Military strength eludes China, which looks overseas for arms
By John Pomfret
Washington Post Staff Writer
Saturday, December 25, 2010; 12:00 AM
MOSCOW - The Moscow Machine-Building Enterprise Salyut on the east side of town has put up a massive Soviet-style poster advertising its need for skilled workers. The New Year's party at the Chernyshev plant in a northwest suburb featured ballet dancers twirling on the stage of its Soviet-era Palace of Culture.
The reason for the economic and seasonal cheer is that these factories produce fighter-jet engines for a wealthy and voracious customer: China. After years of trying, Chinese engineers still can't make a reliable engine for a military plane.
The country's demands for weapons systems go much further. Chinese officials last month told Russian Defense Minister Anatoly E. Serdyukov that they may resume buying major Russian weapons systems after a several-year break. On their wish list are the Su-35 fighter, for a planned Chinese aircraft carrier; IL-476 military transport planes; IL-478 air refueling tankers and the S-400 air defense system, according to Russian news reports and weapons experts.
This persistent dependence on Russian arms suppliers demonstrates a central truth about the Chinese military: The bluster about the emergence of a superpower is undermined by national defense industries that can't produce what China needs. Although the United States is making changes in response to China's growing military power, experts and officials believe it will be years, if not decades, before China will be able to produce a much-feared ballistic missile capable of striking a warship or overcome weaknesses that keep it from projecting power far from its shores.
"They've made remarkable progress in the development of their arms industry, but this progress shouldn't be overstated," said Vasily Kashin, a Beijing-based expert on China's defense industry. "They have a long tradition of overestimating their capabilities."
Ruslan Pukhov, the director of the Center for Analysis of Strategic Technologies and an adviser to Russia's ministry of defense, predicted that China would need a decade to perfect a jet engine, among other key weapons technologies. "China is still dependent on us and will stay that way for some time to come," he said.
Indeed, China has ordered scores of engines from the Salyut and Chernyshev factories for three of its new fighters - the J11B, a Chinese knock-off of the Russian Su-27; the J10, which China is believed to have developed with Israeli help; and the FC1, which China modeled on an aborted Soviet design. It also told Russia that it wants a third engine from another factory for the Su-35.
How China's military is modernizing is important for the United States and the world. Apart from the conflict with radical Islamism, the United States views China's growing military strength as the most serious potential threat to U.S. interests around the world.
Speaking in 2009, Liang Guanglie, China's minister of defense, laid out a hugely ambitious plan to modernize the People's Liberation Army, committing China to forging a navy that would push past the islands that ring China's coasts, an air force capable of "a combination of offensive and defensive operations," and rocket forces of both "nuclear and conventional striking power."
The Pentagon, in a report to Congress this year, said that that the pace and scale of China's military reform "are broad and sweeping." But, the report noted, "the PLA remains untested in modern combat," thus making transformation difficult to assess.
'Could be sitting ducks'
One area in which China is thought to have made the greatest advances is in its submarines, part of what is now the largest fleet of naval vessels in Asia. In October 2006, a Chinese Song-class diesel-powered attack submarine reportedly shadowed the USS Kitty Hawk aircraft carrier and surfaced undetected four miles from the ship. Although the Pentagon never confirmed the report, it sparked concern that China could threaten the carriers that are at the heart of the U.S. Navy's ability to project power.
China tried to buy Russian nuclear submarines but was rebuffed, so it launched a program to make its own. Over the past two years, it has deployed at least one of a new type of nuclear-powered ballistic-missile submarine called the Jin class and it may deploy as many as five more.
The Office of Naval Intelligence said the Jin gives China's navy its first credible second-strike nuclear capability; its missiles have a range of 4,000 miles. But in a report last year, the ONI also noted that the Jin is noisier than nuclear submarines built by the Soviets 30 years ago, leading experts to conclude that it would be detected as soon as it left port.
"There's a tendency to talk about China as a great new military threat that's coming," said Hans M. Kristensen, director of the Nuclear Information Project at the Federation of American Scientists. But, when it comes to Chinese submarines carrying ballistic missiles, he said, "they could be sitting ducks."
Another problem is that China's submariners don't train very much.
China's entire fleet of 63 subs conducted only a dozen patrols in 2009, according to U.S. Navy data Kristensen obtained through a Freedom of Information Act request, about a tenth of the U.S. Navy's pace. In addition, Kristensen said there is no record of a Chinese ballistic-missile sub going out on patrol. "You learn how to use your systems on patrol," he said. "If you don't patrol, how can you fight?"
Anti-ship capabilities
China's missile technology has always been the pointy edge of its spear, ever since Qian Xuesen, the gifted rocket scientist who was kicked out of the United States during the McCarthy period in the 1950s, returned to China.
U.S. government scientists have been impressed by China's capabilities. On Jan. 11, 2007, a Chinese missile traveling at more than four miles a second hit a satellite that was basically a box with three-foot sides, one U.S. government weapons expert said. Over the past several years, China has put into orbit 11 of what are believed to be its first military-only satellites, called Yaogan, which could provide China with the ability to track targets for its rockets.
China is also trying to fashion an anti-ship ballistic missile by taking a short-range rocket, the DF-21, and turning it into what could become an aircraft-carrier killing weapon.
Even though it has yet to be deployed, the system has already sparked changes in the United States. In September, Defense Secretary Robert M. Gates said China's "investments in anti-ship weaponry and ballistic missiles could threaten America's primary way to project power and help allies in the Pacific - particularly our forward bases and carrier strike groups." The U.S. Navy in 2008 cut the DDG-1000 destroyer program from eight ships to three because the vessels lack a missile-defense capability.
But the challenge for China is that an anti-ship ballistic missile is extremely hard to make. The Russians worked on one for decades and failed. The United States never tried, preferring to rely on cruise missiles and attack submarines to do the job of threatening an opposing navy.
U.S. satellites would detect an ASBM as soon as it was launched, providing a carrier enough warning to move several miles before the missile could reach its target. To hit a moving carrier, a U.S. government weapons specialist said, China's targeting systems would have to be "better than world-class."
Wu Riqiang, who worked for six years at the China Aerospace Science and Industry Corporation as a missile designer, said that while he could not confirm that such a missile existed, he believed weapons such as these were essentially "political chips," the mere mention of which had already achieved the goal of making U.S. warships think twice about operating near China's shores.
"It's an open question how these missiles will do in a conflict situation," said Wu, who is now studying in the United States. "But the threat - that's what's most important about them."
Morale trouble
The deployment of a naval task force to the Gulf of Aden last year as part of the international operation against pirates was seen as a huge step forward for China. The implication was that China's military doctrine had shifted from defending China's borders to protecting China's interests, which span the globe. But the expeditionary force has also provided a window into weaknesses of the People's Liberation Army, according to a new report by Christopher Yung, a former Pentagon official now at the National Defense University.
China's lack of foreign military bases - it has insisted that it won't station troops abroad - limits its capacity to maintain its ships on long-term missions. A shortage of helicopters - the workhorses of a naval expeditionary force - makes it hard for the ships to operate with one another. China's tiny fleet of replenishment ships - it has only three - doesn't give it enough capacity to do more than one such operation at a time.
China's navy, according to Yung, also has difficulty maintaining a fresh water supply for its sailors. And poor refrigeration on its ships makes it hard to preserve fruit and vegetables, something that makes for griping on board.
"The sailors during the first deployment had a real morale problem," Yung said, adding that following their mission, they were taken on a beach vacation "to get morale back up."
Empowering local commanders, considered key to a successful fighting force, is something that Beijing clearly has yet to embrace. British Royal Navy Commodore Tim Lowe, who commanded the Gulf of Aden operation for the U.S. 5th Fleet up until May, noted that while other navies would send operations officers to multinational meetings to discuss how to fight pirates, China would dispatch a political officer who often lacked expertise. The concept of sharing intelligence among partner countries was also tough for the Chinese to fathom. To the Chinese, he said, "that was an unusual point."
Tension with the Kremlin
China's military relations with Russia reveal further weaknesses. Between 1992 and 2006, the total value of Russia's arms exports to China was $26 billion - almost half of all the weapons Russia sold abroad.
But tensions arose in 2004 over two issues, Russian experts said. Russia was outraged when it discovered that China, which had licensed to produce the Su-27 fighter jet from Russian kits, had actually copied the plane. China was furious that after it signed a contract for a batch of IL-76 military transport planes it discovered that Russia had no way to make them. After receiving 105 out of a contracted 200 Su-27s, China canceled the deal and weapons negotiations were not held for several years.
Purchases of some items continued - S-300 air defense systems and billions of dollars worth of jet engines. An engine China made for its Su-27 knock-off would routinely conk out after 30 hours whereas the Russian engines would need refurbishing after 400, Russian and Chinese experts said.
"Engine systems are the heart disease of our whole military industry," a Chinese defense publication quoted Wang Tianmin, a military engine designer, as saying in its March issue. "From aircraft production to shipbuilding and the armored vehicles industry, there are no exceptions."
When weapons talks resumed with Russia in 2008, China found the Russians were driving a harder bargain. For one, it wasn't offering to let China produce Russian fighters in China. And in November, the Russians said they would only provide the Su-35 for China's aircraft carrier program if China bought 48 - enough to ensure Russian firms a handsome profit before China's engineers attempted to copy the technology. Russia also announced that the Russian military would buy the S-400 air defense system first and that China could get in line.
"We, too, have learned a few things," said Vladimir Portyakov, a former Russian diplomat twice posted to Beijing.
Saturday, December 25, 2010
Monday, December 20, 2010
Nobel Peace Prize (2) - The Economist
Explain in vain
Dec 10th 2010, 8:28 by T.P. | BEIJING TO HEAR China’s foreign ministry tell it, today’s ceremony in Oslo, in which the Nobel peace prize is to be awarded to Liu Xiaobo, an imprisoned Chinese dissident, is nothing more or less than “an anti-China farce” orchestrated by “a few clowns” on the Nobel prize committee. Whatever the merits of that complaint, the Norwegians will be hard-pressed to match the atmosphere of farce that was achieved by a hastily organised ceremony in Beijing yesterday. Ostensibly, the Chinese ceremony was designed to honour the recipient of the newly established “Confucius peace prize”.
The winner was Lien Chan, a rather dowdy senior Taiwanese politician who has been at the forefront of recent efforts to improve cross-strait relations. (In November his son, Sean Lien, was shot at a political rally in Taiwan; revenge, some suspect, for his father’s work.) As will be the case in Oslo—but for very different reasons—the recipient was not on hand for the ceremony in Beijing. Indeed, a statement from Mr Lien’s office said that he had never heard of such an award and had no plans to accept it.
Unlike the Norwegians, who plan to mark Mr Liu’s absence with the understated eloquence of an empty chair, the organisers of the Confucius prize ceremony recruited a six-year-old girl as a stand-in for Mr Lien. The young Miss Zeng Yuhan (pictured above) seemed somewhat flustered by the proceedings, in which she was thrust before cameras and handed a beribboned stack of Chinese currency in the amount of 100,000 yuan, worth about $15,000.
The event’s organisers seemed flustered too, as they were able to offer only the fuzziest of answers to even the most obvious questions: just who is this little girl? What is the Chinese government’s involvement in their selection of a winner? To what extent is the prize intended as a riposte to the Nobel committee?
The Chinese government, for its part, has been singularly focused on neutralising the impact of Mr Liu’s selection since it was announced in October. In addition to scolding Norway and promising that its standing with China would suffer, it has mounted a heavy-handed campaign to deter other nations from sending any dignitaries to attend the ceremony in Oslo.
China has vastly overstated its success in this effort, citing the 100+ countries that will not attend the ceremony as proof that most of the world supports its position. In fact invitations were extended to only the 65 countries who keep embassies in Norway. Of those at least 45 have accepted. Those who have declined have done so for a variety of reasons.
At home China’s authorities have taken other steps, mounting a stern crackdown against the already beleaguered community of dissidents, rights activists and critics of the government. Mr Liu’s wife, Liu Xia, was placed under house arrest shortly after the big announcement, and an extra contingent of security forces were posted to the streets around her Beijing home on the eve of the Nobel ceremony, 7,000km away.
A number of Chinese activists have been stopped from leaving the country in recent weeks, apparently to ensure that none of them wends a way to Oslo to pick up the award on Mr Liu’s behalf. Chinese censors have been more active than usual in recent days, blocking internet news websites and foreign television broadcasts that are usually allowed in.
Mr Liu is a 54-year-old poet and literary critic with a long history of political activism, including a role in China’s massive pro-democracy movement of 1989. He was sentenced on Christmas Day of 2009 to an 11-year jail sentence on charges of inciting subversion. His crime was to have organised and publicised Charter 08, a petition that called for sweeping reform and the liberalisation of China’s stern one-party political system. The petition was launched December 9th 2008, just in time for December 10th, which is Human Rights Day—so designated because it was the date in 1948 that the United Nations adopted the Universal Declaration of Human Rights. The Nobel ceremony is scheduled on that date each year for the same reason.
In October, China was quick to blast the Nobel committee for seeking to make a hero out of a Chinese criminal. The award, China's foreign ministry insisted, constituted misguided interference in China’s affairs as well as a violation of China’s judicial sovereignty. China has held to that line consistently over the past two months. Indeed, it is the same rhetorical line China took in 1996, when the European Parliament awarded the Andrei Sakharov prize for freedom of thought to Wei Jingsheng, another Chinese dissident, then in prison. At the time China accused the European parliamentarians of slandering China and committing “violent interference in China’s internal affairs”. China then foresaw “damage to Sino-European relations and eventually to the interests of Europeans”.
Like the EU's ambassador to China in 1996, who tried to explain that “parliaments in Europe do not take instructions from executives”, Norway this year has struggled to convince China that the government exerts no control over the independent Nobel committee. Neither side seems any more likely to accept the other's explanation.
Nobel Peace Prize (1) - The Economist
Asia
Asia view
China and the Nobel peace prize
The empty chair
Dec 10th 2010, 19:48 by J.M. | LONDON
CHINESE leaders probably failed to anticipate the battering that China’s image abroad would suffer as a result of the awarding of the Nobel peace prize to an imprisoned Chinese dissident, Liu Xiaobo. They would have expected that their boycott of the award ceremony in Oslo on December 10th would invite comparisons in the West between China and the Soviet Union, which responded with similar fury to the award of the prize to Andrei Sakharov in 1975. It is unlikely they fully realised that their behaviour would be equated even more prominently with that of Nazi Germany.The empty chair reserved for Mr Liu at Oslo’s town hall, and the absence of any of his family members to receive the award on his behalf, made this the first such ceremony since 1936 when Carl von Ossietzky, a jailed German pacifist, was a similar no-show. Adolf Hitler refused to let him go to the ceremony. Mr Sakharov was not allowed to pick up his prize either, but his wife, Elena Bonner, happened to be abroad at the time and was able to go in his place.
China is extremely prickly about being compared with Nazi Germany. This newspaper got an earful from Chinese officials in 2001 for publishing a leader arguing that China was not suited to host the Olympic Games because “the world has no cause to honour a government that governs in this way with a sporting event intended to promote human dignity”. The Economist reminded readers of the similar position it took on the Nazis’ hosting of the Olympic Games in 1936.
Chinese officials are less touchy about Soviet analogies. Indeed, they play them up. The state-controlled Chinese media have not been bashful about casting Mr Sakharov and Mr Liu in the same light: both tools of a Western conspiracy to undermine communism (this piece, in Chinese, is typical of the genre). Never mind that Western governments, anxious to secure Chinese help with everything from global economic rebalancing to curbing climate change, have little interest in annoying China by talking about Mr Liu. China’s propaganda machinery prefers to portray the West as duplicitous.
But the propagandists probably had not fully thought through the headlines that would be created by the sweeping crackdown on dissidents since the prize was announced in October. By putting Mr Liu’s wife and numerous others under house arrest, and stopping activists from leaving the country in order to prevent them from going to Oslo, the headlines were recalibrated to reflect a comparison with 1936, not 1975 (or 1983, when Lech Walesa's wife accepted the award on his behalf, or 1991, when Aung San Suu Kyi's son took home his mother's prize). China knows that memories of Nazi Germany evoke a more visceral repugnance in the West than do those of the Soviet Union. Comparisons with Germany early in the last century are also unwelcome for Chinese leaders given their efforts to convince the world that China’s rise will have none of the same consequences that Germany’s did.
The battering suffered by the West during the global economic crisis appears to have made Chinese leaders thicker skinned. But the state-controlled media’s handling of the first “Confucius Peace Prize”, which was awarded in Beijing this week, suggests that officials remain sensitive. The Chinese press played the event down. Officials said the government did not have a hand in it (as the party-affiliated Global Times reported, in Chinese). Perhaps they might have worried that Hitler too organised a home-grown version of the Nobel prize, the German National Prize for Art and Science, in response to von Ossietzky’s award.
Sunday, December 19, 2010
A China como copiadora universal...
A gana de crescimento da China
País está determinado a alcançar superioridade tecnológica de qualquer maneira
JOHN GAPPER - DO "FINANCIAL TIMES" (17.12.2010)
Viajar em um dos novos trens chineses de alta velocidade, como fiz recentemente, é experimentar o rápido avanço industrial da China.
Fomos de Nanjing a Xangai a uma velocidade com a qual o serviço da Amtrak entre Nova York e Washington pode apenas sonhar.
Caso a CSR Corporation, a companhia chinesa que construiu o trem, consiga o que pretende, os Estados Unidos poderão experimentar essa tecnologia na próxima década.
A CSR fechou acordo com a General Electric para que participem juntas, em competição com Siemens e Alstom, da concorrência para a criação de serviços ferroviários de alta velocidade na Flórida e na Califórnia.
À primeira vista, o trem de alta velocidade serve como símbolo da transição pretendida pela China, de polo fabril para economia inovadora e de alta capacitação.
O trem também serve como símbolo de outra coisa: a determinação de obter superioridade tecnológica de qualquer maneira, o que inclui tomar tecnologia ocidental e alterá-la o mínimo necessário para poder alegar que foi desenvolvida no país.
O uso dessa estratégia pela CSR causou irritação à sua antiga sócia, a Kawasaki Heavy Industries, fabricante dos trens-bala japoneses.
EXIGÊNCIA
Empresas ocidentais precisam revelar detalhes de suas tecnologias se desejam obter contratos, e depois se veem forçadas a concorrer com estatais chinesas.
Isso vem abalando a antiga fé das companhias ocidentais em que seriam necessárias décadas para que a China as alcançasse.
Nada disso é acidental. A China quer se tornar economia avançada e usa seu poder de mercado para tomar um atalho, ao "digerir" a propriedade intelectual alheia.
É difícil sentir raiva da China por estar vivendo uma fase de fiscalização pouco intensa das leis de propriedade intelectual quando tantos outros países, entre os quais os Estados Unidos, fizeram o mesmo um dia.
Mas existe uma diferença entre pirataria informal, que o governo chinês reconhece como problema e tenta reprimir, e a absorção de tecnologias com aprovação estatal.
A primeira questão envolve um setor privado agindo com exuberância descontrolada, e a segunda é um esforço oficial para permitir que o país pule um estágio de desenvolvimento industrial.
MICROINOVAÇÃO
Caso a China esteja tentando se iludir e acreditar que "microinovação" e "renovação inovadora" são tão boas quanto inovação real, correrá o risco de não realizar seu sonho de se tornar uma economia avançada.
Thomas Howell, advogado especialista em questões de comércio internacional no escritório de advocacia Dewey & LeBoeuf, diz que os Estados Unidos poderiam contestar a China por meio da Organização Mundial de Comércio (OMC), mas que mudanças são mais prováveis caso os chineses percebam que suas práticas atuais os prejudicam.
"Há um limite ao crescimento quando a inovação de um país vem de fora", disse.
Até o momento, a China não parece estar recebendo essa mensagem.
É difícil resistir isoladamente quando a China exerce controle sobre as aquisições da segunda maior economia do planeta e sobre o maior mercado mundial para infraestrutura.
E os chineses são mestres em esmagar dissidências e oferecer recompensas aos que cooperem.
Mas, a menos que as empresas ocidentais decidam resistir em conjunto, com apoio das empresas privadas chinesas, as autoridades da China não terão problemas em continuar usando a tática do dividir para governar.
