 74 18 And Finally
www.weekinchina.com 19 The Back Page

China’s man of steel

www.benitaepstein.com

by ng
Why Wang Yifang offers a model for the steel industry’s much-needed consolidation u i
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 Week in China
Talking Point 20 August 2010

Hebei’s M&A king

A wave of consolidation is sweeping China’s steel sector – led by Wang Yifang

n 1957 China’s steel industry pro-

I duced a mere 5.3 million tonnes
a year. This bothered Mao Zedong,
who viewed steel output as a proxy
for national virility. Sitting by his
swimming pool in Zhongnanhai, he
decreed that output should be dou-
bled by the following year. Then he
set a target of 30 million tonnes for
1959. It was all to be achieved, he
told Nikita Khrushchev sagely,
through the efforts of 90 million
Chinese, all producing steel from
homemade furnaces.
It was, of course, a policy disaster
and one of the great failures of the
Great Leap Forward campaigns. But Consolidated results: Wang has made Hebei Steel nation’s number one
times have changed: Reuters is fore-
casting that China will produce 600 ports the New Century Weekly. – in volume terms – to the top of the
million tonnes of steel this year “But Hebei Steel has been there, industry, surpassing Baosteel with
(which is six times more than that done that.” The man who has driven an output of 40.2 million tonnes
of Japan, and well over 100 times the process is Wang Yifang. per year. According to Wang, the in-
China’s output at the time of Mao’s Back in 2005, Hebei province was tegration has led to annual savings
swimming pool calculations). home to an untidy portfolio of state- of Rmb3 billion ($441.7 million) on
Ironically enough, the current owned mills. In those days Wang ran the pre-merger cost structure.
Chinese government has concluded state-owned Tangshan Steel – a
that this is far too much; especially small player that gained greater It can’t have been straightforward?
when much of it is low quality, and scale after it absorbed two other No, Wang faced serious challenges.
produced in small, energy-ineffi- Hebei-owned mills. “The restructur- The greatest was to combine the
cient mills. So the goal is to move ing went so well,” writes New Cen- merged entities sales and procure-
steelmakers up the value-curve, tury Weekly, “that the government ment departments.
and promote higher tech mills. decided to replicate the merger on a In a market with fluctuating iron
Fewer and bigger are the buzz- province-wide scale.” ore costs and often volatile prices
words; with less overcapacity. Thus, in June 2008, Wang over- for finished steel products, the indi-
The poster child for this pro- saw a merger with Handan Steel. vidual mills traditionally fought
gramme is Hebei Iron and Steel The resulting entity was renamed over procurement and undercut
Group, which in short order has be- Hebei Steel and Wang was made each other on sales and pricing.
come China’s biggest steelmaker. chairman and general manager. The staff in these buying-and-
During his tenure as Hebei’s top selling departments also enjoyed
Enter Wang Yifang… steel executive Wang has taken over great power and resisted change.
“Steelmakers across China are busy seven mills – the most recent being So when the financial crisis hit in
Photo Source: CFP

merging and consolidating opera- Shijiazhuang Steel, bought in March 2008 they argued the process should
tions, driving for more efficiency for Rmb1.9 billion. The rapid con- be delayed. Wang took the opposite
and better resource allocation,” re- solidation has seen Hebei Steel leap view: that the increased volatility of
1
 Week in China
Talking Point 20 August 2010

the market made reform all the
more essential.
“The crisis hastened our pace of
integration,” he recalls. “Without it,
we may not have executed it so
forcefully.”
In early 2009 the sales and pro-
curement functions underwent
their final integration, unifying pur-
chasing and pricing. An interna-
tional trade department was also
established to consolidate import-
export operations across a series of
the smaller mills.
The result?
In an industry where losses are com-
mon in China, Hebei Steel made
Rmb6.9 billion in pre-tax profit in
2009 (albeit about half of what
tor. It recently merged with Pangang Beijing wants the industry to be
Group. An ongoing merger with dominated by three large compa-
Benxi Steel – if completed – will see nies with annual output of 50 mil-
the firm renamed Anben and ex- lion tonnes, followed by a number
pand the group’s total output to 56 of smaller companies producing
million tonnes – putting it in the around 30 million tonnes a year, re-
top spot. ports the Wall Street Journal.
This fits with government ambi- To encourage M&A it has pro-
tions. There are currently just hibited new steel projects until
under 1,000 steel smelting enter- 2012, so if a mill wants to expand
prises in China, with the top five before then it will most likely have
steelmakers making less than 30% to absorb one of its rivals. There is
of the nation’s steel. That’s abnor- also continued pressure on the in-
mal in the global context, suggest- dustry’s minor players. New rules
ing a fragmented and inefficient were announced last month that
industry structure. will force the closure of steel firms
Shanghai Banking Corporation Limited, HSBC Securities (USA ) Inc., member of NY SE, FINRA and SIPC, and HSBC Bank USA , NA . 10-084
HSBC operates in various jurisdictions through its affiliates, including, but not limited to, HSBC Bank plc, authorised and regulated by the Financial Services A uthority, The Hongkong and

Baosteel made). “Hebei is at the fore-

front of the industry,” says a confi-
dent Wang. “At present, even if the
whole steel industry is in dire straits,
Hebei Steel would definitely be
among the last to fall.”
Little wonder that New Century
Experienced guide available.
Weekly says Hebei’s example is
“now favoured by mills nation-
wide”. (For more on recent steel in-
dustry mergers see WiC70, Steely
Determination).
As to further growth, Wang has
already consolidated the province’s
state-owned firms, which means
further acquisitions would need to
involve private sector firms. His
reservation is that many of the pri-
vate mills are sub-scale. “We cannot
waste our resources on junk,” he
observes.
Then again, he doesn’t seem keen Prague, Czech Republic

on buying state-controlled steel-

makers in other provinces (perhaps
because his political ties in Hebei Talk to the bank that lives in emerging markets.
will have less leverage elsewhere). And let HSBC’s global network open up a world of
So that may mean Hebei Steel’s po- opportunity for your business.
sition as China’s biggest steel firm
could prove short-lived.

Who might surpass it? GLOBAL BANKI NG AND M ARKETS

As reported in WiC63, Anshan Steel

has also proved an active consolida-
2

Talking Point
producing less than a million
tonnes annually.
Why the hurry to merge?
As indicated earlier, consolidation is
intended to make the sector more
profitable and more eco-friendly
(the bigger players have more mod-
ern mills that use less power and will
have the balance sheets to invest in
cleaner technologies).
The government is also keen to
create industry champions that can
then negotiate in a more muscular
fashion with BHP Billiton, Rio Tinto
and Vale over iron ore imports.
As WiC has reported extensively,
the Chinese have taken a bloody
nose in their dealings with the large
iron ore suppliers (most recently, see
WiC56). While the Chinese have tried
to present a united front in negotia-
tions, the sheer number of mills
clamouring for iron ore supply has
often undermined the efforts of the
industry body – CISA – to drive a bet-
ter bargain. The government be-
lieves post-consolidation it will have
a stronger hand
A problem-ridden industry…
There’s also little choice but to con-
solidate. A possible double-dip in
the US, a slowdown in the local
property market (and hence in con-
struction) and a new tax on low-
grade steel exports have all sent
Week in China
20 August 2010
Planet China
Strange but true stories from the new China
KARMA KILLERS. When you think of monks, you imagine peaceful types,
lost in a spirit of contemplation. So police were shocked to hear of a group
in Baotou that had beaten up a series of victims at a toll booth. The
offenders later stole a bus and made their escape.
Police investigations then discovered that the wanted men were not from
a monastic order at all, but part of a gang from Henan that dresses like
monks and roams Inner Mongolia selling counterfeit drugs. A force of 500
officers was mobilised to round up the impostors. After the August 6 toll
booth attack, police captured 178 fake monks, and seized large quantities
of knives, dud medicines and counterfeit jewellery.
shivers through industry board- times. The steel trading firm owned
rooms. According to the website by Sasac (see WiC45) is in a bad way
Metal Miner, profits at the major after it tried to restructure privately-
steel mills fell 37.8% in June (on the held Shanxi Zhongyu Iron and Steel.
year before) and were expected to Unfortunately, Zhongyu turned out
drop further in July. to be a tough takeover proposition.
Further market turbulence is ex- Its mill has severe technical prob-
pected. Oversupply and excess com- lems (the furnaces were discovered
petition is hurting margins, and to be in such poor shape that they
iron ore prices are climbing again. were threatening to explode) and
Little wonder that Hebei’s Wang be- the company has failed to deliver the
lieves the industry’s current diffi- steel orders that Sinosteel has pre-
culties may be “more grave than the paid for.
global financial crisis in 2008.” That’s left the trading firm with a
Rmb4.2 billion bad debt which has
And not all the restructuring is go- reportedly made Sasac boss Li Ron-
ing to plan… grong livid.
Hebei Steel’s example is generally Sinosteel’s experience offers
taken as a positive one. But consider something of a cautionary tale and
the plight of Sinosteel, which is go- evidence that the consolidation
ing through much more troubled process may not be easy. n
With 1.3 billion people, 293 languages and an often opaque
business culture, China can often seem as mysterious as the
Mona Lisa. Our newly launched and easy-to-search website
now helps you to find some of the answers. It contains a
growing archive of more than 1,000 WiC articles.
And the new site has another advantage: from now on you’ll
be able to read us on the move each week via your Blackberry
or iPhone. In order to keep getting our weekly email and access
the site, you’ll need to go to www.weekinchina.com/welcome/
and sign up. It takes just a couple of minutes to register.
Sign up today!
3
 Week in China
The Week in 60 Seconds 20 August 2010

