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Workers package China Kweichow Moutai Distillery Co. baiju liquor at the company’s facility in the Maotai section of the Renhuai District in Zunyi, Guizhou Province.

Two weeks before China’s first ever auction dedicated entirely to aged Maotai, China’s most famous baijiu or white spirit, Liu Xiaowei, chairman of the auction house hosting the event, put the price of a 1982 vintage bottle of Maotai at between 10,000 yuan and 20,000 yuan. Why 1982? Because 1982 Lafite, the most sought after vintage of the most sought after French wine in China, was the only appropriate benchmark against which to measure China’s own luxury tipple.

Mr. Liu put the price of a bottle of 1982 Lafite at about 60,000 yuan or $9,500 (taxes tend to make wine more expensive in China than in other markets) –- and he clearly expected Maotai to close the gap over time.

As it turns out, the auction had very little of Maotai’s 1982 vintage. Or, more accurately, it may have had a lot, but the blue ink production date stamped on each label had faded on so many bottles it was difficult to tell exactly what year a bottle may have been produced. Instead, batches were typically auctioned as being from “the eighties”, or perhaps from the “early eighties” whenever it was possible to be more specific. That didn’t deter bidders. At the December 3 auction, a bottle of Maotai produced in the 1980s seldom sold for less than 30,000 yuan.

It’s not just aged Maotai that has shot up in value in recent years. Even the shelf price of new bottles costs more than 2000 yuan a bottle, up from about 200 yuan six years ago according to Mr. Liu, who heads Beijing Googut Auction Co.

“I personally really enjoy drinking Maotai, but these days it’s too expensive,” he said with a laugh. “They just can’t produce enough. These days China’s economy is pretty good, and too many people have money.”

The reasons for the ascent of Maotai – sometimes spelled “Moutai” — are many and varied.

It was Mao Zedong’s favorite drink and no other brand has the same cache. Part of the mystique is that it can only be produced from the mountain waters of Guizhou where it’s been made for generations. But that limits the company’s ability to expand production.

Meanwhile, China’s rising affluence has pushed up demand, both for consumption and for gifts. China’s netizen’s often complain that corruption is in part driving Maotai’s high price with official dinners often fueled by cases of the drink – a claim that received some high-level backing earlier this month.

That has made Kweichow Moutai Co. a star in a stock market that was one of the worst performers in the world last year. While the index that tracks the Shanghai Stock Exchange dropped more than 20% in 2010, Kweichow Moutai ended the year up 4% – and that was even well down from its high point earlier in the year.

Now, following in the footsteps of collectible teas and rare traditional medicines, the drink itself is increasingly becoming an investment item, leading some to wonder whether China faces a baijiu bubble.

“At the moment the main buyers are still individuals,” said Googut’s Mr. Liu of auction-goers. “But over the last few years there’s been an emergence of funds that invest in baijiu.”

The Maotai auction was one of a handful liquor auctions organized by Googut, not all of which were as well received. Hosted in a the hotel ballroom, tricked out in faux-oak paneling, it was difficult to distinguish private and institutional buyers, but the bids on some of the 300 batches of Maotai on offer suggested the bidders had some serious resources at their disposal. Soon after the tuxedo clad auctioneer started proceedings, a batch of 100 bottles produced between 1983 and 1986 went for 3.36 million yuan. Later, another 100 from the same era went for a flat 3 million yuan. In the end the auction was only for the truly committed. After kicking off at 7.30pm, it went on until the early hours of the next morning.

As an investment, aged Maotai has something else going in its favor. Unlike wine, which has long been collected and stored to allow it to age and mature, the market for aged Maotai is fairly new. Bottles from the eighties typically emerge on the market in ones and twos as people realize that the old bottle in their pantry, on their liquor shelf, or hidden under the bed, might actually have some value. And unlike wine, storage conditions don’t tend to affect its flavor.

One elderly couple watched the Googut auction from the sidelines, eager to see what their stash might fetch. Not being drinkers themselves, they were about to move house and were trying to work out what to do with a life time’s worth of Maotai and other baijiu accumulated as presents. The auction convinced them that re-gifting probably wasn’t the most lucrative of options open to them.

Unlike wine, Maotai doesn’t have vintages. One year is much like any other: The sorghum from which it’s made isn’t affected by the weather in the same way grapes are. But connoisseurs will tell you that it matures with age. And while it’s anathema to mix different wine vintages, one popular way to make your 30-year-old Maotai last that little bit longer is by mixing a little with Maotai produced more recently.

But Maotai’s popularity has also resulted in a huge market for fakes, both new and aged. Liu Jianfeng, Googut’s senior manager in charge of their famous Chinese liquors department, says the way to spot a fake is by shaking up the bottle and shining a light through its translucent walls. If there are a lot of bubbles that’s a good sign, but no bubbles at all means it’s a fake.

If only the big bubbles were as easy to spot at the little ones.

– Dinny McMahon, with contributions from Olivia Geng.

Douglas Paal, the former director of the American Institute of Taiwan (AIT), said in a television interview Thursday that both the U.S. and China would “breathe a huge sigh of relief” if Mr. Ma wins Saturday’s election, arguing that many in Washington are uncomfortable with the opposition Democratic Progressive Party candidate Tsai Ing-wen’s policy outlook on China.

Mr. Paal led the AIT, the de facto U.S. embassy in Taiwan, from 2002 to 2006.

Mr. Paal said Ms. Tsai’s proposed “Taiwan Consensus,” which seeks to forge a domestic agreement in Taiwan on how to characterize and develop ties with China, was “not possible” due to deep division about China within Taiwanese society.

Mr. Ma and the KMT have used the so-called “92 Consensus,” — which holds there is only one China, with each side able to interpret what that means — as a basis for a historic thawing of cross-strait relations. Basically an agreement to disagree about conflicting viewpoints on Taiwan’s sovereignty, the 92 Consensus has allowed Mr. Ma to bargain for direct cross-strait flights, reduce investment and trade restrictions, and open up Taiwan to Chinese tourists.

“The assurance given about the management of cross-strait ties in Tsai’s administration were too vague to make Washington comfortable,” Mr. Paal said according to local media, adding that the U.S., would quickly send a delegation to help ensure Ms. Tsai is able to keep up stable cross-strait ties.

The AIT was quick to distance itself from Mr. Paal’s comments, restating its position that it does not take sides in the election. But the remarks hit a sore spot, with many analysts arguing the U.S. has tacitly given Mr. Ma the nod by recently making Taiwan a candidate for visa-free travel and sending Deputy Secretary of Energy Dan Poneman, the highest ranking U.S. official to visit Taiwan in more than a decade.

Holding a press conference on Friday, Frank Murkowski, former Alaska governor and head of the International Committee for Free Elections in Taiwan, said, “I do challenge the credibility of Mr. Paal’s statements to speak for me or for my government or for the vast majority of Americans who have great admiration for the advancement of democracy in Taiwan.”

He went on: “To come in two days before the election with such a sweeping interpretation of what U.S. policy is, I find basically unacceptable in a sense of fairness and I think it slights and confuses and perhaps puts fear in the residents of Taiwan who are going to be voting that somehow the United States does not really support neutrality but something in between and I don’t think that’s the intention of the U.S. and I don’t think it’s an honorable position to communicate to Taiwan.”

Y.C. Lin, a dual U.S.-Taiwan citizen who works in the financial services industry in Taiwan said he didn’t think Mr. Paal’s remarks would have a great influence on the election.

But he said the remarks do “send mixed signals to Taiwan, whose democratization process, while far from perfect, has often been showcased as a success story that has been consistent with the publicly stated goals of the U.S. government.”

For their part, Taiwanese voters remain divided on Mr. Ma’s approach to China.

At press conference on Friday, for instance, Cher Wang, the founder and president of the smartphone company HTC, came out in support of the 1992 Consensus. “As an entrepreneur, I believe a moderate society, a stable society is a vital condition for innovation. My company has had four years of growth, we’ve had four years of mild policies and orderly development…I truly treasure the current mild cross-strait relationship, and I also treasure the 92 Consensus,” she said.

But others think Mr. Ma has moved too fast to open to China and worry that Taiwan is losing its sovereignty even as it gains economically from better ties.

Analysts are divided over how well Ms. Tsai would handle the relationship with China. By DPP standards she has struck a moderate posture toward China, and academics say China would likely take a “wait-and-see” approach to gauge how Ms. Tsai would guide cross-strait relations. But in September a spokesman for China’s Taiwan Affairs Office said Ms. Tsai’s Taiwan Consensus “will make cross-strait negotiations impossible to continue, and cross-strait relations will once again become turbulent and unrestful.”

Whatever the U.S. government thinks of Ms. Tsai’s candidacy, that’s not exactly music to Washington’s ears.

– Paul Mozur. Follow him on Twitter @paulmozur

Agence France-Presse/Getty Images

Yi Jianlian hugged teammate Liu Wei after China defeated Jordan during the Asian Basketball Championships in Wuhan in September.

Chinese basketball star Yi Jianlian is looking to continue China’s decade-long legacy of keeping players in the National Basketball Association.

The 6-foot-10 forward is set to sign a one-year contract with the NBA’s Dallas Mavericks, according to reports from media company Sina Corp. (in Chinese) and ESPN.

The deal will likely be done within the next two days, after all health checks are passed, Sina cited Mr. Yi as saying in a phone interview.

The defending champion Dallas Mavericks got a good look at the Chinese player last year, when he stepped off the Washington Wizards’ bench and scored 14 points against the Mavericks. It was a season high for Mr. Yi, who averaged 5.6 points and 3.9 rebounds with the Wizards last season.

When finalized, the deal will restore China’s presence in the U.S. sports world. Mr. Yi has been China’s main connection to the U.S.-based basketball since its most well-known player, Yao Ming, retired this past year.

Tennis star Li Na, who made history in Paris last June as she became the first Chinese and first Asian to win a Grand Slam singles title, has become one of China’s main hopes in propelling the country into the global athletic scene, but her career has been up and down over the past year. Mr. Yi offers China another shot at global fame.

The 24year-old Maverick-to-be has four seasons of experience in the NBA, playing for Milwaukee, New Jersey and Washington. But he has been a free agent since suffering a knee injury playing for the Chinese Basketball Association’s Guangdong Southern Tigers in November.

Injuries cost Mr. Yi a contract with the Wizards, who declined to re-sign him after he sat out 19 games last season. Few teams have been willing to pay the $5 million to $6 million price tag Mr. Yi wanted, the Sina report said.

No financial details of the Mavericks deal were mentioned in the Sina report.

The ESPN report said Mr. Yi will rehabilitate, playing for the Mavericks’ D-League affiliate, the Texas Legends.

The Mavericks were the first team in NBA history to sign a Chinese player, bringing on Wang Zhizhi in 2002.

–Laurie Burkitt; follow her on Twitter at @lburkitt

The 59-year-old has been Chongqing mayor since January 2010, following around nine years as vice mayor of the sprawling municipality of 30 million people. Previously, he was deputy Communist Party Secretary of Shanghai, where he was an important force in the development of the city’s Pudong New District.

Mr. Huang was born in the eastern province of Zhejiang.

Over two hours on Nov. 25, 2011, the mayor spoke with Wall Street Journal reporter James T. Areddy in a boardroom adjacent to his office in the Chongqing municipal government’s leafy riverside compound. Wearing a black polo shirt, he discussed Chongqing’s goals for real-estate affordability, regulation and development, supporting his technocratic arguments with an array of figures and by making comparisons with the situation in the U.S. property market.

He concluded the interview by lighting a large cigar.

Here are translated excerpts:

WSJ: PLEASE EXPLAIN YOUR PHILOSOPHY IN TERMS OF GOVERNMENT REGULATION OF THE PROPERTY MARKET?

Mayor Huang: I think the pattern of property products should be based on two tracks, the first one is the commercial housing the second is public housing. No matter what measures and controls will be adopted in the commercial sector, six or seven years of family income will be enough to support a family to purchase a house.

(Even so) there are still a large number of low-income people who cannot afford housing. So I think it comes to the government to show its responsibility to provide them this housing. In any city or nation, I think the dual track system is very important: 60-70% commercial housing and 30-40%  public housing.

So this is our philosophy to provide housing to the general public through these two tracks.

For a reasonable pricing regime, it should take a family six or seven years of annual income to buy outright commercial housing. This is a directional pattern. Of course, there are some high income people who can afford to buy a villa. In general, I think it is rational and reasonable for a family to spend six or seven years of annual income to buy a house. This is also a target of the government adjustment and control measures in the commercial housing sector.

Property products also belong to the category of consumer goods. So it comes to a supply and demand driven relationship. If there is an oversupply I think the price will be dragged down, and vice versa. The government should shoulder its due responsibility strike a balance in this relationship between supply and demand.

The other nature of property products is that they are also capital goods, since the family would usually like to hold this asset for a very long term. It is a very important issue for us to consider whether to collect tax by treating the property as consumer goods or as family assets.

It is different from, for example, cosmetic products which are purely consumer goods and the tax should naturally be collected during the process of production and transaction. But when you collect tax from the transaction process this process will push up higher the price of the products.

We should have a clear view of the nature of the property products as a capital good. By collecting property tax, I think we will be able to dampen the speculation in the market. Today in China, the tax is only collected in the transaction. When it comes to the property market, this is something different from the United States. We know in the U.S., you have the property tax and for that reason we should really learn the experience from the United States.

Property products are also financial goods. Bank loans are heavily involved during the whole process starting with construction to purchasing. The market is very much affected by monetary policy. So I think in carrying out government macro control and adjustment we should rely on financial tools.

I think the most important tool for us to regulate and adjust the property market is the leverage ratio of the mortgage loan.

If the pressure is purely made through mortgage loans, which means zero down-payment, I think it will be the worst case scenario for the market and create excessive bubbles. I think is also one of the reasons triggering the sub-prime loan crisis in the United States.

And if the situation goes the other extreme, take this for example zero-mortgage and 100% down-payment, I think 90% of the potential buyers could not afford the purchasing homes, and this is only a market serving the rich people. This would be a disaster for the national property market. What I mean here is a proper balance to be found between these two extremes.

We have already adopted four specific measures to regulate and address the property market in Chongqing. First of all we look at property as consumer goods, so we struck a balance between the supply and demand. Each year the government investment in the property market will be no larger than 20% of government investment in fixed assets. Thirdly, we have already initiated some pilot projects here in Chongqing in collecting property tax. Fourthly, we also came up with a rational leverage ratio in terms of mortgage loans. The first time buyers have to pay 30% down payment, the second home needs you to pay 60% down payment and purchasing the third home you have to pay fully.

I think my model here covering these four aspects is really working very well here in Chongqing and I think it will also work very well in China at large, and even I think we can provide this model to the United States for its reference.

I think with these four measures effectively implemented we will accomplish that objective to enable the home buyers to buy a home with six or seven years of family income. If there is any one of these four measures that fails to be properly implemented I think there will be two kinds of scenarios: first of all excessive bubbles on the market and secondly sluggishness of the market.

In the past 10 years in the United States we saw that around the year 2000 the financial companies came up with the sub-prime loan products and it only took six or seven years to create excessive bubbles on the market, which led to the crisis in 2008. That crisis cut the value of the market by 30%. I think this is something triggered by the policy of zero down payment.

WSJ: IF THE PRICES IN CHONGQING GET TO 6-7 YEARS OF FAMILY INCOME, PRICES NEED TO FALL. AS YOU IMPLEMENT THIS POLICY, WHO DO YOU EXPECT TO BE HURT: DEVELOPERS, HOMEOWNERS, BANKS OR GOVERNMENT? AND DO YOU HAVE A GOAL TO CRASH THE PROPERTY MARKET?

MAYOR HUANG: I think I mentioned the four measures have already been effectively adopted and implemented here in Chongqing. This has already been something taking place on the market that they buy their home with six or seven years of income. This is not an objective that we are going to obtain. Actually this is the reality.

In September of this year, the average property price here in Chongqing was 6,300 yuan per square meter (about $985). I think if a three-person family, for them to buy a 60-square-meter condominium, according to this average price it will cost them 500,000 yuan. In the major urban area, the average annual income per person is 20,000 yuan so a three-person family earns about 70,000 yuan per year. If you look at Chongqing Municipality as a whole, because there are some rural areas, the average family income is 60,000 yuan.

So if you do some math here you will find it will cause them really seven years to buy a condo priced at 500,000 yuan. Of course in the years ahead there will be increases of GDP, increases of family income and the price of property will also go up. But I think balance will always be there.

In some other Chinese cities you will find it takes a family 20 years of income to buy a house. That is because they do not have those four measures effectively implemented.

We don’t hope to see the bubbles, nor do we hope to see the collapse of the market. This is in the interest of no one, not in the interest of the government, not developers, not the homeowners. So I think this is a very sacred responsibility of the government to accomplish that objective: six or seven years of family annual income to buy a house.

I think another objective of the government macro-control and management efforts is to strike a proper balance between the property market value with GDP. If the market value to GDP ratio is one to one I think our objective to buy a house with six or seven years of family income will be realized.

There are 300 million people in the United States and the average living area is 40 square meters, according to our statistics. You will find that if the average price is $2,600 per square meter and for a three-person family 120 square meters of living area it will cost a family $300,000 in total to buy that house. And if you look at the GDP of the United States in per capita terms, the per capita GDP is $50,000 each year. But 60% is the government revenues and corporate profits, so it means that the net cash income per head is $20,000. If you do some calculations for a three-person family the annual income is perhaps $50,000 or $60,000.

So if you check these figures you will see it takes these families six years to buy a house the total value of which is $300,000.

If we go back to the year 2007 we saw that year the GDP of the United States was roughly $13 trillion. But due to the later occurrence of sub-prime loan crisis, bubbles were created on the market. That same year the property market value was $17 trillion. So the property market value was 50% higher than the GDP size. In this case, you will see the creation of bubbles.

Now the prices have bottomed out and during the past years we saw the value of the property market went down another 30%. So based on statistics, the market value currently in the United States is $14 trillion and the GDP size is roughly around $14 trillion. I think the bubbles have been squeezed out. I think this balance should be properly maintained in the future.

Perhaps you will find that provincial mayors would like to provide their wisdom to the United States. I’m one of them.

WSJ: THERE IS NO PLACE IN THE UNITED STATES THAT LOOKS LIKE CHONGQING. I DON’T THINK MOST AMERICANS COULD IMAGINE A CITY LIKE CHONGQING. BUT ONE THING WE SEE COMING HERE IS THAT IT LOOKS VERY BUILT UP, IN FACT OVERBUILT. IT LOOKS LIKE THERE IS TOO MUCH SUPPLY. DOES THE GOVERNMENT KNOW WHAT IT IS DOING APPROVING AND IN SOME CASES FUNDING SO MANY APARTMENT BUILDINGS?

MAYOR HUANG: With these four measures in place we have already found the proper pace of the property market and the rational relationship between supply and demand.

Talking about the overall size of the (residential) construction, I think we always deal with five ratios. The first one is the per capita gross floor area is maintained below 40 square meters. (In rural parts of) Chongqing Municipality this figure is maintained below 30 square meters. (In areas) consisting of a population above 10 million, the total construction area needed will be 400 million square meters…We keep a very well measured pace. We do not hope to see the construction of all those well needed houses within a concentrated period say two or five years.

When it comes to office buildings there is a ratio that we bear in mind. For every 10,000 yuan of GDP the office building area needed is 0.5 square meter. And if we have 1 trillion yuan GDP it means that the office area needed will be 50 million square meters. If the GDP expands to 2 trillion yuan GDP it means that the office area needed will also be expanded to 100 million square meters.

I’m asked why there are prices of 20,000 yuan per square meter on the market, I’d like to say the reason is very simple…50% of the GDP is generated through the service industry. If you take the economic structure at large, the average price of all the factors, taking into consideration the average price on the market will be 20,000 yuan per square meter.

And there is also a ratio governing the commercial sector, for example the department stores in the shopping malls. It depends on the retail sales. We have annual retail sales of 300 billion yuan, so we need 30 million square meters of commercial house.

And our fifth ratio is about the renovation of shanty towns. For example, in various areas we have knocked down a big area of shabby houses. There is a ratio. Each 10,000 square meters of those shabby houses knocked down will be compensated by newly constructed areas of 15,000 square meters.

You’ll find that all these measures are done according to the market philosophies and we are very good at mathematics here. We always take into consideration the people’s demand, the economic capacity in building these housing products. We do not hope to see those newly built houses just left empty.

WSJ: WHAT DO YOU THINK FOREIGN ANALYSTS ARE MISUNDERSTANDING ABOUT CHINA’S PROPERTY MARKET POLICY? YOU TALK AS IF THE MARKET IS UNDER CONTROL. THERE IS A WIDESPREAD FEELING THAT THERE IS SOMETHING SERIOUSLY WRONG WITH THE PROPERTY MARKET. WHAT DO CRITICS NOT UNDERSTAND ABOUT YOUR POLICIES?

MAYOR HUANG: We cannot say that with all this evidence the foreign analysts are totally wrong. But sometimes they do not have the first-hand data on the local situation. For example they do not have the full access to the figures and data here in Chongqing’s market.

Perhaps they just look at the data of other Chinese cities, for example the city of Hangzhou. And by using those data to analyze the situation here in Chongqing of course they will come to a wrong conclusion. It is just like you could not blame Europe for the problems in the United States.

Since you asked me my assessment of the Chinese property market…as a whole whether I am as pessimistic as some foreign analysts in the Chinese market. Actually I think some assessments from foreign analysts come to an extreme. Indeed there are three major problems in the Chinese property market and we will correct these three problems and solve these problems in the future. But I don’t think the situation is as pessimistic as some foreign analysts said.

In the Tier 1 (Chinese) cities indeed there are problems of excessively high prices. In those cities you’ll also find a very high empty ratio of the property markets because many home buyers just come to buy the products out of speculative purposes. There are too many speculative purchases. In those Tier 1 cities, you’ll find that sometimes after the tendering process concluded the land price was even higher than the house-price itself. And when it comes to the financial regulation, I don’t think the authorities have come up with an accurate and appropriate leverage ratio. Indeed there are quite a lot of bubbles on the market.

In some big and medium cities in coastal China, due to these several factors — the high price, the high empty rate and the high land and inappropriate leverage ratio — there are indeed bubbles emerging on the market and basically something that we must probably address in the future.

I think there are three fundamentals that cannot be overlooked otherwise we will come to a wrong conclusion about the market prospects in the next 10 years. We have to understand that in some Tier 2 or  Tier 3 cities in inland China — for example Chongqing, Chengdu, Xian and Wuhan — I think the price is rather rational. There wasn’t too much bubble.