Tradução de PAULO MIGLIACCI
País está determinado a alcançar superioridade tecnológica de qualquer maneira
JOHN GAPPER - DO "FINANCIAL TIMES" (17.12.2010)
Viajar em um dos novos trens chineses de alta velocidade, como fiz recentemente, é experimentar o rápido avanço industrial da China.
Fomos de Nanjing a Xangai a uma velocidade com a qual o serviço da Amtrak entre Nova York e Washington pode apenas sonhar.
Caso a CSR Corporation, a companhia chinesa que construiu o trem, consiga o que pretende, os Estados Unidos poderão experimentar essa tecnologia na próxima década.
A CSR fechou acordo com a General Electric para que participem juntas, em competição com Siemens e Alstom, da concorrência para a criação de serviços ferroviários de alta velocidade na Flórida e na Califórnia.
À primeira vista, o trem de alta velocidade serve como símbolo da transição pretendida pela China, de polo fabril para economia inovadora e de alta capacitação.
O trem também serve como símbolo de outra coisa: a determinação de obter superioridade tecnológica de qualquer maneira, o que inclui tomar tecnologia ocidental e alterá-la o mínimo necessário para poder alegar que foi desenvolvida no país.
O uso dessa estratégia pela CSR causou irritação à sua antiga sócia, a Kawasaki Heavy Industries, fabricante dos trens-bala japoneses.
EXIGÊNCIA
Empresas ocidentais precisam revelar detalhes de suas tecnologias se desejam obter contratos, e depois se veem forçadas a concorrer com estatais chinesas.
Isso vem abalando a antiga fé das companhias ocidentais em que seriam necessárias décadas para que a China as alcançasse.
Nada disso é acidental. A China quer se tornar economia avançada e usa seu poder de mercado para tomar um atalho, ao "digerir" a propriedade intelectual alheia.
É difícil sentir raiva da China por estar vivendo uma fase de fiscalização pouco intensa das leis de propriedade intelectual quando tantos outros países, entre os quais os Estados Unidos, fizeram o mesmo um dia.
Mas existe uma diferença entre pirataria informal, que o governo chinês reconhece como problema e tenta reprimir, e a absorção de tecnologias com aprovação estatal.
A primeira questão envolve um setor privado agindo com exuberância descontrolada, e a segunda é um esforço oficial para permitir que o país pule um estágio de desenvolvimento industrial.
MICROINOVAÇÃO
Caso a China esteja tentando se iludir e acreditar que "microinovação" e "renovação inovadora" são tão boas quanto inovação real, correrá o risco de não realizar seu sonho de se tornar uma economia avançada.
Thomas Howell, advogado especialista em questões de comércio internacional no escritório de advocacia Dewey & LeBoeuf, diz que os Estados Unidos poderiam contestar a China por meio da Organização Mundial de Comércio (OMC), mas que mudanças são mais prováveis caso os chineses percebam que suas práticas atuais os prejudicam.
"Há um limite ao crescimento quando a inovação de um país vem de fora", disse.
Até o momento, a China não parece estar recebendo essa mensagem.
É difícil resistir isoladamente quando a China exerce controle sobre as aquisições da segunda maior economia do planeta e sobre o maior mercado mundial para infraestrutura.
E os chineses são mestres em esmagar dissidências e oferecer recompensas aos que cooperem.
Mas, a menos que as empresas ocidentais decidam resistir em conjunto, com apoio das empresas privadas chinesas, as autoridades da China não terão problemas em continuar usando a tática do dividir para governar.
Tradução de PAULO MIGLIACCI
No antigo Kazakistan chines: repressao contra uigures
China Pressed to Account for Uighurs’ Fate
By ANDREW JACOBS
The New York Times, December 18, 2010
BEIJING — A human rights organization has called on the Chinese government to publicly account for the fate of 20 ethnic Uighurs who were deported to China from Cambodia one year ago as they awaited a determination on their asylum applications with the United Nations.Until now Beijing has refused to provide any information about the Uighurs — men, boys, a woman and two infants — who were sent back to China on Dec. 19 over the objections of the United States, the European Union and United Nations officials. They were forcibly returned the day before Chinese Vice President Xi Jinpin arrived in Phnom Penh, the Cambodian capital, for a visit that yielded a package of loans and grants worth $1.2 billion.
The Uighurs, who made their way to Cambodia with the help of Christian missionaries, said they were fleeing a crackdown that followed deadly ethnic rioting in the China’s far western Xinjiang region in July 2009. Many of the 197 people dead were Han Chinese migrants killed during two days of violence in the regional capital, Urumqi. An unknown number of Uighurs were also killed or injured in a brief spasm of Han vigilante attacks that followed.
Uighurs, a Turkic-speaking Muslim people, have long complained about Han migration to the West that they say dilutes their numbers, culture and language. The Chinese government, in turn, often accuses Uighurs of engaging in “separatism” when pressing their demands for expanded religious freedom and political autonomy.
In its only statement to date about the fate of the deportees, the Chinese Foreign Ministry suggested in February that the Uighurs had been tried or were set to face trial. “China is a country ruled by law,” Ma Zhaoxu, a Foreign Ministry spokesman, wrote in response to questions sent by The New York Times. “The judicial authorities deal with illegal criminal issues strictly according to law.”
China has insisted the Uighurs were wanted in connection with the rioting, although they did not publicly provide any evidence of their involvement. In the months that followed the violence in Urumqi, hundreds of Uighurs were detained and at least nine were executed.
Human Rights Watch said they feared that those deported faced torture, long prison terms or worse. “Both China and Cambodia should be held accountable for their flagrant disregard of their obligations under international law,” Sophie Richardson, Human Rights Watch’s Asia advocacy director, said in a statement.
The United Nations High Commissioner for Refugees said 22 people initially applied for asylum in their Phnom Penh office but two disappeared before the group was handcuffed and forced onto a Chinese plane. In their statements, the applicants said they feared harsh punishment if returned to China.
“I can tell the world what is happening to Uighur people, and the Chinese authorities do not want this,” one man, a 27-year-old teacher, wrote. “If returned, I am certain I would be sent to prison.’ ”
Friday, December 10, 2010
Liu Xiaobo, jailed in China, honored in absentia by Nobel committee
Liu Xiaobo, jailed in China, honored in absentia by Nobel committee
By Debbi Wilgoren and Keith B. Richburg
Washington Post Staff Writers
Friday, December 10, 2010; 7:46 AM
The blue-and-white upholstered chair reserved for him was empty. At the Nobel Peace Prize ceremony in Oslo Friday, jailed Chinese dissident and intellectual Liu Xiaobo was nowhere to be seen.
Yet his campaign to bring universal human rights and democracy to China was recognized at a somber and formal ceremony made more visible, in many ways, as a result of Beijing's efforts to suppress it.
"We regret that the laureate is not present. He is in isolation in a prison in northeastern China," said Nobel committee secretary Geir Lundestad. "Nor can his his wife or closest relatives be with us....This fact alone shows that the award was necessary and appropriate."
The audience of several hundred dignitaries, diplomats and officials responded with sustained applause and a standing ovation. An oversize portrait of Liu, 54, had been hung on the stage in the stately hall. His eyes, behind his trademark spectacles, appeared to take in the proceedings.
"Liu has only exercised his civil rights. He has not done anything wrong," Lundestad said. "He must be released."
When he finished speaking, he placed the medal and certificate normally awarded to the laureate in the empty chair upon the stage, triggering another ovation.
China blocked broadcasts of the ceremony on television and Internet sites. Just before 8 p.m. in Beijing, as the ceremony was beginning, CNN and BBC television channels went blank - as they had intermittently throughout the day. Chinese television news led their programs with stories on the latest economic figures, and new worries over inflation.
Also, some text messages containing the words "Liu Xiaobo" and "Nobel prize" were being blocked from delivery.
Chinese Internet users, or "'Netizens," tried to start an online campaign of support for Liu by changing their avatars either to yellow ribbons or empty chairs. One image being passed around online and via Twitter showed a black chair, in the shape of a human with arms and legs, and with handcuffs around the ankles.
Meanwhile, police in Beijing maintained a heavy presence outside the apartment compound of Liu's wife, Liu Xia, who has had her telephone and Internet communications cut off for several weeks, since the announcement of the prize.
The government prohibited the Lius and their family members from leaving China to attend Friday's ceremony, and barred other activists from traveling or even gathering at cafes or public places for fear that they would find a way to celebrate the occasion.
The crackdown triggered outrage and condemnation from around the world. It was the first time the award was not presented to a laureate in person since 1936, when Carl von Ossietzky, a German pacifist jailed by the Nazi regime, was prevented from attending the ceremony.
The absence of Liu and his family members also meant that the $1.4 million cash prize went uncollected.
Foreign embassies in Norway were warned that if they sent representatives to the Nobel ceremony, they would risk unspoken diplomatic "consequences." China broke off trade talks with Norway. Foreign Ministry spokeswoman Jiang Yu denounced the Nobel committee members as "clowns" and accused them of "orchestrating an anti-China farce."
As of Dec. 6, the Nobel committee said, 46 countries had announced they would send representatives to the prize ceremony. Fifteen countries--China, Russia, Kazakhstan, Tunisia, Saudi Arabia,Pakistan, Iraq , Iran, Vietnam, Afghanistan, Venezuela, Egypt, Sudan, Cuba and Morocco--said they would stay away.
The government of Serbia had planned to boycott the ceremony in order to maintain good relations with China, but reversed that stance on Friday in the face of an outcry at home and from the European Union and said it would send an human rights official--not a diplomat--to witness the event.
"We had to affirm our relation with China and respond to Serbia's interests with regard to the European Union," Human Rights Minister Svetozar Cipliche told the Associated Press. Serbia is a candidate for EU membership.
President Obama, chosen to receive the prestigious prize one year ago, said in a statement that Liu "is far more deserving of this award than I was."
"I regret that Mr. Liu and his wife were denied the opportunity to attend the ceremony that Michelle and I attended last year," Obama said. "...The values he espouses are universal, his struggle is peaceful, and he should be released as soon as possible."
Liu was jailed after authoring Charter '08, a pro-democracy manifesto that was published Dec. 10, 2008 and has since been signed by more than 10,000 people inside and outside China.
Obama said Liu "reminds us that human dignity ... depends upon the advance of democracy, open society, and the rule of law."
Scores of activists, lawyers and professors have been prohibited from leaving the country in recent days, or placed under house arrest, with their telephone and Internet lines cut. As the Nobel ceremony drew closer, some were also told not to speak to reporters.
The Chinese government continued its furious assault on the Nobel committee in the state controlled press on Friday. The lead headline in the Global Times said; "Beijing firm on Nobel." The China Daily lead story claimed: "Most nations oppose peace prize to Liu."
Activists said the crackdown has had one unintended, opposite effect - that of underscoring the need for political reform that Liu was awarded the prize for championing.
"The more people are barred from leaving the country, and the harder the government works to stifle news of the Nobel ceremony domestically, the more meaning the event takes on for the curious ordinary Chinese," Renee Xia, the international director of Chinese Human Rights Defenders, said in an e-mailed statement.
Wilgoren reported from Washington. Richburg reported from Beijing.
(See other Nobel laureates, including Poland's Lech Walesa and Burma's Aung San Suu Kyi, who were prevented from receiving their prizes in person). (Read about how Chinese media have demonized Liu Xiaobo.)
By Debbi Wilgoren and Keith B. Richburg
Washington Post Staff Writers
Friday, December 10, 2010; 7:46 AM
The blue-and-white upholstered chair reserved for him was empty. At the Nobel Peace Prize ceremony in Oslo Friday, jailed Chinese dissident and intellectual Liu Xiaobo was nowhere to be seen.
Yet his campaign to bring universal human rights and democracy to China was recognized at a somber and formal ceremony made more visible, in many ways, as a result of Beijing's efforts to suppress it.
"We regret that the laureate is not present. He is in isolation in a prison in northeastern China," said Nobel committee secretary Geir Lundestad. "Nor can his his wife or closest relatives be with us....This fact alone shows that the award was necessary and appropriate."
The audience of several hundred dignitaries, diplomats and officials responded with sustained applause and a standing ovation. An oversize portrait of Liu, 54, had been hung on the stage in the stately hall. His eyes, behind his trademark spectacles, appeared to take in the proceedings.
"Liu has only exercised his civil rights. He has not done anything wrong," Lundestad said. "He must be released."
When he finished speaking, he placed the medal and certificate normally awarded to the laureate in the empty chair upon the stage, triggering another ovation.
China blocked broadcasts of the ceremony on television and Internet sites. Just before 8 p.m. in Beijing, as the ceremony was beginning, CNN and BBC television channels went blank - as they had intermittently throughout the day. Chinese television news led their programs with stories on the latest economic figures, and new worries over inflation.
Also, some text messages containing the words "Liu Xiaobo" and "Nobel prize" were being blocked from delivery.
Chinese Internet users, or "'Netizens," tried to start an online campaign of support for Liu by changing their avatars either to yellow ribbons or empty chairs. One image being passed around online and via Twitter showed a black chair, in the shape of a human with arms and legs, and with handcuffs around the ankles.
Meanwhile, police in Beijing maintained a heavy presence outside the apartment compound of Liu's wife, Liu Xia, who has had her telephone and Internet communications cut off for several weeks, since the announcement of the prize.
The government prohibited the Lius and their family members from leaving China to attend Friday's ceremony, and barred other activists from traveling or even gathering at cafes or public places for fear that they would find a way to celebrate the occasion.
The crackdown triggered outrage and condemnation from around the world. It was the first time the award was not presented to a laureate in person since 1936, when Carl von Ossietzky, a German pacifist jailed by the Nazi regime, was prevented from attending the ceremony.
The absence of Liu and his family members also meant that the $1.4 million cash prize went uncollected.
Foreign embassies in Norway were warned that if they sent representatives to the Nobel ceremony, they would risk unspoken diplomatic "consequences." China broke off trade talks with Norway. Foreign Ministry spokeswoman Jiang Yu denounced the Nobel committee members as "clowns" and accused them of "orchestrating an anti-China farce."
As of Dec. 6, the Nobel committee said, 46 countries had announced they would send representatives to the prize ceremony. Fifteen countries--China, Russia, Kazakhstan, Tunisia, Saudi Arabia,Pakistan, Iraq , Iran, Vietnam, Afghanistan, Venezuela, Egypt, Sudan, Cuba and Morocco--said they would stay away.
The government of Serbia had planned to boycott the ceremony in order to maintain good relations with China, but reversed that stance on Friday in the face of an outcry at home and from the European Union and said it would send an human rights official--not a diplomat--to witness the event.
"We had to affirm our relation with China and respond to Serbia's interests with regard to the European Union," Human Rights Minister Svetozar Cipliche told the Associated Press. Serbia is a candidate for EU membership.
President Obama, chosen to receive the prestigious prize one year ago, said in a statement that Liu "is far more deserving of this award than I was."
"I regret that Mr. Liu and his wife were denied the opportunity to attend the ceremony that Michelle and I attended last year," Obama said. "...The values he espouses are universal, his struggle is peaceful, and he should be released as soon as possible."
Liu was jailed after authoring Charter '08, a pro-democracy manifesto that was published Dec. 10, 2008 and has since been signed by more than 10,000 people inside and outside China.
Obama said Liu "reminds us that human dignity ... depends upon the advance of democracy, open society, and the rule of law."
Scores of activists, lawyers and professors have been prohibited from leaving the country in recent days, or placed under house arrest, with their telephone and Internet lines cut. As the Nobel ceremony drew closer, some were also told not to speak to reporters.
The Chinese government continued its furious assault on the Nobel committee in the state controlled press on Friday. The lead headline in the Global Times said; "Beijing firm on Nobel." The China Daily lead story claimed: "Most nations oppose peace prize to Liu."
Activists said the crackdown has had one unintended, opposite effect - that of underscoring the need for political reform that Liu was awarded the prize for championing.
"The more people are barred from leaving the country, and the harder the government works to stifle news of the Nobel ceremony domestically, the more meaning the event takes on for the curious ordinary Chinese," Renee Xia, the international director of Chinese Human Rights Defenders, said in an e-mailed statement.
Wilgoren reported from Washington. Richburg reported from Beijing.
(See other Nobel laureates, including Poland's Lech Walesa and Burma's Aung San Suu Kyi, who were prevented from receiving their prizes in person). (Read about how Chinese media have demonized Liu Xiaobo.)
THIS STORY
How China branded Nobel winner Liu Xiaobo a traitor
A afirmação de Liu Xiaobo sobre o colonialismo inglês como tendo feito a prosperidade de Hong Kong, e sobre a necessidade de 300 anos de colonialismo para a China para alcançar o mesmo efeito, é obviamente uma ironia, uma boutade, como diriam os franceses.
No entanto, as autoridades chinesas se baseiam nisso para classificá-lo como agente estrangeiro e traidor à pátria.
Seria cômico, se não fosse trágico, para ele...
Paulo Roberto de Almeida
How China branded Nobel winner Liu Xiaobo a traitor
By Andrew Higgins
Washington Post Foreign Service
Friday, December 10, 2010; 12:37 AM
HONG KONG -- The magazine is banned in mainland China. So, too, is its Web site. Its editor is barred from visiting the land of his birth. Yet Chinese authorities have repeatedly cited reporting from the blacklisted publication.
"If they paid for using my work, I'd be much better off," joked Jin Zhong, the editor of Open Magazine, a low-budget Hong Kong monthly dedicated to criticism of the Chinese Communist Party.
China's frequent reference to a tiny media outfit it loathes is a curious by-product of its even fiercer loathing for Liu Xiaobo, the jailed dissident who will be honored in absentia Friday as winner of the Nobel Peace Prize.
Though sent to prison for "inciting subversion of state power," Liu has been pilloried most harshly in China not for his alleged violations of the criminal code but for his affronts to Chinese nationalism. A slew of articles in China's tightly controlled official media lambast Liu as a traitor - and offer as evidence comments published in back issues of Jin's Hong Kong magazine.
Most frequently cited in this campaign of denunciation is an interview Liu gave to the journal in 1988. Visiting Hong Kong for the first time and dazzled by the city's prosperity, liberties and public order, Liu cracked that since the then-British colony had "become like this after 100 years of colonialism, China is so big it will of course need 300 years of colonialism. . . . I have my doubts as to whether 300 years would be enough."
At the time, his comments attracted little notice: they were typical of the provocative irreverence that characterized debate among Chinese intellectuals before the 1989 military assault on Tiananmen Square. "Nobody paid much attention," recalled Jin, who relegated the interview to the back of his magazine, then called Emancipation Monthly.
Today, Liu's words have been revived with gusto by the mainland media, stirring "patriotic" attacks on the jailed literary scholar on the Internet, where criticism of the Nobel Prize - unlike praise for it - has no trouble getting past censors.
Debate over whether China can find its own uniquely Chinese path to economic and political modernization or take the road pioneered by the West has raged since the collapse of the last imperial dynasty, the Qing, in 1911. Liu, a literary critic and essayist, stands firmly at the pro-Western end of the spectrum, a position that has put him sharply at odds with China's prevailing orthodoxy.
Over the last 30 years, the Communist Party has steadily cut its roots in Marxist dogma imported from the West and put Chinese nationalism at the center of its governing ideology.
"This is the best card they've got and they play it to the maximum," said Bao Pu, a Hong Kong-based publisher whose father, a former senior Communist Party official in Beijing, was jailed in 1989 for supporting pro-democracy student protesters. Bao described efforts to paint Liu as a traitor "as ridiculous" and has just published a collection of the dissident's writings to present a more complete picture of his views. But, Bao said, branding critics of the ruling party as unpatriotic "can be very effective."
Attacks from Chinese press
"What on earth has Liu Xiaobo ever contributed to human peace?" thundered a recent article in the ruling party's main mouthpiece, the People's Daily. "Many Chinese remember that the '300 years of colonialism' theory came from Liu. Contempt for Chinese culture and support for thorough Westernization have been his political stand."
Xinhua, the state-controlled Chinese news agency, took up the same cudgel in an angry editorial. Quoting Liu's remarks in his 1988 Hong Kong interview, the editorial asked "what qualification does someone who hails colonial history and culture have to talk big about 'democracy' and 'freedom'?" Liu's true goal, Xinhua said, is to "make China a servant of the West."
Global Times, another Beijing newspaper, delivered a similar attack. Its headline: "Liu Xiaobo: It is not enough to be colonized for 300 years."