Number two, at last...

The major news items from China this week were...

Time to uncork the champagne? China is expected to

1 surpass Japan this year as the world’s second-largest
economy, said 21CN Business Herald. Second-quarter
GDP figures from Japan reported on Monday show that
its economic output, at $1.288 trillion, fell short of the
$1.339 trillion China reported for the three months
ended in July (see China Ink).

And more good news… China’s foreign direct invest-

2 ment (FDI) for July surged by 29% from a year earlier,
said the South China Morning Post.

Better still, Taiwan’s Parliament approved the wide-
3 ranging (and controversial) trade pact with China on
Tuesday, said Reuters. The deal slashes tariffs on about
800 products on both sides of the Taiwan Strait and
deepens economic ties between the two (see WiC67).
A landslide swept through a mountain town in Yun-
4 nan Province after days of heavy rains on Wednes-
day, leaving at least 67 people missing, Xinhua reported.
Mudslides and floods have killed at least 1,500 people
around the country in the recent weeks. On August 8, a
mudslide in Zhouqu in Gansu killed 1,287.
Despite Beijing’s recent tightening measures, prop-
5 erty prices remain stubbornly high. According to
Caixin magazine, prices in 70 of China’s largest cities
were unchanged in July on the previous month but that
still meant they were up 10.3% on a year earlier.
Taiwan’s Ma Ying-jeou gets trade pact passed
Wuhan Steel, China’s third largest steel mill, is in
6 talks with ArcelorMittal, the world’s largest steel-
maker to jointly develop overseas mining projects to ac-
cess more raw material resources and reduce cost risks,
the China Daily reported.
AIG has approached some of the world’s biggest in-
7 vestors with a view to them taking stakes in AIA, the
US insurer’s Asian operation, according to the Financial
Times. A number of Chinese insurance companies were
said to be interested.
8 China Everbright Bank rose 18% on its first day of
trading on the Shanghai Stock Exchange on
Wednesday, amid renewed enthusiasm for newly listed
shares following the recent recovery in the domestic
stock market, the Wall Street Journal reported. Mean-
while Agricultural Bank of China was also able to take
advantage. It fully exercised its greenshoe, raising a
total of $22.1 billion – an outcome that makes it the
world’s biggest ever IPO.

Sri Lanka has unveiled a China-funded (and likewise

9 constructed) seaport, which is scheduled to open in
November. China – now the biggest lender to Sri Lanka –
has invested $6 billion in the port in Hambantota. It is
Photo Source: Reuters

also funding a large coal power station, roads and rail-

ways and an airport near the new seaport, said BBC. India
worries that the port’s future phases might afford Bei-
Searching for survivors after the mudslides jing’s navy a military facility in the region (see WiC62). n
4

China Ink
Sayonara, salary man
Press declares China is now the world’s second
largest economy after its second quarter GDP
surpasses that of Japan. So was the Chinese media
triumphalist at the news?
What the Chinese press says
The Global Times allowed itself a small celebration,
puffing that China's economy had “overwhelmingly
outperformed” that of Japan. Expect to see it unseat
Japanese GDP on an annualised basis by the end of
the year too.
But columnist Li Hong, writing in the People’s
Daily, urged caution: "While we could drink beers to
mark our jubilation, this country has no reason to be
complacent." True: especially on per capita metrics.
Here the gap between China and its rivals is still
considerable. At $3,600 per head, Chinese GDP is
less than a tenth of US and Japanese levels
Probably both. “The world's second-largest economy
is not the equivalent of the second-largest economic
power," proclaimed the People’s Daily. But others
used the economic data to call for an upgrading of
China’s status in international organisations like the
International Monetary Fund and the World Bank.
Li Daokui, a member of the central bank’s
Monetary Policy Committee, called for humility.
Otherwise he thought rivals would see China’s
progress as a threat.
Yes, thought the China Daily, although it offered a few
words of comfort to the Japanese. A recently
commissioned survey found that one in five Chinese
still felt that Japan would be a “mid-level country
with a very strong influence” in 2050. Faint praise,
indeed. But still better than the feedback from the
Japanese nationals questioned, as their own majority
Photo Source: Reuters
response was that their country would lack any
influence at all in 40 years time.
Week in China
20 August 2010
The key issues What the foreign press says
Raise a glass to China’s The Chinese were doing their best to keep the
economic success? triumphalism in check, said the UK’s Guardian
newspaper. Quite right too, thought Joe Wiesenthal, at
the Business Insider blog, who also picked up on the
per capita metrics. China is way down the global list
on the IMF’s most recent figures. “Let us know when
China passes Albania” was his withering sign-off.
Columnist Tom Holland at the South China
Morning Post was decidedly non-plussed by the fuss
as it wasn’t the first time China’s quarterly GDP had
bested Japan’s (it happened in the fourth quarter of
last year too). And on the basis of purchasing power
parity, China’s economy is already double the size of
Japan’s: “China’s economy has been bigger than
Japan’s for a long time now, despite what the
headlines might tell you.”
Superpower or developing Retaining a developing country image is important
nation? to China’s leaders, agreed Jamil Anderlini in the
Financial Times’ Beyond Brics blog. Without it, they
will find it harder to argue against adopting
commitments on greenhouse gases or greater
reductions in export subsidies. Deng Xiaoping laid
down a policy of “concealing brightness and biding
time,” and for many Chinese leaders that low-key
approach remains advisable.
But full speed ahead Younger readers may find it hard to believe, writes the
economically? Wall Street Journal, but 20 years ago Japan was
generally regarded as the world’s ascendant economic
power. But since 1990, China has grown by an average
of nearly 10% annually, Japan at well under 2% a year.
Blame an aging population, burgeoning national
debt and Japan’s failure to reform its “perverse”
form of government-sponsored enterprise. “The
lesson is that the wealth of a nation is not a
birthright,” the Journal concludes. It wonders if China
will learn from Japanese mistakes. n
5

