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Yani Tseng

What Acer Inc. really needs is a star product, not a star to promote its products.

That was the reaction from tech watchers after the Taiwanese PC maker named the world’s top professional female golfer Yani Tseng, a Taiwan national, as its “global brand ambassador.” The contract will ask Tseng to wear a cap sporting Acer’s logo in future tournaments and to be featured in commercials as well.

Following quarters of net losses due to the cannibalization of tablets and its internal accounting and inventory issues, Acer is hoping to turn itself around by selling more high-end (and thus higher-margin) products–such as the up-and-coming ultrathin laptops–and spending more money on brand-building.

“By associating Tseng’s characteristics such as efficacy, speed, precision and stability, we hope to enhance consumers’ recognition of Acer’s products,” Acer said in statement.

Acer declined to say how much it will pay Tseng. Whatever the sum, critics seem unconvinced it will be money well spent.

“Brand image is more based on the word of month from user experience. So any company which would like to raise its brand image has to improve its product competitiveness first,” said Raymond Wen, columnist of marketing magazine Brain. “We can’t name any flagship product for Acer so far.”

Yuanta analyst Vincent Chen added: “Investment in building brand awareness doesn’t necessarily translate to sales. What Acer really needs is a star or game-changing product.”

Although Acer has said it will strengthen its in-house hardware and software design, it still relies heavily on external contract designers. Analysts say that explains why it has been slower than its peers, such as Asustek Computer Inc., in responding to fast-changing market needs.

Asustek is widely credited with creating the market for lightweight mini-notebook PCs with the launch of Eee netbook PCs in 2007. The company has continued to try out new things with its latest tablet, the Transformer, which comes with a detachable keyboard.

Acer spent less than 0.4% of its revenue on research and development in 2010, according to the latest data available from the company — significantly less than the 3% Asustek spent for the same period.

– Lorraine Luk

Associated Press

Pest or collector’s item?

From Scene Asia:

Wealthy Chinese have been paying record prices for contemporary art and top wines while shelling out for some the world’s most expensive cars. Turns out they’re also the driving force behind the princely sums being paid for top-quality pigeons.

A Chinese shipping magnate last weekend spent 250,400 euros ($328,000) for a Dutch pigeon, a new world record according to Pipa, the firm that ran the online auction.

These aren’t your ordinary birds that eat scraps in the park but ones bred for the arcane sport of pigeon racing, which has a cult following in England, Belgium, Netherlands, Germany and, increasingly, China.

The buyer, Hu Zhen Yu, runs Zhenyu Holding Group in Wenzhou. He told Pipa that he wants to “focus more and more on the pigeon sport.” Zhenyu last year sponsored a pigeon race in Wenzhou that awarded 7 million yuan ($1.1 million) in prize money.

Pigeon racing has traditionally been a rural pastime, and the entrance of wealthy Chinese hobbyists is ruffling some feathers. The Telegraph quoted veterans of the sport complaining about the high bids and loss of the birds to another continent.

A Chinese buyer was responsible for the previous pigeon auction record, set last year: $200,000 for a Belgian pigeon named Blue Prince.

“We must not forget pigeon racing is a simple sport to be enjoyed by all who wish to become involved for the right reasons,” Ken Ambler, a pigeon fancier who took up the sport 70 years ago, wrote in a comment on Pipa’s auction announcement.

– Jason Chow

Bloomberg

Busy baristas at a Starbucks outlet in Beijing.

For proof that coffee is taking off in China, look no further than Chinese consumers’ reaction to recent price increases at Starbucks Corp.

The Seattle-based coffee chain said earlier this week that all coffee drink prices would increase by two yuan, or about $0.32. That bumps up the cost of a small latte – or “tall” latte, in Starbucks’s lingo — to 27 yuan, or $4.20. A large mocha is now 34 yuan, or $5.40. The increases add to prices that are already higher than what similar coffee drinkers pay in the U.S.