The article triggered angry attacks on Liu by writers on Global Forum, an online venue affiliated with the newspaper. Liu "is not a human being and should be shot," commented one.
Not everyone is convinced of Liu's treachery. "I don't believe he is advocating colonialism but only . . . a thorough change in China's national character, system and culture," said He Guanghua, a professor at Beijing's Renmin University. And whatever Liu's real views, added He, "you can't convict him of a crime because he said these words."
But with Chinese media barred from publishing articles written by Liu, his widely publicized remark about colonialism is about all that many Chinese know of his thinking. His less-incendiary contributions to China's political debate have been purged by censors. Among these is "Charter 08," a manifesto in favor of democracy that the Nobel Prize Committee cited as evidence of Liu's "long and non-violent struggle for fundamental human rights in China."
This filtering helps explain why a dissident whom many foreigners view as a hero is often seen in China as tool of the West unworthy of the Nobel Prize. In the absence of opinion polls in China on sensitive political issues, it is impossible to gauge what ordinary Chinese really think of Liu.
China's propaganda apparatus
Barry Sautman, a political scientist at the Hong Kong University of Science and Technology and a critic of Liu's Nobel Prize, says that China's case against Liu cannot be dismissed as mere propaganda. Liu, he said, "wants to see China completely Westernized in a way that most Chinese would not want."
Sautman recently co-wrote an article for a Hong Kong newspaper that, citing Liu's 1988 interview with Jin and ignoring his voluminous writings, derided the Nobel Peace Prize as "morally bankrupt."
China's propaganda apparatus first put the spotlight on Liu's allegedly treasonous views in the aftermath of the Tiananmen crackdown. Liu was jailed for his role in the student protests - and targeted for vitriolic attack by the official media. Liu, said the People's Daily at the time, is a "traitor from head to toe." It, too, used Jin's Hong Kong magazine as a witness for the prosecution.
Writing for the same magazine in 2006, Liu declined to retract his "300 years of colonialism" quip and described it as an "extreme expression" of a core conviction: "China's modernization can only be achieved after a long period of Westernization."
Jin, the editor who conducted the 1988 interview, said he has no regrets about publishing comments that have provided so much fodder for Liu's critics in Beijing. "That's how a free press works," he said. But he wishes that Liu's enemies would quote what was said in full instead of cutting out a key line that makes clear the jailed dissident's true take on imperialism: "The age of colonialism has already passed."
higginsandrew@washpost.com Researcher Wang Juan in Beijing contributed to this report.
No entanto, as autoridades chinesas se baseiam nisso para classificá-lo como agente estrangeiro e traidor à pátria.
Seria cômico, se não fosse trágico, para ele...
Paulo Roberto de Almeida
How China branded Nobel winner Liu Xiaobo a traitor
By Andrew Higgins
Washington Post Foreign Service
Friday, December 10, 2010; 12:37 AM
HONG KONG -- The magazine is banned in mainland China. So, too, is its Web site. Its editor is barred from visiting the land of his birth. Yet Chinese authorities have repeatedly cited reporting from the blacklisted publication.
"If they paid for using my work, I'd be much better off," joked Jin Zhong, the editor of Open Magazine, a low-budget Hong Kong monthly dedicated to criticism of the Chinese Communist Party.
China's frequent reference to a tiny media outfit it loathes is a curious by-product of its even fiercer loathing for Liu Xiaobo, the jailed dissident who will be honored in absentia Friday as winner of the Nobel Peace Prize.
Though sent to prison for "inciting subversion of state power," Liu has been pilloried most harshly in China not for his alleged violations of the criminal code but for his affronts to Chinese nationalism. A slew of articles in China's tightly controlled official media lambast Liu as a traitor - and offer as evidence comments published in back issues of Jin's Hong Kong magazine.
Most frequently cited in this campaign of denunciation is an interview Liu gave to the journal in 1988. Visiting Hong Kong for the first time and dazzled by the city's prosperity, liberties and public order, Liu cracked that since the then-British colony had "become like this after 100 years of colonialism, China is so big it will of course need 300 years of colonialism. . . . I have my doubts as to whether 300 years would be enough."
At the time, his comments attracted little notice: they were typical of the provocative irreverence that characterized debate among Chinese intellectuals before the 1989 military assault on Tiananmen Square. "Nobody paid much attention," recalled Jin, who relegated the interview to the back of his magazine, then called Emancipation Monthly.
Today, Liu's words have been revived with gusto by the mainland media, stirring "patriotic" attacks on the jailed literary scholar on the Internet, where criticism of the Nobel Prize - unlike praise for it - has no trouble getting past censors.
Debate over whether China can find its own uniquely Chinese path to economic and political modernization or take the road pioneered by the West has raged since the collapse of the last imperial dynasty, the Qing, in 1911. Liu, a literary critic and essayist, stands firmly at the pro-Western end of the spectrum, a position that has put him sharply at odds with China's prevailing orthodoxy.
Over the last 30 years, the Communist Party has steadily cut its roots in Marxist dogma imported from the West and put Chinese nationalism at the center of its governing ideology.
"This is the best card they've got and they play it to the maximum," said Bao Pu, a Hong Kong-based publisher whose father, a former senior Communist Party official in Beijing, was jailed in 1989 for supporting pro-democracy student protesters. Bao described efforts to paint Liu as a traitor "as ridiculous" and has just published a collection of the dissident's writings to present a more complete picture of his views. But, Bao said, branding critics of the ruling party as unpatriotic "can be very effective."
Attacks from Chinese press
"What on earth has Liu Xiaobo ever contributed to human peace?" thundered a recent article in the ruling party's main mouthpiece, the People's Daily. "Many Chinese remember that the '300 years of colonialism' theory came from Liu. Contempt for Chinese culture and support for thorough Westernization have been his political stand."
Xinhua, the state-controlled Chinese news agency, took up the same cudgel in an angry editorial. Quoting Liu's remarks in his 1988 Hong Kong interview, the editorial asked "what qualification does someone who hails colonial history and culture have to talk big about 'democracy' and 'freedom'?" Liu's true goal, Xinhua said, is to "make China a servant of the West."
Global Times, another Beijing newspaper, delivered a similar attack. Its headline: "Liu Xiaobo: It is not enough to be colonized for 300 years."
The article triggered angry attacks on Liu by writers on Global Forum, an online venue affiliated with the newspaper. Liu "is not a human being and should be shot," commented one.
Not everyone is convinced of Liu's treachery. "I don't believe he is advocating colonialism but only . . . a thorough change in China's national character, system and culture," said He Guanghua, a professor at Beijing's Renmin University. And whatever Liu's real views, added He, "you can't convict him of a crime because he said these words."
But with Chinese media barred from publishing articles written by Liu, his widely publicized remark about colonialism is about all that many Chinese know of his thinking. His less-incendiary contributions to China's political debate have been purged by censors. Among these is "Charter 08," a manifesto in favor of democracy that the Nobel Prize Committee cited as evidence of Liu's "long and non-violent struggle for fundamental human rights in China."
This filtering helps explain why a dissident whom many foreigners view as a hero is often seen in China as tool of the West unworthy of the Nobel Prize. In the absence of opinion polls in China on sensitive political issues, it is impossible to gauge what ordinary Chinese really think of Liu.
China's propaganda apparatus
Barry Sautman, a political scientist at the Hong Kong University of Science and Technology and a critic of Liu's Nobel Prize, says that China's case against Liu cannot be dismissed as mere propaganda. Liu, he said, "wants to see China completely Westernized in a way that most Chinese would not want."
Sautman recently co-wrote an article for a Hong Kong newspaper that, citing Liu's 1988 interview with Jin and ignoring his voluminous writings, derided the Nobel Peace Prize as "morally bankrupt."
China's propaganda apparatus first put the spotlight on Liu's allegedly treasonous views in the aftermath of the Tiananmen crackdown. Liu was jailed for his role in the student protests - and targeted for vitriolic attack by the official media. Liu, said the People's Daily at the time, is a "traitor from head to toe." It, too, used Jin's Hong Kong magazine as a witness for the prosecution.
Writing for the same magazine in 2006, Liu declined to retract his "300 years of colonialism" quip and described it as an "extreme expression" of a core conviction: "China's modernization can only be achieved after a long period of Westernization."
Jin, the editor who conducted the 1988 interview, said he has no regrets about publishing comments that have provided so much fodder for Liu's critics in Beijing. "That's how a free press works," he said. But he wishes that Liu's enemies would quote what was said in full instead of cutting out a key line that makes clear the jailed dissident's true take on imperialism: "The age of colonialism has already passed."
higginsandrew@washpost.com Researcher Wang Juan in Beijing contributed to this report.
THIS STORY
Thursday, December 2, 2010
China as Global Power - The Economist (2) - Special Report
A special report on China's place in the world
Brushwood and gall
The Economist, Dec 2nd 2010
China insists that its growing military and diplomatic clout pose no threat. The rest of the world, and particularly America, is not so sure, says Edward Carr
In this special report
* » Brushwood and gall «
* Less biding and hiding
* In the balance
* Friends, or else
* Strategic reassurance
* The fourth modernisation
* Sources and acknowledgments
IN 492BC, at the end of the “Spring and Autumn” period in Chinese history, Goujian, the king of Yue in modern Zhejiang, was taken prisoner after a disastrous campaign against King Fuchai, his neighbour to the north. Goujian was put to work in the royal stables where he bore his captivity with such dignity that he gradually won Fuchai’s respect. After a few years Fuchai let him return home as his vassal.
Goujian never forgot his humiliation. He slept on brushwood and hung a gall bladder in his room, licking it daily to feed his appetite for revenge. Yue appeared loyal, but its gifts of craftsmen and timber tempted Fuchai to build palaces and towers even though the extravagance ensnared him in debt. Goujian distracted him with Yue’s most beautiful women, bribed his officials and bought enough grain to empty his granaries. Meanwhile, as Fuchai’s kingdom declined, Yue grew rich and raised a new army.
Goujian bided his time for eight long years. By 482BC, confident of his superiority, he set off north with almost 50,000 warriors. Over several campaigns they put Fuchai and his kingdom to the sword.
The king who slept on brushwood and tasted gall is as familiar to Chinese as King Alfred and his cakes are to Britons, or George Washington and the cherry tree are to Americans. In the early 20th century he became a symbol of resistance against the treaty ports, foreign concessions and the years of colonial humiliation.
Taken like that, the parable of Goujian sums up what some people find alarming about China’s rise as a superpower today. Ever since Deng Xiaoping set about reforming the economy in 1978, China has talked peace. Still militarily and economically too weak to challenge America, it has concentrated on getting richer. Even as China has grown in power and rebuilt its armed forces, the West and Japan have run up debts and sold it their technology. China has been patient, but the day when it can once again start to impose its will is drawing near.
However, Goujian’s story has another reading, too. Paul Cohen, a Harvard scholar who has written about the king, explains that the Chinese today see him as an example of perseverance and dedication. Students are told that if they want to succeed they must be like King Goujian, sleeping on brushwood and tasting gall—that great accomplishments come only with sacrifice and unyielding purpose. This Goujian represents self-improvement and dedication, not revenge.
Which Goujian will 21st-century China follow? Will it broadly fit in with the Western world, as a place where people want nothing more than a chance to succeed and enjoy the rewards of their hard work? Or, as its wealth and power begin to overshadow all but the United States, will China become a threat—an angry country set on avenging past wrongs and forcing others to bend to its will? China’s choice of role, says Jim Steinberg, America’s deputy secretary of state, is “the great question of our time”. The peace and prosperity of the world depends on which path it takes.
Some people argue that China is now too enmeshed in globalisation to put the world economy in jeopardy through war or coercion. Trade has brought prosperity. China buys raw materials and components from abroad and sells its wares in foreign markets. It holds $2.6 trillion of foreign-exchange reserves. Why should it pull down the system that has served it so well?
But that is too sanguine. In the past integration has sometimes gone before conflagration. Europe went up in flames in 1914 even though Germany was Britain’s second-largest export market and Britain was Germany’s largest. Japan got rich and fell in with the European powers before it brutally set about colonising Asia.
Others go to the opposite extreme, arguing that China and America are condemned to be enemies. Ever since Sparta led the Peloponnesian League against Athens, they say, declining powers have failed to give way fast enough to satisfy rising powers. As China’s economic and military strength increase, so will its sense of entitlement and its ambition. In the end patience will run out, because America will not willingly surrender leadership.
Reasons for optimism
But that is too bleak. China clings to its territorial claims—over Taiwan, the South China Sea, various islands and with India. Yet, unlike the great powers before 1945, China is not looking for new colonies. And unlike the Soviet Union, China does not have an ideology to export. In fact, America’s liberal idealism is far more potent than token Communism, warmed-up Confucianism or anything else that China has to offer. When two countries have nuclear weapons, a war may not be worth fighting.
In the real world the dealings between rising and declining powers are not straightforward. Twice Britain feared that continental Europe would be dominated by an expansionary Germany and twice it went to war. Yet when America took world leadership from Britain, the two remained constant allies. After the second world war Japan and Germany rose from the ashes to become the world’s second- and third-largest economies, without a whisper of a political challenge to the United States.
International-relations theorists have devoted much thought to the passing of empires. The insight of “power-transition theory” is that satisfied powers, such as post-war Germany and Japan, do not challenge the world order when they rise. But dissatisfied ones, such as pre-war Germany and Japan, conclude that the system shaped and maintained by the incumbent powers is rigged against them. In the anarchic arena of geopolitics they believe that they will be denied what is rightfully theirs unless they enforce their claim.
So for most of the past decade the two great powers edged towards what David Lampton, a professor at Johns Hopkins School of Advanced International Studies, calls a double wager. China would broadly fall in with America’s post-war order, betting that the rest of the world, eager for China’s help and its markets, would allow it to grow richer and more powerful. America would not seek to prevent this rise, betting that prosperity would eventually turn China into one of the system’s supporters—a “responsible stakeholder” in the language of Robert Zoellick, a deputy secretary of state under George Bush junior and now president of the World Bank.
For much of the past decade, barring the odd tiff, the wager worked. Before 2001 China and America fell out over Taiwan, the American bombing of China’s embassy in Belgrade and a fatal mid-air collision between an American EP3 spy plane and a Chinese fighter. Many commentators back then thought that America and China were on a dangerous course, but Chinese and American leaders did not pursue it. Since then America has been busy with the war on terror and has sought plain dealing with China. American companies enjoyed decent access to Chinese markets. China lent the American government huge amounts of money.
This suited China, which concluded long ago that the best way to build its “comprehensive national power” was through economic growth. According to its analysis, articulated in a series of white papers and speeches in the late 1990s and early 2000s, the country needed a “New Security Concept”. Growth demanded stability, which in turn required that China’s neighbours did not feel threatened.
To reassure them, China started to join the international organisations it had once shunned. As well as earning it credentials as a good citizen, this was also a safe way to counter American influence. China led the six-party talks designed to curb North Korea’s nuclear programme. The government signed the Comprehensive Test-Ban Treaty and by and large stopped proliferating weapons (though proliferation by rogue Chinese companies continued). It sent people on UN peacekeeping operations, supplying more of them than any other permanent member of the security council or any NATO country.
Inevitably, there were still disputes and differences. But diplomats, policymakers and academics allowed themselves to believe that, in the nuclear age, China might just emerge peacefully as a new superpower. However, that confidence has recently softened. In the past few months China has fallen out with Japan over a fishing boat that rammed at least one if not two Japanese coastguard vessels off what the Japanese call the Senkaku Islands and the Chinese the Diaoyu Islands.
Earlier, China failed to back South Korea over the sinking of a Korean navy corvette with the loss of 46 crew—even though an international panel had concluded that the Cheonan was attacked by a North Korean submarine. When America and South Korea reacted to the sinking by planning joint exercises in the Yellow Sea, China objected and got one of them moved eastward, to the Sea of Japan. And when North Korea shelled a South Korean island last month, China was characteristically reluctant to condemn it.
China has also begun to include territorial claims over large parts of the South China Sea among its six “primary concerns”—new language that has alarmed diplomats. When members of the Association of South-East Asian Nations (ASEAN) complained about this in a meeting in Hanoi in the summer, China’s foreign minister, Yang Jiechi, worked himself into a rage: “All of you remember how much of your economic prosperity depends on us,” he reportedly spat back.
Last year a vicious editorial in China’s People’s Daily attacked India after its prime minister, Manmohan Singh, visited disputed territory near Tibet; Barack Obama was shabbily treated, first on a visit to Beijing and later at the climate-change talks in Copenhagen, where a junior Chinese official wagged his finger at the leader of the free world; Chinese vessels have repeatedly harassed American and Japanese naval ships, including the USS John S. McCain and a survey vessel, the USNS Impeccable.
Such things are perhaps small in themselves, but they matter because of that double bet. America is constantly looking for signs that China is going to welsh on the deal and turn aggressive—and China is looking for signs that America and its allies are going to gang up to stop its rise. Everything is coloured by that strategic mistrust.
Peering through this lens, China-watchers detect a shift. “The smiling diplomacy is over,” says Richard Armitage, deputy secretary of state under George Bush. “China’s aspiration for power is very obvious,” says Yukio Okamoto, a Japanese security expert. Diplomats, talking on condition of anonymity, speak of underlying suspicions and anxiety in their dealings with China. Although day-to-day traffic between American and Chinese government departments flows smoothly, “the strategic mistrust between China and the US continues to deepen,” says Bonnie Glaser of the Centre for Strategic and International Studies in Washington, DC.
There is nothing inevitable about this deterioration. Peace still makes sense. China faces huge problems at home. It benefits from American markets and good relations with its neighbours, just as it did in 2001. The Chinese Communist Party and the occupant of the White House, of any political stripe, have more to gain from economic growth than from anything else.
China’s leaders understand this. In November 2003 and February 2004 the Politburo held special sessions on the rise and fall of nations since the 15th century. American policymakers are no less aware that, though a powerful China will be hard to cope with, a dissatisfied and powerful China would be impossible.
Now, however, many factors, on many sides, from domestic politics to the fallout from the financial crisis, are conspiring to make relations worse. The risk is not war—for the time being that remains almost unthinkable, if only because it would be so greatly to everyone’s disadvantage. The danger is that the leaders of China and America will over the next decade lay the foundations for a deep antagonism. This is best described by Henry Kissinger.
The dark side
Under Richard Nixon, Mr Kissinger created the conditions for 40 years of peace in Asia by seeing that America and China could gain more from working together than from competing. Today Mr Kissinger is worried. Speaking in September at a meeting of the International Institute for Strategic Studies, he observed that bringing China into the global order would be even harder than bringing in Germany had been a century ago.
“It is not an issue of integrating a European-style nation-state, but a full-fledged continental power,” he said. “The DNA of both [America and China] could generate a growing adversarial relationship, much as Germany and Britain drifted from friendship to confrontation…Neither Washington nor Beijing has much practice in co-operative relations with equals. Yet their leaders have no more important task than to implement the truths that neither country will ever be able to dominate the other, and that conflict between them would exhaust their societies and undermine the prospects of world peace.”
Nowhere is the incipient rivalry sharper than between America’s armed forces and their rapidly modernising Chinese counterparts. Globally, American arms remain vastly superior. But in China’s coastal waters they would no longer confer such an easy victory.
Brushwood and gall
The Economist, Dec 2nd 2010
China insists that its growing military and diplomatic clout pose no threat. The rest of the world, and particularly America, is not so sure, says Edward Carr
In this special report
* » Brushwood and gall «
* Less biding and hiding
* In the balance
* Friends, or else
* Strategic reassurance
* The fourth modernisation
* Sources and acknowledgments
IN 492BC, at the end of the “Spring and Autumn” period in Chinese history, Goujian, the king of Yue in modern Zhejiang, was taken prisoner after a disastrous campaign against King Fuchai, his neighbour to the north. Goujian was put to work in the royal stables where he bore his captivity with such dignity that he gradually won Fuchai’s respect. After a few years Fuchai let him return home as his vassal.
Goujian never forgot his humiliation. He slept on brushwood and hung a gall bladder in his room, licking it daily to feed his appetite for revenge. Yue appeared loyal, but its gifts of craftsmen and timber tempted Fuchai to build palaces and towers even though the extravagance ensnared him in debt. Goujian distracted him with Yue’s most beautiful women, bribed his officials and bought enough grain to empty his granaries. Meanwhile, as Fuchai’s kingdom declined, Yue grew rich and raised a new army.