Telecoms
A touch of genius
Chinese inventor just made the iPhone a lot cheaper
teve Jobs is very mindful of what
S runs on his Apple products. Ear-
lier this year he prevented the firm’s
iPhones and iPads from running
Adobe’s Flash – a move that led the
software firm to accuse him of run-
ning a closed system. But Jobs did-
n’t budge. Instead he issued a long
open letter announcing that Flash
had “technical drawbacks”, claiming
he much preferred HTML5 instead.
It doesn’t always go his way,
however. Witness the US federal
ruling last month that upheld cus-
tomers’ rights to ‘jailbreak’ their
iPhones (jargon for tampering with
them in order to install third party
applications).
Further afield in China, Apple is
facing another challenge. And this
one looks like it might encourage a
mass jailbreak. The saving grace (a
limited one, from Apple’s perspec-
tive) is that at least it only facilitates
switching from one of the com-
pany’s products across to another.
That’s because customers ready
to spend Rmb388 (about $57) on an
‘Apple Peel 520’ can now upgrade
their iPod Touch from media player
status into a full handset capable of
phone calls and text messages. The
transformation creates something
that looks (and behaves) very much
like an iPhone – and at a fraction of
the price. The state media is cele-
brating it all as a case of Chinese in-
vention in action.
The company behind the Apple
Peel 520 – Shenzhen Yosion Tech – is
offering a soft plastic adapter jacket
Photo Source: Yosion
(the “peel”) that wraps around an
iPod Touch, enabling calling and
text-messaging applications. Users
Look, but don’t iPod Touch
can then insert a SIM card and make
calls, using a headset. It looks like a
classic China play; a product engi-
neered to capitalise on a brand de-
veloped elsewhere, and sold at a
lower price.
Apple has faced criticism for be-
ing slow on its commercial feet in
China, especially in a distribution
deal with official partner China Uni-
com. While that was being set up,
millions of iPhones were purchased
through grey market channels.
There have been other mix-ups
too, according to Caixin magazine.
Apple’s Beijing store was recently
discovered to be selling the new
WiFi-enabled version of the handset
at a Rmb1,000 discount to units sold
through China Unicom channels.
Company officials say that the mis-
take won’t be repeated for the re-
lease of the iPhone4 in early Sep-
tember, or for the sale of the iPad,
for which China Unicom will again
serve as the exclusive partner.
Yosion’s founder says he in-
vented the Peel because he could
not afford an iPhone himself. At
the moment the lowest official
Week in China
20 August 2010
price for the iPhone is Rmb4,999.
But the cheapest iPod Touch sells
for about Rmb1,500. Even with
the cost of a Peel “upgrade”, sav-
ings of more than Rmb3,000 look
to be on offer. Apple might have a
pricing problem.
If the critics are right about Ap-
ple’s controlling instincts, China
must be one of its most unsettling
markets. At least the development
team seems to be able to churn out
compelling new products at regular
intervals: it makes it a little tougher
for the copy-cats to keep up. And
perhaps even the Peel’s arrival
might have a silver lining, boosting
sales of the iPod Touch to a large
segment of consumers who can’t af-
ford an iPhone itself.
Currently only a small order of
Peel 520s has been manufactured.
But Yosion now wants to boost sales
volumes and is looking for in-
vestors. One problem for interested
parties, says the Economic Ob-
server, is that the Peel’s legal status
remains unclear. Yosion also ad-
mits that it doesn’t have the time or
money to bother with patenting
the Peel itself.
That means it won’t want to delay
bringing in new shareholders. It al-
ready has competitors of its own, in-
cluding the tPhone, which has a
longer battery life. Perhaps that’s
why the company’s chief executive
is ready to think bigger picture as
far as partners go, asking his CNN
interviewer to put him in touch
with Steve Jobs to see if he would be
interested in collaboration.
That sounds like one phone call
that will go unanswered. n
6

Energy and Resources
Hot rods
Why the Chinese are shopping for uranium mines
or much of the last decade, the
F metal to own has been gold. En-
joying steady price increases until
2008, its value soared with the
bursting of the commodity bubble
and the onset of the financial crisis.
But with an ounce of gold now
worth around $1,200, compared to
between $250 and $300 10 years
ago, some investors are starting to
consider cashing out. Where next
for maximum return?
The answer could be uranium.
You might not want to wear it
around your neck (or hide it in a
shoebox under your bed) but there
are compelling financial reasons for
buying uranium futures.
One is that uranium is crucial for
nuclear energy (when bombarded
with slow neutrons it generates the
heat in nuclear reactors). China is
currently constructing 24 nuclear
power plants, or 40% of the total be-
ing built globally. There are plans
for at least 60 new reactors by 2020,
according to Xu Yuming, executive
director of the China Nuclear Energy
Association. The average 1,000-
megawatt reactor costs about $3 bil-
lion, according to the World Nuclear
Association, and needs about 400
tonnes of uranium to fire up.
So it should be no surprise that
forward thinking companies are
making moves to ensure a steady
uranium supply. Over the last
month, China’s second-largest
builder of nuclear power plants,
Photo Source: Shutterstock
China Guangdong Nuclear Power
Group (CGNPG), signed agreements
with two major suppliers – Canada’s
Cameco and Australia’s Paladin En-
ergy. And last week, East China Min-
eral Exploration bought a control-
ling 51% stake in junior Australian
miner, Northern Uranium. The
Rmb100 million ($14.7 million) in-
vestment marks an upping of the
ante, as it puts cash into an explo-
ration company, as opposed to a
functioning mine. Northern Ura-
nium has mining rights to an area
focused on the Gardiner-Tanami
project in Western Australia. It has
already carried out extensive geo-
logical surveys but, as part of the
deal, the Chinese partner will invest
a further Rmb200 million to fund
exploration costs.
China’s own uranium production
is small by global standards (min-
ing is dominated by eight countries
that account for 94% of the market,
with Kazakhstan, Canada and Aus-
tralia by far the largest producers).
The gap between Chinese reactor re-
quirement for uranium and its do-
mestic resources could grow to as
much as 30,000 tonnes by 2030, re-
ports 21CN Business Herald.
That means that – as with other
commodities – major Chinese buy-
ers are looking at locking up a share
of supply further afield. “China’s
high demand for uranium may in-
duce speculation in the interna-
tional uranium market, leading to
soaring prices,” Yan Qiang of the
Chinese Academy of Geological Sci-
ences told 21CN “The future supply
should not be overly dependent on
the spot or futures market. Shares
acquired from investments in for-
eign mines should become the
main source of uranium.”
Week in China
20 August 2010
China reacts to uranium deficit
Beijing’s investment strategy is
to target countries that have large
amounts of supply but little de-
mand. The relevant government de-
partments have ranked potential
markets into three groups, reports
21CN. The top tier is not only ura-
nium-rich, it also either has exist-
ing mining relations with China –
such as Australia and Canada – or is
nearby, such as Russia, Mongolia
and Kazakhstan.
The most significant countries in
the lowest group, however, are those
that have their own ambitions for
nuclear energy. Top of the list is In-
dia, which already has a compara-
ble number of reactors to the Chi-
nese, and is also developing a
nuclear energy blueprint of similar
scale to Beijing’s.
Together, the two countries will
push an atomic expansion that an-
alysts say is the biggest since the
decade after the 1970s oil crisis. By
2015, a new reactor may start every
five days, compared with an average
of one every 17 days during the
1980s, according to the World Nu-
clear Association. And operators are
are already stockpiling uranium re-
sources, market insiders report. In-
vestors will be hoping that this will
set the tone for another phase of in-
creasing prices. n
7