Currently the urbanization rate in China is 40%. In the next 10 to 20 years, the urbanization rate will continue to grow to 50% or even 60%. It means that farmers will be moving to the cities and becoming city residents. And during this process there is a very rapid increase in the demand of the property products. And this is rigid demand. For example each person needs on average 30 square meters of living area. If there an incoming of 100 million farmers into cities it means hundreds of millions of newly built housing areas are needed.

In the United States and Europe the situation is broadly different. The urbanization rate has been approaching 80%. The property market has been saturated. This is not the story in China. If you compare China with the United States and Europe you will find a lot of differences.

Secondly, presently China’s GDP per capita stands at $4,000. And in the next 10 years the per capita GDP will be increasing to $10,000 and in the next 20 years $20,000. It represents a huge demand for better homes, high-end apartments because during this process people would like to improve their housing conditions. So it means its huge and sustained demand in the next 10 years, or even to 20 years. When the per capita GDP comes to a stage ranging between $30,000 and $50,000 houses are no longer the priority for residents. But when we are moving up from the per capita GDP of $4,000 to $20,000, houses are the most preferred consumer goods by the residents. Thirdly I think the Chinese government is very good at macro control and regulation. It is also very good at sizing up the situation and correcting the deviation to the right path. Perhaps in the past the government was inexperienced because such restrictive measures were adopted on the real-estate market and restraining the access to the get the loans. But now we come to such an understanding that it will be fine only if we come up with an appropriate leverage ratio of the mortgage loan. And in the past, the tax was collected during the transaction process, now we are paying greater attention to collect tax from owning the products. The same is also true to regulating the land price. All in all we are summarizing the previous experience and trying to do a better job…

In any country, I think it is true that the real-estate industry is the pillar industry of the national economy. It is about the social well-being of the people and it creates social assets, or wealth. So I think I have the confidence to see the house development of the property market of China. So we should not be that pessimistic.

WSJ: WE VISITED SOCIAL HOUSING. THE APARTMENTS WERE WELL PRICED, ACCORDING TO RESIDENTS. BUT IN A PROJECT NEAR THE NEWLY CONSTRUCTED UNIVERSITY DISTRICT, THEY APPEARED TO BE HAVING TROUBLE FILLING IT UP. IN ANOTHER PROJECT CLOSER TO TOWN, RESIDENTS WHO HAD JUST MOVED IN WERE COMPLAINING ABOUT POORLY MADE HOUSES. IS THIS GOVERNMENT-LED EFFORT A BIT OUT OF SYNC WITH WHAT THE PEOPLE WANT?

MAYOR HUANG: Talking about the university district, we are indeed seeing an increasing number of students and ordinary residents moving in. So there is a growing demand for housing products there. Next year, we will extend the subway light rail line to that district. Now there has already been one highway linking the district with the downtown. Next year there will be another two. In terms of bus service, there are only a few nowadays but there will be more and more bus lines in the years to come. If you only look at the situation now because there is only a limited number of people moved in perhaps there are some problems. There are inadequacies we must make up.

But we need a process. If you only look at the complaints for those tenants who only lived there one day or one month or even one year, perhaps you are magnifying the problem. But on the government side if there were no measures taken to improve the situation in 10 or 20 years I can call this government irresponsible. I think in the next three to five years the expansion of the subways, the buses, the other services like the banks, movie theaters, schools, hospitals.

But not everything could be put there overnight. It is not a magic game. And if say in 10 years there is no improvement at all in the local situation I strongly encourage the residents to raise their complaints and I even encourage them to go to the streets to protest.

If you only look at the current problem, I think it is just like using a magnifying glass to check the quality of the skin of a beautiful lady. Here I could say in such a way, we have already done a very good job. If you look at the situation in the subway in the United States I think we are much better.

We have already put in place a comprehensive checking system to check whether these public housing sites are up to the demand of local residents. In about 20 public housing sites in Chongqing when the construction started we already required the builders to provide the services at the same time, at the same pace. Usually within a half year or year all of those service facilities will be on the ground.

We particularly focus on five areas in providing public services to the residents: the first is transportation convenience, for example whether the site will be served by public transportation means subways, buses. Second, the public facilities: gas, running water, electricity and sewage treatment facilities. Thirdly: schools, theaters and other cultural facilities. Fourthly, the shops and retail stores should be there.

Fifthly, we have to provide people employment opportunities in the surrounding areas. For example ,the sites should be located close to the factories and the job opportunities. We do not hope to see that people travel back and forth from their homes and workplaces like the rising and falling of sea waves. From the very beginning of the construction of these sites we have already taken in consideration all of these issues.

I was just talking about the government facilities. Families have different levels of demand. Those demands should be fulfilled by the market forces. I’m confident that after the sites are put to use in three or five years, this place will prosper because of the market forces.

–James T. Areddy; follow him on Twitter @jamestareddy

The 59-year-old has been Chongqing mayor since January 2010, following around nine years as vice mayor of the sprawling municipality of 30 million people. Previously, he was deputy Communist Party Secretary of Shanghai, where he was an important force in the development of the city’s Pudong New District.

Mr. Huang was born in the eastern province of Zhejiang.

Over two hours on Nov. 25, 2011, the mayor spoke with Wall Street Journal reporter James T. Areddy in a boardroom adjacent to his office in the Chongqing municipal government’s leafy riverside compound. Wearing a black polo shirt, he discussed Chongqing’s goals for real-estate affordability, regulation and development, supporting his technocratic arguments with an array of figures and by making comparisons with the situation in the U.S. property market.

He concluded the interview by lighting a large cigar.

Here are translated excerpts:

WSJ: PLEASE EXPLAIN YOUR PHILOSOPHY IN TERMS OF GOVERNMENT REGULATION OF THE PROPERTY MARKET?

Mayor Huang: I think the pattern of property products should be based on two tracks, the first one is the commercial housing the second is public housing. No matter what measures and controls will be adopted in the commercial sector, six or seven years of family income will be enough to support a family to purchase a house.

(Even so) there are still a large number of low-income people who cannot afford housing. So I think it comes to the government to show its responsibility to provide them this housing. In any city or nation, I think the dual track system is very important: 60-70% commercial housing and 30-40%  public housing.

So this is our philosophy to provide housing to the general public through these two tracks.

For a reasonable pricing regime, it should take a family six or seven years of annual income to buy outright commercial housing. This is a directional pattern. Of course, there are some high income people who can afford to buy a villa. In general, I think it is rational and reasonable for a family to spend six or seven years of annual income to buy a house. This is also a target of the government adjustment and control measures in the commercial housing sector.

Property products also belong to the category of consumer goods. So it comes to a supply and demand driven relationship. If there is an oversupply I think the price will be dragged down, and vice versa. The government should shoulder its due responsibility strike a balance in this relationship between supply and demand.

The other nature of property products is that they are also capital goods, since the family would usually like to hold this asset for a very long term. It is a very important issue for us to consider whether to collect tax by treating the property as consumer goods or as family assets.

It is different from, for example, cosmetic products which are purely consumer goods and the tax should naturally be collected during the process of production and transaction. But when you collect tax from the transaction process this process will push up higher the price of the products.

We should have a clear view of the nature of the property products as a capital good. By collecting property tax, I think we will be able to dampen the speculation in the market. Today in China, the tax is only collected in the transaction. When it comes to the property market, this is something different from the United States. We know in the U.S., you have the property tax and for that reason we should really learn the experience from the United States.

Property products are also financial goods. Bank loans are heavily involved during the whole process starting with construction to purchasing. The market is very much affected by monetary policy. So I think in carrying out government macro control and adjustment we should rely on financial tools.

I think the most important tool for us to regulate and adjust the property market is the leverage ratio of the mortgage loan.

If the pressure is purely made through mortgage loans, which means zero down-payment, I think it will be the worst case scenario for the market and create excessive bubbles. I think is also one of the reasons triggering the sub-prime loan crisis in the United States.

And if the situation goes the other extreme, take this for example zero-mortgage and 100% down-payment, I think 90% of the potential buyers could not afford the purchasing homes, and this is only a market serving the rich people. This would be a disaster for the national property market. What I mean here is a proper balance to be found between these two extremes.

We have already adopted four specific measures to regulate and address the property market in Chongqing. First of all we look at property as consumer goods, so we struck a balance between the supply and demand. Each year the government investment in the property market will be no larger than 20% of government investment in fixed assets. Thirdly, we have already initiated some pilot projects here in Chongqing in collecting property tax. Fourthly, we also came up with a rational leverage ratio in terms of mortgage loans. The first time buyers have to pay 30% down payment, the second home needs you to pay 60% down payment and purchasing the third home you have to pay fully.

I think my model here covering these four aspects is really working very well here in Chongqing and I think it will also work very well in China at large, and even I think we can provide this model to the United States for its reference.

I think with these four measures effectively implemented we will accomplish that objective to enable the home buyers to buy a home with six or seven years of family income. If there is any one of these four measures that fails to be properly implemented I think there will be two kinds of scenarios: first of all excessive bubbles on the market and secondly sluggishness of the market.

In the past 10 years in the United States we saw that around the year 2000 the financial companies came up with the sub-prime loan products and it only took six or seven years to create excessive bubbles on the market, which led to the crisis in 2008. That crisis cut the value of the market by 30%. I think this is something triggered by the policy of zero down payment.

WSJ: IF THE PRICES IN CHONGQING GET TO 6-7 YEARS OF FAMILY INCOME, PRICES NEED TO FALL. AS YOU IMPLEMENT THIS POLICY, WHO DO YOU EXPECT TO BE HURT: DEVELOPERS, HOMEOWNERS, BANKS OR GOVERNMENT? AND DO YOU HAVE A GOAL TO CRASH THE PROPERTY MARKET?

MAYOR HUANG: I think I mentioned the four measures have already been effectively adopted and implemented here in Chongqing. This has already been something taking place on the market that they buy their home with six or seven years of income. This is not an objective that we are going to obtain. Actually this is the reality.

In September of this year, the average property price here in Chongqing was 6,300 yuan per square meter (about $985). I think if a three-person family, for them to buy a 60-square-meter condominium, according to this average price it will cost them 500,000 yuan. In the major urban area, the average annual income per person is 20,000 yuan so a three-person family earns about 70,000 yuan per year. If you look at Chongqing Municipality as a whole, because there are some rural areas, the average family income is 60,000 yuan.

So if you do some math here you will find it will cause them really seven years to buy a condo priced at 500,000 yuan. Of course in the years ahead there will be increases of GDP, increases of family income and the price of property will also go up. But I think balance will always be there.

In some other Chinese cities you will find it takes a family 20 years of income to buy a house. That is because they do not have those four measures effectively implemented.

We don’t hope to see the bubbles, nor do we hope to see the collapse of the market. This is in the interest of no one, not in the interest of the government, not developers, not the homeowners. So I think this is a very sacred responsibility of the government to accomplish that objective: six or seven years of family annual income to buy a house.

I think another objective of the government macro-control and management efforts is to strike a proper balance between the property market value with GDP. If the market value to GDP ratio is one to one I think our objective to buy a house with six or seven years of family income will be realized.

There are 300 million people in the United States and the average living area is 40 square meters, according to our statistics. You will find that if the average price is $2,600 per square meter and for a three-person family 120 square meters of living area it will cost a family $300,000 in total to buy that house. And if you look at the GDP of the United States in per capita terms, the per capita GDP is $50,000 each year. But 60% is the government revenues and corporate profits, so it means that the net cash income per head is $20,000. If you do some calculations for a three-person family the annual income is perhaps $50,000 or $60,000.

So if you check these figures you will see it takes these families six years to buy a house the total value of which is $300,000.

If we go back to the year 2007 we saw that year the GDP of the United States was roughly $13 trillion. But due to the later occurrence of sub-prime loan crisis, bubbles were created on the market. That same year the property market value was $17 trillion. So the property market value was 50% higher than the GDP size. In this case, you will see the creation of bubbles.

Now the prices have bottomed out and during the past years we saw the value of the property market went down another 30%. So based on statistics, the market value currently in the United States is $14 trillion and the GDP size is roughly around $14 trillion. I think the bubbles have been squeezed out. I think this balance should be properly maintained in the future.

Perhaps you will find that provincial mayors would like to provide their wisdom to the United States. I’m one of them.

WSJ: THERE IS NO PLACE IN THE UNITED STATES THAT LOOKS LIKE CHONGQING. I DON’T THINK MOST AMERICANS COULD IMAGINE A CITY LIKE CHONGQING. BUT ONE THING WE SEE COMING HERE IS THAT IT LOOKS VERY BUILT UP, IN FACT OVERBUILT. IT LOOKS LIKE THERE IS TOO MUCH SUPPLY. DOES THE GOVERNMENT KNOW WHAT IT IS DOING APPROVING AND IN SOME CASES FUNDING SO MANY APARTMENT BUILDINGS?

MAYOR HUANG: With these four measures in place we have already found the proper pace of the property market and the rational relationship between supply and demand.

Talking about the overall size of the (residential) construction, I think we always deal with five ratios. The first one is the per capita gross floor area is maintained below 40 square meters. (In rural parts of) Chongqing Municipality this figure is maintained below 30 square meters. (In areas) consisting of a population above 10 million, the total construction area needed will be 400 million square meters…We keep a very well measured pace. We do not hope to see the construction of all those well needed houses within a concentrated period say two or five years.

When it comes to office buildings there is a ratio that we bear in mind. For every 10,000 yuan of GDP the office building area needed is 0.5 square meter. And if we have 1 trillion yuan GDP it means that the office area needed will be 50 million square meters. If the GDP expands to 2 trillion yuan GDP it means that the office area needed will also be expanded to 100 million square meters.

I’m asked why there are prices of 20,000 yuan per square meter on the market, I’d like to say the reason is very simple…50% of the GDP is generated through the service industry. If you take the economic structure at large, the average price of all the factors, taking into consideration the average price on the market will be 20,000 yuan per square meter.

And there is also a ratio governing the commercial sector, for example the department stores in the shopping malls. It depends on the retail sales. We have annual retail sales of 300 billion yuan, so we need 30 million square meters of commercial house.

And our fifth ratio is about the renovation of shanty towns. For example, in various areas we have knocked down a big area of shabby houses. There is a ratio. Each 10,000 square meters of those shabby houses knocked down will be compensated by newly constructed areas of 15,000 square meters.

You’ll find that all these measures are done according to the market philosophies and we are very good at mathematics here. We always take into consideration the people’s demand, the economic capacity in building these housing products. We do not hope to see those newly built houses just left empty.

WSJ: WHAT DO YOU THINK FOREIGN ANALYSTS ARE MISUNDERSTANDING ABOUT CHINA’S PROPERTY MARKET POLICY? YOU TALK AS IF THE MARKET IS UNDER CONTROL. THERE IS A WIDESPREAD FEELING THAT THERE IS SOMETHING SERIOUSLY WRONG WITH THE PROPERTY MARKET. WHAT DO CRITICS NOT UNDERSTAND ABOUT YOUR POLICIES?

MAYOR HUANG: We cannot say that with all this evidence the foreign analysts are totally wrong. But sometimes they do not have the first-hand data on the local situation. For example they do not have the full access to the figures and data here in Chongqing’s market.

Perhaps they just look at the data of other Chinese cities, for example the city of Hangzhou. And by using those data to analyze the situation here in Chongqing of course they will come to a wrong conclusion. It is just like you could not blame Europe for the problems in the United States.

Since you asked me my assessment of the Chinese property market…as a whole whether I am as pessimistic as some foreign analysts in the Chinese market. Actually I think some assessments from foreign analysts come to an extreme. Indeed there are three major problems in the Chinese property market and we will correct these three problems and solve these problems in the future. But I don’t think the situation is as pessimistic as some foreign analysts said.

In the Tier 1 (Chinese) cities indeed there are problems of excessively high prices. In those cities you’ll also find a very high empty ratio of the property markets because many home buyers just come to buy the products out of speculative purposes. There are too many speculative purchases. In those Tier 1 cities, you’ll find that sometimes after the tendering process concluded the land price was even higher than the house-price itself. And when it comes to the financial regulation, I don’t think the authorities have come up with an accurate and appropriate leverage ratio. Indeed there are quite a lot of bubbles on the market.

In some big and medium cities in coastal China, due to these several factors — the high price, the high empty rate and the high land and inappropriate leverage ratio — there are indeed bubbles emerging on the market and basically something that we must probably address in the future.

I think there are three fundamentals that cannot be overlooked otherwise we will come to a wrong conclusion about the market prospects in the next 10 years. We have to understand that in some Tier 2 or  Tier 3 cities in inland China — for example Chongqing, Chengdu, Xian and Wuhan — I think the price is rather rational. There wasn’t too much bubble.

Currently the urbanization rate in China is 40%. In the next 10 to 20 years, the urbanization rate will continue to grow to 50% or even 60%. It means that farmers will be moving to the cities and becoming city residents. And during this process there is a very rapid increase in the demand of the property products. And this is rigid demand. For example each person needs on average 30 square meters of living area. If there an incoming of 100 million farmers into cities it means hundreds of millions of newly built housing areas are needed.

In the United States and Europe the situation is broadly different. The urbanization rate has been approaching 80%. The property market has been saturated. This is not the story in China. If you compare China with the United States and Europe you will find a lot of differences.

Secondly, presently China’s GDP per capita stands at $4,000. And in the next 10 years the per capita GDP will be increasing to $10,000 and in the next 20 years $20,000. It represents a huge demand for better homes, high-end apartments because during this process people would like to improve their housing conditions. So it means its huge and sustained demand in the next 10 years, or even to 20 years. When the per capita GDP comes to a stage ranging between $30,000 and $50,000 houses are no longer the priority for residents. But when we are moving up from the per capita GDP of $4,000 to $20,000, houses are the most preferred consumer goods by the residents. Thirdly I think the Chinese government is very good at macro control and regulation. It is also very good at sizing up the situation and correcting the deviation to the right path. Perhaps in the past the government was inexperienced because such restrictive measures were adopted on the real-estate market and restraining the access to the get the loans. But now we come to such an understanding that it will be fine only if we come up with an appropriate leverage ratio of the mortgage loan. And in the past, the tax was collected during the transaction process, now we are paying greater attention to collect tax from owning the products. The same is also true to regulating the land price. All in all we are summarizing the previous experience and trying to do a better job…

In any country, I think it is true that the real-estate industry is the pillar industry of the national economy. It is about the social well-being of the people and it creates social assets, or wealth. So I think I have the confidence to see the house development of the property market of China. So we should not be that pessimistic.

WSJ: WE VISITED SOCIAL HOUSING. THE APARTMENTS WERE WELL PRICED, ACCORDING TO RESIDENTS. BUT IN A PROJECT NEAR THE NEWLY CONSTRUCTED UNIVERSITY DISTRICT, THEY APPEARED TO BE HAVING TROUBLE FILLING IT UP. IN ANOTHER PROJECT CLOSER TO TOWN, RESIDENTS WHO HAD JUST MOVED IN WERE COMPLAINING ABOUT POORLY MADE HOUSES. IS THIS GOVERNMENT-LED EFFORT A BIT OUT OF SYNC WITH WHAT THE PEOPLE WANT?

MAYOR HUANG: Talking about the university district, we are indeed seeing an increasing number of students and ordinary residents moving in. So there is a growing demand for housing products there. Next year, we will extend the subway light rail line to that district. Now there has already been one highway linking the district with the downtown. Next year there will be another two. In terms of bus service, there are only a few nowadays but there will be more and more bus lines in the years to come. If you only look at the situation now because there is only a limited number of people moved in perhaps there are some problems. There are inadequacies we must make up.

But we need a process. If you only look at the complaints for those tenants who only lived there one day or one month or even one year, perhaps you are magnifying the problem. But on the government side if there were no measures taken to improve the situation in 10 or 20 years I can call this government irresponsible. I think in the next three to five years the expansion of the subways, the buses, the other services like the banks, movie theaters, schools, hospitals.

But not everything could be put there overnight. It is not a magic game. And if say in 10 years there is no improvement at all in the local situation I strongly encourage the residents to raise their complaints and I even encourage them to go to the streets to protest.

If you only look at the current problem, I think it is just like using a magnifying glass to check the quality of the skin of a beautiful lady. Here I could say in such a way, we have already done a very good job. If you look at the situation in the subway in the United States I think we are much better.

We have already put in place a comprehensive checking system to check whether these public housing sites are up to the demand of local residents. In about 20 public housing sites in Chongqing when the construction started we already required the builders to provide the services at the same time, at the same pace. Usually within a half year or year all of those service facilities will be on the ground.

We particularly focus on five areas in providing public services to the residents: the first is transportation convenience, for example whether the site will be served by public transportation means subways, buses. Second, the public facilities: gas, running water, electricity and sewage treatment facilities. Thirdly: schools, theaters and other cultural facilities. Fourthly, the shops and retail stores should be there.

Fifthly, we have to provide people employment opportunities in the surrounding areas. For example ,the sites should be located close to the factories and the job opportunities. We do not hope to see that people travel back and forth from their homes and workplaces like the rising and falling of sea waves. From the very beginning of the construction of these sites we have already taken in consideration all of these issues.

I was just talking about the government facilities. Families have different levels of demand. Those demands should be fulfilled by the market forces. I’m confident that after the sites are put to use in three or five years, this place will prosper because of the market forces.

–James T. Areddy; follow him on Twitter @jamestareddy

The 59-year-old has been Chongqing mayor since January 2010, following around nine years as vice mayor of the sprawling municipality of 30 million people. Previously, he was deputy Communist Party Secretary of Shanghai, where he was an important force in the development of the city’s Pudong New District.

Mr. Huang was born in the eastern province of Zhejiang.

Over two hours on Nov. 25, 2011, the mayor spoke with Wall Street Journal reporter James T. Areddy in a boardroom adjacent to his office in the Chongqing municipal government’s leafy riverside compound. Wearing a black polo shirt, he discussed Chongqing’s goals for real-estate affordability, regulation and development, supporting his technocratic arguments with an array of figures and by making comparisons with the situation in the U.S. property market.

He concluded the interview by lighting a large cigar.

Here are translated excerpts:

WSJ: PLEASE EXPLAIN YOUR PHILOSOPHY IN TERMS OF GOVERNMENT REGULATION OF THE PROPERTY MARKET?

Mayor Huang: I think the pattern of property products should be based on two tracks, the first one is the commercial housing the second is public housing. No matter what measures and controls will be adopted in the commercial sector, six or seven years of family income will be enough to support a family to purchase a house.