Goujian bided his time for eight long years. By 482BC, confident of his superiority, he set off north with almost 50,000 warriors. Over several campaigns they put Fuchai and his kingdom to the sword.
The king who slept on brushwood and tasted gall is as familiar to Chinese as King Alfred and his cakes are to Britons, or George Washington and the cherry tree are to Americans. In the early 20th century he became a symbol of resistance against the treaty ports, foreign concessions and the years of colonial humiliation.
Taken like that, the parable of Goujian sums up what some people find alarming about China’s rise as a superpower today. Ever since Deng Xiaoping set about reforming the economy in 1978, China has talked peace. Still militarily and economically too weak to challenge America, it has concentrated on getting richer. Even as China has grown in power and rebuilt its armed forces, the West and Japan have run up debts and sold it their technology. China has been patient, but the day when it can once again start to impose its will is drawing near.
However, Goujian’s story has another reading, too. Paul Cohen, a Harvard scholar who has written about the king, explains that the Chinese today see him as an example of perseverance and dedication. Students are told that if they want to succeed they must be like King Goujian, sleeping on brushwood and tasting gall—that great accomplishments come only with sacrifice and unyielding purpose. This Goujian represents self-improvement and dedication, not revenge.
Which Goujian will 21st-century China follow? Will it broadly fit in with the Western world, as a place where people want nothing more than a chance to succeed and enjoy the rewards of their hard work? Or, as its wealth and power begin to overshadow all but the United States, will China become a threat—an angry country set on avenging past wrongs and forcing others to bend to its will? China’s choice of role, says Jim Steinberg, America’s deputy secretary of state, is “the great question of our time”. The peace and prosperity of the world depends on which path it takes.
Some people argue that China is now too enmeshed in globalisation to put the world economy in jeopardy through war or coercion. Trade has brought prosperity. China buys raw materials and components from abroad and sells its wares in foreign markets. It holds $2.6 trillion of foreign-exchange reserves. Why should it pull down the system that has served it so well?
But that is too sanguine. In the past integration has sometimes gone before conflagration. Europe went up in flames in 1914 even though Germany was Britain’s second-largest export market and Britain was Germany’s largest. Japan got rich and fell in with the European powers before it brutally set about colonising Asia.
Others go to the opposite extreme, arguing that China and America are condemned to be enemies. Ever since Sparta led the Peloponnesian League against Athens, they say, declining powers have failed to give way fast enough to satisfy rising powers. As China’s economic and military strength increase, so will its sense of entitlement and its ambition. In the end patience will run out, because America will not willingly surrender leadership.
Reasons for optimism
But that is too bleak. China clings to its territorial claims—over Taiwan, the South China Sea, various islands and with India. Yet, unlike the great powers before 1945, China is not looking for new colonies. And unlike the Soviet Union, China does not have an ideology to export. In fact, America’s liberal idealism is far more potent than token Communism, warmed-up Confucianism or anything else that China has to offer. When two countries have nuclear weapons, a war may not be worth fighting.
In the real world the dealings between rising and declining powers are not straightforward. Twice Britain feared that continental Europe would be dominated by an expansionary Germany and twice it went to war. Yet when America took world leadership from Britain, the two remained constant allies. After the second world war Japan and Germany rose from the ashes to become the world’s second- and third-largest economies, without a whisper of a political challenge to the United States.
International-relations theorists have devoted much thought to the passing of empires. The insight of “power-transition theory” is that satisfied powers, such as post-war Germany and Japan, do not challenge the world order when they rise. But dissatisfied ones, such as pre-war Germany and Japan, conclude that the system shaped and maintained by the incumbent powers is rigged against them. In the anarchic arena of geopolitics they believe that they will be denied what is rightfully theirs unless they enforce their claim.
So for most of the past decade the two great powers edged towards what David Lampton, a professor at Johns Hopkins School of Advanced International Studies, calls a double wager. China would broadly fall in with America’s post-war order, betting that the rest of the world, eager for China’s help and its markets, would allow it to grow richer and more powerful. America would not seek to prevent this rise, betting that prosperity would eventually turn China into one of the system’s supporters—a “responsible stakeholder” in the language of Robert Zoellick, a deputy secretary of state under George Bush junior and now president of the World Bank.
For much of the past decade, barring the odd tiff, the wager worked. Before 2001 China and America fell out over Taiwan, the American bombing of China’s embassy in Belgrade and a fatal mid-air collision between an American EP3 spy plane and a Chinese fighter. Many commentators back then thought that America and China were on a dangerous course, but Chinese and American leaders did not pursue it. Since then America has been busy with the war on terror and has sought plain dealing with China. American companies enjoyed decent access to Chinese markets. China lent the American government huge amounts of money.
This suited China, which concluded long ago that the best way to build its “comprehensive national power” was through economic growth. According to its analysis, articulated in a series of white papers and speeches in the late 1990s and early 2000s, the country needed a “New Security Concept”. Growth demanded stability, which in turn required that China’s neighbours did not feel threatened.
To reassure them, China started to join the international organisations it had once shunned. As well as earning it credentials as a good citizen, this was also a safe way to counter American influence. China led the six-party talks designed to curb North Korea’s nuclear programme. The government signed the Comprehensive Test-Ban Treaty and by and large stopped proliferating weapons (though proliferation by rogue Chinese companies continued). It sent people on UN peacekeeping operations, supplying more of them than any other permanent member of the security council or any NATO country.
Inevitably, there were still disputes and differences. But diplomats, policymakers and academics allowed themselves to believe that, in the nuclear age, China might just emerge peacefully as a new superpower. However, that confidence has recently softened. In the past few months China has fallen out with Japan over a fishing boat that rammed at least one if not two Japanese coastguard vessels off what the Japanese call the Senkaku Islands and the Chinese the Diaoyu Islands.
Earlier, China failed to back South Korea over the sinking of a Korean navy corvette with the loss of 46 crew—even though an international panel had concluded that the Cheonan was attacked by a North Korean submarine. When America and South Korea reacted to the sinking by planning joint exercises in the Yellow Sea, China objected and got one of them moved eastward, to the Sea of Japan. And when North Korea shelled a South Korean island last month, China was characteristically reluctant to condemn it.
China has also begun to include territorial claims over large parts of the South China Sea among its six “primary concerns”—new language that has alarmed diplomats. When members of the Association of South-East Asian Nations (ASEAN) complained about this in a meeting in Hanoi in the summer, China’s foreign minister, Yang Jiechi, worked himself into a rage: “All of you remember how much of your economic prosperity depends on us,” he reportedly spat back.
Last year a vicious editorial in China’s People’s Daily attacked India after its prime minister, Manmohan Singh, visited disputed territory near Tibet; Barack Obama was shabbily treated, first on a visit to Beijing and later at the climate-change talks in Copenhagen, where a junior Chinese official wagged his finger at the leader of the free world; Chinese vessels have repeatedly harassed American and Japanese naval ships, including the USS John S. McCain and a survey vessel, the USNS Impeccable.
Such things are perhaps small in themselves, but they matter because of that double bet. America is constantly looking for signs that China is going to welsh on the deal and turn aggressive—and China is looking for signs that America and its allies are going to gang up to stop its rise. Everything is coloured by that strategic mistrust.
Peering through this lens, China-watchers detect a shift. “The smiling diplomacy is over,” says Richard Armitage, deputy secretary of state under George Bush. “China’s aspiration for power is very obvious,” says Yukio Okamoto, a Japanese security expert. Diplomats, talking on condition of anonymity, speak of underlying suspicions and anxiety in their dealings with China. Although day-to-day traffic between American and Chinese government departments flows smoothly, “the strategic mistrust between China and the US continues to deepen,” says Bonnie Glaser of the Centre for Strategic and International Studies in Washington, DC.
There is nothing inevitable about this deterioration. Peace still makes sense. China faces huge problems at home. It benefits from American markets and good relations with its neighbours, just as it did in 2001. The Chinese Communist Party and the occupant of the White House, of any political stripe, have more to gain from economic growth than from anything else.
China’s leaders understand this. In November 2003 and February 2004 the Politburo held special sessions on the rise and fall of nations since the 15th century. American policymakers are no less aware that, though a powerful China will be hard to cope with, a dissatisfied and powerful China would be impossible.
Now, however, many factors, on many sides, from domestic politics to the fallout from the financial crisis, are conspiring to make relations worse. The risk is not war—for the time being that remains almost unthinkable, if only because it would be so greatly to everyone’s disadvantage. The danger is that the leaders of China and America will over the next decade lay the foundations for a deep antagonism. This is best described by Henry Kissinger.
The dark side
Under Richard Nixon, Mr Kissinger created the conditions for 40 years of peace in Asia by seeing that America and China could gain more from working together than from competing. Today Mr Kissinger is worried. Speaking in September at a meeting of the International Institute for Strategic Studies, he observed that bringing China into the global order would be even harder than bringing in Germany had been a century ago.
“It is not an issue of integrating a European-style nation-state, but a full-fledged continental power,” he said. “The DNA of both [America and China] could generate a growing adversarial relationship, much as Germany and Britain drifted from friendship to confrontation…Neither Washington nor Beijing has much practice in co-operative relations with equals. Yet their leaders have no more important task than to implement the truths that neither country will ever be able to dominate the other, and that conflict between them would exhaust their societies and undermine the prospects of world peace.”
Nowhere is the incipient rivalry sharper than between America’s armed forces and their rapidly modernising Chinese counterparts. Globally, American arms remain vastly superior. But in China’s coastal waters they would no longer confer such an easy victory.
China as Global Power - The Economist (1) - Leader
Global power
The dangers of a rising China
The Economist, Dec 2nd 2010
China and America are bound to be rivals, but they do not have to be antagonists
TOWARDS the end of 2003 and early in 2004 China’s most senior leaders put aside the routine of governing 1.3 billion people to spend a couple of afternoons studying the rise of great powers. You can imagine history’s grim inventory of war and destruction being laid out before them as they examined how, from the 15th century, empires and upstarts had often fought for supremacy. And you can imagine them moving on to the real subject of their inquiry: whether China will be able to take its place at the top without anyone resorting to arms.
In many ways China has made efforts to try to reassure an anxious world. It has repeatedly promised that it means only peace. It has spent freely on aid and investment, settled border disputes with its neighbours and rolled up its sleeves in UN peacekeeping forces and international organisations. When North Korea shelled a South Korean island last month China did at least try to create a framework to rein in its neighbour.
But reasonable China sometimes gives way to aggressive China. In March, when the North sank a South Korean warship, killing 46 sailors, China failed to issue any condemnation. A few months later it fell out with Japan over some Chinese fishermen, arrested for ramming Japanese coastguard vessels around some disputed islands—and then it locked up some Japanese businessmen and withheld exports of rare earths vital for Japanese industry. And it has forcefully reasserted its claim to the Spratly and Paracel Islands and to sovereignty over virtually the entire South China Sea.
As the Chinese leaders’ history lesson will have told them, the relationship that determines whether the world is at peace or at war is that between pairs of great powers. Sometimes, as with Britain and America, it goes well. Sometimes, as between Britain and Germany, it does not.
So far, things have gone remarkably well between America and China. While China has devoted itself to economic growth, American security has focused on Islamic terrorism and war in Iraq and Afghanistan. But the two mistrust each other. China sees America as a waning power that will eventually seek to block its own rise. And America worries about how Chinese nationalism, fuelled by rediscovered economic and military might, will express itself (see our special report).
The Peloponnesian pessimists
Pessimists believe China and America are condemned to be rivals. The countries’ visions of the good society are very different. And, as China’s power grows, so will its determination to get its way and to do things in the world. America, by contrast, will inevitably balk at surrendering its pre-eminence.
They are probably right about Chinese ambitions. Yet China need not be an enemy. Unlike the Soviet Union, it is no longer in the business of exporting its ideology. Unlike the 19th-century European powers, it is not looking to amass new colonies. And China and America have a lot in common. Both benefit from globalisation and from open markets where they buy raw materials and sell their exports. Both want a broadly stable world in which nuclear weapons do not spread and rogue states, like Iran and North Korea, have little scope to cause mayhem. Both would lose incalculably from war.
The best way to turn China into an opponent is to treat it as one. The danger is that spats and rows will sour relations between China and America, just as the friendship between Germany and Britain crumbled in the decades before the first world war. It is already happening in defence. Feeling threatened by American naval power, China has been modernising its missiles, submarines, radar, cyber-warfare and anti-satellite weapons. Now America feels on its mettle. Recent Pentagon assessments of China’s military strength warn of the threat to Taiwan and American bases and to aircraft-carriers near the Chinese coast. The US Navy has begun to deploy more forces in the Pacific. Feeling threatened anew, China may respond. Even if neither America nor China intended harm—if they wanted only to ensure their own security—each could nevertheless see the other as a growing threat.
Some would say the solution is for America to turn its back on military rivalry. But a weaker America would lead to chronic insecurity in East Asia and thus threaten the peaceful conduct of trade and commerce on which America’s prosperity depends. America therefore needs to be strong enough to guarantee the seas and protect Taiwan from Chinese attack.
How to take down the Great Wall
History shows that superpowers can coexist peacefully when the rising power believes it can rise unhindered and the incumbent power believes that the way it runs the world is not fundamentally threatened. So a military build-up needs to be accompanied by a build-up of trust.
There are lots of ways to build trust in Asia. One would be to help ensure that disputes and misunderstandings do not get out of hand. China should thus be more open about its military doctrine—about its nuclear posture, its aircraft-carriers and missile programme. Likewise, America and China need rules for disputes including North Korea (see article), Taiwan, space and cyber-warfare. And Asia as a whole needs agreements to help prevent every collision at sea from becoming a trial of strength.
America and China should try to work multilaterally. Instead of today’s confusion of competing venues, Asia needs a single regional security forum, such as the East Asia Summit, where it can do business. Asian countries could also collaborate more in confidence-boosting non-traditional security, such as health, environmental protection, anti-piracy and counter-terrorism, where threats by their nature cross borders.
If America wants to bind China into the rules-based liberal order it promotes, it needs to stick to the rules itself. Every time America breaks them—by, for instance, protectionism—it feeds China’s suspicions and undermines the very order it seeks.
China and America have one advantage over history’s great-power pairings: they saw the 20th century go disastrously wrong. It is up to them to ensure that the 21st is different.
Related items
* Banyan: Lips, teeth and spitting the dummy Dec 2nd 2010
* A special report on China's place in the world: Brushwood and gallDec 2nd 2010
The dangers of a rising China
The Economist, Dec 2nd 2010
China and America are bound to be rivals, but they do not have to be antagonists
TOWARDS the end of 2003 and early in 2004 China’s most senior leaders put aside the routine of governing 1.3 billion people to spend a couple of afternoons studying the rise of great powers. You can imagine history’s grim inventory of war and destruction being laid out before them as they examined how, from the 15th century, empires and upstarts had often fought for supremacy. And you can imagine them moving on to the real subject of their inquiry: whether China will be able to take its place at the top without anyone resorting to arms.
In many ways China has made efforts to try to reassure an anxious world. It has repeatedly promised that it means only peace. It has spent freely on aid and investment, settled border disputes with its neighbours and rolled up its sleeves in UN peacekeeping forces and international organisations. When North Korea shelled a South Korean island last month China did at least try to create a framework to rein in its neighbour.
But reasonable China sometimes gives way to aggressive China. In March, when the North sank a South Korean warship, killing 46 sailors, China failed to issue any condemnation. A few months later it fell out with Japan over some Chinese fishermen, arrested for ramming Japanese coastguard vessels around some disputed islands—and then it locked up some Japanese businessmen and withheld exports of rare earths vital for Japanese industry. And it has forcefully reasserted its claim to the Spratly and Paracel Islands and to sovereignty over virtually the entire South China Sea.
As the Chinese leaders’ history lesson will have told them, the relationship that determines whether the world is at peace or at war is that between pairs of great powers. Sometimes, as with Britain and America, it goes well. Sometimes, as between Britain and Germany, it does not.
So far, things have gone remarkably well between America and China. While China has devoted itself to economic growth, American security has focused on Islamic terrorism and war in Iraq and Afghanistan. But the two mistrust each other. China sees America as a waning power that will eventually seek to block its own rise. And America worries about how Chinese nationalism, fuelled by rediscovered economic and military might, will express itself (see our special report).
The Peloponnesian pessimists
Pessimists believe China and America are condemned to be rivals. The countries’ visions of the good society are very different. And, as China’s power grows, so will its determination to get its way and to do things in the world. America, by contrast, will inevitably balk at surrendering its pre-eminence.
They are probably right about Chinese ambitions. Yet China need not be an enemy. Unlike the Soviet Union, it is no longer in the business of exporting its ideology. Unlike the 19th-century European powers, it is not looking to amass new colonies. And China and America have a lot in common. Both benefit from globalisation and from open markets where they buy raw materials and sell their exports. Both want a broadly stable world in which nuclear weapons do not spread and rogue states, like Iran and North Korea, have little scope to cause mayhem. Both would lose incalculably from war.
The best way to turn China into an opponent is to treat it as one. The danger is that spats and rows will sour relations between China and America, just as the friendship between Germany and Britain crumbled in the decades before the first world war. It is already happening in defence. Feeling threatened by American naval power, China has been modernising its missiles, submarines, radar, cyber-warfare and anti-satellite weapons. Now America feels on its mettle. Recent Pentagon assessments of China’s military strength warn of the threat to Taiwan and American bases and to aircraft-carriers near the Chinese coast. The US Navy has begun to deploy more forces in the Pacific. Feeling threatened anew, China may respond. Even if neither America nor China intended harm—if they wanted only to ensure their own security—each could nevertheless see the other as a growing threat.
Some would say the solution is for America to turn its back on military rivalry. But a weaker America would lead to chronic insecurity in East Asia and thus threaten the peaceful conduct of trade and commerce on which America’s prosperity depends. America therefore needs to be strong enough to guarantee the seas and protect Taiwan from Chinese attack.
How to take down the Great Wall
History shows that superpowers can coexist peacefully when the rising power believes it can rise unhindered and the incumbent power believes that the way it runs the world is not fundamentally threatened. So a military build-up needs to be accompanied by a build-up of trust.
There are lots of ways to build trust in Asia. One would be to help ensure that disputes and misunderstandings do not get out of hand. China should thus be more open about its military doctrine—about its nuclear posture, its aircraft-carriers and missile programme. Likewise, America and China need rules for disputes including North Korea (see article), Taiwan, space and cyber-warfare. And Asia as a whole needs agreements to help prevent every collision at sea from becoming a trial of strength.
America and China should try to work multilaterally. Instead of today’s confusion of competing venues, Asia needs a single regional security forum, such as the East Asia Summit, where it can do business. Asian countries could also collaborate more in confidence-boosting non-traditional security, such as health, environmental protection, anti-piracy and counter-terrorism, where threats by their nature cross borders.
If America wants to bind China into the rules-based liberal order it promotes, it needs to stick to the rules itself. Every time America breaks them—by, for instance, protectionism—it feeds China’s suspicions and undermines the very order it seeks.
China and America have one advantage over history’s great-power pairings: they saw the 20th century go disastrously wrong. It is up to them to ensure that the 21st is different.
Related items
* Banyan: Lips, teeth and spitting the dummy Dec 2nd 2010
* A special report on China's place in the world: Brushwood and gallDec 2nd 2010
Sunday, November 7, 2010
Beijing Review -- economic news
Beijing Review
n. 44 - November 4, 2010
Battling Over Currencies
The G20 Seoul summit must work out a feasible plan to ease frictions before a currency war breaks out
By LAN XINZHEN
THE BIG ISSUE: G20 financial ministers and central bank governors discussed the currency issue at a meeting Gyeongju, South Korea in October, which will be a major topic at the G20 summit in Seoul on November 11-12 (XINHUA)
The threat of a currency war is obviously a major topic at the G20 summit in Seoul, South Korea, on November 11-12.
Currently, most developed countries are still mired in economic slowdowns, while emerging economies have managed to secure heightened growth rates. Room for more aggressive fiscal stimulus in developed economies such as the United States, the EU and Japan is limited due to rising fiscal deficits and government debts. And the sovereign debt crisis in the euro zone has certainly done nothing to alleviate the economic unease. Now, they are scheming to propel economic development through monetary policy adjustments, which involves depreciating their own currencies or forcing emerging economies to appreciate theirs.