China Consumer
Total recall
Panasonic’s image in China takes a knock
anasonic knows a few things
P about localisation in China. For
example, fridges are often made
with decorative doors because they
serve as status symbols for rural
folk, displayed in living rooms.
Washing machines might also need
to handle the rinsing of vegetables.
But a little local knowledge hasn’t
saved the Osaka-based company
from a public relations disaster. In
early August, Panasonic recalled
more than 365,000 refrigerators in
China due to faulty temperature
control components. According to
the Shanghai Daily, the fault af-
fected freezers experiencing high
temperatures or excess humidity. In
certain extreme conditions, some
units were going up in smoke.
Recalls are not unheard of. Last
November, Samsung called back
32,000 refrigerators. LG had similar
problems – on a much smaller scale
– in February. Panasonic’s current
difficulties are of a different magni-
tude, and become the latest in a
string of high profile quality control
scandals for Japanese consumer
companies. In 2008, Sharp was dis-
covered to be selling a poorer quality
of LCD television to Chinese shop-
pers compared with the same model
sold in Japan and Hong Kong, for in-
stance. That led to a media backlash.
Similarly, Toshiba had to recall sev-
eral LCD models of its own under
similar circumstances.
Fairly typically, the media tends
Photo Source: Reuters
to look at such situations with a pa-
triotic eye, claiming that Chinese
product quality is gaining fast on its
international peer group. The Peo-
ple’s Daily proudly announced last
week that, while foreign brands have
been hit by defective products, no
domestic home appliance company
has needed to conduct a recall.
Given the reputation for some Chi-
nese goods in overseas markets, that
might sound surprising. Nor does it
address the issue of why foreign
brands have failed quality stan-
dards. Was it a result of design flaws
or production shortcomings, for ex-
ample? And how many of the faulty
products might have rolled off Chi-
nese factory lines?
Still, Japanese appliances will
probably take a reputational hit
with Chinese consumers as a result.
Panasonic has recorded a drop in
sales since the news broke on the
latest recall. Perception matters too,
as many Japanese firms are looking
to China to drive their sales growth.
The indications are that some
may be suffering, including Pana-
sonic. Its refrigerators held only a
2% market share in China in the first
half of the year, trailing other for-
eign brands like Samsung, LG and
Siemens, says Zhongyikang, a Bei-
jing-based research firm. Panasonic
washing machines are also losing
ground, their share of the market
falling from 11% at the beginning of
this year to 8% currently.
The electronics giant boasts one
of the most extensive distribution
networks among Japanese compa-
nies in China, as well as more than
40 factories and production facili-
ties. But analysts say its extended
product range and relentless focus
on cost-cutting have distracted man-
Week in China
20 August 2010
Back to the factory with it...
agement, ceding some markets to
more focused, agile players like Sam-
sung and LG Electronics.
Meanwhile, domestic brands like
Haier and Midea are wresting back
market share from foreign manu-
facturers. By 2009, Haier was in con-
trol of one-third of the Chinese mar-
ket (by unit sales) in refrigeration
and laundry appliances, as well as
one-quarter for air conditioners.
“Japanese companies were high-
end brands in the past mainly be-
cause of their cutting-edge technol-
ogy and superior quality,” Xu
Dongsheng, Secretary-General of
China Household Electrical Appli-
ances Association told the 21CN Busi-
ness Herald. “Now [they] only focus
on cutting prices and have stopped
investing in research and develop-
ment. It is only natural that they are
surpassed by Chinese and South Ko-
rean companies.”
Perception or reality, it’s an in-
terpretation that will worry Japan
Inc, especially with the recent sym-
bolism of the country losing its
ranking as the world’s second-
largest economy to the Chinese (see
China Ink). The Japanese reputation
for quality was earned over decades.
But losing it – particularly among
China’s burgeoning market of
youthful and relatively inexperi-
enced consumers – could be a more
rapid experience. n
8

Economy
Power problem
Beijing orders factories shut; will provinces do so?
hen it comes to creative acts
W of insubordination, it is hard
to beat Horatio Nelson’s efforts at the
Battle of Copenhagen. Ordered to re-
treat by Admiral Sir Hyde Parker, Nel-
son opted to hold his telescope to his
blind eye. “I see no ships”, he re-
marked coolly, before continuing
with his attack.
Disobedience has a long history
in China too. A popular proverb –
which WiC has cited before – cele-
brates that “Heaven is high and the
emperor is far away”. It denotes the
difficulties of Chinese rulers in en-
forcing their authority, especially in
the more distant provinces.
That doesn’t stop the emperors
from trying to express their will, of
course. And one government min-
istry has made just such an effort
this month, releasing a list of more
than 2,000 companies targeted for
closures due to “backward produc-
tion capacity”.
The roll call, released by the Min-
istry of Industry and Information
Technology (MIIT), includes com-
panies from a range of industries
and provinces. Heavy polluters get
most attention, with cement pro-
ducers, papermakers and printing
firms featuring heavily, as do cok-
ing and iron smelters. Henan,
Shanxi and Zhejiang top the list for
provinces facing the most factory
shutdowns.
One response to such pro-
nouncements is that we’ve heard
Photo Source: Reuters
them all before. Most recently, in
fact, about four months ago, when
Beijing’s determination to reduce
energy consumption as a percent-
age of GDP growth was again mak-
ing headlines. Pretty much the same
group of offenders came in for me-
dia treatment at the time, too.
The problem for the State Coun-
cil is that it is fast running out of
time to meet its energy policy com-
mitments (and we all know how
keen the authorities are to show
that they can make their numbers).
This particular target is a 20% re-
duction in energy intensity (on
2005 levels) by the end of this year.
But according to the official data,
the programme is off the pace. In-
ternational experts say that the of-
ficial figures look suspect, and
shroud a much larger shortfall.
Not that the government is in
cover-up mode. Data released for
the start of the year showed energy
intensity had actually increased (i.e.
more energy has been required for
each additional unit of economic
growth). It was the first deteriora-
tion in performance for four years.
“Our consumption of energy is
speeding up and saving energy and
cutting emissions are becoming
even more pressing tasks,” Sheng
Laiyun, a spokesman for the Na-
tional Bureau of Statistics, told the
China Daily.
That must have been a frustrating
admission. Wen has come on partic-
ularly strong in national TV slots,
stressing that energy conservation
is a “fundamental national policy”
crucial to the “survival and devel-
opment of the Chinese people”. He
has been talking a tough line. “We
can never break our pledge, stagger
our resolution or weaken our ef-
Week in China
20 August 2010
Cracking the whip? Hu and Wen
forts,” he warned. Follow-up cover-
age in the state newspaper editorials
has made much of references to the
government’s readiness to employ
an “iron hand” in getting to grips
with the problem.
But what’s in the national inter-
est, may not be in the provincial
one (or for local bureaucrats, who
have their performances measured
on GDP growth). That’s why many
tend to ignore or resist Beijing’s
calls to action.
According to the 21CN Business
Herald, Henan province’s bureau-
crats may be doing just that. De-
fending their own cement indus-
try vigorously, they have insisted
that their own investigations show
that local enterprises have
switched to new production tech-
niques that mean the cement
plants can remain open.
But MIIT seems reluctant to take
similar commitments at face value,
suspecting that information sub-
mitted by local firms (and, by in-
ference, the local authorities that
oversee them) is “somewhat exag-
gerated,” 21CN says.
The newspaper then called up a
number of companies on the hit list,
to be told that many were either
challenging the directives, or were
insisting that they had acted previ-
9
 Week in China
Economy 20 August 2010

ously in shutting offending plants.
Clearly, policy enforcement is
far from a given. MIIT also fears
that there may have been back-
tracking on previous shutdowns,
with decommissioned capacity
reintroduced when the economy
improved in response to national
stimulus spend.
This ongoing struggle between
the central government and its
provincial representatives is a re-
vealing one, not least in highlight-
ing some of the limitations of the
State Council’s power.
While it can be fashionable to
present the country’s leadership as
an irresistible force, the political
realities on the ground mean that
too much can be made of its mas-
tery, especially in the actual imple-
mentation of policy initiatives of-
ten announced (with fanfare) at a
central level.
Still, some sense a new determi-
nation in Beijing’s efforts to en-
force its writ.
Back in 1978, when Deng Xiaop-
ing first launched the country’s
economic reforms, local govern-
ments were made responsible for
delivering their own economic
growth. Provinces like Guangdong,
Fujian and Jiangsu responded with
alacrity.
But years of rapid economic
growth then made them more re-
sentful of central interference. Un-
der former premier Zhu Rongji, the
central leadership tried to regain
more of the policy initiative, espe-
cially in car and steel production.
But it struggled for traction.
Now some say that, with less than
two years left of their time in office,
Hu Jintao and his colleague Wen are
making a similar effort to impose
themselves; hitting back at high-pol-
luters, trying to curtail over-pro-
duction in various sectors, clamp-
ing down on local government prac-
tices that encourage property
market speculation or high-risk bor-
rowing, and countering high-profile
cases of official corruption.
Officials at MIIT also want to be
more proactive, and are promising
to punish those who ignore the lat-
est set of directives. They say that
factories that fail to comply will face
a series of penalties, including new
restrictions on access to bank fi-
nancing, further blocks on new proj-
ect approvals and even the confis-
cation of business licences.
The China Daily reports that a
particularly draconian approach
was taken in eight cities in Anhui
province last Sunday: 506 factories
had their electricity cut off because
they didn’t meet energy conserva-
tion and emission reduction goals. n