Starbucks fans in China turned to the Internet to complain, helping to make the Chinese term for Starbucks, “Xing Ba Ke,” one of the top trending terms on China’s biggest search engine, Baidu.com. They flooded Twitter-like microblogging sites with emoticons of sobbing faces, complaining about what at least one called the “pain.”

“In the past, a larger size cost two more kuai and now it costs three. It’s so painful,” said one user of the Sina Weibo microblogging site, using the Chinese slang term of the yuan, China’s currency. “Where are the price control authorities this time?” a user in Beijing complained, referring to instances last year in which Chinese economic bodies, aiming to prevent unrest due to high inflation, prevented food companies from passing on higher prices to consumers

“We understand this has an impact on our consumers,” said Caren Li, a spokeswoman for Starbucks, adding that the company needs to keep up with China’s rising operational costs, including higher wages for laborers, increasing commodity costs and rising real estate prices.

The public reaction signals the growth of a product that many were skeptical would take off in China, a country with thousands of years of tea culture, said Krista Pederson, a consultant at Shanghai-based WGP Investment Consulting. “What started out as a drink for the few is turning into a mass-market product in China,” Ms. Pederson said.

China’s coffee market, including fresh and instant, is booming. Sales climbed to 6.25 billion yuan in 2011, up 20% from a year earlier and 92% from 2006, according to market research firm Euromonitor International.

To be sure, coffee consumption in China is still tiny compared to other countries. On average, the Chinese consumer drinks three cups of coffee per year, according to data from Swiss food giant Nestle SA.

But the thirst is there and coffee companies have been expanding rapidly to meet the new demand. Starbucks, which now has 550 stores in China, plans to have 1,500 by 2015. Nestle is rolling out more upscale Nespresso stores and in select markets it has recently launched an ad campaign, featuring popular blogger Han Han, to hype up its instant coffee products sold in grocery stores.

Many have been willing to pay the price because coffee has been positioned as an upscale in China. “To carry around a Starbucks cup or to meet in a Costa Coffee is to mark yourself as having status,” said Ms. Pederson. Costa is a coffee chain owned by U.K.-based Whitbread PLC.

Most of the stores charge their Chinese consumers around 50% to 75% more for a cup of coffee than the average U.S consumer would pay in the U.S. A small cup at Starbucks in Beijing is now $3. Customers in smaller cities pay around 30 cents less, Ms. Li said.

But now that coffee is becoming a daily drink for many, the price increases come as a blow, consumers say.

“The prices are overwhelming! The kingdom’s people are now under such great pressure!!,” a Beijing-based Weibo user named YiziluoDevil wrote.

Starbucks doesn’t break out its performance in China. In China and Asia Pacific it said revenue for the quarter end Jan. 1 grew 38% to $166.9 million, while operating income grew 26% to $57.8 million.

–Laurie Burkitt; follow Laurie on Twitter @lburkitt

Apple Daily

A Hong Kong newspaper ad decried Chinese visitors as ‘locusts.’ The text asks, ‘Are you willing for Hong Kong to spend one million Hong Kong dollars every 18 minutes to raise the children born to mainland parents?’ View photos

Hong Kong’s latest fissure with China deepened Wednesday after a popular local newspaper published an advertisement slamming mainland Chinese as “locusts” who swarm the city and drain its resources.

“Hong Kong people, we have endured enough in silence,” said the ad, which ran in the Apple Daily, a Chinese-language paper with an average daily circulation of about 288,000 in the first half of 2011, according to Hong Kong’s Audit Bureau of Circulations.

The full-page ad, which shows a locust looking at the Hong Kong skyline, was paid for by an online fund-raising campaign on Facebook and local site Hong Kong Golden Forum, which received more than 100,000 Hong Kong dollars (US$12,900) from 800 donors in a week.

A man who identified himself over the phone as “Mr. Poon” and goes by the name of Yung Jhong online said he organized the campaign. He said he was inspired to act after seeing news stories about mainland Chinese mothers who crossed the border to bear children in Hong Kong so that their offspring could obtain Hong Kong citizenship and the benefits that come along with it. Local authorities say that some 40,000 mainland Chinese mothers gave birth in Hong Kong hospitals last year, straining the local health-care system.