(Even so) there are still a large number of low-income people who cannot afford housing. So I think it comes to the government to show its responsibility to provide them this housing. In any city or nation, I think the dual track system is very important: 60-70% commercial housing and 30-40%  public housing.

So this is our philosophy to provide housing to the general public through these two tracks.

For a reasonable pricing regime, it should take a family six or seven years of annual income to buy outright commercial housing. This is a directional pattern. Of course, there are some high income people who can afford to buy a villa. In general, I think it is rational and reasonable for a family to spend six or seven years of annual income to buy a house. This is also a target of the government adjustment and control measures in the commercial housing sector.

Property products also belong to the category of consumer goods. So it comes to a supply and demand driven relationship. If there is an oversupply I think the price will be dragged down, and vice versa. The government should shoulder its due responsibility strike a balance in this relationship between supply and demand.

The other nature of property products is that they are also capital goods, since the family would usually like to hold this asset for a very long term. It is a very important issue for us to consider whether to collect tax by treating the property as consumer goods or as family assets.

It is different from, for example, cosmetic products which are purely consumer goods and the tax should naturally be collected during the process of production and transaction. But when you collect tax from the transaction process this process will push up higher the price of the products.

We should have a clear view of the nature of the property products as a capital good. By collecting property tax, I think we will be able to dampen the speculation in the market. Today in China, the tax is only collected in the transaction. When it comes to the property market, this is something different from the United States. We know in the U.S., you have the property tax and for that reason we should really learn the experience from the United States.

Property products are also financial goods. Bank loans are heavily involved during the whole process starting with construction to purchasing. The market is very much affected by monetary policy. So I think in carrying out government macro control and adjustment we should rely on financial tools.

I think the most important tool for us to regulate and adjust the property market is the leverage ratio of the mortgage loan.

If the pressure is purely made through mortgage loans, which means zero down-payment, I think it will be the worst case scenario for the market and create excessive bubbles. I think is also one of the reasons triggering the sub-prime loan crisis in the United States.

And if the situation goes the other extreme, take this for example zero-mortgage and 100% down-payment, I think 90% of the potential buyers could not afford the purchasing homes, and this is only a market serving the rich people. This would be a disaster for the national property market. What I mean here is a proper balance to be found between these two extremes.

We have already adopted four specific measures to regulate and address the property market in Chongqing. First of all we look at property as consumer goods, so we struck a balance between the supply and demand. Each year the government investment in the property market will be no larger than 20% of government investment in fixed assets. Thirdly, we have already initiated some pilot projects here in Chongqing in collecting property tax. Fourthly, we also came up with a rational leverage ratio in terms of mortgage loans. The first time buyers have to pay 30% down payment, the second home needs you to pay 60% down payment and purchasing the third home you have to pay fully.

I think my model here covering these four aspects is really working very well here in Chongqing and I think it will also work very well in China at large, and even I think we can provide this model to the United States for its reference.

I think with these four measures effectively implemented we will accomplish that objective to enable the home buyers to buy a home with six or seven years of family income. If there is any one of these four measures that fails to be properly implemented I think there will be two kinds of scenarios: first of all excessive bubbles on the market and secondly sluggishness of the market.

In the past 10 years in the United States we saw that around the year 2000 the financial companies came up with the sub-prime loan products and it only took six or seven years to create excessive bubbles on the market, which led to the crisis in 2008. That crisis cut the value of the market by 30%. I think this is something triggered by the policy of zero down payment.

WSJ: IF THE PRICES IN CHONGQING GET TO 6-7 YEARS OF FAMILY INCOME, PRICES NEED TO FALL. AS YOU IMPLEMENT THIS POLICY, WHO DO YOU EXPECT TO BE HURT: DEVELOPERS, HOMEOWNERS, BANKS OR GOVERNMENT? AND DO YOU HAVE A GOAL TO CRASH THE PROPERTY MARKET?

MAYOR HUANG: I think I mentioned the four measures have already been effectively adopted and implemented here in Chongqing. This has already been something taking place on the market that they buy their home with six or seven years of income. This is not an objective that we are going to obtain. Actually this is the reality.

In September of this year, the average property price here in Chongqing was 6,300 yuan per square meter (about $985). I think if a three-person family, for them to buy a 60-square-meter condominium, according to this average price it will cost them 500,000 yuan. In the major urban area, the average annual income per person is 20,000 yuan so a three-person family earns about 70,000 yuan per year. If you look at Chongqing Municipality as a whole, because there are some rural areas, the average family income is 60,000 yuan.

So if you do some math here you will find it will cause them really seven years to buy a condo priced at 500,000 yuan. Of course in the years ahead there will be increases of GDP, increases of family income and the price of property will also go up. But I think balance will always be there.

In some other Chinese cities you will find it takes a family 20 years of income to buy a house. That is because they do not have those four measures effectively implemented.

We don’t hope to see the bubbles, nor do we hope to see the collapse of the market. This is in the interest of no one, not in the interest of the government, not developers, not the homeowners. So I think this is a very sacred responsibility of the government to accomplish that objective: six or seven years of family annual income to buy a house.

I think another objective of the government macro-control and management efforts is to strike a proper balance between the property market value with GDP. If the market value to GDP ratio is one to one I think our objective to buy a house with six or seven years of family income will be realized.

There are 300 million people in the United States and the average living area is 40 square meters, according to our statistics. You will find that if the average price is $2,600 per square meter and for a three-person family 120 square meters of living area it will cost a family $300,000 in total to buy that house. And if you look at the GDP of the United States in per capita terms, the per capita GDP is $50,000 each year. But 60% is the government revenues and corporate profits, so it means that the net cash income per head is $20,000. If you do some calculations for a three-person family the annual income is perhaps $50,000 or $60,000.

So if you check these figures you will see it takes these families six years to buy a house the total value of which is $300,000.

If we go back to the year 2007 we saw that year the GDP of the United States was roughly $13 trillion. But due to the later occurrence of sub-prime loan crisis, bubbles were created on the market. That same year the property market value was $17 trillion. So the property market value was 50% higher than the GDP size. In this case, you will see the creation of bubbles.

Now the prices have bottomed out and during the past years we saw the value of the property market went down another 30%. So based on statistics, the market value currently in the United States is $14 trillion and the GDP size is roughly around $14 trillion. I think the bubbles have been squeezed out. I think this balance should be properly maintained in the future.

Perhaps you will find that provincial mayors would like to provide their wisdom to the United States. I’m one of them.

WSJ: THERE IS NO PLACE IN THE UNITED STATES THAT LOOKS LIKE CHONGQING. I DON’T THINK MOST AMERICANS COULD IMAGINE A CITY LIKE CHONGQING. BUT ONE THING WE SEE COMING HERE IS THAT IT LOOKS VERY BUILT UP, IN FACT OVERBUILT. IT LOOKS LIKE THERE IS TOO MUCH SUPPLY. DOES THE GOVERNMENT KNOW WHAT IT IS DOING APPROVING AND IN SOME CASES FUNDING SO MANY APARTMENT BUILDINGS?

MAYOR HUANG: With these four measures in place we have already found the proper pace of the property market and the rational relationship between supply and demand.

Talking about the overall size of the (residential) construction, I think we always deal with five ratios. The first one is the per capita gross floor area is maintained below 40 square meters. (In rural parts of) Chongqing Municipality this figure is maintained below 30 square meters. (In areas) consisting of a population above 10 million, the total construction area needed will be 400 million square meters…We keep a very well measured pace. We do not hope to see the construction of all those well needed houses within a concentrated period say two or five years.

When it comes to office buildings there is a ratio that we bear in mind. For every 10,000 yuan of GDP the office building area needed is 0.5 square meter. And if we have 1 trillion yuan GDP it means that the office area needed will be 50 million square meters. If the GDP expands to 2 trillion yuan GDP it means that the office area needed will also be expanded to 100 million square meters.

I’m asked why there are prices of 20,000 yuan per square meter on the market, I’d like to say the reason is very simple…50% of the GDP is generated through the service industry. If you take the economic structure at large, the average price of all the factors, taking into consideration the average price on the market will be 20,000 yuan per square meter.

And there is also a ratio governing the commercial sector, for example the department stores in the shopping malls. It depends on the retail sales. We have annual retail sales of 300 billion yuan, so we need 30 million square meters of commercial house.

And our fifth ratio is about the renovation of shanty towns. For example, in various areas we have knocked down a big area of shabby houses. There is a ratio. Each 10,000 square meters of those shabby houses knocked down will be compensated by newly constructed areas of 15,000 square meters.

You’ll find that all these measures are done according to the market philosophies and we are very good at mathematics here. We always take into consideration the people’s demand, the economic capacity in building these housing products. We do not hope to see those newly built houses just left empty.

WSJ: WHAT DO YOU THINK FOREIGN ANALYSTS ARE MISUNDERSTANDING ABOUT CHINA’S PROPERTY MARKET POLICY? YOU TALK AS IF THE MARKET IS UNDER CONTROL. THERE IS A WIDESPREAD FEELING THAT THERE IS SOMETHING SERIOUSLY WRONG WITH THE PROPERTY MARKET. WHAT DO CRITICS NOT UNDERSTAND ABOUT YOUR POLICIES?

MAYOR HUANG: We cannot say that with all this evidence the foreign analysts are totally wrong. But sometimes they do not have the first-hand data on the local situation. For example they do not have the full access to the figures and data here in Chongqing’s market.

Perhaps they just look at the data of other Chinese cities, for example the city of Hangzhou. And by using those data to analyze the situation here in Chongqing of course they will come to a wrong conclusion. It is just like you could not blame Europe for the problems in the United States.

Since you asked me my assessment of the Chinese property market…as a whole whether I am as pessimistic as some foreign analysts in the Chinese market. Actually I think some assessments from foreign analysts come to an extreme. Indeed there are three major problems in the Chinese property market and we will correct these three problems and solve these problems in the future. But I don’t think the situation is as pessimistic as some foreign analysts said.

In the Tier 1 (Chinese) cities indeed there are problems of excessively high prices. In those cities you’ll also find a very high empty ratio of the property markets because many home buyers just come to buy the products out of speculative purposes. There are too many speculative purchases. In those Tier 1 cities, you’ll find that sometimes after the tendering process concluded the land price was even higher than the house-price itself. And when it comes to the financial regulation, I don’t think the authorities have come up with an accurate and appropriate leverage ratio. Indeed there are quite a lot of bubbles on the market.

In some big and medium cities in coastal China, due to these several factors — the high price, the high empty rate and the high land and inappropriate leverage ratio — there are indeed bubbles emerging on the market and basically something that we must probably address in the future.

I think there are three fundamentals that cannot be overlooked otherwise we will come to a wrong conclusion about the market prospects in the next 10 years. We have to understand that in some Tier 2 or  Tier 3 cities in inland China — for example Chongqing, Chengdu, Xian and Wuhan — I think the price is rather rational. There wasn’t too much bubble.

Currently the urbanization rate in China is 40%. In the next 10 to 20 years, the urbanization rate will continue to grow to 50% or even 60%. It means that farmers will be moving to the cities and becoming city residents. And during this process there is a very rapid increase in the demand of the property products. And this is rigid demand. For example each person needs on average 30 square meters of living area. If there an incoming of 100 million farmers into cities it means hundreds of millions of newly built housing areas are needed.

In the United States and Europe the situation is broadly different. The urbanization rate has been approaching 80%. The property market has been saturated. This is not the story in China. If you compare China with the United States and Europe you will find a lot of differences.

Secondly, presently China’s GDP per capita stands at $4,000. And in the next 10 years the per capita GDP will be increasing to $10,000 and in the next 20 years $20,000. It represents a huge demand for better homes, high-end apartments because during this process people would like to improve their housing conditions. So it means its huge and sustained demand in the next 10 years, or even to 20 years. When the per capita GDP comes to a stage ranging between $30,000 and $50,000 houses are no longer the priority for residents. But when we are moving up from the per capita GDP of $4,000 to $20,000, houses are the most preferred consumer goods by the residents. Thirdly I think the Chinese government is very good at macro control and regulation. It is also very good at sizing up the situation and correcting the deviation to the right path. Perhaps in the past the government was inexperienced because such restrictive measures were adopted on the real-estate market and restraining the access to the get the loans. But now we come to such an understanding that it will be fine only if we come up with an appropriate leverage ratio of the mortgage loan. And in the past, the tax was collected during the transaction process, now we are paying greater attention to collect tax from owning the products. The same is also true to regulating the land price. All in all we are summarizing the previous experience and trying to do a better job…

In any country, I think it is true that the real-estate industry is the pillar industry of the national economy. It is about the social well-being of the people and it creates social assets, or wealth. So I think I have the confidence to see the house development of the property market of China. So we should not be that pessimistic.

WSJ: WE VISITED SOCIAL HOUSING. THE APARTMENTS WERE WELL PRICED, ACCORDING TO RESIDENTS. BUT IN A PROJECT NEAR THE NEWLY CONSTRUCTED UNIVERSITY DISTRICT, THEY APPEARED TO BE HAVING TROUBLE FILLING IT UP. IN ANOTHER PROJECT CLOSER TO TOWN, RESIDENTS WHO HAD JUST MOVED IN WERE COMPLAINING ABOUT POORLY MADE HOUSES. IS THIS GOVERNMENT-LED EFFORT A BIT OUT OF SYNC WITH WHAT THE PEOPLE WANT?

MAYOR HUANG: Talking about the university district, we are indeed seeing an increasing number of students and ordinary residents moving in. So there is a growing demand for housing products there. Next year, we will extend the subway light rail line to that district. Now there has already been one highway linking the district with the downtown. Next year there will be another two. In terms of bus service, there are only a few nowadays but there will be more and more bus lines in the years to come. If you only look at the situation now because there is only a limited number of people moved in perhaps there are some problems. There are inadequacies we must make up.

But we need a process. If you only look at the complaints for those tenants who only lived there one day or one month or even one year, perhaps you are magnifying the problem. But on the government side if there were no measures taken to improve the situation in 10 or 20 years I can call this government irresponsible. I think in the next three to five years the expansion of the subways, the buses, the other services like the banks, movie theaters, schools, hospitals.

But not everything could be put there overnight. It is not a magic game. And if say in 10 years there is no improvement at all in the local situation I strongly encourage the residents to raise their complaints and I even encourage them to go to the streets to protest.

If you only look at the current problem, I think it is just like using a magnifying glass to check the quality of the skin of a beautiful lady. Here I could say in such a way, we have already done a very good job. If you look at the situation in the subway in the United States I think we are much better.

We have already put in place a comprehensive checking system to check whether these public housing sites are up to the demand of local residents. In about 20 public housing sites in Chongqing when the construction started we already required the builders to provide the services at the same time, at the same pace. Usually within a half year or year all of those service facilities will be on the ground.

We particularly focus on five areas in providing public services to the residents: the first is transportation convenience, for example whether the site will be served by public transportation means subways, buses. Second, the public facilities: gas, running water, electricity and sewage treatment facilities. Thirdly: schools, theaters and other cultural facilities. Fourthly, the shops and retail stores should be there.

Fifthly, we have to provide people employment opportunities in the surrounding areas. For example ,the sites should be located close to the factories and the job opportunities. We do not hope to see that people travel back and forth from their homes and workplaces like the rising and falling of sea waves. From the very beginning of the construction of these sites we have already taken in consideration all of these issues.

I was just talking about the government facilities. Families have different levels of demand. Those demands should be fulfilled by the market forces. I’m confident that after the sites are put to use in three or five years, this place will prosper because of the market forces.

–James T. Areddy; follow him on Twitter @jamestareddy

The 59-year-old has been Chongqing mayor since January 2010, following around nine years as vice mayor of the sprawling municipality of 30 million people. Previously, he was deputy Communist Party Secretary of Shanghai, where he was an important force in the development of the city’s Pudong New District.

Mr. Huang was born in the eastern province of Zhejiang.

Over two hours on Nov. 25, 2011, the mayor spoke with Wall Street Journal reporter James T. Areddy in a boardroom adjacent to his office in the Chongqing municipal government’s leafy riverside compound. Wearing a black polo shirt, he discussed Chongqing’s goals for real-estate affordability, regulation and development, supporting his technocratic arguments with an array of figures and by making comparisons with the situation in the U.S. property market.

He concluded the interview by lighting a large cigar.

Here are translated excerpts:

WSJ: PLEASE EXPLAIN YOUR PHILOSOPHY IN TERMS OF GOVERNMENT REGULATION OF THE PROPERTY MARKET?

Mayor Huang: I think the pattern of property products should be based on two tracks, the first one is the commercial housing the second is public housing. No matter what measures and controls will be adopted in the commercial sector, six or seven years of family income will be enough to support a family to purchase a house.

(Even so) there are still a large number of low-income people who cannot afford housing. So I think it comes to the government to show its responsibility to provide them this housing. In any city or nation, I think the dual track system is very important: 60-70% commercial housing and 30-40%  public housing.

So this is our philosophy to provide housing to the general public through these two tracks.

For a reasonable pricing regime, it should take a family six or seven years of annual income to buy outright commercial housing. This is a directional pattern. Of course, there are some high income people who can afford to buy a villa. In general, I think it is rational and reasonable for a family to spend six or seven years of annual income to buy a house. This is also a target of the government adjustment and control measures in the commercial housing sector.

Property products also belong to the category of consumer goods. So it comes to a supply and demand driven relationship. If there is an oversupply I think the price will be dragged down, and vice versa. The government should shoulder its due responsibility strike a balance in this relationship between supply and demand.

The other nature of property products is that they are also capital goods, since the family would usually like to hold this asset for a very long term. It is a very important issue for us to consider whether to collect tax by treating the property as consumer goods or as family assets.

It is different from, for example, cosmetic products which are purely consumer goods and the tax should naturally be collected during the process of production and transaction. But when you collect tax from the transaction process this process will push up higher the price of the products.

We should have a clear view of the nature of the property products as a capital good. By collecting property tax, I think we will be able to dampen the speculation in the market. Today in China, the tax is only collected in the transaction. When it comes to the property market, this is something different from the United States. We know in the U.S., you have the property tax and for that reason we should really learn the experience from the United States.

Property products are also financial goods. Bank loans are heavily involved during the whole process starting with construction to purchasing. The market is very much affected by monetary policy. So I think in carrying out government macro control and adjustment we should rely on financial tools.

I think the most important tool for us to regulate and adjust the property market is the leverage ratio of the mortgage loan.

If the pressure is purely made through mortgage loans, which means zero down-payment, I think it will be the worst case scenario for the market and create excessive bubbles. I think is also one of the reasons triggering the sub-prime loan crisis in the United States.

And if the situation goes the other extreme, take this for example zero-mortgage and 100% down-payment, I think 90% of the potential buyers could not afford the purchasing homes, and this is only a market serving the rich people. This would be a disaster for the national property market. What I mean here is a proper balance to be found between these two extremes.

We have already adopted four specific measures to regulate and address the property market in Chongqing. First of all we look at property as consumer goods, so we struck a balance between the supply and demand. Each year the government investment in the property market will be no larger than 20% of government investment in fixed assets. Thirdly, we have already initiated some pilot projects here in Chongqing in collecting property tax. Fourthly, we also came up with a rational leverage ratio in terms of mortgage loans. The first time buyers have to pay 30% down payment, the second home needs you to pay 60% down payment and purchasing the third home you have to pay fully.

I think my model here covering these four aspects is really working very well here in Chongqing and I think it will also work very well in China at large, and even I think we can provide this model to the United States for its reference.

I think with these four measures effectively implemented we will accomplish that objective to enable the home buyers to buy a home with six or seven years of family income. If there is any one of these four measures that fails to be properly implemented I think there will be two kinds of scenarios: first of all excessive bubbles on the market and secondly sluggishness of the market.

In the past 10 years in the United States we saw that around the year 2000 the financial companies came up with the sub-prime loan products and it only took six or seven years to create excessive bubbles on the market, which led to the crisis in 2008. That crisis cut the value of the market by 30%. I think this is something triggered by the policy of zero down payment.

WSJ: IF THE PRICES IN CHONGQING GET TO 6-7 YEARS OF FAMILY INCOME, PRICES NEED TO FALL. AS YOU IMPLEMENT THIS POLICY, WHO DO YOU EXPECT TO BE HURT: DEVELOPERS, HOMEOWNERS, BANKS OR GOVERNMENT? AND DO YOU HAVE A GOAL TO CRASH THE PROPERTY MARKET?

MAYOR HUANG: I think I mentioned the four measures have already been effectively adopted and implemented here in Chongqing. This has already been something taking place on the market that they buy their home with six or seven years of income. This is not an objective that we are going to obtain. Actually this is the reality.

In September of this year, the average property price here in Chongqing was 6,300 yuan per square meter (about $985). I think if a three-person family, for them to buy a 60-square-meter condominium, according to this average price it will cost them 500,000 yuan. In the major urban area, the average annual income per person is 20,000 yuan so a three-person family earns about 70,000 yuan per year. If you look at Chongqing Municipality as a whole, because there are some rural areas, the average family income is 60,000 yuan.

So if you do some math here you will find it will cause them really seven years to buy a condo priced at 500,000 yuan. Of course in the years ahead there will be increases of GDP, increases of family income and the price of property will also go up. But I think balance will always be there.

In some other Chinese cities you will find it takes a family 20 years of income to buy a house. That is because they do not have those four measures effectively implemented.

We don’t hope to see the bubbles, nor do we hope to see the collapse of the market. This is in the interest of no one, not in the interest of the government, not developers, not the homeowners. So I think this is a very sacred responsibility of the government to accomplish that objective: six or seven years of family annual income to buy a house.

I think another objective of the government macro-control and management efforts is to strike a proper balance between the property market value with GDP. If the market value to GDP ratio is one to one I think our objective to buy a house with six or seven years of family income will be realized.

There are 300 million people in the United States and the average living area is 40 square meters, according to our statistics. You will find that if the average price is $2,600 per square meter and for a three-person family 120 square meters of living area it will cost a family $300,000 in total to buy that house. And if you look at the GDP of the United States in per capita terms, the per capita GDP is $50,000 each year. But 60% is the government revenues and corporate profits, so it means that the net cash income per head is $20,000. If you do some calculations for a three-person family the annual income is perhaps $50,000 or $60,000.

So if you check these figures you will see it takes these families six years to buy a house the total value of which is $300,000.

If we go back to the year 2007 we saw that year the GDP of the United States was roughly $13 trillion. But due to the later occurrence of sub-prime loan crisis, bubbles were created on the market. That same year the property market value was $17 trillion. So the property market value was 50% higher than the GDP size. In this case, you will see the creation of bubbles.