Who’s Hu: Tang Shuangning

Profiles of China’s business leaders

Getting started Tang forecasts that net profits will double in

Born in 1954 in Liaoning province, Tang
Shuangning graduated with a degree in
economics, then worked at China Construction
Bank for seven years. He joined the People’s
Bank of China and was later made a vice
president of the China Banking Regulatory
Commission when it was founded in 2003.
Big break
In June 2007 Tang was made chairman of
Everbright Group – which was founded in
Hong Kong, but was then lossmaking. The
conglomerate included Everbright Bank which
had Rmb15 billion of bad loans and
accumulated losses of Rmb3 billion ($295
Tang: well versed
million), according to Reuters. Tang is credited
with shepherding through a restructuring plan
that involved financial assistance from Central Huijin (see WiC62
for more on this institution).
Need to know
Photo Source: Imagine China
the next two years.
Poet at heart
Tang is the author of over 1,000 poems and is
also an expert calligrapher who has held
exhibitions in Hong Kong and Shanghai. His
work has been included in collections at the
China’s National Museum, and is also on display
in Beijing’s Financial Street, with a prominent
monument featuring three golden Chinese
characters by his hand. He claims to have
become a financial expert “by accident” and is
regarded “firstly a calligrapher, then a banker,”
by Wang Xiaoling, deputy director of the National
Peoples Congress’ Financial and Economic
Committee. For example, at a financial
conference, he gave a speech rather unlike
other delegates. While they they went straight to reams of
Powerpoint-displayed data, Tang’s own presentation began:
“Laozi says morality is as noble as water.”
In a prescient prediction of a coming financial crisis he noted in

Everbright Bank listed in Shanghai this week and soared 18% the same speech (given in 2006): “The water that bears the boat
on its first trading day. By 2009, Tang had helped pre-tax profit is the same that swallows. The water of finance, if poorly
reach Rmb7.6 billion and reduced non-performing loan ratio to managed, will be quite damaging. The water of finance can be as
1.25%. That marked its best financial performance in 17 years. gentle as a virgin, or as wild as a beast.”

10

Chinese Character
Rupert’s a China bear
Media mogul Murdoch scales back his Chinese investments
upert Murdoch is a man who
R usually gets what he wants. But
for much of the last 20 years, one
country in particular seems to have
got the better of the veteran busi-
nessman. As Bruce Dover, author of
Rupert’s Adventures in China, puts
it, Murdoch “was forever in search
of a good bargain.” But China has
turned out to be no pushover, driv-
ing a pretty hard bargain of its own.
Last week News Corp sold a con-
trolling stake in three Chinese tele-
vision channels to China Media Cap-
ital (CMC), a private equity fund
backed by the Shanghai Media
Group and China Development
Bank, both state-owned.
The television channels include
general entertainment channels
Xing Kong and Xing Kong Interna-
tional, as well as an MTV equivalent
called Channel [V]. News Corp will
also sell a majority stake in the For-
tune Star Chinese movie library,
which has hundreds of Chinese-lan-
guage titles.
The sale is the clearest step yet of
what has been a gradual retreat by
News Corp from the China scene. Fi-
nancial terms of the deal were not
available, but the Wall Street Jour-
nal reported that News Corp will
likely retain a stake in the venture of
just under 50%.
“James Murdoch [Murdoch’s son]
doesn’t believe that they can build a
business in China – this is a clear
sign that they aren’t interested in
China anymore, but they can’t say
Photo Source: Reuters
that,” an industry insider told the
Financial Times.
The sale may come as a surprise,
given Murdoch’s phenomenal suc-
Wed to a Chinese, less so to China: Rupert Murdoch
cess in other countries like Aus-
tralia, the US and the UK. But indus-
try observers have noted prepara-
tions for a strategic climbdown for a
while. Last year, News Corp reorgan-
ised its pan-Asia Star TV business
into separate Star India and Star
Greater China units. The company
also downsized its regional head-
quarters in Hong Kong.
Murdoch first entered China in
1993, paying $950 million for Star
TV, the satellite network owned by
Richard Li, son of Hong Kong bil-
lionaire Li Ka-shing. His initial
idea was to exploit Star’s satellite
technology to beam Fox-style pro-
gramming into Chinese homes
(lucky them). TV advertising rev-
enues were estimated to be over
$3.4 billion in China at the time,
with a negligible share going to for-
eign broadcasters.
But his relationship with Beijing
quickly got off to a rocky start.
Briefly forgetting his political audi-
ence, the media mogul declared in a
Week in China
20 August 2010
speech that satellite-television net-
works – like the Star TV venture he
had purchased – “have proved an
unambiguous threat to totalitarian
regimes everywhere.”
They proved to be nine of the
most expensive words of Murdoch’s
extensive career. The reaction was
swift; a ban on the sale of private
satellite dishes and a block on most
mainland cable systems from car-
rying the channel. Murdoch, realis-
ing his mistake, began a decade-long
quest to appease the Chinese lead-
ership. First he dropped the BBC
World channel from Star TV’s menu
of channels. The British broadcaster
had offended Beijing with a contro-
versial documentary about Chair-
man Mao Zedong. Murdoch said at
the time: “The BBC was driving
them nuts. It’s not worth it.”
Then publishing house Harper-
Collins, also owned by News Corp,
dropped a book written by Chris Pat-
ten, Hong Kong’s last British gover-
nor and no favourite in Beijing.
11

Chinese Character
News Corp also paid a hefty advance
for a syrupy biography of Deng Xi-
aoping, then the paramount leader,
written by his daughter. It also en-
tered into a joint venture with the
Party mouthpiece, the People’s
Daily, for an online news site.
Murdoch’s was looking for a par-
ticular outcome: an audience with
Jiang Zemin, then China’s president,
in which to lobby for an end to the
satellite ban that was costing Star TV
so much in foregone revenue. The
two finally met in December 1998,
and the Chinese leader, a film fan,
got a special treat, sitting down to an
exclusive screening of Titanic, made
by Murdoch’s 20th Century Fox.
Maybe Jiang was a sucker for a
tear-jerker. But all that News Corp
goodwill seems to have started pay-
ing off – sort of – when in 2002,
Xing Kong (a Star TV franchise) was
given permission to sell program-
ming to cable providers in Guang-
dong province. Company execu-
tives hoped the new “landing
rights” would be expanded to the
rest of the country. Hopes were
raised further in 2004 when Star TV
was allowed to launch China’s first
fully foreign-owned advertising
company. Beijing later also gave the
green light to foreign investment in
TV content production.
Progress, then. But not, appar-
ently, to the extent Murdoch would
have liked. As Dover writes: “Persis-
tence was never Murdoch’s weak
suit; it was patience he could lack.”
And by then it was running thin.
Pushing the legal boundaries, Star
TV tried to expand its distribution
by striking a backdoor deal with
Qinghai Satellite TV, a provincial
broadcaster.
Using the remote Qinghai
province as a base, News Corp then
made efforts to distribute content
Photo Source: Reuters
nationwide. Beijing quickly caught
on, and the State Administration of
Radio, Film and Television (SARFT),
the country’s media watchdog,
Murdoch is focusing on India instead
forced Star TV to close down its op-
eration within a few months. Dover
– formerly a senior executive at
News Corp –reckoned that the Qing-
hai fiasco probably cost Star TV an-
other $30 to $60 million.
A month after the Qinghai deal
soured, Murdoch, clearly fed up, ad-
mitted that he had “hit a brick wall”.
He accused the authorities of being
“paranoid” and of wanting foreign
investors out of the media industry.
Despite all News Corp’s efforts, the
regulatory landscape seemed to
have altered very little.
Rupert’s China odyssey wasn’t a
complete write-off, nonetheless.
While courting the Chinese leader-
ship, he met and married Wendi
Deng, his current wife (see photo).
She became a key player in the com-
pany’s China strategy, although rival
executives were not always compli-
mentary about her efforts. Dover be-
lieved that Deng’s understanding of
the industry’s opaque politics was
limited, for example, and that she
lacked personal connections. “She
teamed up with the new stepson
[James Murdoch] to initiate and ad-
vocate Chinese internet invest-
ments nearly all of which were later
written off as total losses,“ he writes.
But the recent deal with CMC sug-
gests that Murdoch is turning to a
new chapter in his broadcasting ad-
ventures, and as a minority share-
holder. That is some departure from
Week in China
20 August 2010
the early 1990s, when News Corp,
Viacom and Time Warner all had
high hopes of becoming more dom-
inant players.
Instead, the wheel seems to have
turned full circle. Beijing is now pro-
moting an investment drive over-
seas from China’s media firms, with
hopes of expanding the presence of
state television and other govern-
ment-controlled media abroad.
Perhaps the best metaphor for
Murdoch’s experiences is an anec-
dote from Dover’s book that de-
scribes the mogul’s unfortunate ex-
perience on the night of the Hong
Kong handover in 1997.
The Australian was one of 4,000
VIPs invited to the official ceremony
marking the change in sovereignty.
Bored by the political speeches, he
left early. But crowd control meas-
ures meant he was dropped off by a
taxi in a Kowloon street rather than
at the door of his waterfront hotel.
The magnate walked around in the
rain for two hours trying to find his
accommodation. Finally arriving
drenched and bedraggled at recep-
tion, he then had trouble getting
past hotel security. Dover was called
down to vouch for his identity.
Murdoch saw the funny side, but
was rueful about his experience. He
couldn’t seem to make himself un-
derstood to the locals, he com-
plained, especially when he asked
them for directions... n
12