Hoping to boost exports, the United States, EU and Japan announced successive rounds to quantitatively ease their monetary policies.
Emerging economies aren't without problems of their own—concerns about inflation are rampant due to the economic rebound from the financial crisis. And as developed countries mostly adopt zero-interest rate policies, these measures are pushing emerging economies into a corner of appreciation. For instance, Brazil's benchmark interest rate stands as high as 10.75 percent, causing the Brazilian real to appreciate more than 30 percent against the U.S. dollar, the fastest appreciating currency in the world.
Central banks in emerging economies like Brazil, India, South Korea, Thailand, Malaysia and Russia have interfered with the currency exchange markets out of fear of an export slump caused by the currency appreciation. The interference has not gone unnoticed, as developed countries are pointing fingers and accusing emerging economies of manipulating their currencies. Emerging economies in turn have argued developed countries are using loose monetary policies to trigger depreciations of their currencies.
The world economy is at a crossroad where all countries are trying to keep their currencies competitive to spur exports. Already, the scenario bears a striking resemblance to the currency war in the 1930s following the Great Depression—and that currency war only managed to push the world deeper into recession. A currency war, if breaks out now, is likely to play out the same way.
A very bad idea
Although disputes over currency policies are on the rise, the situation is far from being an actual currency war, said Zhou Yu, an expert on international finance and currency at the Shanghai Academy of Social Sciences.
Zhou said all countries must strive to prevent a currency war, since an open conflict would only spell disaster for the world economy.
A currency war, Zhou said, would first increase the risk of inflation. If other countries blindly follow the U.S. method of quantitative easing, this "herd mentality" would trigger a rampant flow of liquidity. Judging from past experiences, the depreciation of the U.S. dollar will inevitably prop up the value of raw materials, crude oil and agricultural products, which will cause cost-driven inflation. In the second half of 2010, the U.S. dollar's depreciation has led to a substantial increase of wheat, corn and cotton prices by 50 percent.
The inner stability of the international monetary system would also be shattered, Zhou said. The fluctuation of the U.S. dollar has a huge impact on international financial stability. At present, more than 60 percent of the reserved currencies of central banks around the world are in U.S. dollars, and 50 percent of international settlement is done using the U.S. currency. If the dollar depreciates dramatically, economies using the dollar as a settlement or reserve currency will face heavy pressures.
What's worse, a currency war could escalate into a global trade war. As it stands, it will be nearly impossible for developed countries to increase their exports through currency depreciation as many emerging economies are interfering with the currency exchange markets. Under these circumstances, developed countries tend to adopt protectionist measures, such as threats of trade sanctions, to force emerging economies to appreciate their currencies.
No matter the cause, a currency war will increase the risks facing emerging economies. The U.S. monetary policies could lead to large capital inflows into emerging economies as the yields in emerging markets are much higher than those of developed countries. In turn, if those countries tolerate the dollar depreciation, their external trading conditions will take a beating. But if they interfere with their foreign exchange markets and prevent their currencies from appreciating, their inflation risk and capital bubble will throw their economies into a financial abyss. Once the U.S. Government raises interest rates, the large capital outflow will likely trigger a financial crisis in emerging markets.
But Zhou has faith in today's decision makers, noting that they are much wiser today when dealing with currency and trade-related issues because they can draw references from the past.
Developed countries, led by the United States, are alleging the undervalued Chinese currency, the yuan, is the culprit for China's huge trade surplus. The United States also blames China for its dwindling exports and rising unemployment. And a growing number of U.S. politicians are pressuring China to appreciate its currency.
Wang Yuanlong, an expert from the Hong Kong-based Tianda Institute, refuted the U.S. allegations, citing other reasons for the China-U.S. trade imbalance. The trade surplus, he said, was caused by differences in industrial division between the two countries. The service sector contributes about 80 percent to the U.S. GDP, with manufacturing making up only 11 percent. In China, the opposite is true, with manufacturing accounting for 60 percent of GDP.
RMB not the answer
NOT THE CULPRIT: Many U.S. and Chinese economists agree that the yuan is not the root cause of the U.S. employment predicament—the problem lies in the U.S. economy itself (ZHONG MIN)
Trade in goods contributes less than a quarter to China-U.S. economic cooperation; the rest lies in the service trade. The United States exports as much as $20 billion in services—for instance, investment banks conducting initial public offering for Chinese companies—to China each year; about 50,000 U.S. banks, insurance companies, auditing firms and law firms have operations in China with annual sales revenue of $220 billion.
"Trade between China and developed countries are supplementary to each other. A substantial appreciation of the yuan will not help U.S. employment, but will force the United States to seek imports from other emerging economies," Wang said.
Differences in calculations between the two countries have also caused disputes in terms of trade value. The U.S. calculation overestimates its deficit with China in four ways. First, it applies different statistical standards to imports and exports. It tends to overestimate the value of imports and underestimate the value of exports. Second, the United States adds the "Made-in-China" products it imports from other regions or countries to imports from China, while excluding its exports to China via Hong Kong or other regions, which contributes to the trade imbalance. Third, when calculating its trade value with China, the United States only uses commodity trade data but excludes the value of services it exports to China. Fourth, a large number of Chinese products are exported to the Caribbean and Latin American regions via the United States; and these products, too, have been included into China's export figures to the United States.
Since China started the reform of the yuan exchange rate regime in July 2005, the yuan has risen 23.5 percent against the U.S. dollar. From January 1994 to July 2010, the Chinese currency rose 55.2 percent against the U.S. dollar. But the U.S. trade deficit continued to expand in the same period.
"Those who claim the yuan is undervalued deliberately disregard the fact that the yuan has appreciated substantially since the reform began. Their insistent allegations clearly have other intentions," said Wang.
Yao Jian, spokesman of the Ministry of Commerce, said on October 15 that China had no intention of pursuing a trade surplus in its international trade. During the financial crisis, China's imports from the United States, the EU, Japan, Australia and South Korea rose about 50 percent respectively. China's import growth rate, Yao said, was twice the speed of China's exports to those countries and regions.
Trade surplus
The United States, Yao said, had a trade surplus for 93 years before the 1980s—China has only had a trade surplus for a little more than 10 years. More importantly, China's surplus with the United States is mostly generated by foreign-funded or foreign-owned companies in China, which produce nearly 88 percent of Chinese exports to the United States. Those foreign investors have taken away the lion's share of profits.
"If China held a surplus of $10, $1 or $2 of it goes to China, but $7 or $8 goes to foreign-funded companies, mostly established by American, European and Japanese companies," said Yao. "It's utterly irrational [for the United States] to hold the yuan as the scapegoat for its own national problems," he stressed.
On the Chinese side, the yuan does not have a solid foundation for substantial appreciation.
"The center of the conflict is that the United States wanted to depreciate the dollar, but was met with resistance from other economies. How things develop in the coming months depends on whether the United States changes its mind," said Andy Xie Guozhong, an independent economist and a director at Rosetta Stone Advisors Ltd. "Although the value of the dollar is close to its lowest point in history, the U.S. Government is still pushing for further depreciation."
Right now, the belief among U.S. political leaders is that depreciating the dollar will help boost employment, Xie said. But this is just wishful thinking; the hovering unemployment rate is due to the fact that private companies are reluctant to hire new employees in these uncertain economic times.
"The only benefit of dollar depreciation is a slight increase in U.S. exports, but then inflation will come along. If other countries refuse dollar depreciation, and follow suit to print more money, worldwide inflation is inevitable," said Xie. "Right now, it all depends on the United States," he added.
Many U.S. politicians think that printing more greenbacks to depreciate its currency is totally reasonable and rational, but it is utterly unacceptable for other countries to do the same. Xie said the double standards were too obvious.
Ultimately, dollar depreciation cannot salvage the U.S. economy. The U.S. Federal Reserve has slashed its benchmark interest rate to nearly zero, and the government budget deficit has risen to 10 percent of the GDP. After a recovery for several quarters, the U.S. economy is declining again with the unemployment rate nearing 10 percent.
"If you're Paul Krugman, you'd probably say the current stimulus is not powerful enough. You might suggest raising the budget deficit to 20 percent of GDP, and another round of quantitative easing," Xie said.
"What it all comes down to," Xie said, "is that depreciating currencies for export growth is a zero-sum game."
An end in sight?
How will this round of the currency dispute wrap up? Zhang Ming, an international finance expert at the Chinese Academy of Social Sciences, pointed out three possibilities.
First, the governments of all countries could reach a new Plaza Accords—an agreement reached by developed nations in 1985 to intervene in currency market—with the Chinese Government agreeing to appreciate its currency substantially in the next few years. Second, the Chinese Government could completely refuse currency readjustment, resulting in a trade war with the United States. Third, after international negotiation, the Chinese Government could agree to increase the flexibility of the exchange rate regime, but maintain control over the pace of the yuan appreciation.
Without a doubt, China's interests would be damaged by the first scenario. The second scenario will make both countries sink together. The third is the best, and most difficult, option but requires wisdom and candid cooperation from all leaders and countries.
But no one can argue a currency war is the last thing politicians want. At the G20 financial ministers and central bank governors' meeting held in South Korea on October 21-23, a joint communiqué was released, saying they would move toward more market-determined exchange rate systems that reflect underlying economic fundamentals and refrain from competitive devaluation of currencies.
The joint communiqué also noted their commitment to taking action at the national and international level to raise standards, so that national authorities implement global standards consistently, in a way ensuring a level playing field and avoiding fragmentation of markets, protectionism and regulatory arbitrage.
The currency disputes have highlighted the predicament the global currency system is facing: the dollar, a sovereign currency of the United States, also serves as an international reserve currency. The two functions are actually contradictory. If the U.S. Fed starts to print more money to spur its economic development, a dollar flood will sweep the world, causing huge damage to international financial stability. Therefore, it's time to establish a new monetary system, said Cao Yuanzheng, chief economist at BOC International (China) Ltd.
"The current global reserve currency is still the U.S. dollar. But its fluctuation has led to volatility in other currencies. A new international monetary system must be built or the existing one will collapse for good. Major economies should collaborate on this front to rebuild the international economic and monetary order," said Cao.
Developed countries' low interest policies
United States: In the first half of this year, the U.S. Federal Reserve withdrew part of its stimulus measures. But confronted with a recovery slowdown and impotent fiscal stimuli, the Fed started a new round. In July, it announced buying U.S. Treasury securities; in August, it ordered a cut to the excess reserve requirement ratio. A report issued by the Board of Governors of the Federal Reserve System on October 12 said the United States will keep the interest rates low and might start the second round of quantitative easing monetary policy, which means the Fed buys treasury securities and institutional bonds to inject liquidity into the market, to spur an economic revival.
Japan: The Bank of Japan, the country's central bank, slashed its benchmark interest rate from 0.1 percent to 0.1-0 percent to hold back the yen's appreciation. It is the third time for Japan to have a zero interest rate after 1999-2001. At the same time, Japan's central bank pledged to build a temporary fund of up to $60 billion to buy government bonds which is similar to the U.S. quantitative easing monetary policy.
Europe: The Bank of England decided to keep its key interest rate at 0.5 percent—the lowest level in history. The European Central Bank announced it would keep the key interest rate at 1 percent—also the lowest in history.
Australia: On October 7, contrary to most economists' forecast of an interest rate hike of 25 basis points, the Australian central bank announced to keep the current 4.5 percent rate to offset the Australian dollar's fast and passive appreciation against the U.S. dollar.
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Feeding China
China is expected to reap a bumper harvest this autumn, but grain security remains a long-term concern
By HU YUE
PLENTY TO HARVEST: Farmers reap rice in northeast Heilongjiang Province. The country has maintained a steady growth rate in grain output in the past six years (WANG JIANWEI)
Despite sweeping natural disasters, China is on track to achieve a bountiful harvest for this autumn's grain yield, which usually accounts for three fourths of the annual output, said Minister of Agriculture Han Changfu.
With the autumn harvest secured, winter planting is already underway across the country, said Han.
China's grain output, including rice, wheat and corn, amounted to 530.8 million tons in 2009, the sixth consecutive year of growth. The output for this year, according to Han, will be no less than last year and is likely to hit a new record.
The Ministry of Agriculture (MOA) anticipated that the acreage planted for autumn grain would increase by around 870,000 hectares to 76.6 million hectares this year.
But vigorous efforts are still needed to strengthen grain supply and quality, said Han.
The news dismissed worries about food shortages given heavy summer rainstorms across the country and the severe drought in the southwest that disrupted agricultural production.
In a recent report, the MOA said grain output harvested this summer fell for the first time in seven years to reach 123.1 million tons, down 0.3 percent, or 390,000 tons, from a year ago. In addition, the per-hectare yield dropped 0.4 percent year on year to around 4.49 tons, and the situation was even worse in disaster-stricken southwest Yunnan and Guizhou provinces.
However, winter wheat, which usually makes up around 80 percent of the total annual wheat output, stood at 108.8 million tons this year, about 1 million tons more than last year, said MOA spokesman Chen Mengshan.
In another move, the China National Grain and Oils Information Center in September predicted the country would yield 169 million tons of corn in 2010, representing a year-on-year growth of 3.1 percent thanks to increased planting.
The only cause for concern was rice, which accounts for half of the country's grain output, said Jiang Heping, a senior researcher at the Chinese Academy of Agricultural Sciences, in an interview with Capital Week magazine.
At least 92 percent of the increased 76.6 million hectares was planted with corn, leaving little space for rice, he said.
In addition, the spring sowing of rice was delayed by seven to 10 days in many provinces because of the winter freeze earlier this year, he said.
That means the crops will face more risks of an early frost, said Jiang.
Recouping the losses
Before the relentless rains had stopped pouring water over many regions of China this summer, worries were proliferating about the country's grain security.
Torrential rains washed away homes and triggered overwhelming mudslides that claimed hundreds of lives. The disaster also cast an ominous shadow over the agriculture sector as the storms devoured vast areas of farmland. The State Flood Control and Drought Relief Headquarters said more than 9,700 hectares of crops had been devastated by August 10, with direct economic losses totaling 209.6 billion yuan ($31 billion).
Before this, a prolonged drought ravaged southwest China, drying up farmland and leaving people in desperate need of drinking water.
On top of the natural disasters came the international grain crisis. On August 5, Russia, the world's third largest wheat producer, ordered a ban on grain exports after a severe drought destroyed crops and as wildfires spread across the country. This ignited panic in the commodities markets, sending wheat prices to record highs.
Many fret the price surge may filter into China through trade links. From January to June, the country's wheat imports more than doubled to 845,000 tons year on year, while rice imports soared 44.3 percent.
But the ripple effect has been barely felt, said Zhang Xiaoqiang, Vice Chairman of the National Development and Reform Commission (NDRC).
Despite the recent increase in imports, China relies on foreign markets for barely 1 percent to meet its demands for wheat, he said.
Beside this, the government has extensive reserves of grain and is capable of keeping food prices under control, he said.
China's grain inventory-to-consumption ratio is now more than 40 percent, well above the international security line of 17-18 percent.
Meanwhile, a string of government measures have also helped shore up the agricultural industry, said Zhang.
The Chinese Government this year distributed 15.5 billion yuan ($2.3 billion) in subsidies for farmers to purchase agricultural machinery, compared with 70 million yuan ($10.4 million) in 2004. It also bumped up the minimum purchase price of rice and wheat.
A new season
While a bumper harvest is on the way for this year, the long-term grain safety is far from guaranteed given an expanding population and the growing living standards.
China expects its annual grain consumption to reach 572.5 million tons by 2020, and to maintain a food self-sufficiency rate of 95 percent, at least 540 million tons of grain output will be needed, said Zhang Ping, Chairman of the NDRC.
The goal is actually not within easy reach given the country's limited cultivated land, scarce water and relatively weak agricultural technologies.
To ensure sustainable grain supplies, China has enacted strict policies to protect arable land and also set a "red line" to guarantee its arable land never shrinks to less than 120 million hectares. But the country is already edging dangerously close to that line, with just 121.7 million hectares available by the end of 2009, according to data from the Ministry of Land and Resources.
In the past 13 years, China has lost 8.2 million hectares of arable land due to urbanization and forest and grassland replanting programs, as well as damage caused by natural disasters. The country's per-capita arable land is now a minimum 0.092 hectare, only 40 percent of the world's average.
It's urgent now to curb decreases in arable land, which is crucial to grain security, said Zheng Fengtian, a professor at the Renmin University of China.
A lack of irrigation is also stretching the nerves of policymakers. The Ministry of Water Resources said water shortages to the agricultural sector stand at a dizzying 30 billion tons annually.
"This is the result of the drought climate in north China and the fragile irrigation infrastructure," said Zheng. "Many irrigation facilities in the countryside are either outdated or broken."
But the biggest question was how to encourage the farmers to plant more crops, said Ma Wenfeng, a senior analyst at the Beijing-based Orient Agribusiness Consultant Ltd.
Due to relatively low grain prices, Chinese farmers earn much less than urban employees. That is why many chose to leave their land fallow and seek jobs in the cities, he said.
The number of migrant workers across the nation had amounted to 23 million by the end of 2009, climbing 1.9 percent year on year, said the National Bureau of Statistics.
In the next 20 years, another 400 million rural residents may migrate to cities, leaving even fewer farmers in the fields, said Zuo Xuejin, Executive Vice President of the Shanghai Academy of Social Sciences.
In response, it is necessary to boost farmers' incomes and further strengthen subsidies for them to buy machinery and fine strains of crops, he said.
NDRC Chairman Zhang Ping suggested that the country should further strengthen its grain production capacity by improving agricultural infrastructure and expanding the use of high-yielding strains.
Efforts are also needed to press ahead with modern farming technologies and bolster the farmers' ability to fight natural disasters, he said.
Zhang said China has established an initial emergency response system for grain security, and reinforced the production, storage, transportation and distribution of food and grain in emergency situations.
It would also be helpful if China could foster a number of international competitive grain processing enterprises, said Li Guoxiang, a researcher at the Rural Development Institute of the Chinese Academy of Social Sciences.
That would be instrumental in sustaining domestic grain supplies and fending off the impact of global price fluctuations, he said.
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A Sour Milk Rivalry
A libel scandal involving Mengniu taints its image and deals a blow to China's dairy industry
By LAN XINZHEN
HARD TO CHOOSE: The Mengniu scandal is expected to taint the dairy maker's reputation and cast yet another shadow over the country's dairy industry (GUO CHENG)
Mengniu, with the 2008 milk contamination incident still fresh in people's memories, has brought China's dairy industry into the spotlight again—this time the attention focused on a bitter rivalry.
Police in Hohhot, capital of the Inner Mongolian Autonomous Region, held a press briefing on October 22 over a Mengniu-initiated smear campaign against its rival, Yili.
Police said An Yong, a product manager of Mengniu's liquid milk department, worked with a Beijing public relations agency in July to spread accusations on the Internet that an element called fish oil docosahexaenoic acid (DHA) contained in Yili's QQ Star Children's Milk was harmful to consumers. Four suspects including An have been detained, and another two suspects remain at large.
The briefing was believed to have helped dismiss worries about Yili products, though it will take time for consumer confidence to recover.
Malicious competition
Yili and Mengniu, both headquartered in Hohhot, are the top two companies in China's dairy industry. They have reportedly been competing in most aspects of their business operations, from raw milk sources to distribution channels.
Founded in August 1999, Mengniu, with total assets exceeding 14.1 billion yuan ($2.1 billion), has an annual dairy production capacity of 6 million tons and nearly 30,000 employees. In recent years it has witnessed rapid growth and expanded its presence across China. Mengniu's products are now exported to a number of countries, the United States and Canada included.
In the first half of this year, Mengniu topped all competitors to rake in net profits of 618.8 million yuan ($92.4 million), followed by Yili's 345 million yuan ($51.5 million).
While Mengniu led the liquid milk market, Yili kept the top position in milk powder. But the competition heated up when both made forays into infant milk production.
In 2006, Yili's latest product QQ Children's Milk became a market hit. Mengniu followed suit by releasing its Star of Future Children's Milk in 2008. The two products bore significant resemblances, but in terms of market share, Yili enjoyed evident advantages.
An's online attack was aimed at devastating the rival product's reputation and driving up Mengniu's sales.
The Hohhot police confirmed that An hired the Beijing Bosse PR Consulting Co. Ltd. to plot the online sabotage. On its official website, the PR company called itself a think tank of Mengniu, and stressed it provided important consultant support for Mengniu on its path of fast expansion.