Now the prices have bottomed out and during the past years we saw the value of the property market went down another 30%. So based on statistics, the market value currently in the United States is $14 trillion and the GDP size is roughly around $14 trillion. I think the bubbles have been squeezed out. I think this balance should be properly maintained in the future.

Perhaps you will find that provincial mayors would like to provide their wisdom to the United States. I’m one of them.

WSJ: THERE IS NO PLACE IN THE UNITED STATES THAT LOOKS LIKE CHONGQING. I DON’T THINK MOST AMERICANS COULD IMAGINE A CITY LIKE CHONGQING. BUT ONE THING WE SEE COMING HERE IS THAT IT LOOKS VERY BUILT UP, IN FACT OVERBUILT. IT LOOKS LIKE THERE IS TOO MUCH SUPPLY. DOES THE GOVERNMENT KNOW WHAT IT IS DOING APPROVING AND IN SOME CASES FUNDING SO MANY APARTMENT BUILDINGS?

MAYOR HUANG: With these four measures in place we have already found the proper pace of the property market and the rational relationship between supply and demand.

Talking about the overall size of the (residential) construction, I think we always deal with five ratios. The first one is the per capita gross floor area is maintained below 40 square meters. (In rural parts of) Chongqing Municipality this figure is maintained below 30 square meters. (In areas) consisting of a population above 10 million, the total construction area needed will be 400 million square meters…We keep a very well measured pace. We do not hope to see the construction of all those well needed houses within a concentrated period say two or five years.

When it comes to office buildings there is a ratio that we bear in mind. For every 10,000 yuan of GDP the office building area needed is 0.5 square meter. And if we have 1 trillion yuan GDP it means that the office area needed will be 50 million square meters. If the GDP expands to 2 trillion yuan GDP it means that the office area needed will also be expanded to 100 million square meters.

I’m asked why there are prices of 20,000 yuan per square meter on the market, I’d like to say the reason is very simple…50% of the GDP is generated through the service industry. If you take the economic structure at large, the average price of all the factors, taking into consideration the average price on the market will be 20,000 yuan per square meter.

And there is also a ratio governing the commercial sector, for example the department stores in the shopping malls. It depends on the retail sales. We have annual retail sales of 300 billion yuan, so we need 30 million square meters of commercial house.

And our fifth ratio is about the renovation of shanty towns. For example, in various areas we have knocked down a big area of shabby houses. There is a ratio. Each 10,000 square meters of those shabby houses knocked down will be compensated by newly constructed areas of 15,000 square meters.

You’ll find that all these measures are done according to the market philosophies and we are very good at mathematics here. We always take into consideration the people’s demand, the economic capacity in building these housing products. We do not hope to see those newly built houses just left empty.

WSJ: WHAT DO YOU THINK FOREIGN ANALYSTS ARE MISUNDERSTANDING ABOUT CHINA’S PROPERTY MARKET POLICY? YOU TALK AS IF THE MARKET IS UNDER CONTROL. THERE IS A WIDESPREAD FEELING THAT THERE IS SOMETHING SERIOUSLY WRONG WITH THE PROPERTY MARKET. WHAT DO CRITICS NOT UNDERSTAND ABOUT YOUR POLICIES?

MAYOR HUANG: We cannot say that with all this evidence the foreign analysts are totally wrong. But sometimes they do not have the first-hand data on the local situation. For example they do not have the full access to the figures and data here in Chongqing’s market.

Perhaps they just look at the data of other Chinese cities, for example the city of Hangzhou. And by using those data to analyze the situation here in Chongqing of course they will come to a wrong conclusion. It is just like you could not blame Europe for the problems in the United States.

Since you asked me my assessment of the Chinese property market…as a whole whether I am as pessimistic as some foreign analysts in the Chinese market. Actually I think some assessments from foreign analysts come to an extreme. Indeed there are three major problems in the Chinese property market and we will correct these three problems and solve these problems in the future. But I don’t think the situation is as pessimistic as some foreign analysts said.

In the Tier 1 (Chinese) cities indeed there are problems of excessively high prices. In those cities you’ll also find a very high empty ratio of the property markets because many home buyers just come to buy the products out of speculative purposes. There are too many speculative purchases. In those Tier 1 cities, you’ll find that sometimes after the tendering process concluded the land price was even higher than the house-price itself. And when it comes to the financial regulation, I don’t think the authorities have come up with an accurate and appropriate leverage ratio. Indeed there are quite a lot of bubbles on the market.

In some big and medium cities in coastal China, due to these several factors — the high price, the high empty rate and the high land and inappropriate leverage ratio — there are indeed bubbles emerging on the market and basically something that we must probably address in the future.

I think there are three fundamentals that cannot be overlooked otherwise we will come to a wrong conclusion about the market prospects in the next 10 years. We have to understand that in some Tier 2 or  Tier 3 cities in inland China — for example Chongqing, Chengdu, Xian and Wuhan — I think the price is rather rational. There wasn’t too much bubble.

Currently the urbanization rate in China is 40%. In the next 10 to 20 years, the urbanization rate will continue to grow to 50% or even 60%. It means that farmers will be moving to the cities and becoming city residents. And during this process there is a very rapid increase in the demand of the property products. And this is rigid demand. For example each person needs on average 30 square meters of living area. If there an incoming of 100 million farmers into cities it means hundreds of millions of newly built housing areas are needed.

In the United States and Europe the situation is broadly different. The urbanization rate has been approaching 80%. The property market has been saturated. This is not the story in China. If you compare China with the United States and Europe you will find a lot of differences.

Secondly, presently China’s GDP per capita stands at $4,000. And in the next 10 years the per capita GDP will be increasing to $10,000 and in the next 20 years $20,000. It represents a huge demand for better homes, high-end apartments because during this process people would like to improve their housing conditions. So it means its huge and sustained demand in the next 10 years, or even to 20 years. When the per capita GDP comes to a stage ranging between $30,000 and $50,000 houses are no longer the priority for residents. But when we are moving up from the per capita GDP of $4,000 to $20,000, houses are the most preferred consumer goods by the residents. Thirdly I think the Chinese government is very good at macro control and regulation. It is also very good at sizing up the situation and correcting the deviation to the right path. Perhaps in the past the government was inexperienced because such restrictive measures were adopted on the real-estate market and restraining the access to the get the loans. But now we come to such an understanding that it will be fine only if we come up with an appropriate leverage ratio of the mortgage loan. And in the past, the tax was collected during the transaction process, now we are paying greater attention to collect tax from owning the products. The same is also true to regulating the land price. All in all we are summarizing the previous experience and trying to do a better job…

In any country, I think it is true that the real-estate industry is the pillar industry of the national economy. It is about the social well-being of the people and it creates social assets, or wealth. So I think I have the confidence to see the house development of the property market of China. So we should not be that pessimistic.

WSJ: WE VISITED SOCIAL HOUSING. THE APARTMENTS WERE WELL PRICED, ACCORDING TO RESIDENTS. BUT IN A PROJECT NEAR THE NEWLY CONSTRUCTED UNIVERSITY DISTRICT, THEY APPEARED TO BE HAVING TROUBLE FILLING IT UP. IN ANOTHER PROJECT CLOSER TO TOWN, RESIDENTS WHO HAD JUST MOVED IN WERE COMPLAINING ABOUT POORLY MADE HOUSES. IS THIS GOVERNMENT-LED EFFORT A BIT OUT OF SYNC WITH WHAT THE PEOPLE WANT?

MAYOR HUANG: Talking about the university district, we are indeed seeing an increasing number of students and ordinary residents moving in. So there is a growing demand for housing products there. Next year, we will extend the subway light rail line to that district. Now there has already been one highway linking the district with the downtown. Next year there will be another two. In terms of bus service, there are only a few nowadays but there will be more and more bus lines in the years to come. If you only look at the situation now because there is only a limited number of people moved in perhaps there are some problems. There are inadequacies we must make up.

But we need a process. If you only look at the complaints for those tenants who only lived there one day or one month or even one year, perhaps you are magnifying the problem. But on the government side if there were no measures taken to improve the situation in 10 or 20 years I can call this government irresponsible. I think in the next three to five years the expansion of the subways, the buses, the other services like the banks, movie theaters, schools, hospitals.

But not everything could be put there overnight. It is not a magic game. And if say in 10 years there is no improvement at all in the local situation I strongly encourage the residents to raise their complaints and I even encourage them to go to the streets to protest.

If you only look at the current problem, I think it is just like using a magnifying glass to check the quality of the skin of a beautiful lady. Here I could say in such a way, we have already done a very good job. If you look at the situation in the subway in the United States I think we are much better.

We have already put in place a comprehensive checking system to check whether these public housing sites are up to the demand of local residents. In about 20 public housing sites in Chongqing when the construction started we already required the builders to provide the services at the same time, at the same pace. Usually within a half year or year all of those service facilities will be on the ground.

We particularly focus on five areas in providing public services to the residents: the first is transportation convenience, for example whether the site will be served by public transportation means subways, buses. Second, the public facilities: gas, running water, electricity and sewage treatment facilities. Thirdly: schools, theaters and other cultural facilities. Fourthly, the shops and retail stores should be there.

Fifthly, we have to provide people employment opportunities in the surrounding areas. For example ,the sites should be located close to the factories and the job opportunities. We do not hope to see that people travel back and forth from their homes and workplaces like the rising and falling of sea waves. From the very beginning of the construction of these sites we have already taken in consideration all of these issues.

I was just talking about the government facilities. Families have different levels of demand. Those demands should be fulfilled by the market forces. I’m confident that after the sites are put to use in three or five years, this place will prosper because of the market forces.

–James T. Areddy; follow him on Twitter @jamestareddy

News:

* Money keeps flowing out of China (Bloomberg)

* China and India, not getting along so well these days (L.A. Times)

* How Chinese-language media are covering the Wukan protests (China Media Project)

* Indigenous innovation: China invents self-cleaning cotton (BBC)

* That Lenovo game console you’ve had your eye on? It’s been delayed (PC World)

Analysis and Commentary:

* A dose of dread for China in Kim Jong-il’s death (Reuters)

* Paul Krugman worries that China might break? (NYT)

Just Because:

* Lessons in weight loss from Kim’s demise (Sinocism)

* A cartoon rendering of Christian Bale’s encounter with Chinese security forces last week (Behind the Wall)

Associated Press

Taiwan’s President Ma Ying-jeou discusses his campaign for the upcoming elections.

As Taiwan enters the final phase of presidential elections scheduled for Jan. 14, one of the big questions has been why current President and Kuomintang leader Ma Ying-jeou, who has managed to reduce tensions with China and preside over a strong economic recovery from the 2008 downturn, has seen his early lead slip in recent weeks to challenger and Democratic Progressive Party chairwoman Tsai Ing-wen.

Although the policy answer lies in a wealth gap that has remained near historic highs and lingering concerns about whether Mr. Ma has sacrificed too much of Taiwan’s sovereignty to secure economic ties with China, the other side of the equation has been his inability to stir the kind of excitement he rode to victory in 2008.

With the first of three televised debates between Mr. Ma and Ms. Tsai scheduled for Saturday and a media blitz of television campaigns that will soon ramp up and dominate the downtime between Taiwan’s soaps and talk shows, several videos released by both parties on YouTube are gaining popularity, and there too Mr. Ma seems to be fighting an uphill battle.

The KMT’s most recent YouTube offering tells the story of a young Taiwanese man and woman who fall in love when they bump into each other while the man is taking photos of Taiwan’s flag in what looks to be Australia. Seemingly designed to woo young voters and humanize Mr. Ma, who has remained aloof and distanced himself from political battles during his first term, the video instead feels overwrought and ultimately a bit dull. In total, the two parts are 20 minutes long and the central symbol of the relationship, the Republic of China flag, is more than a little forced.

In contrast, Ms. Tsai’s Youtube offering pillories Mr. Ma’s 2008 election promise of 6% GDP growth, 3% unemployment and an average per capita income of US$30,000 (abbreviated as 633) by telling the story of a young man and his obnoxious college roommate, whose name closely approximates 633 in Chinese. The annoying friend also has a well connected family, drives a Porsche, steals the girl the protagonist has a crush on, and has an ambiguous exercise routine he carries out six days a week, three times a day for 30 minutes that shakes the walls of the apartment.

Content wise, Ms. Tsai’s video easily outshines Mr. Ma’s both in entertainment value and brevity, but the online ads are just the beginning of a growing media campaign as election day nears. In 2008, Mr. Ma had success with a video released just ahead of elections set to driving, dramatic music that centered around Mr. Ma and other KMT politicians repeating the mantra of “change.” Both the DPP and the KMT will likely release similar videos in the final days of the elections.

What impact campaign videos have on election results is always difficult to parse, but given that the election seems to be nearly a dead heat — with Ms. Tsai’s lead from last week called into question by a recent CLSA poll that places Mr. Ma squarely in the lead  – and the marked cynicism about electoral politics from many in Taiwan who say they’ve tired of the squabbling and sniping that dominate the political discussion, every little bit helps. And if the ads have no effect at all, at least Taiwanese people can find common ground in appreciating that their political leaders never found their way into film careers.

On Chinese video sites, where it was posted earlier this week, the video had collected more than 2.4 million views by Thursday afternoon.

But the seven-minute video, edited from a televised talent show performance, is not for the faint of heart.

While it’s loosely inspired by Gatka, the traditional Sikh martial art popular in India’s state of Punjab, the performers decided to do away with all the spiritual fluff and the ritual dancing. These guys are testosterone-fueled Punjabi fighters; there is nothing subtle about their act. While the top-viewed clip on YouTube, where the show has also attracted views in the millions, describes them as the “Warriors of Goja,” they actually call themselves the “Bir Khalsa Group,” Punjabi for brave warriors. They’re Gatka-fighter-meets-G.I.-Joe-meets-Jackass.

The performance, first aired on regional television over a month ago, starts innocently enough with spinning chakkars, wheel-like symbolic weapons. But the performers combat pants and spike-studded armbands suggest they’re up to something a little more hardcore.

Wooden sticks, typical of Gatka, still make an appearance, but instead of twirling them gracefully, the warriors bash them on each other.

They are shown chewing on what looks like glass, smashing bricks with a hammer on their faces and pulling a car with their teeth. And it gets worse: one guy gets simultaneously run over by a car and a motorbike while another plunges four or five meters, bare-chested, through tubelights. The grand finale shows three of them sandwiched between beds of nails while (just to make sure it really hurts) others hammer them down.

While parts of the stunts may have been faked, the blood at the end of the show looks real enough. After the performance, one of them proudly twirls his mustache and makes a victory sign with his blood-stained fingers.

The three judges look understandably horrified. But this doesn’t stop them from handing them a wad of cash – 300,000-rupees ($5,750) in total –and praising them for having won the contest as well as their hearts.

The performance appears to be a revelation for many in China, where Shaolin monks practicing “iron body” kung fu have long wowed crowds by bending metal rods with their bare hands and lying on beds of nails while other monks pound their stomachs with hammers.

“I’m guessing Shaolin iron body kungfu must have come from India,” one viewer, Snow Love in Summer, wrote on the video site Youku, noting that Bodhidharma, the monk who supposedly founded Shaolin kung fu in the 5th or 6th century, is said to have come to China from India. “No wonder India dares to be so arrogant in the face of the Celestial Kingdom,” wrote osis-chen, a user of the popular Sina Weibo microblogging service, employing a popular slang term for the Chinese government.

But the clip also stirred debate about whether such violence is appropriate for reality television, with some condemning the display as a craven ploy to drive ratings. Wrote one Weibo user going by the handle WW_005_SimpleLife: “There’s nothing at all to applaud about this — one of them is bleeding by the end. Do reality contest shows really need to be so bloody to attract eyeballs?”

Similar acts – though rarely of comparable violence – are often broadcast on Indian reality shows. As a result, while their performance is now a global sensation, in India few have taken notice. Ajay Santhi, who works in the programming division of ETV Networks, told us he hadn’t even heard of the stunt aired by his company’s regional offshoot.

Chinese television also brims with reality shows, though cultural authorities have recently announced plans to significantly cut down on the amount of “entertainment” programs that are allowed to appear on the Chinese airwaves in what they say is a bid to improve the country’s cultural environment.

If that crackdown holds, this might not be the last Indian reality show clip to go viral on the Chinese Internet.

– Margherita Stancati and Josh Chin

A year away from the formal transition of Party leadership from Hu Jintao to someone else, the path that Hu’s political successors will move in remains up in the air.

The reluctance of the next generation to rectify that uncertainty was on display last week in a remarkably uncontroversial address delivered by Xi Jinping – Hu’s purported heir-apparent –at the Central Party School in Beijing. Given the opportunity to sketch out his agenda more fully, Xi instead shied away from bold statements, focusing on the standard line these days that cadres must listen to the problems that face people. “Investigations and studies must be multi-level, multi-faceted, and multi-channel,” so as to help in problem-solving and “scientific decision-making,” he said according to one official summary of his speech (in Chinese).

It’s common practice for Chinese leaders-in-waiting to fly under the radar. Getting out in front in Chinese politics usually gets one shoved to the back. But with an unusual political storm brewing on the horizon, it’s not clear that continuing to taxi on the political tarmac is the wisest choice for Xi and the others in line to take up leadership positions next year.

In a certain sense, Xi’s caution is understandable and perhaps brilliant, especially as recent weeks have exposed further challenges to hard-won stability in China: problems in governance, uncertainty in the financial system, and the way ethnic relations are playing out in some regions.

Thus far it seems unlikely that these difficulties will translate into widespread discontent. There’s certainly not much evidence of panic in the upper echelons of the Communist Party. Instead, different groups continue to promote their own positions as the right and ready means of securing order and legitimacy.

As a result of that jockeying, there are many lively policy debates flying around the Party – and this is where the landscape gets tricky for Xi and company.

Conservatives who manhandled the opposition to push “cultural reform” through at the recent plenum defend their position daily now, insisting that social media must yield to state media. Journalists, in particular, have been urged not to break ranks (in Chinese), and to “enhance cultural awareness, foster cultural confidence.” This emphasis might be a call to arms for some, but the sentiment reminds others of the same sort of mass impulses that shattered society during the Cultural Revolution.

Yet some voices within the Party continue to push off on a different path—one less aimed at the ills of society and focused instead at the shortcomings of cadres themselves. While hardliners strike out at the slippage of values in the country and argue for more image management, others insist that cadres need to be “more self-aware and introspective” and to “stop rushing to defend themselves,” and instead “construct a true sense of responsibility” to those they serve (in Chinese). For these more liberal-minded members, social media is not a threat to stability, but an instrument by which cadres can learn the root causes of what ails the system. Some are urging more supervision of the powerful, and wondering what’s so bad about having the public as a co-pilot (in Chinese).

These sorts of confrontations are becoming more regular in the open press here, and they reflect a mounting reconsideration about how to secure Party legitimacy in the years ahead.

Xi’s camp currently lacks the political heft and horsepower to step in and resolve these disputes about policy direction. He and his supporters probably recognize that it’s not safe to take sides in advance of the formal transition of a new leadership — especially at a time when previous models of economic success are beginning to show signs of wear.

And Xi and his people probably understand that it’s good that cadres are getting to speak their minds, even if there are some in the provinces who might yearn for more signals and less noise from Beijing. After all, they will need a list of new alternatives to appeal to those in the Party who want a departure from the same-old—so long as these alternatives do not include a challenge to their group taking over next year.

But therein lies the Party’s dilemma. Of course, many cadres hope for a smooth leadership transition. Yet the discontented in Chinese society seem to need something transformational, and some cadres could be starting to get on board.

Conventional wisdom holds that hardly anybody gets ahead in Chinese politics by taking off and challenging the established orthodoxy. But with problems mounting and no clear flight plan filed by the purported successor, we may be approaching the moment when someone in the Party might make a move to do just that.

Asia Society

Alice Waters (far right) talks with guests at the dinner she hosted at the U.S. Embassy in Beijing.

As U.S. chef and food activist Alice Waters rolled out a four-course meal meant to inspire China to eat organic and sustainable foods, something other than pesticides was missing.

The founder of renowned Berkeley, Calif. restaurant Chez Panisse organized an elaborate dinner at the U.S. Embassy Wednesday night in Beijing as part of a move to spark a food revolution in China, helping Chinese consumers learn about eating organic foods that are in season and grown locally. But among the several hundred people to whom she dished out this meal—a carefully selected array of Beijing’s seasonal vegetables, followed by butternut squash tortellini, braised pork over mashed potatoes and apple strudel with ice cream—less than a third of the attendees were Chinese nationals.

A press representative of the U.S. Embassy, which was in charge of the guest list, said many more Chinese had been invited to the dinner than had attended. Declines flowed in the days before.

To be sure, there were some Chinese in attendance, many of whom were well-known. Ge You, one of China’s most famous actors, and Phoenix Television anchor Xu Gehui were both there.

Ms. Waters hoped to inspire these cultural icons. “China is at a critical turning point,” Ms. Waters said ahead of the dinner. Fast food restaurants are popping up on every corner, and the pressure to speed up the pace of life, eating on the go, is increasing, she said.

But at the dinner, the opening event of a four-day cultural forum sponsored by the Asia Society and Aspen Institute, little was uttered about eating foods free of chemicals and buying from nearby farms. Not a word of Chinese was said. Only a toast was offered as a tribute to a potential food movement in China. “Lift a glass of wine to the people taking care of the land,” Ms. Waters said.

A food revolution is only at best in its infancy in China, says Zhang Yinghui, who is one of China’s more prominent food activists and also attended the dinner. Chinese have been buying organic foods, but they’ve largely been buying out of fear after countless food scandals have threatened the health and lives of average citizens.

Ms. Zhang, while well-informed about China’s agricultural industry and green farming, is far less vocal than the organic and slow food backers in the West. “There’s less of push here because Chinese, after all, still care about food, even if it is under threat,” Ms. Zhang said.

“Chinese families still eat together at a table every night,” said Ms. Zhang.

There are some chefs around China who are contributing to a more conscious way of feeding people, sourcing their vegetables and meat locally. Dai Jianjiun, who runs his restaurant out of Hangzhou, an affluent city south of Shanghai, is one.

“Unfortunately, these kinds of restaurants are made available only to the wealthy and the government,” Ms Zhang said, adding that the growth of the organic industry in China has largely been propelled by this subset of the population.

Critics of the organic movement in West have made similar statements, which could have been applied to Ms. Waters’ dinner in China, where the U.S. Ambassador to China Gary Locke sat across from author Amy Tan on Wednesday, feasting on organic bread and carrots that had been plucked from a nearby farm only hours before.