Banking and Finance
Trust deficit
Regulator gets tough on trust-lending
hen China’s banking regula-
W tor, the CBRC, undertook a
major overhaul of the trust sector in
2007, it published a clear mission
statement on its website. The plan?
“To encourage trust companies to
reorganise and innovate based on
the needs of the market”. The inten-
tion was two-fold; to improve com-
petitiveness and bolster risk
management across the industry
within five years.
Three years later and China’s
trust companies have certainly em-
ployed creative methods to meet
the market’s requirements. The
problem is that the CBRC is now so
spooked by the dealings between
trusts and banks that it has ordered
a clampdown on one of the most lu-
crative operations – an activity that
has become known as trust-lending.
Trust-lending is when a bank re-
moves a loan from its balance sheet
by selling it on to a trust company,
which in turn repackages it and sells
it to investors as an investment
product. Back in March (see WiC53)
this publication predicted that such
practices could lead to serious prob-
lems for the financial sector.
It all sounds a little familiar, with
echoes of the sub-prime free-for-all
that led to Chinese tut-tutting at the
recklessness of the Western finan-
cial world.
It only becomes a problem, of
course, if the system is abused. Un-
til a few years ago these loans were
Photo Source: Reuters
insignificant in scale. But now their
total outstanding balance amounts
to Rmb2.9 trillion ($339 billion), re-
ports the Financial Times. In the
first half of this year alone, Rmb1.3
trillion of such loans were issued.
And since this off-book debt does
not count towards a bank’s lending
quota, or affect its capital adequacy
ratio, it can also hide the genuine
level of risk that the banking sector
is exposed to.
The CBRC has had enough. Last
week, the regulator informed banks
that they need to put all the loans
they have sold to trust companies
back on their books. There was a fur-
ther demand that the banks stop us-
ing them to skirt regulatory re-
quirements (the suspicion is the
banks are circumventing lending
limits policymakers have set to cool
the economy).
“We’ve learnt the lesson of the fi-
nancial crisis and we realise we need
to strengthen oversight over this
phenomenon,” a senior regulator
told the FT, alluding to the securiti-
sation problems that brought down
the global financial system in 2008.
The action comes one month af-
ter the regulator started conducting
stress tests on trust companies, and
aligns with government efforts to
rein in credit in general.
“It’s a positive move toward en-
suring financial sector stability over
the medium term, but it could have
very negative implications for Chi-
nese growth over the short term,”
Charlene Chu of Fitch Ratings told
Reuters. She described the repackag-
ing of loans to be sold to investors as
“one of the most disconcerting de-
velopments we’ve seen in the Chinese
banking sector over the last decade.”
On the borrower side, the com-
Week in China
20 August 2010
Not amused: CBRC’s Liu Mingkang
panies likely to be hurt the most are
property developers. Since late last
year, banks have been discouraged
from lending to developers, which
left trust companies as one of the
few reliable sources of credit.
One economist told Dow Jones
that it is not uncommon for real es-
tate companies to borrow from trust
companies at an annualised inter-
est rate of between 15% and 20%. An-
other analyst told the newswire that
as much as 20% of the sector’s fi-
nancing could be trust loans.
The latest moves could also affect
financial institutions outside China,
as a number of foreign banks have
bought stakes in trust companies.
Buyers includes Barclays, Macquarie
and Morgan Stanley, reports the
Wall Street Journal.
Foreign banks have shown inter-
est in the lightly regulated trust in-
dustry as a means to provide finan-
cial services outside of the
constraints of the traditional bank-
ing sector, especially with regards
to selling investment products to
wealthy clients.
Now that the regulator is putting
trust companies under increasing
scrutiny, the rush to get into the in-
dustry might come to an end. And
those foreign banks that have al-
ready bought in could find their
their partner less free to make
money than in the past. n
13

Society and Culture
The age of innocence
Director Zhang Yimou’s quest to find the right girl
ike many men, Zhang Yimou has
L a problem with women. Finding
one that he likes, that is.
The award-winning Chinese di-
rector searched far and wide for
someone to play the lead role in his
latest film The Love of the Hawthorn
Tree. The film – set before the end of
the Cultural Revolution – focuses on
an unlikely romance between a shy
farm girl, Jingqiu, and Laosan, the
son of an army general.
Zhang said he needed an actress
who was not only pretty but also
could portray innocence. He sent his
production team to the nation’s top
acting schools for weeks, audition-
ing thousands of students. But he
turned down the candidate short
list. “Not even close,” the China Daily
reports him as remarking.
The production team then moved
on to six other cities around the
country but the director still wasn’t
happy with his choices. His major
complaint: “Young girls today may
look deceptively innocent, but their
eyes suggest otherwise.” When
you’re China’s cinematic maestro
you can get away with comments
like these.
Finally, after auditioning over
10,000 women, Zhang found Zhou
Dongyu, a 19 year-old high school
student from Hebei province who
had no previous acting experience.
Zhang said he chose her for the role
because her eyes are “as clear as a
mountain fountain,” says China
News Service.
Though it remains to be seen
Photo Source: CFP
whether Zhou can act, Zhang has
always had a good eye for talent
himself. Not only did he launch the
The innocent look: Zhou Dongyu
movie career of Gong Li, China’s
best-known actress, he also gave
Zhang Ziyi her first film role.
As it turns out, Zhang Yimou is
not the only one who says he has a
problem finding actresses for
wholesome roles. Another well-
known director Wang Quan’an also
expressed frustration in casting
the leading role for his new movie
White Deer Plain, which also calls
for an actress of “innocent charm”,
says CCTV. The broadcaster ran an
accompanying editorial to the
story with the headline: “Mainland
film industry’s biggest weakness:
pure and innocent actresses have
gone extinct.”
Their complaint? Many young
women are going into the film in-
dustry with little passion for the
art itself and more in hope of be-
coming mistresses to starstruck
millionaires.
Zhang’s complaints go a step fur-
ther. “If you look at pictures taken in
Week in China
20 August 2010
the 1960s or 1970s, you will see the
aura of purity around every man or
woman in those pictures. That’s a
bygone quality you hardly see in
young faces today,” he says.
But this seems to go beyond pre-
vailing social attitudes and behav-
iours, as far as the director is con-
cerned, into the gene pool itself.
“Kids today are uglier and uglier, as
beautiful women don’t have babies
with handsome men; they marry
coalmine owners, millionaires or
old people.”
Although Zhang’s rather Darwin-
ian assessment was meant as a
satire (coal magnates will be chuck-
ling, no doubt), it does point to
changing social currents. Gone are
the days when chastity and devo-
tion were to be displayed as leading
virtues. Earlier this year, a female
college student declared on a TV talk
show that she would rather be a rich
man's concubine than marry a poor
man for love.
And in a survey of 992 female col-
lege students conducted by
Guangzhou Women's Federation
from January to March, 60% said
they wanted to marry into a rich
family. Most of the girls believed
that marriage was not necessarily
related to love.
It’s the type of sentiment that-
saw South China Normal Univer-
sity launch a morality drive this
week. The Guangdong-based col-
lege has said it will expel any stu-
dent, male or female, that has sex
with a married person, says the
Shanghai Daily. The newspaper
added that the rule was especially
designed to stop young female stu-
14