“People want to protect the city for their kids, protect the education and health-care system,” he said. “Hong Kongers are welcoming to everybody, even those from China, to come and visit and shop. But they have to follow our rules, which is why we feel like we have to say something.”

See more on this story at Scene Asia

Imaginechina

By Yiyi Lu

There has been a long and on-going debate between some Chinese and westerners on whether the western media are biased in their China coverage or not. As defenders of western media rightly point out, negative news and critical commentaries may displease the Chinese, but they do not necessarily amount to biased coverage. Besides, there are plenty of positive stories about China in the western media too.

But the accusation of bias does not seem entirely unfounded. A case in point: Western media’s treatment of Zhang Yimou’s Nanjing massacre film “The Flowers of War.”

When news came out that “Flowers” had failed to win a Golden Globe award and was not even shortlisted for an Oscar nomination in the best foreign-language film category, some Chinese said the result was just what they had expected given that the film had been described as an anti-Japanese propaganda in biased western media reports.

On the issue of China’s dispute with Japan over the presentation of World War II history, there is a clear tendency for many western media reports to employ double standards, underplay the sufferings of the Chinese people during Japanese occupation and turn the coverage of the history dispute into attacks on the Chinese government.

In a post entitled “The Flowers of War Brings out the Worst of Western Media,” Cfensi, a general news blog on Chinese entertainment, comments on some examples of tendentious western media reports about the film:

Jonathan Landreth at the AFP skillfully uses the title “Christian Bale denies his Chinese film is propaganda” followed by the statement that the film is one of “a string of films and TV series from China promoting national unity against an evil Japan.” …he’s excellent at making falsehoods true – first make an arbitrary accusation, then make the accusation’s denial the headline, and finally affirm the accusation as fact without any evidence whatsoever.

Laurie Burkitt and Tom Orlik at the WSJ…complain that “nuanced treatment of the Chinese characters is in stark contrast with portrayal of the Japanese as monochrome monsters.” Do these people not realize the immorality that comes from humanizing (aka: finding excuses) for rapists and mass murderers? Maybe, just maybe, there’s a reason why we don’t expect films with good Japanese soldiers during the Nanking massacres, just like how we don’t expect there to be good Nazis in a Holocaust movie.

While the Cfensi post may be too harsh, the comparison of “Flowers” with Holocaust movies is telling. Numerous Holocaust movies have been made that portray Nazis as evil incarnate, but one does not see western media describing them as anti-German propaganda that “lacks subtlety.” Yet, when Chinese films on the Japanese occupation during World War II come out, western media reports are often quick to deplore their portrayal of Japanese soldiers as “one-dimensional savages” and their “demonization of the Japanese army,” despite acknowledging that the Japanese army had committed many atrocities, including during the Nanjing Massacre.

According to Cfensi, a number of western media outlets, including Variety, Los Angeles Times, The Guardian and CNN, also erroneously claimed that the Flowers of War was partially funded by the Chinese state, implying that the film was state-backed nationalistic propaganda. In fact, it only received a loan from a private Chinese bank.

Accusing “Flowers” of being anti-Japanese propaganda or “one-dimensional” is but the latest manifestation of mainstream western media’s propensity to criticize China when covering the history of China’s fraught relations with Japan. Often, reports on Chinese protests over perceived Japanese attempts to whitewash its militaristic past are turned into warnings about rising Chinese nationalism deliberately fostered and manipulated by the Chinese government. Stories about new Japanese history textbooks that gloss over Japan’s wartime aggression become discussions of problems with China’s own history textbooks.

For example, in April 2005, after protests broke out in China following the approval of new Japanese textbooks that whitewashed Japan’s wartime atrocities, AFP’s coverage contained the following:

While learning materials in [Chinese] mainland high schools take special pains to outline Japanese aggression beginning with the 1874 invasion of Taiwan, China’s involvement in the 1950-53 Korean war is dismissed in one sentence.