The police revealed that Bosse's deputy general manager Xiao Xuemei and three other employees jointly hammered out a plan to maliciously attack Yili's reputation. The DHA element was an easy target, since it helps infant brain development. Mengniu would also be able to differentiate itself since Yili's DHA comes from fish oil and Mengniu's from algal oil. The libel campaign focused on allegations that DHA from sea fish could lead to premature sexual development and that DHA from algal oil was much safer.
The online campaign, at a cost of 280,000 yuan ($41,791), was executed by a Beijing Internet marketing company, which took a variety of measures to spread the rumors, including posts on forums, blogs and websites. It even initiated a public letter-signing campaign among netizens to refuse fish oil DHA.
The Hohhot police said that the online posts drew a considerable amount of negative attention to Yili and that the most-read article had recorded more than 200,000 hits.
Far-reaching implication
Mengniu has denied any involvement in the dirty tactics and insisted that An acted without the company's knowledge or permission.
"We are deeply sorry for the negative impact on Yili and the consumers," said the company in a statement on October 22. "Without first consulting his supervisor, An worked with the partner PR agency and spread accusations online that the fish oil in Yili's baby milk was harmful to human health. He should take responsibility for the consequences."
The statement went on to say An was a former employee of Yili before coming to Mengniu in 2005 and that he had already been fired.
"We will learn from this incident, strengthen internal management and improve employee education to prevent this from happening again," said Mengniu.
However, in the statement Mengniu also went on the offensive. It claimed that Yili had spent more than 5.9 million yuan ($880,597) between 2003 and 2004 hiring PR companies to launch media attacks against Mengniu.
In response, Yili accused Mengniu of trying to distract public attention from the scandal. "This case is still unsolved," the Beijing News quoted an anonymous PR manager of Yili as saying. "Why did they bring up things that happened several years ago? Is it to confuse the public?"
The furore underscores the brutally competitive nature of the country's dairy market, already heavily hit by the Sanlu melamine scandal in 2008 that put thousands of babies in hospital and forced Sanlu to shut down.
The malicious competition will hurt the health of the industry, said Wang Dingmian, a dairy expert and former Executive Director of the Dairy Association of China.
The enterprises must first learn how to honor their social responsibility and seek consumer recognition by branding and marketing, instead of attacking each other, he said.
Tan Guiqiu, a professor at the China University of Political Science and Law, believed it is urgent now to curb this malicious competition. The illegal marketing tactics destroy the reputations of not only rival companies, but also the whole industry, and dented consumer confidence.
"The competition between Chinese dairy makers will allow foreign companies to swoop in," said Chen Lianfang, a senior analyst at the Beijing-based Orient Agribusiness Consulting Ltd.
A mature brand, especially in food production, should pay more heed to its product quality than just maintaining a brand name. Meanwhile, efforts are also needed to strengthen supervision over online marketing tactics and create a healthy business environment, said Chen.
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Crisis Focus: Asia at the Helm
As the global economy transforms from a developed country-centric to a more developing-focused model in the post-crisis world, Asia is emerging as a new economic powerhouse. Its policy choices are important for the continent's own sake, and also for the global economy as a whole. Dominique Strauss-Kahn, Managing Director of the IMF, noted this shift in a recent speech in Shanghai. Edited excerpts follow:
The 19th century belonged to Europe; the 20th century to the United States. The 21st century, as we are coming to realize, can be the Asian century. But with that comes great responsibility—to lead, to guide, and to take ownership of the collaborative agenda. Asia is now a major economic region, and being at the center means being responsible for the whole. Asia has an important voice in world affairs through the G20, and also through the IMF, which is in the process of giving more influence to dynamic emerging markets.
Asia's economic performance over the past few decades has been nothing short of remarkable. Driven by rapid and steady growth, the region now accounts for about one third of the global economy, up from just under one fifth in 1980. If current trends continue, Asia's economy could be as large as the United States and the EU—combined—by 2015.
Of course, growth must benefit everybody. And Asia has made tremendous progress with poverty reduction, with China alone pulling hundreds of millions of people out of poverty over the past few decades. Such a feat has never before been accomplished in the history of human civilization.
And when the global financial crisis hit, Asia proved remarkably resilient, bouncing back stronger and faster than anywhere else. Asia didn't make the mistakes of other countries by piling up debt or using complex financial engineering that magnified risk. Banks had built sizeable capital cushions, followed prudent lending practices, and had limited exposure to toxic assets. Policymakers had internalized the lessons of the past, embracing sound macroeconomic and prudential policies.
Thanks to solid foundations and a quick and forceful policy response, Asia has become the launching pad of the global economic recovery. But this comes with challenges of its own.
Cooperation is really the great legacy of this crisis, and is the main reason why the Great Recession did not become a second Great Depression.
This spirit of cooperation must be maintained. Without it, the recovery is in peril. Today, the risk is that the single chorus that tamed the financial crisis will dissolve into a cacophony of discordant voices, as countries increasingly go it alone. This will surely make everybody worse off.
The great challenges of today all require a cooperative solution—especially if we are to achieve strong, sustainable, and balanced global growth in the years ahead.
We must make the financial sector safer and more stable, and put the banks back in the service of the real economy. Many of these problems emanate in the advanced countries beyond Asia, and these countries need to take the lead in fixing these problems.
Much progress has been made on the regulatory front, especially with the Basel III rules on the quantity and quality of bank capital. But these rules only apply to a subset of the financial system. Reforms must deal with risks in all financial institutions, not just banks—we learned this lesson the hard way during the crisis.
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MARKET WATCH NO. 44, 2010
GREEN CABS: Dalian's first batch of new energy taxis hit the road on October 26. China is pushing forward a pilot program to promote new energy vehicles in 13 cities including Dalian, Liaoning Province (ZHANG CHUNLEI)
Numbers of the Week
4.1 %
China's urban unemployment rate stood at 4.1 percent at the end of September, down from 4.2 percent at the end of June, said the Ministry of Human Resources and Social Security.
349.8 billion kwh
China's power consumption in September fell 12 percent month on month to 349.8 billion kilowatt-hours, said the National Energy Administration.
TO THE POINT: Export deals experience year-on-year increases at the Canton Fair, though uncertainties still linger. Soaring coal prices put cost pressures on thermal power generators. Fierce competition rocks the foundation of China Mobile's market dominance. Chinese automaker BYD goes on a bumpy ride as its sales go through a free-fall. The Export-Import Bank of China ties up with the Inter-American Development Bank to finance trade between China and Latin America and the Caribbean region.
By HU YUE
Export Outlook
Are Chinese exporters faring well? The latest session of the China Import and Export Fair, known as the Canton Fair, a bellwether for the trade climate, could offer some clues.
The first phase of the Canton Fair's fall session witnessed export deals worth $21.15 billion, up 12.3 percent from the fair's last session in April, said Canton Fair Deputy General Secretary Liu Jianjun. The number of foreign buyers totaled 98,000, down 5.5 percent.
Despite showing signs of recovery, the hard-hit export sector has yet to fully regain its lost ground due to costs inflation, a stronger yuan, and simmering protectionism, said Liu.
The Guangdong Fenglu Aluminum Co. Ltd., for example, has suffered painful losses from restrictions imposed by the developed countries, Chen Nuansen, a marketing manager of the Chinese company, told the Nanfang Daily.
The U.S. Government is likely to slap 137-percent anti-subsidy duties on Chinese aluminum profiles, dealing a heavy blow to the exporters, he said.
"While our orders from the traditional Western markets dry up, the emerging markets in the Middle East and Southeast Asia are bursting with vitality," said Wu Jianfeng, export manager of Guangzhou Hongyu Group.
In addition, it is easier to gain a foothold in the emerging markets where distribution channels are not deeply entrenched and local competition is not insuperable, he said.
Thermal Power Pinch
China's thermal power generators are facing chilly headwinds as coal prices skyrocket.
The steam coal price at Qinhuangdao Port, an industry benchmark in the country, climbed around 7 percent in October, as a nationwide winter freeze pushed up demand.
There's no sign in sight that the price surge will slow in the fourth quarter, said Song Zhichen, an energy researcher at the CIC Industry Research Center. This means the thermal power generators will have to bear a heavier burden of costs, and even the risk of losses, he said.
The pressure has already been felt. Huadian Power International Co. Ltd. said it incurred a heavy loss of 384 million yuan ($57.3 million) in the third quarter due to higher costs. The company is a listed arm of China Huadian Group, one of the country's five largest electricity providers.
By contrast, coal miners are faring well. The Shandong Province-based Yanzhou Coal Mining Co. Ltd., for example, reported net profit of 3.68 billion yuan ($549.3 million) for the third quarter, soaring 227 percent year on year. Its coal prices averaged at 682.2 yuan ($101.8) per ton in the third quarter, up 25.3 percent from one year earlier.
In an attempt to soothe the profit woes, the National Development and Reform Commission in September proposed to raise on-grid tariffs in seven provinces by 15-25 yuan ($2.2-3.7) per megawatt-hour.
"Last year, the generators offset much of the pressure by turning to cheaper imports," said Song. "But that is no longer an option for this year since international prices are also hovering at a high level."
China's coal imports more than tripled from the previous year to reach 130 million tons in 2009, making it a net importer for the first time.
China Mobile Slowdown
China Mobile, the world's largest telecom operator by subscribers, is losing steam as a maturing market and intensifying competition eat into its profits.
The company raked in a net profit of 29.6 billion yuan ($4.4 billion) from July to September, representing a modest growth of 3.5 percent year on year, down from 6.8 percent in the second quarter.
Revenues grew 7.8 percent to 352.6 billion yuan ($52.6 billion) in the first nine months as the company added 41.47 million new customers, bringing the total customer base to 569 million.
"We are experiencing a slowdown in growth because of the widening penetration of mobile services and an increasingly competitive market," said a China Mobile statement. "In addition, most of our new users live in the countryside, where customer spending is typically lower."
The average revenue per user—a key barometer for long-term growth prospects—slipped to 72 yuan ($10.6) in the first three quarters from 75 yuan ($11) a year earlier.
In an attempt to keep its dominant position, the company plans to increase spending on handset subsidies this year to 15.5 billion yuan ($2.3 billion) from 11.7 billion yuan ($1.7 billion) in 2009. This has helped consolidate the customer foundation, but has also undermined profit margins, said Jin Tang, an analyst at the Shanghai-headquartered Shenyin & Wanguo Securities Co. Ltd.
BYD Struggles
While China's auto market booms, BYD Automobile Co. Ltd. is barely trudging along.
The Shenzhen-based company generated a net profit of 11.34 million yuan ($1.7 million) in the third quarter, less than 1 percent of a year ago.
A former manufacturer of rechargeable lithium and nickel batteries, BYD has been a pioneer in exploring new energy vehicles. It was even considered a rising star when U.S. investor Warren Buffet in September 2008 paid $230 million for a nearly 10-percent stake in the company.
Chen Huanyu, an analyst at the Guotai & Jun'an Securities Co. Ltd., attributed the downturn to a drop in auto sales. BYD sold 33,085 vehicles in September, down 24.9 percent year on year. Total sales for this year are estimated at 600,000 units, down from the original forecast of 800,000 units.
Part of the reason was many dealers of the company bowed out of its sales network or joined rival manufacturers, said a report by the Beijing Youth Daily.
Weighing down the performance was also the relatively high comparison base last year when the market thrived, said Yin Guohui, an analyst at the BOCOM International Holdings Co. Ltd.
The gloom may ease later this year, but a substantial turnaround is unlikely, said Yin.
Latin American Trade
The Export-Import Bank of China (China Eximbank) and the Inter-American Development Bank (IDB) have committed to financing up to $200 million worth of trade activity between China and Latin America and the Caribbean (LAC) region over the next two years.
The partnership will be a groundbreaking initiative to support increased trade activity since trade is a fundamental economic driver of both LAC and China's economies, said Luis Alberto Moreno, President of IDB.
China-LAC trade grew at an average annual rate of 31 percent from 2000 to 2008. Even during the global economic meltdown, the bilateral trade maintained its dynamism, and amounted to $121.5 billion in 2009, 12 times that of 2000.
In January 2009, China became a member of the IDB, the world's largest regional development bank and the main source of multilateral finance for the LAC region.
HR Seminar
The Career International Inc. held a seminar on October 26 in Beijing with a number of experts and researchers offering fresh insight into the latest trends in career development and human resource management. Career International is a leading recruitment solution provider based in Beijing.
"Human resource management has evolved far beyond employee performance evaluation and training," said Lu Lingmin, former PR manager at the Baidu Inc., at the seminar. "The focus is now strategy design for corporate development and coordination between various parts of the organization."
An Ran, a senior manager of Career International, said multinationals are increasingly outsourcing their recruitment process so they could focus on their core businesses.
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Economic Engines for the Next Five Years
China should prioritize domestic consumption and investment as the main drivers of its economic growth
Li Yining, a renowned economist with Peking University (XINHUA)
China is among the first countries to emerge from the global financial crisis. But how should China seize this opportunity to promote its economic growth momentum? What will drive China's economic growth in the next five years, and what macro policies should China adopt? Li Yining, a renowned economist with Peking University, recently shared his views with Beijing Daily. Edited excerpts follow:
Picking up from a gloomy economy first in the wake of the global economic crisis means more business opportunities for China. As a result, China should make use of this chance to reshape its development structure, create new name brands, and continue independent innovation.
China should prioritize domestic consumption and investment as the main drivers of its economic growth, rather than exports amid the fierce competition in the international market.
The following areas should be the major engines driving China's economic growth in the next five years:
Industrial upgrades
In line with the guiding proposal for formulating the nation's 12th Five-Year Program (2011-15), China should upgrade its industries in the context of the international market and make efforts to play a full role in such hi-tech industries as new energy, new materials, biotechnology, and environmental protection.
The new energy industry is expected to promote the automobile industry, transportation and other traffic facets, while new materials will facilitate renovation of the real estate and equipment manufacturing industries.
Biotechnology will prop up many industries, such as agriculture, aquaculture and medicine. It will also promote medical treatment, which will improve people's health and prolong people's lives, and further prompt development in many sectors.
China should take a digital road to make use of the Internet and apply the Internet of Things, with an aim to increase work efficiency and stimulate further development in many industries.
Originality should be encouraged in novel industrial design, so as to make China's manufacturing industry more advanced.
Urban-rural integration
The Chinese Central Government urged the acceleration of urbanization at a recent working conference since China's urbanization process is slow. The urban population increased from 20 percent in 1949 to only about 45 percent in 2009, which is far from the requirement for domestic consumption expansion.
Assuming an annual increase in the urban population of 1 percentage point, the proportion of the Chinese population living in cities will grow to 75 percent in 30 years. That means over 10 million people will move to the cities every year, including workers, elderly people and children, which requires the large-scale construction of houses, schools, hospitals and other facilities. Urbanization is therefore the largest potential market in China, expected to offer numerous jobs and opportunities for enterprises. The next five years should be a period of rapid urbanization, which will help drive the country's economic growth.
Forestland reform
China launched the reform of tenure in collective forests in June 2008, devolving collective forestland to rural households and allowing them to manage forestland. The reform has produced good results.
Thanks to the reform, some farmer migrant workers found employment by developing the forest economy after they were laid off during the global financial crisis last year. They invited their peers to join their forest businesses of breeding chickens and planting herbs and mushrooms in the forests they manage.
Since the Central Government stipulated that the forest and trees managed by farmers could be mortgaged, forest farmers have become rich. They are able to move out of their homes and build new houses of their own, which also serves as an economic growth engine.
Environmental protection
Low-carbon economy serves as both an opportunity and a challenge for China, because China has not yet mastered the core technology of the environmental protection industry. The current concept of environmental protection is broad, including desert control and afforestation as well as water and soil treatment. In a narrower sense, environmental protection means equipment, instruments and the manufacture of production materials related to environmental protection.
China should base efforts to develop a low-carbon economy on its own national conditions. If China were able to make some breakthroughs in environmental protection technology, then China would not only create production value, but also have a say in this regard.
Domestic consumption expansion
Creating more jobs and increasing residents' income in proportion of national income is key to expanding domestic consumption. The decline in people's income in recent years has not benefited consumption. The salaries for all working people should be elevated. Farmers' income should also be increased by promoting the industrialization of agriculture.
Addressing the housing issue is another aspect of expanding domestic consumption. The government must provide low-rent housing for low-income families and affordable housing for middle-income families. When people have new houses, they also buy furniture and household electric appliances, forming another force to drive up domestic demand.
Macroeconomic policy
China's annual economic growth should remain at 8 percent in the long run. If growth exceeds 9 or 10 percent, production material prices will soar.
To cope with existing inflation, China needs to set up an early-warning mechanism. Tight monetary policy, which incurs additional unemployment, is not the only way to restrain inflation.
China should adopt detailed, flexible fiscal and monetary policies in line with the real situation, so as to maintain stable economic growth.
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Chinese Private Enterprises to Expand
Going global and the low-carbon economy will be the development trends of Chinese private enterprises for the next 20 years
By ZHANG ZIXUAN
SPOTLIGHT: Rupert Hoogewerf, founder and compiler of the Hurun Rich List, addresses the fourth Hurun Rich List Summit held in Beijing on October 29, 2010, about the future of China's private sector (SHI BOSEN)
For video please click here
In the natural course of business expansion, Chinese private businesses are looking overseas for new markets for their products and services, said Rupert Hoogewerf, founder and compiler of the Hurun Rich List, at the fourth Hurun Rich List Summit.
One of the best examples of a Chinese company going overseas, Hoogewerf said, was Li Shufu and his Geely Group when they bought the Volvo brand on August 2, 2010.
The expansions are driven by two motivators: many of China's private businesses are the bigger in the Chinese market and need new areas to develop; and some are already world leaders in particular sectors.
But branching out is not without its problems, as many private enterprises have run into obstacles in their internationalization efforts, especially when it comes to the investment environment in some countries, said Hoogewerf in an exclusive interview with Beijing Review.
The Hurun summit and 12th anniversary of the rich list was held in Beijing on October 29, 2010. The theme of this year's summit was "Outlook of the Chinese private economy in the next 20 years."
According to Hoogewerf, the biggest challenge for Chinese companies expanding abroad hasn't been breaking into a foreign market, but managing foreign staff. Chinese management styles don't translate well or provide a conducive work atmosphere for foreign workers. This will likely change in two decades' time as working with international staffs becomes integrated into Chinese management training methods.
The low-carbon economy, Hoogewerf said, is also a trend private enterprises will have to focus on. "Together with social responsibly, it is being addressed by every company," Hoogewerf said, adding that while these efforts may seem slow or non-existent, they are actually going along "much faster than people think."
Many private enterprises have already made their products much more environmentally friendly, a business move that will allow them to maintain their competitive edge and keep their eco-aware customer base.
"The government is the No. 1 stake holder in some of these companies, and many of them have worked very closely with the government on different projects. So these companies are and will be addressing the low-carbon issue much more now that it has become a government priority," said Hoogewerf. "Eventually, low-carbon initiatives will be more than something that's nice to have, it will be something you must have."
For the summit, the organization invited Chinese economic leaders who appeared on the rich list to offer their insight on China's development over the next two decades. The billionaires discussed the influence of domestic demand and the internationalization of China's private sector, as well as the growing low-carbon economy.
Zong Qinghou, Board Chairman and General Manager of the Hangzhou-based Wahaha Group and the richest man in China, and Chen Guangbiao, Chairman of Huangpu Investment Group, widely regarded as the most charitable man in China, highlighted the outlook of the next 20 years for China's private sector and the importance of the development of the low-carbon economy, respectively.
"The low-carbon economy needs publicity, and we need to make everyone realize the benefits of living a low-carbon life," Chen said. "We also need to take action now. Each person has the obligation to contribute to his or her own low-carbon career, and entrepreneurs must take steps to stop environmental pollution and ecological destruction in their pursuit of profits."
n. 44 - November 4, 2010
Battling Over Currencies
The G20 Seoul summit must work out a feasible plan to ease frictions before a currency war breaks out
By LAN XINZHEN
THE BIG ISSUE: G20 financial ministers and central bank governors discussed the currency issue at a meeting Gyeongju, South Korea in October, which will be a major topic at the G20 summit in Seoul on November 11-12 (XINHUA)
The threat of a currency war is obviously a major topic at the G20 summit in Seoul, South Korea, on November 11-12.