Society and Culture
dents becoming the mistresses of
rich businessmen for pecuniary
gain. Chongqing Normal University
soon followed with a similar rule.
After the news broke, students
around the country lobbied against
the proposals, arging that univer-
sities have no right to intrude on
their private lives. Many thought it
a violation of their human rights
and insisted that students should
be free to have sex with whomever
they like. There will be a few col-
lege lecturers nodding their heads
in silent agreement.
Some pragmatists now worry
that the move could backfire and
that – given the prevalence of the
“mistress culture” – some schools
may end up expelling half of their
student body. That sounds like an
exaggeration. If not, it could be that
innocence, like true love, is easier to
find in films than in real life.
Having a Guo
A career-ending outburst
rosstalk is a traditional form of
C Chinese comedy – the like of
which does not really exist in the
West. Xiangsheng (to use its Chi-
nese name) involves two fast-talk-
ing performers, speaking in Beijing
dialect, in a punning style. As an
earthy and partly spontaneous
genre it can become satirical and
surprisingly political. For example,
crosstalkers were the first to openly
criticise the Gang of Four after the
death of Mao Zedong.
However, ‘cross’ talk took on a
whole new meaning last week when
Guo Degang, one of the genre’s top
performers referred to Beijing TV
Photo Source: Imagine China
journalists as “whore-correspon-
dents” and “green-light” prostitutes.
Guo’s outburst came after a run-
in with the channel’s reporters,
who had visited his home to air a
One man banned: Guo Degang
story on how his property was en-
croaching on a small patch of pub-
lic land. The claim was that it was
an illegal expansion, and had up-
set neighbours. Tempers soon
flared when – angered by the intru-
sion – one of Guo’s employees al-
legedly beat up a reporter.
Guo is the highest paid
crosstalker, owning a series of the-
atres and earning big royalties from
books, DVDs and endorsements. But
he soon felt the financial backlash
from the incident. His TV show was
removed from Beijing TV. Then na-
tional state broadcaster CCTV la-
belled him “vulgar”. In quick succes-
sion his theatres were shut down
and his books and DVDs removed
from Beijing shops.
Nanfang Daily says the performer
is now “suffering an all-round ban”
and is “likely to disappear from pub-
lic view”. As the blog Shanghai List
put it, it has been a sudden fall from
grace. Guo started the month as a
“maverick people’s hero”. Now it
looks too late to save his career.
Guo’s success seems to have
Week in China
20 August 2010
bred enemies in the industry,
many of whom have been waiting
for a chance to settle scores. It was
also a case of bad timing; the au-
thorities have been conducting a
campaign against “vulgar” dis-
course, and the remarks about the
city reporters seem to have
counted against him.
However, the scope of the ban –
instigated by the Beijing Bureau of
Radio, Film and Television – seems
to have led to a reversal in attitudes
to the incident. As the Southern Me-
tropolis Daily points out, “Public
opinion has undergone a subtle
change. From the initial criticism
the trend is now towards sympathy
after the ban. In the view of many
internet users it is wrong for the au-
thorities to administer an across-
the-board ban.”
Top film director Feng Xiaogang
has also come to the comedian’s de-
fense. Arguing that the local media
is far from perfect and that apolo-
gies have since been made by Guo
for his apprentice’s behaviour, Feng
says “we should give them a break”.
Guo’s fall offers a warning to the
entertainment industry in general:
at the government’s whim anyone
can be banned.
Guo meanwhile maintains that
the TV crew infringed on his privacy
and trespassed on his property. He
has also been quick to make a public
donation to victims of the recent
landslide in Gansu’s Zhouqu. But as
the Global Times notes the contro-
versy has not subsided. Two of his
company’s crosstalking apprentices,
He Yunwei and Li Jing, have recently
resigned too, reports the paper.
Sang sues
Ex-gymnast claims negligence
hat’s the statute of limita-
W tions for a sporting injury?
15

Society and Culture
Sang Lan: paralysed athlete
Sang Lan, a former gymnast, is
about to put it to the test.
Back in 1998, Sang was paralysed
during a vault. The accident oc-
curred in New York at the Goodwill
Games, an event then created by Ted
Turner as a rival to the Olympics,
but which was wound-up in 2001
due to poor TV ratings.
Sang now says she intends to sue
the Games, claiming that the acci-
dent occurred due to negligence. She
alleges that one of the organising
staff moved a mat while she was in
motion, and it was this that caused
her career-ending fall.
But why has it taken so long for
Sang to litigate? She says she had to
wait for her coach to retire, as she
didn’t want to threaten his career
with the national team. Whether
that excuse will hold water with an
American court is debatable. More-
over, the statute of limitations for a
Photo Source: Imagine China
personal injury in New York is nor-
mally three years, which Sang has
obviously exceeded.
Within China itself, the merits of
Sang’s legal case is garnering less
discussion than other criticisms she
has made. The 29 year-old has
lashed out at China’s national sports
body – the State General Adminis-
tration of Sport – saying that it had
not purchased insurance for her.
But after her accident she was un-
able to sue the national team be-
cause it wasn’t possible (no such law
existed). And according to the Wen-
hui Daily, she also claims that a
member of the body’s gymnastics
staff forced CCTV to stop reporting
news of the incident – because it was
likely to put “kids off becoming
gymnasts”. The power of the sports
body was such that she remained
silent for 12 years.
As has been reported in earlier is-
sues of WiC, the State General Ad-
ministration of Sport is not always
tremendously popular with the
country’s athletes. In its (admittedly
quite successful) attempts to win
Olympic gold medals, it can resort to
somewhat Stalinist training tech-
niques – selecting children from a
young age, determining what sport
they are best suited to and pretty
much shaping their formative years
in total pursuit of gold medal glory.
And having invested in their train-
ing, it takes a big share of the ath-
letes’ winnings, expecting absolute
obedience to its diktats.
In recent times, sports stars have
begun to rebel (see WiC14 for the
case of tennis star, Li Na). Sang’s case
fits with this trend and is being por-
trayed in the Chinese media as an-
other example of the tussle between
the sporting authorities and the na-
tion’s athletes (and more broadly, of
the state versus the individual).
To be fair, Sang’s injury did mark
a turning point for Chinese sport.
Following her misfortune, athletes
no longer compete without insur-
ance, which became mandatory af-
ter 1998. When another gymnast,
Wang Yan, was severely injured in
2007, she was covered by a policy
from the Chinese Sports Founda-
Week in China
20 August 2010
tion. Sang, on the other hand, has
to live on Rmb2,200 per month
and can no longer afford her med-
ical expenses.
Her chances of sympathy in a US
court are muddied by another fac-
tor. After her accident, the Goodwill
Games’ own insurers paid out $10
million. Sang has revealed she got
$50,000 in cash, with the remain-
ing sum allocated to receiving med-
ical treatment. The snag is the treat-
ment can only be used in America
and Sang cannot afford to travel
there anymore.
Unwarranted
Wrongful arrest of reporter
stirs nationwide outcry
hen Jia Yu-kun becomes a
W magistrate in the town of
Ying Tian-fu he is asked by the local
usher if he has a copy of the ‘Man-
darin’s Life Preserver’. Jia – a charac-
ter in the classic Chinese novel The
Dream of the Red Chamber – asks
what this is.
The usher replies: “Nowadays
every provincial official carries a pri-
vate handlist with the names of all
the richest, most influential people
in his area. There is one for every
province. They list those families
Keeping track
As reported in WiC35, the Chinese are
taking golf far more seriously now it’s
an Olympic sport, and this week a new
milestone for the nation. At the PGA
Championship, Liang Wenchong shot 64
to break the course record at Whistling
Straits in Wisconsin. Thanks to
exceptional putting he finished only
three strokes off the leader, and tied for
eighth place – his best result in a golf
major. “It will make people realise there
actually are professional golfers in
China,” Liang told Associated Press.
16
 Week in China
Society and Culture 20 August 2010

which are so powerful that if you
were ever to run up against one of
them unknowingly, not only your
job, but perhaps even your life
might be in danger. That’s why they
are called ‘life preservers’.”
If vested interests all too fre-
quently disrupted local justice in
the 18th century, not much has
changed in contemporary China.
The only difference is that local of-
ficials are now more likely to be in
cahoots with powerful companies.
Just ask Qiu Ziming, a 28 year-old
reporter in Zhejiang province.
Qiu published a series of inves-
tigative articles about Zhejiang Kan
Group, a company that makes spe-
cialty paper and (like so many other
Chinese firms) dabbles in property
development. He alleged that fraud
had occurred at company head-
quarters. But he soon discovered
that Zhejiang Kan had powerful
friends: at the end of last month the
county’s Public Security Bureau is-
sued a warrant for his arrest.
Luckily for Qiu he was tipped off,
and went into hiding. But the news
quickly got onto the internet and
the story became a sensation, with
Qiu’s name becoming one of the
most searched terms online. His
employer, the Economic Observer,
released a statement: “We are deeply
shocked at the warrant for Qiu’s ar-
rest due to his reports on the Zhe-
jiang Kan Group. We condemn those
who attempt to use the power of the
government to suppress public
opinion and threaten the safety of
news workers.”
The much-publicised case has
prompted media discussion about
the unhealthy nexus that often ex-
ists between local officials and
large companies (see WiC65, The
New Gang of Four). Many suspect
that close ties between companies
and officials inevitably lead to
abuses of power.
That was certainly the case here.
Xu Xun, a legal adviser and media
activist told Caixin that the “gov-
ernment’s authority was misused
in favour of a private company’s
interest.”
In response to the outcry, Lishui
Public Security Bureau was ordered
to investigate and found that the
criminal detention order did not
meet legal requirements. Within 24
hours it was revoked and the heads
of the offending county’s propa-
ganda and public security bureaus
were flown to Beijing to apologise to
the Economic Observer and to Qiu.
On this occasion, at least, justice
looks to have prevailed… n