The Los Angeles Times said:

China has criticized Japan in recent weeks for whitewashing its militarist history, focusing in particular on a junior high school textbook recently approved by Tokyo.

“Yes, what Japan did in World War II is horrible,” said Sam Crane, Asian studies professor at Williams College in Massachusetts. “But the embarrassing fact for the Communist Party, and one that is not taught in Chinese schools, is that the party itself is responsible for many more deaths of Chinese people than those caused by Japanese militarism.”

And the Financial Times offered its readers the following:

For those seeking graphic if not necessarily balanced accounts of Japanese infamy, there is no better place to look than China…

But China’s schoolbooks, carefully edited to ensure they do not contradict the official historical verdicts of the ruling Communist party, have their own conspicuous absences. Texts for middle and upper school students give great detail about the party’s resistance against Japanese oppression, but gloss over or ignore most of its less glorious moments. The brutal 1989 suppression of pro-democracy protests centred on Beijing’s Tiananmen Square is ignored.

It is not that Chinese history textbooks do not have their own problems, or that western media do not have the right to discuss those problems. But there is an appropriate time and place for such discussions. To attack Chinese schoolbooks in the middle of reports about Japanese attempts to whitewash its history of invasion and occupation of other countries is morally dubious to say the least.

Suppose, when discussing Nazi Germany’s treatment of Jews, western media reports were to say: “Yes, the Jewish people suffered a great deal during World War II, but Israel has also occupied Palestinian territories and killed innocent Palestinian civilians.” They would cause public outrage and may even be accused of trying to make excuses for the Holocaust. Yet, it has been perfectly acceptable for western media to effectively say “Yes, Japan did horrible things to the Chinese, but the Chinese government did horrible things to its own people too.”

Do we take this to mean Japan’s wartime atrocities in China are insignificant? Do the Chinese have no right to criticize Japanese textbooks?

It is one thing for western media to be critical of the Chinese government and the Chinese Communist Party. It’s quite another to let their views of the CCP color their reports on the history row between China and Japan. Using criticisms of the CCP to divert attention away from the suffering of the Chinese people at the hands of Japanese militarists during World War II — and the refusal of some Japanese to fully acknowledge the past — and to do so consistently, this is what I would call biased media coverage.

Yiyi Lu, an expert on Chinese civil society, is currently working on a project to promote open government information in China. She is the author of “Non-Governmental Organisations in China: The Rise of Dependent Autonomy” (Routledge 2008).

Bloomberg News

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.

Associated Press

Your daily roundup of the best of The Wall Street Journal’s China coverage from over the weekend:

Dozens of Chinese Missing After Attack in Sudan: More than 20 Chinese nationals were missing in Sudan after an attack by rebels at a construction company’s work camp, according to Chinese state media, potentially complicating Beijing’s efforts to ease tensions in a war-ravaged African nation that has become increasingly important to its oil needs. (Free)

China Eyed as Next Educational Frontier: Dean John Quelch says China Europe International Business School is accelerating students’ ability to take on more management and leadership responsibilities. (Free)

IMF Reviewing Whether Yuan Still ‘Substantially Undervalued’: The IMF is reviewing whether China’s currency should still be considered “substantially undervalued,” as the yuan has appreciated more than 8% in the last year and the fund is developing a new method of assessing global currencies. (Subscriber Content)

FBI Search Offices of ‘Reverse Merger’ Player: FBI agents searched the New York offices of private-equity investment and corporate-advisory firm New York Global Group, which has played a role in Chinese companies that list in the U.S. through reverse mergers. (Free)

China’s exponential growth over the last decade is admired globally, but could eventually come with a price: social unrest.

According to the head of Europe’s largest aluminum producer Norsk Hydro, China’s new and still growing middle class is likely to get increasingly frustrated at the restrictions its ruling class impose.

“My concern is the long-term situation in China, when hundreds of millions of people are middle class — can they accept that the freedom they experience is not of the same degree as in democratic nations in the West?” says Svein Richard Brandtzaeg.

“This could increase the temperature of Chinese society, although I’m not saying there will be a revolution. But if the government continues to handle its population in the same way, it’ll find that it is faced with a nation demanding democracy.”