– Laurie Burkitt. Follow her on Twitter @lburkitt

Associated Press

Vladimir Putin and George W. Bush wear traditional silk jackets as they make their way to a family photo session during an APEC leaders summit in Shanghai, China in this October 2001, file photo.

The Chinese press, like the press in many parts of the world, is generally fond of Vladimir Putin. After all, what news editor doesn’t appreciate a world leader who shoots crossbows at whales and rides shirtless on horseback in full view of his ex-model personal photographer?

Add in his proven willingness to stand with Beijing against the “Western” powers in the U.N. Security Council and it’s no wonder that Mr. Putin gets glowing coverage in China even during routine visits.

Yet despite all that, the operators of two of China’s biggest news portals appear to have had second thoughts about trumpeting Mr. Putin’s latest accomplishment: winning the Confucius Peace Prize, China’s homegrown alternative to the Nobel Peace Prize.

Alpha Dog, as U.S. diplomatic staff in Moscow reportedly referred to him, took the award by beating out Chinese scientist Yuan Longping, famous for helping to invent hybrid rice, the Oriental Morning Post reported Monday (in Chinese). Mr. Putin won by taking nine out of 16 first-place votes, the paper said, without elaborating as to why or how.

Both the Sina and NetEase news portals – two of the most popular news-aggregating websites in China – initially published the news, picking up a report from the website of the state-run Hubei Daily newspaper. By Tuesday morning, however, both sides had taken the article down.

Searches of the Sina and NetEase news sites turned up no mention of Mr. Putin’s victory Tuesday afternoon, though a version of the story was still available on Sina’s Hong Kong news page.

While it’s not entirely clear why the articles were removed from the websites, the Confucius Peace Prize is not without controversy in China. Organizers of the prize first awarded it last year to Lien Chan, former vice president of Taiwan, just days before the Nobel Peace Prize ceremony honoring jailed Chinese writer Liu Xiaobo. But in September they were ordered to cease offering it after apparently failing to win permission from China’s Ministry of Culture.

Organizers said at the time that they intended to persevere despite the ministry’s disapproval.

Sponsors of the prize intend to stick with their plan to hold a ceremony honoring Mr. Putin on Dec. 9, the Associated Press reported Tuesday, quoting Qiao Damo, head of the China International Peace Research Centre.

Sina is not overtly censoring discussion of Mr. Putin’s conquest on its popular microblogging service, Weibo, where the response from users appeared mostly to bounce back and forth from befuddled to bemused.

“Wasn’t this prize aborted?” asked Weibo user Guojia Baoan, while another user, Qingqing Di’er, chastised the organizers for bringing shame on Mr. Putin. “Amusing yourself is one thing, but dragging Putin in to lose face along with you is something else.”

“Why are you interfering in Russia’s internal affairs?” user Gongmin Mamou asked in a joking reference to China’s long-standing official foreign policy of noninterference.

Whether Mr. Putin will have the time or inclination to travel to Beijing to pick up the award remains to be seen. The winner of the inaugural Confucius Peace Prize, Mr. Lien, failed to show at the ceremony despite the 100,000-yuan ($15,700) cash honorarium offered along with the prize.

– Josh Chin. Follow him on Twitter @joshchin

Associated Press

China’s National Theater, otherwise known as “The Egg.”

When policy debates grind to a halt, throw a party instead?

That, in essence, is the thinking behind a star-studded – and intriguingly scattered – cultural forum that brings the likes of organic-food advocate Alice Waters, filmmaker Joel Coen and cellist Yo Yo Ma to Beijing this week.

The four-day U.S.-China Forum on Arts and Culture, which kicks off Wednesday night with a dinner at the U.S. embassy orchestrated by Ms. Waters, is the brainchild of veteran China watcher Orville Schell, who describes it as a response to the sclerotic environment surrounding China policy in Washington D.C.

“Nothing ever happens,” says Mr. Schell, who as director of the Asia Society’s Center on U.S.-China Relations has spent the past few years attempting to influence the debate in Washington on everything from climate change to Chinese investment in the U.S. to little avail.

The issue, he says, isn’t that policymakers in the U.S. don’t know what they’re doing with China. “It’s just that they’re broke, they’re preoccupied, paralyzed and also, I think, somewhat dispirited.”

His solution to that paralysis, dreamed up roughly two years ago, was to dig into the more rarefied regions of his Rolodex and organize a “class trip” to China that would create “some fund of common experience [between the two sides] where you’re not always arguing.”

The result is something of a hodgepodge: Mr. Coen is scheduled to join “Kekexili” director Lu Chuan to discuss the travails of moviemaking. Ms. Waters and “Omnivore’s Dilemma” author Michael Pollan will talk organic with Chinese food activists. Amy Tan is on tap to discuss growing up in two cultures, while Meryl Streep is slated to host a pre-premier screening of her latest film, “The Iron Lady.”

And then there’s Mr. Ma, who plans an unscripted performance in Beijing’s National Center for the Performing Arts – also known as The Egg – in conjunction with Memphis -born street dancer Charles “Lil’ Buck” Riley.

The event, organized and sponsored on the U.S. side by the Asia Society and Aspen Institute, comes weeks after Chinese leaders announced a renewed focus on “cultural reform,” that aims, as Chinese President Hu Jintao put it, to “improve the nation’s ideological and moral qualities.”

In contrast to that heavily managed, state-led approach to cultural development, Mr. Schell says he hopes this week’s event will showcase an American “cultural vibrancy” founded on openness. To that end, he says, American participants have been instructed to shun prepared speeches and PowerPoint presentations.

“We’re trying things out in public. I think that’s the highest form of creativity. It’s like improvisation in jazz,” he says, adding that he hopes that approach “will be something of a revelation” to Chinese people, “who tend to be very scripted, very afraid of making mistakes.”

While many in China are fond of American culture, any attempt to inculcate Chinese people with American values can be risky. Particularly since the 2008 financial crisis, Chinese media have been increasingly dismissive of the U.S. as a role model and contemptuous of those who suggest that China should seek to emulate the American model.

For his part, Mr. Schell insists the point of this week’s event isn’t to evangelize or change China — what he describes as “that futile endeavor” – but merely to increase each side’s exposure to the other.

In bringing so many well-known names to Beijing, the event also risks sparking the ire of critics in the U.S. and elsewhere who might see it as lending legitimacy to a country where cultural figures who challenge the ruling party can all too easily find themselves behind bars.

China’s most well-known artist, Ai Weiwei, spent 81 days in detention this year after publicly criticizing the government on a number of issues, including its unwillingness to release the names of children killed in the 2008 Sichuan earthquake. Mr. Ai was recently slapped with a bill for $2.4 million in unpaid taxes and fines authorities say he evaded through a design company called Beijing Fake Cultural Development Ltd. – a charge he denies.

Mr. Schell says he and the other participants in the event discussed the issue and that there was no easy answer. But, he argues, unlike in the 1980s and ‘90s, when engaging with China was optional, now it’s not.

“There is no other route except to rely on them to solve certain kinds of global problems… you have to be able to relate in ways other than over the contentious issues that divide you,” he says.

On the issue of censorship, Mr. Schell says there has been no overt pressure from the event’s Chinese government co-sponsor, the Chinese People’s Association for Friendship with Foreign Countries. “But we all know what the pressures are. We all know the topics that are sensitive,” he says.

He says his hope is that members of the American delegation will “listen, observe, absorb as much as they possibly can. And then, once they get home…then they can say whatever they want.”

It’s an approach Ms. Tan endorses.

“When I think of building relationships, I use my mother as a metaphor,” the writer says. “If I disagreed with her, would yelling at her lead to any kind of change? No. Would building a relationship? Yes.”

As for how far the event will actually go towards bridging the cultural gap between China and the U.S., Mr. Schell isn’t offering any specific predictions. “There’s no one answer to removing this barrier — it’s a barrier that’s been there for 200 years,” he says, adding, “You don’t live life by policy alone. So we’re going to leaven the loaf a little. And I hope we’re going to have a good time doing it.”

– Josh Chin, with contributions from Debra Bruno. Follow Josh on Twitter @joshchin

Associated Press

Ai Weiwei walks to a room to discuss legal issues with his lawyers at his studio in Beijing, China, Monday, Nov. 14, 2011. Mr. Ai said Monday that supporters have sent him nearly $1.4 million to help him fight a huge tax bill that he says is government harassment.

Ai Weiwei, the outspoken dissident artist, says supporters have donated more than $1 million to help him pay a tax bill, giving him more than enough to put down the necessary deposit to continue his appeal against a penalty that he maintains is politically motivated.

Mr Ai, who was detained for 81 days without charge earlier this year, says Chinese tax authorities have given him until Tuesday to either pay the $2.4 million in unpaid taxes and fines, or to pay roughly half of the sum as a deposit in order to continue challenging penalty’s legality.

Thousands of supporters have sent him money – some by paying it directly to his account, others by folding cash into paper planes and throwing it over the walls of his home in Beijing – since he announced the deadline about 10 days ago, according to Mr Ai.

By Sunday night, about 30,000 people had sent in a combined total of 8.7 million yuan ($1.37 million), he told China Real Time on Monday, adding that he planned to pay back as much of the money as possible.

“I feel that this is the beginning of civil society in China,” he said. “Young people have their own knowledge and don’t believe state media or the government’s accusations against me. This shows people care. They don’t only care, but they take action.”

He said he had tried to pay the necessary deposit of 8.45 million yuan into an account held jointly with the tax bureau on Monday morning , but local tax officials had refused, insisting that the funds be paid into an account controlled solely by them.

If he succeeds in paying the deposit, he should be able to continue with an administrative appeal to the tax bureau, and if that fails, he will then try to take it to court, he said.

“We cannot win the case, but we can win popular support and we can win morally,” he said. The tax bureau did not respond to a request for comment.

Mr. Ai, who helped design the Bird’s Nest stadium for the 2008 Beijing Olympics, was detained secretly in April, sparking an international outcry among artists, rights activists and Western governments.

He was the highest profile of hundreds of dissidents and rights lawyers who were detained extrajudicially –without being formally charged or having their families informed — after online calls for a “Jasmine Revolution” in China began appearing online in February.

Mr. Ai was released in June because, according to state media, he was seriously ill and had agreed to pay taxes he had allegedly evaded through a design company called Beijing Fake Cultural Development Ltd.

He denies that, and says the company is registered in his wife’s name. He also says he was warned not to use social media, especially Twitter (on which he has thousands of followers), or to talk to foreign media.

Since August, however, he has largely ignored those warnings, regularly tweeting and giving interviews to foreign media. In the last few weeks, he says authoritities have been threatening to bring new charges against him, including pornography and state subversion.

– Jeremy Page

Agence France-Presse/Getty Images

A group of Chinese People’s Liberation Army (PLA) soldiers attend a ceremony at their base in Luzhou, southwest China’s Sichuan province. Next year, there might be a few tattoos in this crowd.

The People’s Liberation Army has recently relaxed the rules for enlistment in a drive to improve the Chinese military’s recruiting numbers. No longer banned: people with small tattoos, those still carrying around a little baby fat and those who should probably switch to whole milk from skim.

China’s legislature, the National People’s Congress, approved an amendment to the country’s Military Service Law on Monday with the goal of recruiting more well-educated soldiers.

Among the adjustments, according to a representative of the Beijing Military Recruitment Office, are a relaxation of rules governing weight and tattoos. New recruits will now be allowed to be 25% heavier or 15% skinnier than what the military considers an ideal weight, and people with tattoos on the neck or face — grounds for automatic rejection in the past — will now be considered, so long as the ink in question doesn’t exceed two centimeters in diameter.

The amendment also offers enticements specifically targeted at college students who decide to join the military before graduation, including post-service yearly tuition contributions as high as 6,000 yuan ($944).

Recruits from top universities in Beijing, meanwhile, will enjoy the ability to choose their own major (a rarity among Chinese college students), a one-time scholarship payment of 30,000 yuan and, if needed, a leg-up in securing a highly coveted Beijing residence permit.

It might be hard to imagine pudgy, mildly tattooed college students filling the ranks of the PLA, which still trumpets a history of having twice sent bands of scrappy guerrilla fighters out to wage successful campaigns against better-equipped enemies (the Nationalist Party during China’s civil war and the U.S.-led United Nations forces during the Korean War). But as RAND Corp. political scientist Roger Cliff noted in testimony before the U.S. China Economic and Security Review Commission in January (pdf), the PLA’s main focus in recent years has been on preparing for warfare “under high-technology conditions,” including on the Internet.

That effort is what’s behind the changes in recruitment policy, according to the Beijing Recruitment Office representative. “The army’s development requires more young people with higher education levels,” he said, adding that “the ability to grasp new technology” was an important criterion.

The push to recruit more college students has evolved over time. In 2008, the PLA began setting up kiosks at vocational schools and universities, including at Tsinghua University in Beijing, commonly referred to as China’s MIT, according to the state-run China Daily. In September, the military made it easier for women to join up, lowering both age and height requirements for female recruits.

The effort appears to have paid off. China Education Times, the official newspaper of China’s Bureau of Education, reported in September (pdf in Chinese) that the number of college students joining the military jumped to 130,000 in 2009 from just over 2,000 in 2001 — a 60-fold increase.

So why relax the rules on weight and body art?

According to the Beijing Recruitment Office representative, one reason is the one-child policy, which has significantly reduced China’s population of service-eligible youth.

A state-run Xinhua news agency interview with a Beijing Military Recruitment Office vice-director Zhou Yongshan in September suggests another reason: fear among top potential recruits of being unable to find a job after being discharged.

“We understand that one big reason some college students are not positive enough about joining the army is that some aspects of post-discharge arrangement policy are generally not strong in terms of implementation,” Mr. Zhou Yongshan said (in Chinese). To solve the problem, he said, required new policies that would allow college students “to see the spaciousness of the entrance gate and, at the same time, see how the exit road has been widened.”

To address the second part of that equation, the Chinese government has promised to provide ex-soldiers with “preferential treatment” in applying for civil service jobs, increasingly sought-after because of their stability and generous benefits.

No word yet on whether employers will also be instructed to ignore the tattoos.

– Josh Chin with contributions from Olivia Geng. Follow Josh on Twitter @joshchin

Agence France-Presse/Getty Images

He could probably use a quiet room to nap in.

China, with its constant traffic and love of the car horn, is notoriously loud. Thing is, most cheap hotels in the country are situated on busy roads. Will its budget travelers pony up more money for a quiet room?

The people behind the budget chain Ibis say yes.

Ibis, which is owned by French hotel conglomerate Accor, believes it can make its mark in China and charge 10% to 15% more than local competitors for rooms that promise superior Internet service, quality bedding and, most importantly, quieter environments.

“We’re soundproofing our rooms,” said Michael Issenberg, chairman of Accor’s Asia Pacific division, who said that the hotel’s design team made it a high priority as a differentiator. “Everybody knows China’s a noisy place.”

Ibis launched in 2008 in China and now operates 51 hotels there, with 20 more slated to open over the next few years. It had a slow start in China, opening its first 10 hotels with no local players to assist in construction and planning, but now that the brand is established, Accor is loosening the reigns and recently started its franchise program in hopes of attracting wannabe hoteliers.

The competition is stacked: China’s budget hotel market is crowded and dominated by domestic brands like 7 Days Inn and Home Inn, which have 722 and 934 hotels, respectively. Even Super 8, owned by Wyndham Hotel Group, has 239 hotels in China.

Continue reading on Scene

Sina Weibo

A screenshot shows a series of photos of Huaxi’s landmark replicas posted to the Sina Weibo microblogging site, where they prompted a criticisms of China’s culture of duplication.

Huaxi Village – long considered China’s richest village – showcased its plus-size replicas of landmarks like Paris’ Arc de Triomphe, the U.S. Capitol and the Tiananmen Rostrum last week as a way to draw attention from tourists.

Instead, the village has found itself in the middle of an ongoing debate about China’s penchant for duplication and whether it stymies innovation.

Huaxi, a village of more than 1,500 people a less than three-hour drive from Shanghai that has long been touted as a model of China’s version of capitalism, looking to further boost its business from tourism.

Sun Haiyan, a spokesman for Huaxi Village, said on Thursday that the village’s economy took in 200 million yuan (US$31 million) from tourism-related business last year.

The replicas of global landmarks are intended to boost that business. Though they are a couple of years old, they received renewed attention last week, during the National Day weeklong holiday, when the village celebrated the 50th anniversary of its establishment.

“In 2010, more than two million people visited our village,” Mr. Sun said in an interview. “The figure will surely be bigger this year.”

But the replicas have drawn a heated discussion on China’s Internet, which has been buzzing about issues surrounding innovation since the death last week of Apple Inc. co-founder Steve Jobs.

“Tiananmen should apply for a patent. Otherwise the replicas of Tiananmen will come out constantly,” Shao Lianxiang, vice president of Chinese property developer Zhongyi Holding Co., wrote on the Sina Weibo. One internet poster with the online pseudonym Jiangdong Dahu said on Sina Weibo: “This is plainly the work of uneducated, uncultured villagers.”

In a commentary published Thursday, the Beijing Morning Post said the replicas proved that the village’s success hasn’t engendered a distinctive cultural identity. Rather, it has provided a vivid example that illustrates the Chinese people’s psychological state.

It also brought up a replica of Beijing National Stadium, or the Bird’s Nest, being built in a suburb of Nanjing. “In recent days, the Chinese public has hotly debated the topic of why doesn’t China have a lifelong innovator like [Steve] Jobs. If Jobs could see the Capitol Hill in China’s No. 1 village, what would he think? How many replicas of the White House and Bird’s Nest will we see before a Chinese Jobs is born?”

Duplication in China, long a gripe among trade partners, has grabbed even more headlines of late, including a fake Apple Store selling real iPads and iPhones in a setting remarkably similar to Apple’s trademark retail outlets. In Changzhou, Jiangsu Global Digital Cultural Theme Park Co. has opened a park called Global Animation Joyland, which bloggers have called attention to because it includes a section that appears to be based on Activision Blizzard Inc.’s World of Warcraft online game.

– Rose Yu

Sina Weibo

A screenshot shows a series of photos of Huaxi’s landmark replicas posted to the Sina Weibo microblogging site, where they prompted a criticisms of China’s culture of duplication.

Huaxi Village – long considered China’s richest village – showcased its plus-size replicas of landmarks like Paris’ Arc de Triomphe, the U.S. Capitol and the Tiananmen Rostrum last week as a way to draw attention from tourists.

Instead, the village has found itself in the middle of an ongoing debate about China’s penchant for duplication and whether it stymies innovation.

Huaxi, a village of more than 1,500 people a less than three-hour drive from Shanghai that has long been touted as a model of China’s version of capitalism, looking to further boost its business from tourism.

Sun Haiyan, a spokesman for Huaxi Village, said on Thursday that the village’s economy took in 200 million yuan (US$31 million) from tourism-related business last year.

The replicas of global landmarks are intended to boost that business. Though they are a couple of years old, they received renewed attention last week, during the National Day weeklong holiday, when the village celebrated the 50th anniversary of its establishment.

“In 2010, more than two million people visited our village,” Mr. Sun said in an interview. “The figure will surely be bigger this year.”

But the replicas have drawn a heated discussion on China’s Internet, which has been buzzing about issues surrounding innovation since the death last week of Apple Inc. co-founder Steve Jobs.

“Tiananmen should apply for a patent. Otherwise the replicas of Tiananmen will come out constantly,” Shao Lianxiang, vice president of Chinese property developer Zhongyi Holding Co., wrote on the Sina Weibo. One internet poster with the online pseudonym Jiangdong Dahu said on Sina Weibo: “This is plainly the work of uneducated, uncultured villagers.”

In a commentary published Thursday, the Beijing Morning Post said the replicas proved that the village’s success hasn’t engendered a distinctive cultural identity. Rather, it has provided a vivid example that illustrates the Chinese people’s psychological state.

It also brought up a replica of Beijing National Stadium, or the Bird’s Nest, being built in a suburb of Nanjing. “In recent days, the Chinese public has hotly debated the topic of why doesn’t China have a lifelong innovator like [Steve] Jobs. If Jobs could see the Capitol Hill in China’s No. 1 village, what would he think? How many replicas of the White House and Bird’s Nest will we see before a Chinese Jobs is born?”

Duplication in China, long a gripe among trade partners, has grabbed even more headlines of late, including a fake Apple Store selling real iPads and iPhones in a setting remarkably similar to Apple’s trademark retail outlets. In Changzhou, Jiangsu Global Digital Cultural Theme Park Co. has opened a park called Global Animation Joyland, which bloggers have called attention to because it includes a section that appears to be based on Activision Blizzard Inc.’s World of Warcraft online game.

– Rose Yu

Adam Dean/Bloomberg News

Hong Kong shares in the Agricultural Bank of China climbed more than 15% between October 10 and October 12. The bank’s Shanghai shares, meanwhile, rose only 4.5%.

China’s vote of confidence in its banks has won over investors in Hong Kong, who have kept shares aloft in the four days since a sovereign wealth fund bought up shares.

But Shanghai investors have proven harder to impress – even though the shares were purchased there.

News that Huijin Investment Ltd. – the branch of China’s sovereign wealth fund responsible for holding stakes in state financial institutions – was buying shares in Chinese banks on Monday has been enough to push the Hong Kong-listed shares in those banks up between 8% and 16%.

Beijing’s move was aimed at such foreign investors, argues Yi Xianrong, a researcher with the Institute of Finance and Banking, which falls under the Chinese Academy of Social Science, a government research center. Foreign investors typically buy shares of Chinese companies in Hong Kong when making China plays, as Beijing restricts foreign buying in the mainland.

“Huijin has sent a clear message to international markets: China’s government will not let the shorting of China’s economy, stocks and currency by hedge funds go unchecked,” he wrote in the Shanghai Securities News on Wednesday (in Chinese). He added that while China has its problems, “they do not amount to a reverse in China’s economic growth and won’t lead to a grave recession.”

At about 200 million yuan ($31 million), Huijin’s purchase was tiny and wouldn’t have moved markets had it not been broadcasted.

Investors are typically highly attuned to signals from the Chinese government. Even relatively small moves by Beijing to adjust the temperature of the economy by tightening or relaxing monetary policy – which it does regularly – typically have a big impact.