Expo Diary
Goings-on from Shanghai’s big event

Tuesday was Indonesia Day at the Expo

So the pavilion symbolises strong ties?
Yes, Indonesia seems to be going out of its way to foster stronger
relations with China. Ties have been strained in the past,
especially after intermittent rioting on the Indonesian archipelago,
in which ethnic Chinese locals are often the first to be targeted by
the indigenous majority.
But Indonesia’s pavilion looks back to a history of cultural ties.
A special section commemorating Admiral Zheng He and his
And it even features bamboo
seven dramatic voyages in the early 15th century includes a
sculpture of the man who initiated “diplomatic relations between
China and Indonesia”. Trading partners
In 2009 China was Indonesia’s second largest export market.
And those ties get stronger? China is also the second largest source of Indonesia’s imports
Yes, this week a landmark deal. China’s largest bank ICBC made a (excluding non-oil commodities) behind Japan, providing 70% of
renminbi loan (equivalent to about $300 million) to Bakrie Telecom Indonesia’s imports in electrical appliances, steel, plastic and
to fund its expansion. It was the first time a Chinese bank has vehicle spare parts.
extended a renminbi loan to a foreign telecommunications
company, reports FinanceAsia. Ethnic ties too…
In September, China Investment Corp (CIC), the sovereign Forbes reckons that eight of the 10 richest people in Indonesia are
Photo Source: Imagine China

wealth fund, also lent $1.9 billion to PT Bumi Resources, of Chinese descent, with Indonesia being home to one of the most
Indonesia’s largest coal mining company by output. The deal powerful diaspora of overseas Chinese. And according to Sidharta
allows CIC to take stakes in a number of Bumi projects and gives Wirahadi Kusuma, an education consultant, Mandarin is fast
it wider access to Indonesia’s energy sector. becoming the nation’s third language after Bahasa and English.

17
 Week in China
And Finally 20 August 2010

Surrealism-on-Sea
Dali’s home to get a Made in China makeover

hina’s property naysayers seem boats in a picturesque harbour.

C to think that the real estate mar-
ket is divorced from commercial re-
ality. But one particular project
hitting the headlines at the moment
is being designed with other-world-
liness unashamedly in mind. It aims
to recreate the Spanish Costa Brava
on the southern Chinese coast. The
plan is build a copy of the port of
Cadaques, a small town that once
served as home and inspiration to
Salvador Dali, the Spanish painter.
Sound ambitious? China’s
Cadaques will be built in Xiamen by
China Merchants Zhangzhou, a sub-
sidiary of the state-owned con-
glomerate China Merchants Group,
on a 100-acre plot looking out across
the ocean towards Taiwan. More
than 15,000 residents are expected
in future, primarily holidaymakers
keen to enjoy a Mediterranean ex-
perience without having to jet all
the way to Europe to find it.
The town’s designers claim con-
fidently that the topography of Xia-
men Bay will allow for an authentic
duplication of the Catalan town’s
white painted buildings and narrow
streets. It even allows for a gentle
slope leading down to a fleet of
“We will recreate the essence of a
fishing town, reproducing the most
characteristic elements of the archi-
tecture in a space which has a simi-
lar coastline,” a resort architect told
Spanish newspaper La Vanguardia.
The town is also aiming for an
artsy reputation. Dali did have a con-
nection to things Chinese, penning a
collection of illustrations inspired by
Mao Zedong’s poetry in the late
1960s. One of them, “Bust of Mao”,
was completed five years before
Andy Warhol’s much better known
silk-screen prints of the Chinese
leader. Dali’s own sketch showed the
Great Helmsman cut off unceremo-
niously at the shoulders, which some
now see as a critique of the cult of
personality. “The man is so tall he
didn’t fit on the page,” was Dali’s ex-
planation at the time.
The Chinese have shown interest
in overseas idyll before, most notably
in Thames Town, a picture-postcard
copy of an English market town, built
an hour’s drive from Shanghai a few
years ago. Local residents signed up
on the promise of a British utopia of
corner shops and cobbled streets. A
fish and chip shop, red telephone
Salvador Dali’s Cadaques home
boxes and even a bust of Winston
Churchill in the town square were
thrown in for effect. Presumably
drunken fisticuffs are choreo-
graphed outside the local pub at clos-
ing time on Fridays too.
Certainly, the town sounds like it
needs a little spicing up. Property
sales have been poor and the streets
are reported as largely deserted, ex-
cept for couples looking for wedding
photo backdrops.
The Scots feature in the imitation
game too, with the Tiger Beach golf
course in Shandong now twinned
with the famous Carnoustie course
on the Scottish east coast. Pot
bunkers, gorse and extensive sand
dunes (bulldozed into place, natu-
rally) all serve as faithful replicas of
the Scottish experience. Even the
winter weather does its bit. A bitter
wind whipping in off the Yellow Sea
ensures miserable playing condi-
tions for all but the hardiest golfer. n

Crafting a China strategy

Photo Source: Shutterstock / Reuters

“China will be a very important and significant growth engine for us in the next couple of years.”

* Kraft’s boss, Irene Rosenfeld sees “explosive growth” in China’s consumer market and reckons
recently acquired Cadbury (see WiC55) is well placed to take advantage. She told the Wall Street
Journal the food firm’s China revenues could soon hit $1 billion annually. Irene Rosenfeld

18
 Week in China
The Back Page 20 August 2010

Photo of the Week In Numbers

$24 billion
The net decrease in China’s holding of US
Treasuries in June, dropping from $868
billion to $844 billion, said the US Treasury
Department. Nevertheless, the country
remained the largest foreign holder of US
government paper. Meanwhile, China has
doubled its holdings of South Korean
government bonds in the past six months
– albeit to a total still only equivalent to
$3.4 billion).
Photo Source: Reuters

51.23%
The unofficial housing vacancy rate in
Shanghai according to China’s netizens,
People’s Daily reported. The absence of
authoritative figures on the nation’s
Curb your enthusiasm: Foxconn workers at a company rally
vacancy rate has led some netizens to
carry out a field investigation themselves
by counting the vacant rooms in
commercial buildings. They found that rate
Where is it? in Beijing to be around 65.6%; Hainan was
the highest with more than 70%.
Some of the places referred to in this issue
4
Foreign companies in the top 50 best
Gansu Beijing
employers poll, down from 21 last year,
Hebei
Hebei
according to ChinaHR. Among the
survey’s top 50, 33 were state-owned

China Henan
Anhui
Jiangsu
enterprises. The four foreign companies
are Microsoft, Google, Jardine Matheson
and Procter & Gamble.
Shanghai
Zhejiang
4,853
Fujian The number of people that died in more
than 17,000 road accidents in China in
Guangdong
Guangzhou Hong Kong July, down 8.1% on a year-on-year basis,
said the Ministry of Public Security.

The Weekly Quiz Last week’s answers 1 = B, 2 = C, 3 = C

Our weekly trivia quiz. Answers will be published next week (although all the answers can be found in this issue)

1 How much steel will China 2 How many girls did Zhang Yimou 3 One of China’s largest product
produce this year? audition for his new movie? recalls was made this month by?
A. 150 million tonnes A. 1 A. Haier
B. 450 million tonnes B. 500 B. LG
C. 600 million tonnes C. 10,000 C. Panasonic

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