China is already struggling with inflation, Mr. Brandtzaeg says, with Norsk Hydro facing salary increases of 20% a year at its operations there, with the concept of these generous wage hikes backed by the government.

While keeping its huge population happy is clearly critical for the country, Mr. Brandtzaeg says that at least one other negative consequence of Chinese growth is already being seen.

“Rising costs will influence the appetite for foreign direct investment into China and this investment could start to reverse the other way as a result,” he adds.

– Andrea Hotter

Europe’s decision to embargo Iranian oil exports is strategically sound, since a nuclear-armed Iran is in no one’s interest. Yet, policymakers are overlooking how an embargo may strategically reshape the global oil trade in China’s favor. Major Chinese oil traders are building businesses that are world class in terms of volumes traded. The latest oil embargo will help them further their ambitions.

The first Iranian oil embargo beginning in 1979 effectively handed Marc Rich, whose company ultimately became Glencore (one of the world’s largest physical oil and commodities traders), the keys to a multibillion dollar oil-trading kingdom. Now China’s increasingly global oil trading companies are in the catbird seat. Chinese firms can be confident that Beijing values stable and secure oil supplies much more than cooperation with the U.S. on the Iranian nuclear issue.

The EU sanctions, which will affect about 450,000 barrels per day of oil imports to Europe (pdf), will likely engender the transfer of billions of dollars in oil earnings from the Iranian government to China’s main oil trading firms: Zhuhai Zhenrong, Unipec, Chinaoil, and Sinochem. These firms have become major players in the global physical crude oil market. In 2010, 3 of the 10 largest global crude oil and products traders hailed from China (see chart).

Unipec, China’s largest oil trader does not publicly report trading volumes past 2006, when it sold 106 million tonnes of crude oil and 14 million tonnes of refined products. Based on the company’s trading more than 3 million barrels per day of crude in 2011, we estimate that Unipec’s trading volumes now exceed 150 million tonnes per year, potentially making it a larger oil trader than even Vitol and Glencore. Unipec’s activities in the global oil tanker market suggest it is moving very large volumes of oil. In 2011, the company was the world’s second-largest tanker charterer, trailing only Royal Dutch Shell, according to Poten & Partners (pdf).

Of the Chinese oil traders, Zhuhai Zhenrong may be the best positioned to profit because it has strong relationships in Iran and also well-insulated from U.S. and European political pressure that will follow once U.S. and European governments realize that this embargo is likely to be just as leaky as any other. The company enjoys Beijing’s blessing, has no exchange traded stock, has no U.S. assets, and offers virtually no leverage that could be exploited by outside interests seeking to pressure it. Sinochem and Unipec have slightly more exposure to external pressure since their parent companies have parts of the company that are publicly traded, but will still enjoy strong political and diplomatic support from Beijing.

All this said, the embargo is likely to trigger significant conflicts within the Chinese government. Once the embargo is in place, Iran will likely need to substantially reduce the price its crude in order to entice Chinese buyers to purchase larger than normal volumes. The question will then be “who enjoys the profits created by the provision of discounted oil?”

There is a range of possibilities. One option is for the traders to simply keep shipping the bulk of their oil to Chinese refineries as they have been doing and let the refineries enjoy the windfall of having lower-cost oil supplies. This might be the simplest outcome in domestic political terms, particularly since Chinese refineries have often lost profits under policy restrictions in recent years. However, it is more likely that the Chinese traders will either sell the oil on the international market for cash, or swap it for oil from other countries that can then be sent to China or other markets.

For example, if the crude oil spot price were $100 per barrel and Iran had to discount its oil to $80 per barrel to entice buyers, a Chinese trader could then swap the Iranian crude to another firm. By swapping its Iranian crude for another oil cargo at market prices (or a higher price than it paid the Iranian sellers), the company can gain “extra” oil relative to what it originally paid in Iran and resell it for a profit.