Currently, most developed countries are still mired in economic slowdowns, while emerging economies have managed to secure heightened growth rates. Room for more aggressive fiscal stimulus in developed economies such as the United States, the EU and Japan is limited due to rising fiscal deficits and government debts. And the sovereign debt crisis in the euro zone has certainly done nothing to alleviate the economic unease. Now, they are scheming to propel economic development through monetary policy adjustments, which involves depreciating their own currencies or forcing emerging economies to appreciate theirs.
Hoping to boost exports, the United States, EU and Japan announced successive rounds to quantitatively ease their monetary policies.
Emerging economies aren't without problems of their own—concerns about inflation are rampant due to the economic rebound from the financial crisis. And as developed countries mostly adopt zero-interest rate policies, these measures are pushing emerging economies into a corner of appreciation. For instance, Brazil's benchmark interest rate stands as high as 10.75 percent, causing the Brazilian real to appreciate more than 30 percent against the U.S. dollar, the fastest appreciating currency in the world.
Central banks in emerging economies like Brazil, India, South Korea, Thailand, Malaysia and Russia have interfered with the currency exchange markets out of fear of an export slump caused by the currency appreciation. The interference has not gone unnoticed, as developed countries are pointing fingers and accusing emerging economies of manipulating their currencies. Emerging economies in turn have argued developed countries are using loose monetary policies to trigger depreciations of their currencies.
The world economy is at a crossroad where all countries are trying to keep their currencies competitive to spur exports. Already, the scenario bears a striking resemblance to the currency war in the 1930s following the Great Depression—and that currency war only managed to push the world deeper into recession. A currency war, if breaks out now, is likely to play out the same way.
A very bad idea
Although disputes over currency policies are on the rise, the situation is far from being an actual currency war, said Zhou Yu, an expert on international finance and currency at the Shanghai Academy of Social Sciences.
Zhou said all countries must strive to prevent a currency war, since an open conflict would only spell disaster for the world economy.
A currency war, Zhou said, would first increase the risk of inflation. If other countries blindly follow the U.S. method of quantitative easing, this "herd mentality" would trigger a rampant flow of liquidity. Judging from past experiences, the depreciation of the U.S. dollar will inevitably prop up the value of raw materials, crude oil and agricultural products, which will cause cost-driven inflation. In the second half of 2010, the U.S. dollar's depreciation has led to a substantial increase of wheat, corn and cotton prices by 50 percent.
The inner stability of the international monetary system would also be shattered, Zhou said. The fluctuation of the U.S. dollar has a huge impact on international financial stability. At present, more than 60 percent of the reserved currencies of central banks around the world are in U.S. dollars, and 50 percent of international settlement is done using the U.S. currency. If the dollar depreciates dramatically, economies using the dollar as a settlement or reserve currency will face heavy pressures.
What's worse, a currency war could escalate into a global trade war. As it stands, it will be nearly impossible for developed countries to increase their exports through currency depreciation as many emerging economies are interfering with the currency exchange markets. Under these circumstances, developed countries tend to adopt protectionist measures, such as threats of trade sanctions, to force emerging economies to appreciate their currencies.
No matter the cause, a currency war will increase the risks facing emerging economies. The U.S. monetary policies could lead to large capital inflows into emerging economies as the yields in emerging markets are much higher than those of developed countries. In turn, if those countries tolerate the dollar depreciation, their external trading conditions will take a beating. But if they interfere with their foreign exchange markets and prevent their currencies from appreciating, their inflation risk and capital bubble will throw their economies into a financial abyss. Once the U.S. Government raises interest rates, the large capital outflow will likely trigger a financial crisis in emerging markets.
But Zhou has faith in today's decision makers, noting that they are much wiser today when dealing with currency and trade-related issues because they can draw references from the past.
Developed countries, led by the United States, are alleging the undervalued Chinese currency, the yuan, is the culprit for China's huge trade surplus. The United States also blames China for its dwindling exports and rising unemployment. And a growing number of U.S. politicians are pressuring China to appreciate its currency.
Wang Yuanlong, an expert from the Hong Kong-based Tianda Institute, refuted the U.S. allegations, citing other reasons for the China-U.S. trade imbalance. The trade surplus, he said, was caused by differences in industrial division between the two countries. The service sector contributes about 80 percent to the U.S. GDP, with manufacturing making up only 11 percent. In China, the opposite is true, with manufacturing accounting for 60 percent of GDP.
RMB not the answer
NOT THE CULPRIT: Many U.S. and Chinese economists agree that the yuan is not the root cause of the U.S. employment predicament—the problem lies in the U.S. economy itself (ZHONG MIN)
Trade in goods contributes less than a quarter to China-U.S. economic cooperation; the rest lies in the service trade. The United States exports as much as $20 billion in services—for instance, investment banks conducting initial public offering for Chinese companies—to China each year; about 50,000 U.S. banks, insurance companies, auditing firms and law firms have operations in China with annual sales revenue of $220 billion.
"Trade between China and developed countries are supplementary to each other. A substantial appreciation of the yuan will not help U.S. employment, but will force the United States to seek imports from other emerging economies," Wang said.
Differences in calculations between the two countries have also caused disputes in terms of trade value. The U.S. calculation overestimates its deficit with China in four ways. First, it applies different statistical standards to imports and exports. It tends to overestimate the value of imports and underestimate the value of exports. Second, the United States adds the "Made-in-China" products it imports from other regions or countries to imports from China, while excluding its exports to China via Hong Kong or other regions, which contributes to the trade imbalance. Third, when calculating its trade value with China, the United States only uses commodity trade data but excludes the value of services it exports to China. Fourth, a large number of Chinese products are exported to the Caribbean and Latin American regions via the United States; and these products, too, have been included into China's export figures to the United States.
Since China started the reform of the yuan exchange rate regime in July 2005, the yuan has risen 23.5 percent against the U.S. dollar. From January 1994 to July 2010, the Chinese currency rose 55.2 percent against the U.S. dollar. But the U.S. trade deficit continued to expand in the same period.
"Those who claim the yuan is undervalued deliberately disregard the fact that the yuan has appreciated substantially since the reform began. Their insistent allegations clearly have other intentions," said Wang.
Yao Jian, spokesman of the Ministry of Commerce, said on October 15 that China had no intention of pursuing a trade surplus in its international trade. During the financial crisis, China's imports from the United States, the EU, Japan, Australia and South Korea rose about 50 percent respectively. China's import growth rate, Yao said, was twice the speed of China's exports to those countries and regions.
Trade surplus
The United States, Yao said, had a trade surplus for 93 years before the 1980s—China has only had a trade surplus for a little more than 10 years. More importantly, China's surplus with the United States is mostly generated by foreign-funded or foreign-owned companies in China, which produce nearly 88 percent of Chinese exports to the United States. Those foreign investors have taken away the lion's share of profits.
"If China held a surplus of $10, $1 or $2 of it goes to China, but $7 or $8 goes to foreign-funded companies, mostly established by American, European and Japanese companies," said Yao. "It's utterly irrational [for the United States] to hold the yuan as the scapegoat for its own national problems," he stressed.
On the Chinese side, the yuan does not have a solid foundation for substantial appreciation.
"The center of the conflict is that the United States wanted to depreciate the dollar, but was met with resistance from other economies. How things develop in the coming months depends on whether the United States changes its mind," said Andy Xie Guozhong, an independent economist and a director at Rosetta Stone Advisors Ltd. "Although the value of the dollar is close to its lowest point in history, the U.S. Government is still pushing for further depreciation."
Right now, the belief among U.S. political leaders is that depreciating the dollar will help boost employment, Xie said. But this is just wishful thinking; the hovering unemployment rate is due to the fact that private companies are reluctant to hire new employees in these uncertain economic times.
"The only benefit of dollar depreciation is a slight increase in U.S. exports, but then inflation will come along. If other countries refuse dollar depreciation, and follow suit to print more money, worldwide inflation is inevitable," said Xie. "Right now, it all depends on the United States," he added.
Many U.S. politicians think that printing more greenbacks to depreciate its currency is totally reasonable and rational, but it is utterly unacceptable for other countries to do the same. Xie said the double standards were too obvious.
Ultimately, dollar depreciation cannot salvage the U.S. economy. The U.S. Federal Reserve has slashed its benchmark interest rate to nearly zero, and the government budget deficit has risen to 10 percent of the GDP. After a recovery for several quarters, the U.S. economy is declining again with the unemployment rate nearing 10 percent.
"If you're Paul Krugman, you'd probably say the current stimulus is not powerful enough. You might suggest raising the budget deficit to 20 percent of GDP, and another round of quantitative easing," Xie said.
"What it all comes down to," Xie said, "is that depreciating currencies for export growth is a zero-sum game."
An end in sight?
How will this round of the currency dispute wrap up? Zhang Ming, an international finance expert at the Chinese Academy of Social Sciences, pointed out three possibilities.
First, the governments of all countries could reach a new Plaza Accords—an agreement reached by developed nations in 1985 to intervene in currency market—with the Chinese Government agreeing to appreciate its currency substantially in the next few years. Second, the Chinese Government could completely refuse currency readjustment, resulting in a trade war with the United States. Third, after international negotiation, the Chinese Government could agree to increase the flexibility of the exchange rate regime, but maintain control over the pace of the yuan appreciation.
Without a doubt, China's interests would be damaged by the first scenario. The second scenario will make both countries sink together. The third is the best, and most difficult, option but requires wisdom and candid cooperation from all leaders and countries.
But no one can argue a currency war is the last thing politicians want. At the G20 financial ministers and central bank governors' meeting held in South Korea on October 21-23, a joint communiqué was released, saying they would move toward more market-determined exchange rate systems that reflect underlying economic fundamentals and refrain from competitive devaluation of currencies.
The joint communiqué also noted their commitment to taking action at the national and international level to raise standards, so that national authorities implement global standards consistently, in a way ensuring a level playing field and avoiding fragmentation of markets, protectionism and regulatory arbitrage.
The currency disputes have highlighted the predicament the global currency system is facing: the dollar, a sovereign currency of the United States, also serves as an international reserve currency. The two functions are actually contradictory. If the U.S. Fed starts to print more money to spur its economic development, a dollar flood will sweep the world, causing huge damage to international financial stability. Therefore, it's time to establish a new monetary system, said Cao Yuanzheng, chief economist at BOC International (China) Ltd.
"The current global reserve currency is still the U.S. dollar. But its fluctuation has led to volatility in other currencies. A new international monetary system must be built or the existing one will collapse for good. Major economies should collaborate on this front to rebuild the international economic and monetary order," said Cao.
Developed countries' low interest policies
United States: In the first half of this year, the U.S. Federal Reserve withdrew part of its stimulus measures. But confronted with a recovery slowdown and impotent fiscal stimuli, the Fed started a new round. In July, it announced buying U.S. Treasury securities; in August, it ordered a cut to the excess reserve requirement ratio. A report issued by the Board of Governors of the Federal Reserve System on October 12 said the United States will keep the interest rates low and might start the second round of quantitative easing monetary policy, which means the Fed buys treasury securities and institutional bonds to inject liquidity into the market, to spur an economic revival.
Japan: The Bank of Japan, the country's central bank, slashed its benchmark interest rate from 0.1 percent to 0.1-0 percent to hold back the yen's appreciation. It is the third time for Japan to have a zero interest rate after 1999-2001. At the same time, Japan's central bank pledged to build a temporary fund of up to $60 billion to buy government bonds which is similar to the U.S. quantitative easing monetary policy.
Europe: The Bank of England decided to keep its key interest rate at 0.5 percent—the lowest level in history. The European Central Bank announced it would keep the key interest rate at 1 percent—also the lowest in history.
Australia: On October 7, contrary to most economists' forecast of an interest rate hike of 25 basis points, the Australian central bank announced to keep the current 4.5 percent rate to offset the Australian dollar's fast and passive appreciation against the U.S. dollar.
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Feeding China
China is expected to reap a bumper harvest this autumn, but grain security remains a long-term concern
By HU YUE
PLENTY TO HARVEST: Farmers reap rice in northeast Heilongjiang Province. The country has maintained a steady growth rate in grain output in the past six years (WANG JIANWEI)
Despite sweeping natural disasters, China is on track to achieve a bountiful harvest for this autumn's grain yield, which usually accounts for three fourths of the annual output, said Minister of Agriculture Han Changfu.
With the autumn harvest secured, winter planting is already underway across the country, said Han.
China's grain output, including rice, wheat and corn, amounted to 530.8 million tons in 2009, the sixth consecutive year of growth. The output for this year, according to Han, will be no less than last year and is likely to hit a new record.
The Ministry of Agriculture (MOA) anticipated that the acreage planted for autumn grain would increase by around 870,000 hectares to 76.6 million hectares this year.
But vigorous efforts are still needed to strengthen grain supply and quality, said Han.
The news dismissed worries about food shortages given heavy summer rainstorms across the country and the severe drought in the southwest that disrupted agricultural production.
In a recent report, the MOA said grain output harvested this summer fell for the first time in seven years to reach 123.1 million tons, down 0.3 percent, or 390,000 tons, from a year ago. In addition, the per-hectare yield dropped 0.4 percent year on year to around 4.49 tons, and the situation was even worse in disaster-stricken southwest Yunnan and Guizhou provinces.
However, winter wheat, which usually makes up around 80 percent of the total annual wheat output, stood at 108.8 million tons this year, about 1 million tons more than last year, said MOA spokesman Chen Mengshan.
In another move, the China National Grain and Oils Information Center in September predicted the country would yield 169 million tons of corn in 2010, representing a year-on-year growth of 3.1 percent thanks to increased planting.
The only cause for concern was rice, which accounts for half of the country's grain output, said Jiang Heping, a senior researcher at the Chinese Academy of Agricultural Sciences, in an interview with Capital Week magazine.
At least 92 percent of the increased 76.6 million hectares was planted with corn, leaving little space for rice, he said.
In addition, the spring sowing of rice was delayed by seven to 10 days in many provinces because of the winter freeze earlier this year, he said.
That means the crops will face more risks of an early frost, said Jiang.
Recouping the losses
Before the relentless rains had stopped pouring water over many regions of China this summer, worries were proliferating about the country's grain security.
Torrential rains washed away homes and triggered overwhelming mudslides that claimed hundreds of lives. The disaster also cast an ominous shadow over the agriculture sector as the storms devoured vast areas of farmland. The State Flood Control and Drought Relief Headquarters said more than 9,700 hectares of crops had been devastated by August 10, with direct economic losses totaling 209.6 billion yuan ($31 billion).
Before this, a prolonged drought ravaged southwest China, drying up farmland and leaving people in desperate need of drinking water.
On top of the natural disasters came the international grain crisis. On August 5, Russia, the world's third largest wheat producer, ordered a ban on grain exports after a severe drought destroyed crops and as wildfires spread across the country. This ignited panic in the commodities markets, sending wheat prices to record highs.
Many fret the price surge may filter into China through trade links. From January to June, the country's wheat imports more than doubled to 845,000 tons year on year, while rice imports soared 44.3 percent.
But the ripple effect has been barely felt, said Zhang Xiaoqiang, Vice Chairman of the National Development and Reform Commission (NDRC).
Despite the recent increase in imports, China relies on foreign markets for barely 1 percent to meet its demands for wheat, he said.
Beside this, the government has extensive reserves of grain and is capable of keeping food prices under control, he said.
China's grain inventory-to-consumption ratio is now more than 40 percent, well above the international security line of 17-18 percent.
Meanwhile, a string of government measures have also helped shore up the agricultural industry, said Zhang.
The Chinese Government this year distributed 15.5 billion yuan ($2.3 billion) in subsidies for farmers to purchase agricultural machinery, compared with 70 million yuan ($10.4 million) in 2004. It also bumped up the minimum purchase price of rice and wheat.
A new season
While a bumper harvest is on the way for this year, the long-term grain safety is far from guaranteed given an expanding population and the growing living standards.
China expects its annual grain consumption to reach 572.5 million tons by 2020, and to maintain a food self-sufficiency rate of 95 percent, at least 540 million tons of grain output will be needed, said Zhang Ping, Chairman of the NDRC.
The goal is actually not within easy reach given the country's limited cultivated land, scarce water and relatively weak agricultural technologies.
To ensure sustainable grain supplies, China has enacted strict policies to protect arable land and also set a "red line" to guarantee its arable land never shrinks to less than 120 million hectares. But the country is already edging dangerously close to that line, with just 121.7 million hectares available by the end of 2009, according to data from the Ministry of Land and Resources.
In the past 13 years, China has lost 8.2 million hectares of arable land due to urbanization and forest and grassland replanting programs, as well as damage caused by natural disasters. The country's per-capita arable land is now a minimum 0.092 hectare, only 40 percent of the world's average.
It's urgent now to curb decreases in arable land, which is crucial to grain security, said Zheng Fengtian, a professor at the Renmin University of China.
A lack of irrigation is also stretching the nerves of policymakers. The Ministry of Water Resources said water shortages to the agricultural sector stand at a dizzying 30 billion tons annually.
"This is the result of the drought climate in north China and the fragile irrigation infrastructure," said Zheng. "Many irrigation facilities in the countryside are either outdated or broken."
But the biggest question was how to encourage the farmers to plant more crops, said Ma Wenfeng, a senior analyst at the Beijing-based Orient Agribusiness Consultant Ltd.
Due to relatively low grain prices, Chinese farmers earn much less than urban employees. That is why many chose to leave their land fallow and seek jobs in the cities, he said.
The number of migrant workers across the nation had amounted to 23 million by the end of 2009, climbing 1.9 percent year on year, said the National Bureau of Statistics.
In the next 20 years, another 400 million rural residents may migrate to cities, leaving even fewer farmers in the fields, said Zuo Xuejin, Executive Vice President of the Shanghai Academy of Social Sciences.
In response, it is necessary to boost farmers' incomes and further strengthen subsidies for them to buy machinery and fine strains of crops, he said.
NDRC Chairman Zhang Ping suggested that the country should further strengthen its grain production capacity by improving agricultural infrastructure and expanding the use of high-yielding strains.
Efforts are also needed to press ahead with modern farming technologies and bolster the farmers' ability to fight natural disasters, he said.
Zhang said China has established an initial emergency response system for grain security, and reinforced the production, storage, transportation and distribution of food and grain in emergency situations.
It would also be helpful if China could foster a number of international competitive grain processing enterprises, said Li Guoxiang, a researcher at the Rural Development Institute of the Chinese Academy of Social Sciences.
That would be instrumental in sustaining domestic grain supplies and fending off the impact of global price fluctuations, he said.
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A Sour Milk Rivalry
A libel scandal involving Mengniu taints its image and deals a blow to China's dairy industry
By LAN XINZHEN
HARD TO CHOOSE: The Mengniu scandal is expected to taint the dairy maker's reputation and cast yet another shadow over the country's dairy industry (GUO CHENG)
Mengniu, with the 2008 milk contamination incident still fresh in people's memories, has brought China's dairy industry into the spotlight again—this time the attention focused on a bitter rivalry.
Police in Hohhot, capital of the Inner Mongolian Autonomous Region, held a press briefing on October 22 over a Mengniu-initiated smear campaign against its rival, Yili.
Police said An Yong, a product manager of Mengniu's liquid milk department, worked with a Beijing public relations agency in July to spread accusations on the Internet that an element called fish oil docosahexaenoic acid (DHA) contained in Yili's QQ Star Children's Milk was harmful to consumers. Four suspects including An have been detained, and another two suspects remain at large.
The briefing was believed to have helped dismiss worries about Yili products, though it will take time for consumer confidence to recover.
Malicious competition
Yili and Mengniu, both headquartered in Hohhot, are the top two companies in China's dairy industry. They have reportedly been competing in most aspects of their business operations, from raw milk sources to distribution channels.
Founded in August 1999, Mengniu, with total assets exceeding 14.1 billion yuan ($2.1 billion), has an annual dairy production capacity of 6 million tons and nearly 30,000 employees. In recent years it has witnessed rapid growth and expanded its presence across China. Mengniu's products are now exported to a number of countries, the United States and Canada included.
In the first half of this year, Mengniu topped all competitors to rake in net profits of 618.8 million yuan ($92.4 million), followed by Yili's 345 million yuan ($51.5 million).
While Mengniu led the liquid milk market, Yili kept the top position in milk powder. But the competition heated up when both made forays into infant milk production.