That helps explain Hong Kong’s bank shares. Compared with Monday’s close, which didn’t take into account the Huijin purchases later in the day, Industrial & Commercial Bank of China, Bank of China, China Construction Bank and Agricultural Bank of China finished Wednesday up 7.9%, 9.4%, 8.5% and 15.5%. Investors may have also been looking for a reason to buy: The banks were broadly trading either below or near their IPO prices, implying that the massive expansion in lending the banks have undergone since listing, and all the improvements in risk management, profitability and internal governance over that period, have been for naught.

But Chinese investors in particular have plenty of experience differentiating between a genuine shift in the political winds and a move that’s ultimately symbolic – and direct government intervention might fall into the latter category. In Shanghai, the four banks are up 3.3%, 3.5%, 4.1% and 4.5% respectively over the same period.

The sovereign wealth fund made a similar move in September 2008 to help prop up prices in the wake of Lehman’s collapse. That resulted in the Shanghai Composite Index jumping 9.5% on the day. However, the rise was short lived, being trumped by concerns over the global financial crisis which pushed the index down again over the following weeks.

And in mid August this year the market was full of rumors that the national pension fund and a number of state insurance companies were buying up stocks traded on the mainland exchanges. That failed to capture the market’s imagination long term either. The benchmark Shanghai Composite Index has slid 10.5% since the beginning of August.

Of course, banking shares in Shanghai are also subject to factors driving down the broader market, such as investor worries that Beijing is focused more on inflation than economic growth.

Bloomberg cited hedge fund manager and notorious China bear Jim Chanos as calling Huijin’s purchase “symbolic” but that didn’t seem to change his outlook.

“The fact that people are even talking about the government stepping in to shore up the banks, when two months ago people thought there was nothing wrong with the Chinese banks, should tell you just how seriously this situation is deteriorating,” he said. He also said he was selling short shares in “virtually all of the large banks in China.”

– Dinny McMahon

Associated Press

A man placed an iPad displaying a picture of Steve Jobs around candles forming the Apple logo in Chengdu, in southwestern Sichuan province, on Thursday.

Millions of Chinese flooded the hugely popular microblogging site Sina Weibo over the past two days to express their condolences about the death of Steve Jobs. They also raised the question: Why isn’t there a Steve Jobs in China?

The tone of the discussion is almost unanimously pessimistic and even cynical. As is always the case on the Chinese Internet, the discussion quickly moved to focus on the problems in China’s political, economic and legal systems. Wang Wei, chairman of the Chinese Museum of Finance, wrote: “In a society with an authoritarian political system, monopolistic business environment, backward-looking culture and prevalent technology theft, talking about a master of innovation? Not a chance! Don’t even think about it.”

China may be the manufacturer of the world, but many are frustrated that Chinese companies are better at knocking off the originals than coming up with innovative ideas. The commemoration of Mr. Jobs’s genius highlighted the dilemma.

Chinese companies themselves will perform as well as Apple, but their products won’t match up, Kaifu Lee told his 8 million followers on Weibo. “Chinese companies can be expected to have the market valuation and business model like Apple’s within a decade, but it will be difficult to expect any type of Apple-like innovation,” he wrote.

The former head of Google China and founder of a start-up incubator called Innovation Works said by phone that Chinese schools focus too much on memorization and don’t encourage critical thinking.

“It’s not that Chinese are not smart or don’t have the potential (to become Steve Jobs). Look at Jerry Yang of Yahoo and Steve Chen of YouTube,” he said, referring to the two Internet entrepreneurs who were both born in Taiwan and immigrated to the U.S. at young ages.

Chen Zhiwu, a finance professor at Yale University, tweeted that in Chinese schools, “the first thing the teachers do is to rub down the edges of those students who are different from the crowd.”

One of the most popular postings on Mr. Jobs’s legacy came from scholar Wu Jiaxiang. “If Apple is a fruit on a tree, its branches are the freedom to think and create, and its root is constitutional democracy,” he wrote. “An authoritarian nation may be able to build huge projects collectively but will never be able to produce science and technology giants.”

On that, Wang Ran, founder of a boutique investment bank eCapital, added, “And its trunk is a society whose legal system acknowledges the value of intellectual property. “

–Li Yuan

Agence France-Presse/Getty Images

Henry Tang, speaking to the Legislative Council in Hong Kong in 2010. Mr. Tang, largely believed to be a top contender for Hong Kong’s chief executive post, admitted “flaws” in his marital life to a Chinese-language magazine in an interview published Tuesday.

It’s a rare day when a Hong Kong official –- much less one who’s set to run for chief executive –- discusses his love life in public. So jaws dropped Tuesday when Hong Kong Chief Executive hopeful Henry Tang admitted “flaws” in his marital life. This could all add uncertainty in an otherwise clear race between two pro-Beijing cronies for the city’s top job in an election next March.

This revelation came on the heels of an exclusive interview in Chinese-language East Magazine published Tuesday with Mr. Tang and his wife of 27 years, in which she obliquely acknowledged reports of his extramarital affairs.  Reports about Mr. Tang’s love life and marriage have become more pronounced in recent days following his resignation as chief secretary in a highly expected move as he considers running for chief executive.

“I have had flaws in my personal life and I feel deeply remorseful of that,” the father of four said in a cryptic joint statement with his wife of 27 years. “I am very grateful for my wife’s understanding and forgiveness.” He affirmed her role as his “partner for life,” but didn’t elaborate on the flaws.

His wife, Lisa Tang, said in the statement that there were “difficult times” in their marriage, but said she admires her husband’s strengths more than his weaknesses. She noted she has long put such personal issues behind her.

Though Mr. Tang, 59 years old, has yet to formally announce his candidacy for chief executive, the latest news may dent his image as a loving father and devoted family man. His confession early on in the race could be seen as a pre-emptive move to avoid the scandal breaking at the height of his campaign.

The city’s leader is chosen by a 1,200-member committee consisting mainly of people backed by Chinese authorities, guaranteeing that the winner will have China’s blessing — as well as a complete lack of public participation among the city’s eligible voters.

Nonetheless, public opinion could likely play an important role in influencing Beijing’s decisions for the territory, given a population prone to frequent protests and demonstrations against unfavorable government policies. Hong Kongers have been promised the right to elect the top leader via a popular vote beginning in 2017.

Mr. Tang will be competing against Leung Chun-ying, a former cabinet member for current chief executive Donald Tsang.

Both Messrs. Tang and Leung have for years been seen as key contenders for the post as part of Beijing’s succession plans for the city, which reverted to Chinese rule from the U.K. in 1997. Other candidates are also likely to emerge, though many analysts expect the contest to be mainly between the two men.

To be sure, neither Mr. Tang nor Mr. Leung is particularly popular in Hong Kong, in large part because of their pro-Beijing ties and a lack of a solid track record, academics and lawmakers have said.

Mr. Tang was a member of the pro-business and pro-Beijing Liberal Party before joining the government in 2002, while Mr. Leung, 57, a surveyor by profession, has for years been a member of China’s top political advisory body. The two are close recent opinion polls.

As Beijing chooses Hong Kong’s next chief executive, its decision will likely rest in part on the positive public perception of the winning candidate. So even if the race isn’t a real election in its true democratic sense, Messrs. Tang and Leung will undoubtedly need to throw an all-out campaign to impress the boss.

–Chester Yung

Pichi Chuang/Reuters

A soldier walks past a MK-13 standard missile launcher onboard a Perry-class frigate in Penghu navy base in Penghu County, west of Taiwan, September 29, 2011.

While much of the recent discussion about the balance of military power — or lack thereof — across the Taiwan Strait has revolved around the strength of Taiwan’s arsenal, an equally important debate, analysts say, concerns morale among the island’s soldiers and its transfer from a conscription military to a volunteer one. China Real Time’s Paul Mozur recently traveled to the Penghu islands, a key military outpost in the Taiwan Strait, on a media trip to take the pulse of soldiers there:

As the famed wind of the Penghu islands picks up and the rain begins to splutter on a cloudy Friday evening, a just-graduated art student surnamed Chen and three friends drink beers on a beach next to one of the island’s innumerable temples dedicated to the sea goddess Mazu. They complain about their lives in strings of Taiwanese and less-coherent English curse words. But unlike the legions of youths across the globe who undoubtedly carped and chugged their Friday away, this quartets’ complaints are not about overbearing parents or the sclerotic job market.

Instead they’re angry about being soldiers.

“They told me if I came here [Penghu] instead of staying on Taiwan I would have more responsibility and more money, but instead they only give me an extra NT$800 [per month] and make me sweep the floors all day,” Mr. Chen says. “It’s a waste of my time.”

Mr. Chen and his three friends are conscripts, serving their mandatory year in the military before returning to their regular lives on the Taiwan mainland, which for Mr. Chen means working out how to get abroad for art school or start exhibiting his paintings. When pushed about how much of a burden the service actually is, Mr. Chen, who gets seven days out of the month off in Taipei and three more days of leave time each month on Penghu, walks back some of his whingeing.

“It’s not too much, one year is OK, but we don’t have any freedom,” he says. “People should do what they can, I am an artist, so I should be spending my time doing that. I can help our culture influence China — that is also a way to make a better future.”

Instead he cleans barracks and picks up trash around the island for his service. The very fact that Mr. Chen and Co. complain would likely be galling to many older Taiwanese, for whom compulsive military service lasted two years and served as a rite of passage. But in the last decade required service has been gradually reduced from two years to the current one year.

The pack are most likely some of the last of a long tradition of conscription in Taiwan, which has had to rely on compulsory service to raise enough of a military to defend itself in the face of China’s overwhelming numerical — and increasingly technological — advantage.

According to the Taiwan Ministry of National Defense, the military will switch to a fully volunteer force by the end of 2014, though the ministry admits the plan faces financial difficulties and could be pushed back. Once the volunteer force policy is fully implemented, all males above 18 will receive basic training for roughly four months, but not serve. The military also plans to increase benefits and remunerations to recruit enough volunteer troops as Taiwan’s birth rate continues to fall.

The change, when it comes, will likely be welcome by conscripts and volunteers alike.

One navy official stationed on a Cheng-kung class frigate (Zheng Cheng-kung, or Koxinga, was the name of the half-Japanese, half-Chinese pirate and imposing naval strategist who made Taiwan an outpost of Ming dynasty resistance after the Qing dynasty had taken control of China), estimated between 10% to 20% of the boat was manned with conscripts who would only remain in the navy for a single year.

He would not elaborate on the challenges that entailed, but on a complex ship manned by roughly 200 sailors and loaded with armaments including the newly developed Hsiung Feng 3 anti-ship missile, it’s easy to see how swapping out some portion of the staff each year would cause difficulties. And as Taiwan’s 2011 National Defense Report spells out, “the shortening of the compulsory military service period…has resulted in loss of training results as conscripts draw near their discharge once their training is complete.”

A sergeant for the elite marine reconnaissance troops known as the Frogmen – who, legend has it, once had to swim to China from Taiwan’s Kinmen island and come back with a Chinese ear, and later a movie ticket stub, as a part of training – agreed. A four-year period of service, he said, would allow the military to get some returns on the often large amount of spending it lays out in training troops who quickly leave the service.

While weapons sales to Taiwan have garnered far more press in recent weeks, analysts say the conversion to a volunteer service — which proponents say will better ensure Taiwanese troops are effective at using the weapons technology they have — is a key component to Taiwan’s defense. But either way the balance of military power, which is already tilted heavily in China’s favor, will likely continue tip toward China in the coming decades.

That has led to arguments that morale amongst Taiwanese military personnel is flagging. A growing Taiwanese identity, some analysts say, has also hurt the spirit of higher level officers who identify as Chinese and came of age during autocratic rule by the Kuomintang, or Nationalist Party, when the mission of taking back China from the Communist Party was the order of the day. Others contend, however, that the new sense of Taiwanese identity has given many soldiers a refreshed and more up-to-date sense of why they should fight.

As debates about a Taiwanese general who was recently convicted of spying for the Chinese illustrate, the question of troop loyalty is highly political and evidence of flagging morale remains anecdotal. For their part, Mr. Chen and his friends said their immediate superiors showed no lack of patriotism and they themselves, for all their complaints, found conviction in their own Taiwanese identity.

Still, the gap between the older officers in the military and young soldiers is wide. Many older Taiwanese have taken to referring to the island’s youth as the “Strawberry generation” for their supposed softness — the result, the elders say, of being coddled in an era of relative affluence.

While the epithet may be unfair, it remains to be seen how much Taiwan’s younger generation is willing to sacrifice to defend the island, or for that matter, how much they will be required to.

For his part, Mr. Chen said he simply wants what’s best for Taiwan. Likening China to an abusive step-parent, he said Taiwan being apart from China is the best answer right now.

“I would fight and die for Taiwan if it came to that, but everyone hopes it won’t,” he said.

– Follow Paul on Twitter @paulmozur

Reuters

It appears Russian President Vladimir Putin will have to wait at least another year for his shot at China’s peace prize.

This post has been changed since it was first posted. See below.

The future of China’s homegrown alternative to the Nobel Peace Prize was thrown into doubt on Thursday, weeks after organizers offered a shortlist of candidates that included Russian Prime Minister Vladimir Putin.

Organizers first offered the Confucius Peace Prize last year just days before the ceremony that marked the awarding of the Nobel Peace Prize to jailed Chinese dissident Liu Xiaobo. Organizers then said the prize represented China’s views on peace and human rights.

But the organizers apparently didn’t seek permission from China’s Ministry of Culture to offer the prize. According to one group affiliated with the prize, the Chinese Native Art Association, authorities revoked permission to offer it under the name of an officially sanctioned group.

Liu Haofeng, an artist and the Confucius award’s executive chairman, said in an interview that the award would continue outside the auspices of the government. He said he understood the ministry’s decision, saying that another group under the ministry’s supervision planned to offer a similar award next year, to be called the Confucius World Peace Prize, and that there couldn’t be two. “We are a non-government organization and we will keep doing it to express our wishes within the law, no matter how hard it will be,” he said.

A spokesman for the Ministry of Culture referred questions to the ministry department that handles outside groups, which couldn’t be reached Thursday. The Ministry of Culture regulates a large number of outside groups, its representatives have said in the past.

Chinese officials have long distanced themselves from the Confucius Prize. Earlier this month, a Foreign Ministry spokeswoman said the prize was organized by a non-governmental organization and referred questions to it.

The prize was described last year in the state-run Global Times newspaper as a way for “the Chinese to declare China’s views on peace and human rights to the world” and came with a 100,000 yuan (about $15,600) purse. The inaugural winner of the prize–Lien Chan, former vice president of Taiwan and honorary chairman of its Nationalist Party–failed to appear at the awards ceremony last year. Mr. Lien was credited with helping to smooth relations between mainland China and Taiwan.

Earlier this month, organizers said Mr. Putin had been shortlisted for this year’s award. Other nominees included German Chancellor Angela Merkel for “her contribution to regional peace in Europe”; the Panchen Lama, a Tibetan Buddhist figure appointed by Beijing, for “promoting harmony in China”; South African President Jacob Zuma; Yuan Longping, a Chinese scientist known as the father of hybrid rice; Microsoft Corp. co-founder Bill Gates; former U.N. Secretary General Kofi Annan; and James Soong, chairman of Taiwan’s People First Party and a proponent of closer Chinese relations with Taiwan.

Even the revelation of the candidates was not without contention, however. After the names were made public, Tan Changliu, last year’s jury chairman and a member of this year’s jury, told the Global Times that some of the nominees hadn’t yet been approved and that it was “inappropriate to release the name of candidates on which the jury panel has not reached a consensus.”

CORRECTION: Confucius Peace Prize executive chairman Liu Haofeng said that another group under China’s Ministry of Culture planned to offer a similar award next year. That award will be called the Confucius World Peace Prize, he said. An earlier version of this post mistakenly identified Mr. Liu’s group as the one that planned to offer the Confucius World Peace Prize next year.

– Brittany Hite, with contributions from Josh Chin

Reuters

Students wearing Young Pioneer red scarves practise Chinese calligraphy at Renmin square in Chongqing municipality July 15, 2011.

Chinese students’ obsession with learning English is apparent. Chinese cities are littered with billboards and fliers for teaching institutes, and the demand for native-speaking teachers and tutors seems endless. For many, the TOEFL, or Test of English as a Foreign Language, ranks second only to the infamous gaokao college entrance exam as a driver of candle-burning study habits.

Worried that this preoccupation with English is contributing to a decline in native language skills, officials at the Ministry of Education are now trying to get students to return to their linguistic roots. How? By introducing another test.

The newly developed native-speaker Chinese exam measures listening, speaking, reading and writing skills and is meant to promote Chinese people’s “interest and ability in their own language,” Xinhua reports.

The National Education Examinations Authority, a body affiliated with the Ministry of Education, said it will promote the test to job seekers and college applicants before it is introduced nationally. It will be launched on a pilot basis in October in Shanghai, Jiangsu, Yunnan and Inner Mongolia, according to the Shenzhen Daily.

Despite the existence of dozens of local dialects, written Chinese is essentially the same across the country. The speaking portion of the new test will measure proficiency in Mandarin, often described as “standard Chinese” (putonghua).

The exam follows a previous effort by the Ministry of Labor and Social Security, which introduced a native-Chinese-language test in 2004 that failed to gain much traction. The HSK (hanyu shuiping kaoshi), which measures non-native Chinese speakers’ language skills, has been around since the early ‘90s but is targeted at foreigners, overseas Chinese and ethnic minorities.

The test comes amid worrying signs of declining language proficiency in China. More than 30% of students failed a ministry-sponsored test administered last year to evaluate Beijing college students’ language skills, according to Xinhua. Many language instructors and others worry that young people in China are neglecting their mother tongue as technological advances like cellphones and computers have greatly reduced the need to hand-write Chinese characters — of which there are tens of thousands.

Some worry, too, that Chinese students’ language skills have suffered as many have begun to put more focus on studying English.

“In recent years, more and more Chinese people are paying attention to foreign-language studies while neglecting to polish their native language,” Dai Jiagan, director of the authority overseeing the exam, told Xinhua. “And many newly coined, nonstandard Internet phrases are confusing their Chinese.”

There are around 300 million Chinese people learning English, China’s premier Wen Jiabao boasted in a 2009 speech. Last year, ETS, the creator of the TOEFL, said it saw a 30% increase year-to-year in the number of Chinese test takers.

McKinsey & Co. estimates that China’s foreign-language business is worth $2.1 billion annually.

Despite the considerable time and money spent, not all of 300 million of China’s English students are fluent. One report earlier this year by an English-teaching company gave China a “low proficiency” rating, ranking it 29th among 44 nations that speak English as a second language. Another company said many of the 11,000 people it surveyed in China wouldn’t be able to keep up with a business meeting conducted in English.

Chinese students aren’t the only ones who find themselves struggling with language skills. Statistics showed that the most recent U.S. graduating class of 2011 produced the lowest scores ever recorded for the SAT college-entrance exam thanks largely to record-low reading and writing results, while in 2009, only 38% of high-school seniors performed at or above a proficient English reading level (pdf).

Whether China’s students – already exhausted from hours spent texting, typing away on their computers, and cramming for the gaokao and TOEFL (not to mention the GRE and SAT) – will find the new test a sufficient enticement to bone up on their calligraphy remains to be seen.

– Brittany Hite. Follow her on Twitter @brittanyhite

Nelson Ching/Bloomberg News

Soho China Ltd.’s Sanlitun Soho commercial and residential development stands in Beijing, China, on Friday, Aug. 19, 2011.

Over the past few weeks, observers of China’s real estate industry have been treated to songs of woe from analysts, regulators, and Standard & Poor’s rating agency.

But the tune carries further when a Chinese real-estate rock star is singing the blues.

Zhang Xin, the chief executive officer of Soho China Ltd., said Wednesday that in her 17 years in the residential property business she hasn’t faced such a tough market. “This by far the most challenging year in terms of what you can sell,” Ms. Zhang told the Foreign Correspondents Club Shanghai.

Referring to the higher ends of the market, where Soho focuses, she said, “you’re seeing no transactions on the residential side.”

The 46-year-old Ms. Zhang is half of the glamour couple that leads Soho, a Beijing-based developer known for apartments and office buildings that look equal parts IKEA and Star Trek. The former investment banker’s partnership in Soho with husband Pan Shiyi has made them among the country’s wealthiest people.

Echoing complaints she and her husband have made on their Weibo accounts, Ms. Zhang pinned blame for the current slump on government policy, saying developers and buyers alike have no access to credit as Beijing takes aim at inflation and affordability. The industry is “so policy dictated,” Ms. Zhang said, “you spend more time guessing about policy than actually doing your own business.”

She expressed discomfort at Beijing’s efforts to build vast quantities of social housing – “contrary to what they’ve been doing for 15 years” – scoffing that some apartments will rent as low as 70 yuan per month, or about $11. From Ms. Zhang’s PowerPoint slides, she made clear a preference for prices like the 50,000 yuan per square meter that Soho fetched for apartments sold in August, attracting a mob of buyers.

Tight monetary and investment conditions won’t last in the Chinese property market, Ms. Zhang forecast. Pressed to predict when Chinese leaders will loosen their grip, she suggested a window of six months. “Very soon,” she said.

Ms. Zhang kept her commentary spicy Wednesday–there is a reason 2.4 million users track the messages she blasts to Weibo from her white Blackberry. She spoke of a fast-consolidating property market that is stoking “social unrest,” governed by usurious 50% interest rates from underground banks–and, in some cases, she said, inciting suicide.

Things aren’t all glum. Continued jack-hammering from the street outside the boutique hotel where Ms. Zhang spoke Wednesday attested to the fact that development hasn’t stopped in China.

And Soho keeps buying and building, especially in Shanghai these days.

Ms. Zhang showed a video of designs from architect Zaha Hadid with futuristic office buildings that roughly resemble the bullet trains that exit the railway station near where the development is just getting going, Shanghai’s Hongqiao Transportation Hub.

Soho, Ms. Zhang said, has spent 11.4 billion yuan in 2011 making property acquisitions in Shanghai, all of it commercial. She said the government restrictions on residential development make office buildings a safer bet.

The company branched into Shanghai from Beijing when, she said, Morgan Stanley unloaded some property in the east coast city in 2009. Soho is now looking at Guangzhou and Shenzhen, according to Ms. Zhang.

– James T. Areddy. Follow him on Twitter @jamestareddy

Nelson Ching/Bloomberg News

Soho China Ltd.’s Sanlitun Soho commercial and residential development stands in Beijing, China, on Friday, Aug. 19, 2011.

Over the past few weeks, observers of China’s real estate industry have been treated to songs of woe from analysts, regulators, and Standard & Poor’s rating agency.