In 2006, Yili's latest product QQ Children's Milk became a market hit. Mengniu followed suit by releasing its Star of Future Children's Milk in 2008. The two products bore significant resemblances, but in terms of market share, Yili enjoyed evident advantages.
An's online attack was aimed at devastating the rival product's reputation and driving up Mengniu's sales.
The Hohhot police confirmed that An hired the Beijing Bosse PR Consulting Co. Ltd. to plot the online sabotage. On its official website, the PR company called itself a think tank of Mengniu, and stressed it provided important consultant support for Mengniu on its path of fast expansion.
The police revealed that Bosse's deputy general manager Xiao Xuemei and three other employees jointly hammered out a plan to maliciously attack Yili's reputation. The DHA element was an easy target, since it helps infant brain development. Mengniu would also be able to differentiate itself since Yili's DHA comes from fish oil and Mengniu's from algal oil. The libel campaign focused on allegations that DHA from sea fish could lead to premature sexual development and that DHA from algal oil was much safer.
The online campaign, at a cost of 280,000 yuan ($41,791), was executed by a Beijing Internet marketing company, which took a variety of measures to spread the rumors, including posts on forums, blogs and websites. It even initiated a public letter-signing campaign among netizens to refuse fish oil DHA.
The Hohhot police said that the online posts drew a considerable amount of negative attention to Yili and that the most-read article had recorded more than 200,000 hits.
Far-reaching implication
Mengniu has denied any involvement in the dirty tactics and insisted that An acted without the company's knowledge or permission.
"We are deeply sorry for the negative impact on Yili and the consumers," said the company in a statement on October 22. "Without first consulting his supervisor, An worked with the partner PR agency and spread accusations online that the fish oil in Yili's baby milk was harmful to human health. He should take responsibility for the consequences."
The statement went on to say An was a former employee of Yili before coming to Mengniu in 2005 and that he had already been fired.
"We will learn from this incident, strengthen internal management and improve employee education to prevent this from happening again," said Mengniu.
However, in the statement Mengniu also went on the offensive. It claimed that Yili had spent more than 5.9 million yuan ($880,597) between 2003 and 2004 hiring PR companies to launch media attacks against Mengniu.
In response, Yili accused Mengniu of trying to distract public attention from the scandal. "This case is still unsolved," the Beijing News quoted an anonymous PR manager of Yili as saying. "Why did they bring up things that happened several years ago? Is it to confuse the public?"
The furore underscores the brutally competitive nature of the country's dairy market, already heavily hit by the Sanlu melamine scandal in 2008 that put thousands of babies in hospital and forced Sanlu to shut down.
The malicious competition will hurt the health of the industry, said Wang Dingmian, a dairy expert and former Executive Director of the Dairy Association of China.
The enterprises must first learn how to honor their social responsibility and seek consumer recognition by branding and marketing, instead of attacking each other, he said.
Tan Guiqiu, a professor at the China University of Political Science and Law, believed it is urgent now to curb this malicious competition. The illegal marketing tactics destroy the reputations of not only rival companies, but also the whole industry, and dented consumer confidence.
"The competition between Chinese dairy makers will allow foreign companies to swoop in," said Chen Lianfang, a senior analyst at the Beijing-based Orient Agribusiness Consulting Ltd.
A mature brand, especially in food production, should pay more heed to its product quality than just maintaining a brand name. Meanwhile, efforts are also needed to strengthen supervision over online marketing tactics and create a healthy business environment, said Chen.
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Crisis Focus: Asia at the Helm
As the global economy transforms from a developed country-centric to a more developing-focused model in the post-crisis world, Asia is emerging as a new economic powerhouse. Its policy choices are important for the continent's own sake, and also for the global economy as a whole. Dominique Strauss-Kahn, Managing Director of the IMF, noted this shift in a recent speech in Shanghai. Edited excerpts follow:
The 19th century belonged to Europe; the 20th century to the United States. The 21st century, as we are coming to realize, can be the Asian century. But with that comes great responsibility—to lead, to guide, and to take ownership of the collaborative agenda. Asia is now a major economic region, and being at the center means being responsible for the whole. Asia has an important voice in world affairs through the G20, and also through the IMF, which is in the process of giving more influence to dynamic emerging markets.
Asia's economic performance over the past few decades has been nothing short of remarkable. Driven by rapid and steady growth, the region now accounts for about one third of the global economy, up from just under one fifth in 1980. If current trends continue, Asia's economy could be as large as the United States and the EU—combined—by 2015.
Of course, growth must benefit everybody. And Asia has made tremendous progress with poverty reduction, with China alone pulling hundreds of millions of people out of poverty over the past few decades. Such a feat has never before been accomplished in the history of human civilization.
And when the global financial crisis hit, Asia proved remarkably resilient, bouncing back stronger and faster than anywhere else. Asia didn't make the mistakes of other countries by piling up debt or using complex financial engineering that magnified risk. Banks had built sizeable capital cushions, followed prudent lending practices, and had limited exposure to toxic assets. Policymakers had internalized the lessons of the past, embracing sound macroeconomic and prudential policies.
Thanks to solid foundations and a quick and forceful policy response, Asia has become the launching pad of the global economic recovery. But this comes with challenges of its own.
Cooperation is really the great legacy of this crisis, and is the main reason why the Great Recession did not become a second Great Depression.
This spirit of cooperation must be maintained. Without it, the recovery is in peril. Today, the risk is that the single chorus that tamed the financial crisis will dissolve into a cacophony of discordant voices, as countries increasingly go it alone. This will surely make everybody worse off.
The great challenges of today all require a cooperative solution—especially if we are to achieve strong, sustainable, and balanced global growth in the years ahead.
We must make the financial sector safer and more stable, and put the banks back in the service of the real economy. Many of these problems emanate in the advanced countries beyond Asia, and these countries need to take the lead in fixing these problems.
Much progress has been made on the regulatory front, especially with the Basel III rules on the quantity and quality of bank capital. But these rules only apply to a subset of the financial system. Reforms must deal with risks in all financial institutions, not just banks—we learned this lesson the hard way during the crisis.
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MARKET WATCH NO. 44, 2010
GREEN CABS: Dalian's first batch of new energy taxis hit the road on October 26. China is pushing forward a pilot program to promote new energy vehicles in 13 cities including Dalian, Liaoning Province (ZHANG CHUNLEI)
Numbers of the Week
4.1 %
China's urban unemployment rate stood at 4.1 percent at the end of September, down from 4.2 percent at the end of June, said the Ministry of Human Resources and Social Security.
349.8 billion kwh
China's power consumption in September fell 12 percent month on month to 349.8 billion kilowatt-hours, said the National Energy Administration.
TO THE POINT: Export deals experience year-on-year increases at the Canton Fair, though uncertainties still linger. Soaring coal prices put cost pressures on thermal power generators. Fierce competition rocks the foundation of China Mobile's market dominance. Chinese automaker BYD goes on a bumpy ride as its sales go through a free-fall. The Export-Import Bank of China ties up with the Inter-American Development Bank to finance trade between China and Latin America and the Caribbean region.
By HU YUE
Export Outlook
Are Chinese exporters faring well? The latest session of the China Import and Export Fair, known as the Canton Fair, a bellwether for the trade climate, could offer some clues.
The first phase of the Canton Fair's fall session witnessed export deals worth $21.15 billion, up 12.3 percent from the fair's last session in April, said Canton Fair Deputy General Secretary Liu Jianjun. The number of foreign buyers totaled 98,000, down 5.5 percent.
Despite showing signs of recovery, the hard-hit export sector has yet to fully regain its lost ground due to costs inflation, a stronger yuan, and simmering protectionism, said Liu.
The Guangdong Fenglu Aluminum Co. Ltd., for example, has suffered painful losses from restrictions imposed by the developed countries, Chen Nuansen, a marketing manager of the Chinese company, told the Nanfang Daily.
The U.S. Government is likely to slap 137-percent anti-subsidy duties on Chinese aluminum profiles, dealing a heavy blow to the exporters, he said.
"While our orders from the traditional Western markets dry up, the emerging markets in the Middle East and Southeast Asia are bursting with vitality," said Wu Jianfeng, export manager of Guangzhou Hongyu Group.
In addition, it is easier to gain a foothold in the emerging markets where distribution channels are not deeply entrenched and local competition is not insuperable, he said.
Thermal Power Pinch
China's thermal power generators are facing chilly headwinds as coal prices skyrocket.
The steam coal price at Qinhuangdao Port, an industry benchmark in the country, climbed around 7 percent in October, as a nationwide winter freeze pushed up demand.
There's no sign in sight that the price surge will slow in the fourth quarter, said Song Zhichen, an energy researcher at the CIC Industry Research Center. This means the thermal power generators will have to bear a heavier burden of costs, and even the risk of losses, he said.
The pressure has already been felt. Huadian Power International Co. Ltd. said it incurred a heavy loss of 384 million yuan ($57.3 million) in the third quarter due to higher costs. The company is a listed arm of China Huadian Group, one of the country's five largest electricity providers.
By contrast, coal miners are faring well. The Shandong Province-based Yanzhou Coal Mining Co. Ltd., for example, reported net profit of 3.68 billion yuan ($549.3 million) for the third quarter, soaring 227 percent year on year. Its coal prices averaged at 682.2 yuan ($101.8) per ton in the third quarter, up 25.3 percent from one year earlier.
In an attempt to soothe the profit woes, the National Development and Reform Commission in September proposed to raise on-grid tariffs in seven provinces by 15-25 yuan ($2.2-3.7) per megawatt-hour.
"Last year, the generators offset much of the pressure by turning to cheaper imports," said Song. "But that is no longer an option for this year since international prices are also hovering at a high level."
China's coal imports more than tripled from the previous year to reach 130 million tons in 2009, making it a net importer for the first time.
China Mobile Slowdown
China Mobile, the world's largest telecom operator by subscribers, is losing steam as a maturing market and intensifying competition eat into its profits.
The company raked in a net profit of 29.6 billion yuan ($4.4 billion) from July to September, representing a modest growth of 3.5 percent year on year, down from 6.8 percent in the second quarter.
Revenues grew 7.8 percent to 352.6 billion yuan ($52.6 billion) in the first nine months as the company added 41.47 million new customers, bringing the total customer base to 569 million.
"We are experiencing a slowdown in growth because of the widening penetration of mobile services and an increasingly competitive market," said a China Mobile statement. "In addition, most of our new users live in the countryside, where customer spending is typically lower."
The average revenue per user—a key barometer for long-term growth prospects—slipped to 72 yuan ($10.6) in the first three quarters from 75 yuan ($11) a year earlier.
In an attempt to keep its dominant position, the company plans to increase spending on handset subsidies this year to 15.5 billion yuan ($2.3 billion) from 11.7 billion yuan ($1.7 billion) in 2009. This has helped consolidate the customer foundation, but has also undermined profit margins, said Jin Tang, an analyst at the Shanghai-headquartered Shenyin & Wanguo Securities Co. Ltd.
BYD Struggles
While China's auto market booms, BYD Automobile Co. Ltd. is barely trudging along.
The Shenzhen-based company generated a net profit of 11.34 million yuan ($1.7 million) in the third quarter, less than 1 percent of a year ago.
A former manufacturer of rechargeable lithium and nickel batteries, BYD has been a pioneer in exploring new energy vehicles. It was even considered a rising star when U.S. investor Warren Buffet in September 2008 paid $230 million for a nearly 10-percent stake in the company.
Chen Huanyu, an analyst at the Guotai & Jun'an Securities Co. Ltd., attributed the downturn to a drop in auto sales. BYD sold 33,085 vehicles in September, down 24.9 percent year on year. Total sales for this year are estimated at 600,000 units, down from the original forecast of 800,000 units.
Part of the reason was many dealers of the company bowed out of its sales network or joined rival manufacturers, said a report by the Beijing Youth Daily.
Weighing down the performance was also the relatively high comparison base last year when the market thrived, said Yin Guohui, an analyst at the BOCOM International Holdings Co. Ltd.
The gloom may ease later this year, but a substantial turnaround is unlikely, said Yin.
Latin American Trade
The Export-Import Bank of China (China Eximbank) and the Inter-American Development Bank (IDB) have committed to financing up to $200 million worth of trade activity between China and Latin America and the Caribbean (LAC) region over the next two years.
The partnership will be a groundbreaking initiative to support increased trade activity since trade is a fundamental economic driver of both LAC and China's economies, said Luis Alberto Moreno, President of IDB.
China-LAC trade grew at an average annual rate of 31 percent from 2000 to 2008. Even during the global economic meltdown, the bilateral trade maintained its dynamism, and amounted to $121.5 billion in 2009, 12 times that of 2000.
In January 2009, China became a member of the IDB, the world's largest regional development bank and the main source of multilateral finance for the LAC region.
HR Seminar
The Career International Inc. held a seminar on October 26 in Beijing with a number of experts and researchers offering fresh insight into the latest trends in career development and human resource management. Career International is a leading recruitment solution provider based in Beijing.
"Human resource management has evolved far beyond employee performance evaluation and training," said Lu Lingmin, former PR manager at the Baidu Inc., at the seminar. "The focus is now strategy design for corporate development and coordination between various parts of the organization."
An Ran, a senior manager of Career International, said multinationals are increasingly outsourcing their recruitment process so they could focus on their core businesses.
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Economic Engines for the Next Five Years
China should prioritize domestic consumption and investment as the main drivers of its economic growth
Li Yining, a renowned economist with Peking University (XINHUA)
China is among the first countries to emerge from the global financial crisis. But how should China seize this opportunity to promote its economic growth momentum? What will drive China's economic growth in the next five years, and what macro policies should China adopt? Li Yining, a renowned economist with Peking University, recently shared his views with Beijing Daily. Edited excerpts follow:
Picking up from a gloomy economy first in the wake of the global economic crisis means more business opportunities for China. As a result, China should make use of this chance to reshape its development structure, create new name brands, and continue independent innovation.
China should prioritize domestic consumption and investment as the main drivers of its economic growth, rather than exports amid the fierce competition in the international market.
The following areas should be the major engines driving China's economic growth in the next five years:
Industrial upgrades
In line with the guiding proposal for formulating the nation's 12th Five-Year Program (2011-15), China should upgrade its industries in the context of the international market and make efforts to play a full role in such hi-tech industries as new energy, new materials, biotechnology, and environmental protection.
The new energy industry is expected to promote the automobile industry, transportation and other traffic facets, while new materials will facilitate renovation of the real estate and equipment manufacturing industries.
Biotechnology will prop up many industries, such as agriculture, aquaculture and medicine. It will also promote medical treatment, which will improve people's health and prolong people's lives, and further prompt development in many sectors.
China should take a digital road to make use of the Internet and apply the Internet of Things, with an aim to increase work efficiency and stimulate further development in many industries.
Originality should be encouraged in novel industrial design, so as to make China's manufacturing industry more advanced.
Urban-rural integration
The Chinese Central Government urged the acceleration of urbanization at a recent working conference since China's urbanization process is slow. The urban population increased from 20 percent in 1949 to only about 45 percent in 2009, which is far from the requirement for domestic consumption expansion.
Assuming an annual increase in the urban population of 1 percentage point, the proportion of the Chinese population living in cities will grow to 75 percent in 30 years. That means over 10 million people will move to the cities every year, including workers, elderly people and children, which requires the large-scale construction of houses, schools, hospitals and other facilities. Urbanization is therefore the largest potential market in China, expected to offer numerous jobs and opportunities for enterprises. The next five years should be a period of rapid urbanization, which will help drive the country's economic growth.
Forestland reform
China launched the reform of tenure in collective forests in June 2008, devolving collective forestland to rural households and allowing them to manage forestland. The reform has produced good results.
Thanks to the reform, some farmer migrant workers found employment by developing the forest economy after they were laid off during the global financial crisis last year. They invited their peers to join their forest businesses of breeding chickens and planting herbs and mushrooms in the forests they manage.
Since the Central Government stipulated that the forest and trees managed by farmers could be mortgaged, forest farmers have become rich. They are able to move out of their homes and build new houses of their own, which also serves as an economic growth engine.
Environmental protection
Low-carbon economy serves as both an opportunity and a challenge for China, because China has not yet mastered the core technology of the environmental protection industry. The current concept of environmental protection is broad, including desert control and afforestation as well as water and soil treatment. In a narrower sense, environmental protection means equipment, instruments and the manufacture of production materials related to environmental protection.
China should base efforts to develop a low-carbon economy on its own national conditions. If China were able to make some breakthroughs in environmental protection technology, then China would not only create production value, but also have a say in this regard.
Domestic consumption expansion
Creating more jobs and increasing residents' income in proportion of national income is key to expanding domestic consumption. The decline in people's income in recent years has not benefited consumption. The salaries for all working people should be elevated. Farmers' income should also be increased by promoting the industrialization of agriculture.
Addressing the housing issue is another aspect of expanding domestic consumption. The government must provide low-rent housing for low-income families and affordable housing for middle-income families. When people have new houses, they also buy furniture and household electric appliances, forming another force to drive up domestic demand.
Macroeconomic policy
China's annual economic growth should remain at 8 percent in the long run. If growth exceeds 9 or 10 percent, production material prices will soar.
To cope with existing inflation, China needs to set up an early-warning mechanism. Tight monetary policy, which incurs additional unemployment, is not the only way to restrain inflation.
China should adopt detailed, flexible fiscal and monetary policies in line with the real situation, so as to maintain stable economic growth.
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Chinese Private Enterprises to Expand
Going global and the low-carbon economy will be the development trends of Chinese private enterprises for the next 20 years
By ZHANG ZIXUAN
SPOTLIGHT: Rupert Hoogewerf, founder and compiler of the Hurun Rich List, addresses the fourth Hurun Rich List Summit held in Beijing on October 29, 2010, about the future of China's private sector (SHI BOSEN)
For video please click here
In the natural course of business expansion, Chinese private businesses are looking overseas for new markets for their products and services, said Rupert Hoogewerf, founder and compiler of the Hurun Rich List, at the fourth Hurun Rich List Summit.
One of the best examples of a Chinese company going overseas, Hoogewerf said, was Li Shufu and his Geely Group when they bought the Volvo brand on August 2, 2010.
The expansions are driven by two motivators: many of China's private businesses are the bigger in the Chinese market and need new areas to develop; and some are already world leaders in particular sectors.
But branching out is not without its problems, as many private enterprises have run into obstacles in their internationalization efforts, especially when it comes to the investment environment in some countries, said Hoogewerf in an exclusive interview with Beijing Review.
The Hurun summit and 12th anniversary of the rich list was held in Beijing on October 29, 2010. The theme of this year's summit was "Outlook of the Chinese private economy in the next 20 years."
According to Hoogewerf, the biggest challenge for Chinese companies expanding abroad hasn't been breaking into a foreign market, but managing foreign staff. Chinese management styles don't translate well or provide a conducive work atmosphere for foreign workers. This will likely change in two decades' time as working with international staffs becomes integrated into Chinese management training methods.
The low-carbon economy, Hoogewerf said, is also a trend private enterprises will have to focus on. "Together with social responsibly, it is being addressed by every company," Hoogewerf said, adding that while these efforts may seem slow or non-existent, they are actually going along "much faster than people think."
Many private enterprises have already made their products much more environmentally friendly, a business move that will allow them to maintain their competitive edge and keep their eco-aware customer base.
"The government is the No. 1 stake holder in some of these companies, and many of them have worked very closely with the government on different projects. So these companies are and will be addressing the low-carbon issue much more now that it has become a government priority," said Hoogewerf. "Eventually, low-carbon initiatives will be more than something that's nice to have, it will be something you must have."
For the summit, the organization invited Chinese economic leaders who appeared on the rich list to offer their insight on China's development over the next two decades. The billionaires discussed the influence of domestic demand and the internationalization of China's private sector, as well as the growing low-carbon economy.
Zong Qinghou, Board Chairman and General Manager of the Hangzhou-based Wahaha Group and the richest man in China, and Chen Guangbiao, Chairman of Huangpu Investment Group, widely regarded as the most charitable man in China, highlighted the outlook of the next 20 years for China's private sector and the importance of the development of the low-carbon economy, respectively.
"The low-carbon economy needs publicity, and we need to make everyone realize the benefits of living a low-carbon life," Chen said. "We also need to take action now. Each person has the obligation to contribute to his or her own low-carbon career, and entrepreneurs must take steps to stop environmental pollution and ecological destruction in their pursuit of profits."
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