But the tune carries further when a Chinese real-estate rock star is singing the blues.

Zhang Xin, the chief executive officer of Soho China Ltd., said Wednesday that in her 17 years in the residential property business she hasn’t faced such a tough market. “This by far the most challenging year in terms of what you can sell,” Ms. Zhang told the Foreign Correspondents Club Shanghai.

Referring to the higher ends of the market, where Soho focuses, she said, “you’re seeing no transactions on the residential side.”

The 46-year-old Ms. Zhang is half of the glamour couple that leads Soho, a Beijing-based developer known for apartments and office buildings that look equal parts IKEA and Star Trek. The former investment banker’s partnership in Soho with husband Pan Shiyi has made them among the country’s wealthiest people.

Echoing complaints she and her husband have made on their Weibo accounts, Ms. Zhang pinned blame for the current slump on government policy, saying developers and buyers alike have no access to credit as Beijing takes aim at inflation and affordability. The industry is “so policy dictated,” Ms. Zhang said, “you spend more time guessing about policy than actually doing your own business.”

She expressed discomfort at Beijing’s efforts to build vast quantities of social housing – “contrary to what they’ve been doing for 15 years” – scoffing that some apartments will rent as low as 70 yuan per month, or about $11. From Ms. Zhang’s PowerPoint slides, she made clear a preference for prices like the 50,000 yuan per square meter that Soho fetched for apartments sold in August, attracting a mob of buyers.

Tight monetary and investment conditions won’t last in the Chinese property market, Ms. Zhang forecast. Pressed to predict when Chinese leaders will loosen their grip, she suggested a window of six months. “Very soon,” she said.

Ms. Zhang kept her commentary spicy Wednesday–there is a reason 2.4 million users track the messages she blasts to Weibo from her white Blackberry. She spoke of a fast-consolidating property market that is stoking “social unrest,” governed by usurious 50% interest rates from underground banks–and, in some cases, she said, inciting suicide.

Things aren’t all glum. Continued jack-hammering from the street outside the boutique hotel where Ms. Zhang spoke Wednesday attested to the fact that development hasn’t stopped in China.

And Soho keeps buying and building, especially in Shanghai these days.

Ms. Zhang showed a video of designs from architect Zaha Hadid with futuristic office buildings that roughly resemble the bullet trains that exit the railway station near where the development is just getting going, Shanghai’s Hongqiao Transportation Hub.

Soho, Ms. Zhang said, has spent 11.4 billion yuan in 2011 making property acquisitions in Shanghai, all of it commercial. She said the government restrictions on residential development make office buildings a safer bet.

The company branched into Shanghai from Beijing when, she said, Morgan Stanley unloaded some property in the east coast city in 2009. Soho is now looking at Guangzhou and Shenzhen, according to Ms. Zhang.

– James T. Areddy. Follow him on Twitter @jamestareddy

Wally Santana/Associated Press

In this June 10, 2006 file photo, Taiwan’s opposition People First Party leader James Soong, left, and Nationalist Party leader Ma Ying-jeou wave to supporters during a protest in Taipei, Taiwan. Soong’s announcement last week that he was entering Taiwan’s presidential race could spell trouble for Ma, the incumbent.

Having already disrupted one Taiwan election, in 2000, seasoned politician James Soong could be set to complicate another one.

Mr. Soong, 69–a former heavyweight in the ruling Kuomintang, or KMT, before withdrawing his membership in 2000 to run as an independent– announced his candidacy last week to run for president under the People First Party, which he founded the same year he left the KMT.

While Mr. Soong has insisted his effort is for real, many analysts question his true intentions and speculate that he will likely drop out before Jan. 14, when Taiwan heads to the polls.

For example, according to the Central Election Commission, a party nominee needs 257,695 signatures, or 1.5% of the voting population, in order to be an official candidate. But Mr. Soong has vowed that he will stay in the race only if he collects one million names.

“With his waning popularity, he is fully aware he might not get one million signatures in 45 days. He is setting up a way to bow out gracefully when the time comes,” said Chen Chao-chien, a public affairs professor at Minchuan University.

Mr. Soong’s campaign has declined to elaborate on the number of signatures collected one week into the process, only to say the feedback is “not bad.”

He has flamed out before. His best chance to win the presidential seat in 2000 was shattered by a corruption scandal, in which he vehemently denied wrongdoing. Mr. Soong also lost in 2004, when he was the vice-presidential candidate on the KMT ticket with former Taiwan vice-president Lien Chan.

But none of that may matter this time around. According to the latest poll by Global Views, a local polling service, if Mr. Soong stays in the race, he will likely snatch around 10% of the votes. That gets him nowhere close to the presidency of Taiwan, but it sets him up as a power player in the race between incumbent President Ma Ying-jeou and opposition Democratic Progressive Party chairwoman Tsai Ing-wen, which remains neck-and-neck.

The fear among some in the KMT is that they may face a repeat of 2000. Mr. Soong’s presence as a third candidate caused a rift within the party, letting the Democratic Progressive Party wrest control of the government from the KMT for the first time in a half century. DPP’s Chen Shui-bian, now in detention for corruption charges, held office for the next eight years before Mr. Ma led the KMT back to power in 2008.

The KMT already issued a public plea to Mr. Soong, calling the two parties “one big family” and saying that the president regards him as a senior figure with influence.

Mr. Soong’s move could be a way to revitalize the PFP, which has no seat in the current legislature after losing most of its lawmakers to the KMT, says Mr. Chen, of Minchuan University. Winning 5% of the legislative seats which will allow the party to set up a caucus, said the professor.

If that’s the case, some observers say, then Mr. Soong may have to finish the race. “Dropping out would cast doubts over his credibility, thus damaging the chances for the PFP legislative candidates,” said Wang Yeh-li, head of the National Taiwan University political science department.

Mr. Soong most divisive influence could be felt on discussions of Taiwan’s relationship with mainland China. Mr. Soong, the only candidate who has shaken hands with Chinese President Hu Jintao, could attract the votes of the older pro-unification die-hards who might ditch Mr. Ma for not forging a closer ties with China.

Asked by a reporter at a Wednesday press briefing if Soong’s candidacy would help “another group opposed to the 1992 consensus,” an oblique reference to the pro-independence DPP, Fan Liqing, a spokeswoman for China’s Taiwan Affairs Office of the State Council, declined to comment:

“We never comment on the island’s (Taiwan’s) internal elections,” Ms. Fan said, according to a transcript of the briefing posted on the State Council website. “From the standpoint of cross-strait relations, we hope the two sides can maintain stable development of relations, and hope compatriots on both sides will uphold the peaceful development of relations.”

Ties between Taiwan and China have warmed since Mr. Ma took office. But Beijing still considers Taiwan part of China and won’t abandon military options as a way to unify the country. Ms. Tsai’s DPP favors Taiwanese independence.

Mr. Soong’s effort is being watched closely both inside and outside Taiwan. As Yuanta Securities pointed out in a note, some pundits still believe that Ralph Nader’s 1.6% share of the U.S. presidential vote in Florida 11 years ago may have cost Al Gore the White House.

– Jenny Hsu, with contributions from Aaron Back

Agence France-Presse/Getty Images

Russia’s Prime Minister Vladimir Putin sits inside a T-90AM tank during a visit to an arms exhibition in the Urals town of Nizhny Tagil, on September 9, 2011.

He’s proven he can race a Formula 1 car, take down an opponent in judo, excavate archaeological digs and play piano. So what more does Russian Prime Minister Vladimir Putin have left to accomplish?

How about winning China’s “peace prize”?

Mr. Putin has been named a contender for this year’s “Confucius Peace Prize,” the Chinese alternative to the Nobel Peace Prize established last year by a Chinese NGO just days before the Nobel went to jailed Chinese dissident Liu Xiaobo.

Nominees for the award were announced by Liu Haofeng, executive chairman of the award, on Saturday, according to AFP. In addition to Mr. Putin, those making the shortlist include German Chancellor Angela Merkel, nominated for “her contribution to regional peace in Europe”; the Panchen Lama, for “promoting harmony in China”; South African President Jacob Zuma; Yuan Longping, a Chinese scientist known as the father of hybrid rice; Microsoft co-founder Bill Gates; former U.N. Secretary General Kofi Annan; and James Soong, chairman of Taiwan’s People First Party.

The Panchen Lama, appointed by Beijing, is second-highest ranking lama in the Gelug school of Tibetan Buddhism and was also a finalist last year, as was Mr. Gates.

Mr. Liu told AFP the award had been set up by an association overseen by China’s culture ministry. Last year, when asked by China Real Time whether the Ministry of Culture had any relationship with the Confucius Prize awards committee, a ministry spokeswoman said: “There are so many organizations affiliated with the ministry. It’s hard for us to check.”

But even the revelation of the candidates has not been without controversy, with a member of the Confucius Prize’s jury criticizing Saturday’s announcement as having been made before the jury had approved the candidates.

Tan Changliu, last year’s jury chairman and a member of this year’s jury, told the state-run tabloid Global Times on Sunday that some of the nominees had not yet been approved, but declined to elaborate on which ones.

“It is inappropriate to release the name of candidates on which the jury panel has not reached a consensus,” Mr. Tan told The Global Times.

Last year, Lien Chan, Taiwan’s former vice president and the honorary chairman of its Nationalist Party, was awarded the prize – which includes 100,000 yuan, or about $15,700 — for having “built a bridge of peace between the mainland and Taiwan,” though he did not appear at the prize’s awards ceremony. The prize was described in a statement last year as “the Peace Prize reconstructed according to Oriental thought.”

It’s unclear what Mr. Putin has done to deserve nomination for a peace prize, particularly given his role in helping launch Russia’s second war with Chechnya in 1999 — though the awarding of the 1994 Nobel Peace Prize to Palestinian leader Yasser Arafat (along with Shimon Peres and Yitzhak Rabin) was criticized along much the same lines.

Maybe it was this image of the Russian leader cuddling with a puppy that swayed the award committee?

In any case, Mr. Liu told AFP that the winner of the Confucius Prize will be announced Dec. 9 — a day before the Nobel ceremony in Oslo. This year’s Nobel Peace Prize will be announced Oct. 7 from a record 241 nominations.

– Brittany Hite. Follow her on Twitter @brittanyhite

Twentieth Century Fox

Angelababy and Jing Boran feature in a storyline from ‘Love in Space,’ one of a growing number of Chinese romantic comedies.

In Hollywood, the romantic comedy is well into humdrum middle age. But in China, the genre is still in its honeymoon phase.

Rom-coms have been growing in popularity in China in recent years as audiences’ tastes change and the mainland movie industry develops. Those tapping the trend include co-directors Tony Chan (陳國輝) and Wing Shya (夏永康), who scored a hit last year with “Hot Summer Days” (全城熱戀熱辣辣). The movie wove multiple stories and blended big-name stars with a snappy script and playful visual effects. It earned 128.3 million yuan (US$20 million) at the box office — on a budget of US$2 million — according to media-research firm EntGroup Inc.

“At that time it was pretty new in China. A modern love story, creative ideas, a lot of movie stars,” Mr. Chan says.

The duo’s latest film follows the winning formula. “Love in Space” (全球熱戀) is a star-studded comedy about the romantic adventures of three sisters. (One storyline is set in a space station, hence the film’s title.) The movie had a budget of US$6-7 million — triple the budget of their previous film and high by Chinese standards for a romantic comedy. It stars A-listers from across east Asia: Aaron Kwok, René Liu (劉若英), Eason Chan (陳奕迅), Kwai Lun Mei (桂綸鎂), Angelababy (楊穎), Jing Boran (井柏然) and Xu Fan (徐帆).

The film is a co-production between Fox International Productions and Huayi Brothers, together with Sundream Motion Pictures (Hong Kong). Fox is owned by News Corp., which publishes The Wall Street Journal. It’s currently playing in China and other parts of Asia. Messrs. Chan and Shya met several years ago on the set of “Blood Brothers” — a movie produced in their native Hong Kong. Both studied film in North America before returning to Asia. They are now collaborating on two new projects: a contemporary action movie and period martial-arts film. They spoke with the Journal.

The Wall Street Journal: Are big-name stars essential for comedies?

Mr. Chan: In Asia, it’s really important. It’s a very movie-star driven [environment]. To get people into the theater you almost need a superstar, unless you’re a big Hollywood, special-effects movie. If you don’t have a movie star to draw them in the first weekend, then how do you open a film?

Continue reading on Scene

Alexander F. Yuan/Associated Press

A woman poses for photos with an art installation of a huge renminbi banknote in Beijing, China.

Confused about whether controlling prices or supporting growth is the top priority for China’s government? You are in good company. A look at the recent statements of Premier Wen Jiabao suggests the confusion goes right to the top.

Back in June, the latest data showed the increase in consumer prices leveling off at 5.5% year-to-year. Mr. Wen declared early victory in the fight against inflation. Writing in an opinion piece in the Financial Times on June 23, he said: “China has made capping price rises the priority of macroeconomic regulation and introduced a host of targeted policies. These have worked. The overall price level is within a controllable range and is expected to drop steadily.”

That seemed a bit premature and a few days later on 26 June Mr. Wen was striking a more cautious note. He admitted that the government’s 4% target for the CPI might be out of reach, and said the government must “put stabilizing prices at the forefront.”

In July, the data for June showed consumer prices rising higher than expected, up 6.4% year-to-year. The premier remained on the inflation warpath, saying in a statement on July 12 that the “overall direction of policy is unchanged” and reiterating the commitment to cooling prices (in Chinese). But a few weeks is a long time in a tempestuous global economy, and in August the focus of attention shifted again. With the recovery in the U.S. and Europe looking fragile and financial markets in freefall, a statement from the State Council on August 9 struck a dovish tone.

In the statement, the State Council – which is chaired by Mr. Wen – focused on risks to the global recovery and omitted mention of price stability as the main priority of macro-economic policy (in Chinese). Despite inflation coming in at a three year high of 6.5% for July, the markets interpreted that omission as a sign the tightening cycle was drawing to a close.

The premier’s latest statement, which came in remarks published in the official Qiushi magazine at the beginning of September, suggested a shift back in the other direction. Mr. Wen said that the slowdown in growth had been the “appropriate” result of previous tightening measures and that stabilizing prices was still the government’s top priority (in Chinese).

But eagle eyed analysts noticed signs that the premier’s statement also revealed concern over the risks of excessive tightening, with a section focused on the risks facing the real economy from higher input costs, labor costs, electricity shortages and an appreciating yuan. It was important, Mr. Wen said, “to prevent the lagged impact of monetary policy and other factors having an excessive impact on the real economy in the period ahead.”

Paul Cavey, China economist at Macquarie, says that part of the reason for the mixed messages is genuine confusion amongst China’s leaders about what to do. “Pre-crisis China could achieve super-high rates of GDP without much inflation,” Mr. Cavey wrote in a note to clients. “But that period of Goldilocks now seems in the past. As a result, policymaking now involves trade-offs, and the mixed comments of Mr. Wen likely reflect a government grappling with just where to strike the balance between jobs and prices.”

Adding to the confusion; different interest groups within China’s own government have conflicting ideas on where the balance should be struck. Inflation hawks at the People’s Bank of China would dearly love to keep the focus on stabilizing prices. The pro-growth lobby – composed of China’s local government, industry, and real estate sector – would prefer it if Mr. Wen loosed the reigns.

Who will win the argument? The jury is still out. But the pro-growth camp might get a little support when inflation data for August is released this Friday. The consensus forecast of economists polled by Dow Jones is for the increase in consumer prices to ease down to 6.1% year-to year, from 6.5% in July – weakening the case for a continued focus on tightening.

– Tom Orlik

Eric Feferberg/Associated Press

When traveling in the countryside, Mr. Hu (right) apparently prefers more hirsute company than French President Nicolas Sarkozy (left).

President Hu Jintao might be greeted by unshaven villagers wearing old clothes when he travels to the countryside to share a meal with locals. If so, then everything went according to plan.

A recently released Wikileaks cable provides a rare and detailed glimpse into the degree of stage managing involved when Mr. Hu makes domestic visits, usually with state-run news agencies in tow. The cable describes a great deal of secrecy over Mr. Hu’s identity, keeping local officials in the dark until the president himself arrives, as well as measures that include keeping the temperature of home cooking oil low so he won’t be scalded while helping locals prepare a meal.

Mr. Hu’s domestic trips are regularly the top story on China’s national evening news. His meetings with farmers, factory workers and schoolchildren, among others, harken to the party’s populist roots and are a chance for the propaganda apparatus to soften Mr. Hu’s often rigid outward persona.

The cable is based on an interview between embassy staff and a former ranking local party official, whose poverty-stricken district in the northwestern province of Gansu Mr. Hu visited during the Chinese New Year holiday in 2007.

Ten days before Mr. Hu’s visit, an advance team from Beijing arrived to tell the local leader that a ranking party member would be visiting, though its members never revealed that Mr. Hu was the expected visitor. Then, three days before Mr. Hu would arrive, the advance team chose a farmhouse in one of the district’s villages where Mr. Hu would share a traditional New Year’s meal.

Officials finally chose the home of 70-year-old Li Cai, a longtime party member.

“The house appealed to the General Office advance team not only because it looked rustic…but Li himself sported a long beard that made him the epitome of a weathered Gansu farmer,” the cable read.

With the location chosen, officials ordered that nothing be changed. Party officials fear local cadres would try to spruce up a house too much, and the local officials ordered Mr. Li not to shave his long beard.

The cable goes on to describe the meal itself:

Word came from the General Office that “the visitor” wanted to make meat dumplings with the family…even though it was not the local custom. Another part of the meal, a genuine local tradition of frying twisted dough sticks in a wok of boiling oil, presented the serious risk of hot oil splashing on Hu Jintao. The solution…was to heat the oil to 70 percent of the normal temperature and give Hu an extra long set of chopsticks. When it came time to eat, Hu’s own undercooked portion was set aside in favor of properly fried dough sticks that had been prepared earlier.

Stage managing the trips of top political leaders isn’t unique to the Chinese. There was no shortage of photo-ops during Vice President Joe Biden’s recent trip to the country, for example. In one case, shortly after Mr. Biden finished a private tea in the city of Dujiangyan in the southwestern province of Sichuan with his Chinese counterpart, Vice President Xi Jinping, the two men chatted casually (at least as casually as the vice presidents of China and the U.S. are capable) on the city’s idyllic South Bridge. More than 100 journalists, State Department and Foreign Ministry officials looked on, not to mention a small army of U.S. Secret Service.

So, what to do when a scripted moment goes astray? The cable describes a moment from Mr. Hu’s 2007 visit to Gansu, when the young granddaughter of wispy-bearded Mr. Li refused the local potato variety Mr. Hu offered her. The child complained she was tired of eating them.

“The family eventually cajoled the girl into accepting,” the cable read. A shot of Mr. Hu and the young girl together sharing the local specialty was later broadcast on the national evening news.

(CCTV footage of Mr. Hu’s visit to the Li household can be viewed here, starting at around the 5:30 mark)

– Brian Spegele. Follow him on Twitter @bspegele.

Associated Press

A worker is silhouetted against the lighted wreckage of train cars during a clean up operation in Wenzhou, east China’s Zhejiang Province, on Monday, July 25, 2011.

It was a pretty short-lived moment in the sun for Dagong Global Credit Rating Co.

On August 2 Dagong downgraded the sovereign credit rating it gives the U.S. just days in advance of a similar move by Standard & Poor’s. While not a huge surprise – it was the second time Dagong had downgraded the U.S. – its timing and prescience were seemingly a feather in the cap of the upstart rater.

And yet things were already falling apart for China’s would be champion of global fiscal rectitude by August 8. That was the day China’s Ministry of Railways sold 20 billion yuan worth of 90 day bills, the first time the debt-laden government agency had gone back to the market to raise funds since the country’s high-speed train disaster the previous month.

Dagong rated the debt AAA. Given concerns over the size of the Ministry’s debt burden and questions about its ability to generate enough free cash flow to cover interest payments, that was always likely to raise eyebrows. The market certainly had its doubts about the Ministry’s credit worthiness, demanding a higher yield to hold its bonds.

But given the Railways Ministry is backed by the financial might of the Chinese government there wouldn’t seem to be even a marginal likely of default.

The problem: Dagong’s sovereign rating for China is only AA+.

“Given the Ministry of Railway’s large debt burden and serious corruption problems, giving it a rating higher than the sovereign level can’t help calling in question Dagong’s expertise,” Chinese business magazine Caixin cited Peking University professor Huang Yiping as saying Monday (in Chinese).

“Just two weeks after the shocking accident and Dagong shows such an absolute confidence in the debt-ridden…Ministry of Railways,” read a commentary published in the Southern Metropolis Daily on Tuesday (in Chinese). It noted that Dagong had also given a AAA rating to a local government-backed company set up to fund infrastructure investment, a level higher than that it gives U.S. government Treasurys.

“This is like saying it’s safer to save money in the illegal private banks of Wenzhou than to save money in a Swiss bank,” it said.

Media reported that Dagong said the methodology for rating corporate debt differs from that for sovereigns without providing specifics. Dadong did not immediately respond to a request for clarification.

But the controversy points to a deeper problem.

Even as Dagong tries to set itself up as an alternative to the big three global ratings agencies, it and its fellow Chinese raters play only a marginal role in China with little need to take responsibility for the ratings they assign. Most companies that issue bonds in China are government-backed. With little chance of the companies they rate defaulting, raters can class debt as investment grade knowing the risk ultimately resides with the authorities.

Still, at least this time Dagong’s primary sin is that it appears – however inadvertently – to be enabling the currently most reviled institution in China to continue with business as usual, entitling it to at least a portion of the anger and frustration hitherto reserved for the ministry.

“A lot of risks still lie ahead” for the Railways Ministry, a person writing under the name Yu Fenghui commented on Sina Weibo, China’s most active Twitter-like microblogging service. “It’s utter nonsense for Dagong to give them a triple-A rating.”

– Dinny McMahon, with contributions from Sue Feng

Associated Press

A wrecked passenger carriage is lifted off the bridge in Wenzhou in east China’s Zhejiang province, on Sunday, July 24, 2011.

China’s major banks may have pledged that last month’s tragic high-speed rail crash would not prompt them to raise the cost of borrowing for the Ministry of Railways, but the market is proving to have no such reservations.

On Monday the Railways Ministry, one of the biggest issuers of debt in the country, launched its first bond sale since the crash on July 23. It sold all 20 billion yuan ($3.11 billion) worth of three-month bills on offer in the interbank market, but promises to pay an annualized return of 5.55%, a relatively high rate for government paper.

“The railway ministry had to set a sky-high indicative yield range to ensure sufficient demand for its debt offering at a time the latest deadly train crash has hurt investors’ confidence in holding the ministry’s paper,” said a Shanghai-based trader with a local brokerage. The range was set at 5.22% to 5.72%.

Analysts have been warning for the last couple of weeks that the fallout for the ministry from the crash is likely to be as much financial as political. While there is no doubt the ministry can make good on its debts – after all, it’s part of the government – the accident has turned the popular mood against it and the high-speed rail project it’s been racking up the debts to fund.

At the end of June, the Ministry of Railways’ outstanding debt rose to 2.09 trillion from 1.98 trillion yuan at the end of the first quarter. That accounts for roughly 5% of China’s gross domestic product, up from about 2% in 2007.

Moreover, data disclosed by the ministry in a recent bond prospectus raised questions about its ability to generate enough revenue to have the cash to cover its debt repayments, raising the prospect of a bailout of its finances and even a dismemberment of the ministry itself.

Concerns that the ministry would see its cost of borrowing go up despite its sovereign rating were countered last week by local media reports that the big five banks would continue to lend to it (in Chinese).

“Our loans to the railway network are of good quality and we won’t stop our cooperation with the Railway Ministry,” China Construction Bank said in response to questions from the Wall Street Journal. “The loans we make to the ministry are priced solely on market-based and commercial principles.”

Investors weren’t similarly inclined. Even before the crash, Ministry of Railways paper was losing popularity. In its last sale, only a couple of days before the crash, the 20 billion yuan worth of one-year bonds it had on offer weren’t fully subscribed to.

Monday’s interest rate was higher than the 5.20% rate on the ministry’s three-month bills traded on the secondary market. It also compared unfavorably with the 4.12% rate on five-year bonds sold by the Ministry of Finance on behalf of local governments Monday.

Ministry of Railways bonds aren’t a perfect substitute for Ministry of Finance bonds. Typically they offer a higher yield because investors need to pay tax on the interest of Ministry of Railway bonds, whereas Ministry of Finance bonds are tax-free.

Still, there’s little doubt the market is punishing the Railways Ministry. Even the three-month maturity on the debt appears to be an exercise by the ministry in testing the waters with investors. The purported use for the bond proceeds – to buy trains and finance railway construction – would seem to warrant a significantly longer time commitment. A short maturity means a lesser commitment from investors already of two minds about whether the ministry should continue aggressive expansion of the high-speed rail network.

On the other hand, maybe investors are wary of buying longer-term debt from an agency – government or otherwise – that might not be around for much longer.

– Wang Ming and Dinny McMahon

David Gray/Reuters

An Air China Boeing 737 passenger jet takes off as a China Southern Airbus A321-231 taxis at the Beijing airport in this January 11, 2008 file photo.

While a series of glitches in China’s trophy high-speed rail route linking Beijing and Shanghai have been a headache for the country’s rail authorities, they’ve managed to make at least one group smile.

No, it’s not Kawasaki and the other foreign bullet-train producers. Angry as they may be with China over what they describe as questionable intellectual property claims, problems with the new high speed line aren’t likely to help their cause much.

Instead, it’s the airlines that offer service between Beijing and Shanghai.

According to a report Monday in the state-run China Daily, airlines stopped giving deep discounts and started charging higher prices for air tickets between the two cities over the weekend, taking advantage of a string of delays caused by malfunctions on the Beijing-Shanghai high-speed train line last week.

Based on information available on Ctrip.com, an online travel service, China Daily said the cheapest price for a flight from Beijing to Shanghai in the following four days was 720 yuan ($111) before taxes and other surcharges. That amounts to a 36% discount on the full ticket price of 1,130 yuan. Most tickets were being offered at full price, and only a few came at a 20% discount, the newspaper said.

In contrast, airlines were selling tickets as low as 360 yuan immediately after the highly-heralded high-speed train line opened on June 30. Passengers traveling on the line pay 555 yuan for a one-way, economy-class ticket between Beijing and Shanghai.

The airlines’ move comes after a series of power failures last week led to stoppages on a few dozen trains along the Beijing-Shanghai line, leading China’s powerful Ministry of Railways to issue profuse apologies.

The combination of speed and reliability promised by the new rail link was supposed to deal a major blow to air travel between Beijing and Shanghai, which has long been notorious for delays caused by everything from poor weather to the monopolization of large tracts of Chinese domestic air space by the military.

On Thursday, Wang Yongping, spokesman for China’s powerful Ministry of Railways, expressed regret for those glitches during an online chat, which was later posted on the ministry’s website. Mr. Wang blamed the train delays on power outages and other malfunctions as he provided some technical details.

“The malfunctions haven’t affected the overall safety” of the rail line, the rail spokesman said. “Our technology and equipment are still very advanced and qualified. China’s high-speed rail will show better performance in the future once the current spate of malfunctions is resolved.”

The new line, he noted, was “still in a break-in period.”

Mr. Wang’s apology last week followed an incident on July 13 during which service on the line was temporarily halted after one of the trains broke down, causing hundreds of passengers to have to transfer to another train to complete their journey.

–Norihiko Shirouzu

Vincent Yu/Associated Press

“Beginning of the Great Revival” actors celebrated the movie’s premiere in June. The lauded film has failed to live up to much of the hype surrounding its release.

The epic film about the founding of the Chinese Communisty Party with a star-studded cast that was promised to bring glory and praise from an adoring public seems to be failing to live up to the hype.

According to box-office figures, last week Peter Chan’s kung-fu thriller “Wu Xia” stole the No. 1 spot from the propaganda-fueled “Beginning of the Great Revival,” pulling in 101 million yuan ($15.6 million) for the week ended July 10, more than three times that earned by “Revival” during the same period.

There were previous allegations that state-owned companies were forced to buy “Revival” tickets (or were given them for free), and the latest controversy came last week after tickets for the film – also known as “The Founding of the Party” – were found with the titles crossed out and replaced with those of competing films, such as “Kung Fu Panda 2” and, ironically enough, “Wu Xia” itself.

According to the Associated Press, the counterfeit tickets were found at the Guangzhou-based Jinyi International Cinemas chain; Jinyi was one of two chains in Guangzhou responsible for the province’s leading national ticket sales in the first few days of the movie’s release. Jinyi’s representatives could not be reached for comment.

Much of the initial buzz for the film centered upon its depiction of history and its cast, including celebrities such as Chow Yun-Fat and Andy Lau — many of whom chose to work for free — with the added momentum from the “red campaign” leading up to the Communist Party’s 90th anniversary July 1. Following its June 15 premiere, Chinese movie insiders were quoted as saying they expected the film to “break Chinese box office records.”

A companion piece to 2009’s “The Founding of a Republic,” the movie depicts the events leading up to Mao Zedong’s involvement with the Communist Party.

But the film has so far earned only about 348.45 million yuan ($54 million) at the box office. By comparison, James Cameron’s “Avatar” earned $73.2 million during its first two weeks in China last year and a gross total of $204 million. Additionally, representatives of the China Film Group, responsible for the production of the movie, have been fighting rumors that they set a gross goal of 800 million yuan, which it now seems unlikely to make. China Film Group, which couldn’t be reached for comment, has denied that claim.

Reviews of “Beginning of the Great Revival” have been lukewarm at best, giving the majority of praise to the sets,cinematography, costuming and acting. On the online Internet Movie Database—which has long been blocked in China—the movie currently has a score of 2.1 on a scale of 10, with 3,638 votes. Additionally, many of the movie’s negative reviews have been erased by Chinese censors. Users on Weibo found that overtly dismissive comments regarding the quality of “Beginning of the Great Revival” were deleted after being posted.

One bitter user writes on the IMDB message board: “I can’t even access IMDB, so I have to buy a VPN… Why? Because of the party in this movie.”

There have also been reports of viewers of the film finding themselves alone in empty theaters. One optimistic Weibo user took a picture of several rows of empty chairs in front of his seat, with the caption, “Tonight I am VIP!  Beginning of the Great Revival!”

–Melissa Powers

We Distribution

It wasn’t the fact that kung-fu star Donnie Yen topped China’s box office that was surprising. The surprise was what it pushed aside on the charts.

The martial-arts movie “Wu Xia” starring Mr. Yen powered to the top of China’s box office last week by overtaking “Beginning of the Great Revival,” a heavily promoted, government-supported propaganda epic about the early days of the Communist Party.

“Wu Xia,” which opened July 4, pulled in 101 million yuan ($15.6 million) for the week ending July 10, according to Beijing-based media-research firm EntGroup Inc., more than three times the 31.3 million yuan earned by No. 2 “Revival.”

That film, whose all-star cast includes Chow Yun-fat, Fan Bingbing, Andy Lau, Liu Ye and Daniel Wu, covers China’s history from the fall of the Qing Dynasty in 1911 to the founding of the Communist Party in 1921.

Continue reading at Scene Asia.

So there must be a few red faces over the spate of glitches that have befallen the system’s most trumpeted line.

On Wednesday, service on the Beijing-Shanghai line was temporarily halted after one of the trains broke down, causing hundreds of passengers to have to transfer to another train to complete their journey. It was the third delay in four days on the line, which officially launched on June 30 with Premier Wen Jiabao among its inaugural riders. Power failures caused 29 trains to be stopped on Tuesday, after a similar mishap halted 11 trains Sunday.

Wednesday’s breakdown happened at a stop in Changzhou in the eastern province of Jiangsu, the Xinhua news agency reported, citing a spokesman for the Shanghai Railway Bureau. The spokesman didn’t specify the cause, it said. Tuesday’s incident occurred in a section between Bengbu and Suzhou. The Chinese Ministry of Railways posted a statement the same day apologizing for the accident.

“Due to malfunction of power supply infrastructure near Suzhou section of Beijing-Shanghai high-speed rail line, multiple trains were delayed. The breakdown was resolved after intensive repair. All delayed trains resumed operation,” the ministry said in the statement. “The railway authorities apologize to passengers for the inconvenience the delay caused.”

The July 10 incident occurred in the Qufu-Tengzhou-Zaozhuang section of the line due to stormy weather, according to Chinese media reports, including one by the People’s Daily.

While details of the incidents remain unclear, the malfunctions are causing some doubts among experts on China’s expertise in operating high-speed trains.

“It leaves a question mark on China’s operational know-how,” said an executive with one of the four foreign companies that sold China high-speed technology several years ago. He said it is tough to make any definitive judgment because of the dearth of information. “In Europe and Japan, operators are more upfront and honest in disclosing information relating to accidents and malfunctions.”

If this keeps up, Railways Ministry officials may have to eat some humble pie. After all, a high-speed train isn’t any faster than a low-speed train when it’s standing still.

–Norihiko Shirouzu and Yoli Zhang

So there must be a few red faces over the spate of glitches that have befallen the system’s most trumpeted line.

On Wednesday, service on the Beijing-Shanghai line was temporarily halted after one of the trains broke down, causing hundreds of passengers to have to transfer to another train to complete their journey. It was the third delay in four days on the line, which officially launched on June 30 with Premier Wen Jiabao among its inaugural riders. Power failures caused 29 trains to be stopped on Tuesday, after a similar mishap halted 11 trains Sunday.

Wednesday’s breakdown happened at a stop in Changzhou in the eastern province of Jiangsu, the Xinhua news agency reported, citing a spokesman for the Shanghai Railway Bureau. The spokesman didn’t specify the cause, it said. Tuesday’s incident occurred in a section between Bengbu and Suzhou. The Chinese Ministry of Railways posted a statement the same day apologizing for the accident.

“Due to malfunction of power supply infrastructure near Suzhou section of Beijing-Shanghai high-speed rail line, multiple trains were delayed. The breakdown was resolved after intensive repair. All delayed trains resumed operation,” the ministry said in the statement. “The railway authorities apologize to passengers for the inconvenience the delay caused.”

The July 10 incident occurred in the Qufu-Tengzhou-Zaozhuang section of the line due to stormy weather, according to Chinese media reports, including one by the People’s Daily.

While details of the incidents remain unclear, the malfunctions are causing some doubts among experts on China’s expertise in operating high-speed trains.

“It leaves a question mark on China’s operational know-how,” said an executive with one of the four foreign companies that sold China high-speed technology several years ago. He said it is tough to make any definitive judgment because of the dearth of information. “In Europe and Japan, operators are more upfront and honest in disclosing information relating to accidents and malfunctions.”

If this keeps up, Railways Ministry officials may have to eat some humble pie. After all, a high-speed train isn’t any faster than a low-speed train when it’s standing still.

–Norihiko Shirouzu and Yoli Zhang

Reuters

Hong Kong-based Eagle Vantage Asset Management wants to turn the decommissioned U.K. HMS Ark Royal aircraft carrier, seen here in 2010, into a luxury shopping mall.

After Chinese entrepreneur-turned-tycoon Huang Guangyu was sentenced to 14 years in jail for bribery and insider trading, many expected his grand business days would be swept out to sea. Now his corporate underlings are angling to ensure they really will be.

Eagle Vantage Asset Management, controlled by Mr. Huang, has placed a bid to buy retired U.K. aircraft carrier HMS Ark Royal, according to Eagle Vantage executive Zhao Qiguang. The Hong Kong-based asset-management company wants to transform the nearly 700-foot, 22,000-ton U.K. Royal Navy carrier into what would undoubtedly become the world’s largest buoyant luxury shopping mall.

Since the winning bid hasn’t yet been announced, precise details of the luxury carrier haven’t yet been worked out, Mr. Zhao said. But the potential is big, he said, adding that Eagle is floating ideas to sell everything from luxury jewelry and fashion to high-end yachts and private jets. The project, if Eagle wins the bid, would anchor just off the coast of Hong Kong.

The HMS Ark Royal is up for grabs thanks to the U.K. Ministry of Defence, which auctions off old equipment, such as carriers, to trim back its budget. The Ministry even makes some of its old products available for sale online through the U.K. government-affiliated website edisposals.com: Interested in a Lightning T5 aircraft, with no engines? Start the online bidding process by clicking “add to cart.”

Bidding for the Ark Royal closed last week, and Britain’s Ministry of Defence said it received several offers, though it declined to reveal how many, or from whom, and said it will take at least two months to select a winner.

Eagle’s bid was reported Tuesday by Agence-France Presse. Mr. Zhao declined to disclose financial details of the offer.

China is slowly becoming a retirement home for old carriers. Several decommissioned Soviet carriers have successfully reclaimed new lives off the country’s coast. Minsk, a 1978-launched flagship of the Soviet Union’s Pacific Fleet, has taken on a new identity as a military theme park bordering the southern city of Shenzhen and has attracted millions of visitors since it opened in 2000. China’s state-owned conglomerate Citic Group currently runs the Citic Minsk World park, having bought it in 2006 for $16 million, according to state-run media China Daily.

In 2003, the northern Chinese city Tianjin committed $726 million to building its own military theme park on 24,000-ton carrier Kiev, active from 1975 to 1994, according to state media Xinhua News Agency.

Eagle’s attempt is likely to sink due to a European Union embargo on arms sales to China that was imposed in response to the 1989 military crackdown on pro-democracy protests around Tiananmen Square. China could, in theory, glean potentially valuable information about the design of the Ark Royal’s hull.

With Mr. Huang behind bars, Mr. Zhao is spearheading the Ark project and says Mr. Huang is not directly involved.

Mr. Huang, once China’s richest man, is known for rocking the boat. As the founder and majority-stake holder of Chinese retailer Gome Electrical Appliances Holdings Ltd., Mr. Huang waged last year a battle to unseat Gome’s chairman, who took the reins of the company after Mr. Huang was detained in 2008 and sentenced a year later. His attempt to overthrow the chairman and run the company from his jail cell was not successful.

Eagle hopes the next endeavor will be.

–Laurie Burkitt, with contributions from Jeremy Page and Yoli Zhang

Agence France-Presse/Getty Images

Taiwan actress Wang Tsai-hua, left, and Ke Chia-yen promote their film “Night Market Hero” in Taipei this week.

On July 12, the Taiwanese film “Night Market Hero” will open in 14 Chinese cities, becoming the first under new regulations that exempt Taiwanese movies from Beijing’s import quotas that limit the release of foreign films (only 50 a year are allowed in the mainland). The movie centers on a band of food hawkers seeking to save their night market from being turned into an apartment block by a corrupt politician and an unscrupulous developer.

Although the Taiwanese government has billed the movie—which features iconic night-market treats like peppered steak and fried chicken— as a potential boon to tourism, the release also marks an opportunity for Taiwan’s film industry, past its glory days in the ’80s and ’90s when directors like Edward Yang and Hou Hsiao-hsien were putting out movies that still feature prominently in the pantheon of Chinese-language cinema.

It remains to be seen how much money “Night Market Hero,” which will be released in mainland China by Bona Film Group Ltd. can bring in—US$4.9 million in Taiwan—but for a film industry with a domestic audience of only 22 million, every little bit counts. When the 2008 Taiwanese hit “Cape No. 7” was released in mainland China it earned only 20 million yuan (US$3.1 million), large by Taiwan standards, but peanuts by Chinese standards, says Wen-ching Chu, the head of Taiwan’s Government Information Office department of motion pictures.

That puts some pressure on “Night Market Hero,” which Mr. Chu says has the eye of many Chinese film distributors looking to gauge how popular Taiwanese films will be in the Chinese market. Judging by the popularity of Taiwanese television in China, there will undoubtedly be interest. The common cliche in Taiwan is that mainland Chinese tourists who visit the island often fail to leave their hotel rooms at night they are so taken by evening variety shows.

But “Night Market Hero” faces a unique set of challenges. True to the local side of Taiwanese culture it depicts, the movie is in the Hokkien dialect, spoken across Taiwan but incomprehensible to most residents of cities such as Beijing, Shanghai and Chongqing, where the movie will play. According to Mr. Chu, the movie will be translated into Chinese slang, but there is a strong possibility the translations of the dialect, which has its own sayings and jokes, will fall flat in Mandarin.

Still, even if the translation doesn’t sparkle, the movie’s political elements may resonate with mainland audiences at a time when independent politicians are increasingly declaring their candidacy in county and township elections. In the film, the market democratically elects the film’s protagonist to stand up against the more powerful forces that want to shut it down. The rest of the characters, meanwhile, are free to protest and harness the power of the media to spread word of their plight.

In Taiwan there is a well-worn idea that the best solution to the seemingly intractable cross-Strait political divide is for Taiwan to influence the mainland from within, holding itself up as an example of a democratic model.  One way to promote that model is through movies, assuming they can get past the government’s censors, as “Night Market Hero” did.

And even if future movies do less to propel political ideas—the next Taiwanese movie slated to come out in the mainland is a romantic comedy called “L-O-V-E” –the larger China market offers great potential for a Taiwanese film industry that has often had much to say, but rarely enough people to say it to.

–Paul Mozur and Jenny W. Hsu

AP

Then-Chinese President Jiang Zemin delivers the eulogy at a memorial for Deng Xiaoping in 1997.

Amid the rampant speculation that former Chinese President Jiang Zemin is near death and the Chinese government’s efforts to tamp it down, one thing remains certain: at some point, Mr. Jiang will pass away. And when he does, among the vexing questions facing Communist Party leaders will be what kind of funeral should they arrange, and whether they should invite foreign dignitaries to attend.

Whenever Mr. Jiang dies, he will be the longest-serving — and arguably the most significant — former Chinese leader to pass on since Deng Xiaoping, the revolutionary veteran and architect of China’s economic reforms, in 1997.

So the default option for the official party funeral committee that will likely be formed — and probably headed by Mr. Jiang’s successor, current party chief and President Hu Jintao — would be to emulate the private cremation and televised memorial service that were organized for Mr. Deng.

No foreigners were invited to those relatively low-key ceremonies — partly because Mr. Deng had not held any formal posts since 1990, and partly because his family had made a public request for a “simple and frugal” funeral.

However, Mr. Jiang, now 84 years old, was a much more international figure who travelled widely overseas, cultivated close relationships with several foreign political and business leaders, presided over China’s accession to the World Trade Organization, and oversaw its winning bid to host the 2008 Olympics in Beijing.

That has raised the possibility among some foreign diplomats in Beijing that they may have to hurriedly arrange for current or former leaders of their respective countries to attend some kind of memorial ceremony for Mr. Jiang.

If he or his family have requested the presence of foreign guests, some party leaders might be concerned that his death rites would appear more elaborate than those for Mr. Deng –- who ranks second in the party’s Valhalla only to Chairman Mao Zedong.

But they might also calculate that his funeral offers an opportunity to reflect China’s emergence as a global power, and its integration with the international community, just as Mr. Deng’s death rites marked a symbolic departure from the personality cult surrounding Chairman Mao.

When Mao died on Sept. 9, 1976, the party declared 10 days of national mourning. Mao lay in state for several days in the Great Hall of the People in Beijing where other party leaders, foreign diplomats, and a handful of foreign journalists were permitted to view his body.

On the last day of official mourning, a million people then attended a memorial service for him on Beijing’s Tiananmen Square.

Mao had suggested publicly in 1956 that all party leaders should be cremated, but his embalmed corpse was eventually put on display in a mausoleum on Tiananmen Square, where it remains to this day.

After Mr. Deng’s death in 1997, the party declared six days of mourning. On the fourth day, his body was escorted by family and senior party leaders from the 301 Military Hospital, along Beijing’s central Avenue of Eternal Peace, to the Babaoshan Revolutionary Cemetery, where it was cremated in a private ceremony.

On the sixth day, he was honored at a televised memorial service attended by 10,000 guests at the Great Hall of the People, where his ashes were placed beneath a portrait.

Mr. Deng’s family had asked that the casket containing his ashes be covered with the Party’s flag, with a color photo on top. They also said Mr. Deng had requested that his corneas be donated to an eye bank, his body dissected for medical research and his ashes cast into the sea.

“Comrade Xiaoping always believed in simple and frugal funerals,” the family said in a letter to the party’s Central Committee and to Mr. Jiang, who was then president, and who also headed Mr. Deng’s official 459-member funeral committee, according to a report by the official Xinhua news agency at the time. “We hope that the last thing we do for him will reflect the essence of his mental outlook, and express our grief in an utterly plain and solemn way.”

Mr. Deng’s widow, Zhuo Lin, scattered his ashes in the ocean at an undisclosed location off China’s coast a few days later, in the presence of other members of the family and senior party leaders.

Most other senior party leaders who have died since — including Hua Guofeng and Zhao Ziyang — have been cremated, and had their ashes interred, at the Babaoshan Revolutionary Cemetery.

–Jeremy Page