To make the oil palatable to buyers who want Iranian oil, but do not want to run afoul of U.S. and EU sanctions, traders can blend it with oil from other countries and take other means to disguise the oil’s origin. This is common practice when oil thieves sell oil from Nigeria and one also used by Saddam Hussein’s government, which at points smuggled up to 480,000 barrels per day of oil into the world market despite UN sanctions (pdf). Iran’s heavy crude oil, the country’s largest export stream at present, is similar in weight and sulfur content to the Ural blend that Russia exports, potentially creating swap or trading opportunities. We also anticipate that Iran will trim exports of heavy, higher sulfur crude in favor of more valuable lighter oils that have less sulfur and could be more easily blended and sold into the global market.

China’s refinery operators will not be happy if they have to keep buying crude from the traders at market prices when the traders have been getting discounted Iranian barrels that could have been shipped back to China. Since both sides of the equation have strong political allies, and in some cases are parts of the same corporate constellations (Unipec is a wholly-owned subsidiary of Sinopec, China’s largest oil refiner measured by the amount of oil processed), the politics stand to become contentious: Trading bosses may want to maximize their units’ profits, as opposed to transferring crude at below-market prices to the company’s refineries. Alternatively, if China’s domestic market for refined products weakens, firms like Sinopec may sell or swap more of their Iranian crude into the world market and embrace the traders as a profit center.

Policymakers and investors alike must consider how EU sanctions targeting Iran’s nuclear program may well help reshape the physical oil trading world in ways that favor China’s rising state-backed oil traders. In today’s globalized, economically dynamic, and resource-hungry world, unintended consequences can matter tremendously.

Andrew Erickson is a professor at the U.S. Naval War College and a research associate at Harvard’s Fairbank Center. Co-founder of China SignPost (洞察中国), he blogs at www.andrewerickson.com. Gabe Collins is a co-founder of China SignPost and is a J.D. candidate at the University of Michigan Law School.

Sony Pictures

A still taken from Roland Emmerich’s “2012″ shows one of the arks China builds to save the world’s elite from a global cataclysm.

While many Chinese are determined to have baby in the Year of the Dragon, others have yet a different reason to procreate in 2012: They fear it may be their last chance.

All across China citizens are expressing the belief that in this year, the world may come to an end.

“Husband, the end of the world is drawing near, why don’t we have a baby. We have 10 months left,” said one user of the popular Twitter-like microblogging service Sina Weibo. Her comment was only one of many in a thread that’s been started about the end of humanity.

What’s behind this belief? Look no further than “2012,” director Roland Emmerich’s 2009 film about a global disaster that brought the end of the world.

While the movie received a luke-warm reception in the U.S., Chinese audiences latched onto it. With $466 million in Chinese box office revenues, “2012″ ranks as one of Hollywood’s top-grossing films of all time in China, according to film industry research company EntGroup.

Viewers were taken by the doomsday storyline of the impending apocalypse and the big Hollywood special effects, but seemed particularly drawn to the portrayal of Chinese as the good guys. The ark that helps save humanity is made in China.

Though nearly three years have passed since the film debuted in the world’s most populous country, Chinese are still obsessed with the idea that this Hollywood blockbuster could be prophetic.

“Have you bought your tickets for the boat?” has become a common question across the nation and was used frequently on the web in reaction to the deaths of world leaders such as North Korea’s Kim Jong-Il and Libyan leader Moammar Gadhafi. Many Chinese speculated Kim and Gadhafi had faked their deaths do disguise their plans to board the ark.

Some Chinese are seizing on the opportunity of the 2012 fright. On Taobao.com, China’s largest e-commerce site by sales, some merchants are selling boarding passes for the Zhuo Ming Gu Ark. VIP tickets are available for five yuan each.

And while much of the end-times hysteria may tongue-in-cheek, some are taking it rather seriously. One man in China’s Henan province attempted to build his own ark out of a refurbished oil tank that he said were waterproof, could fit 20 people, included a food storage section and provided adequate air circulation, the state-run Global Times reported, citing Henan media outlet Dahe Daily.

In a country where couples are rushing to have babies out a belief that offspring born in this year of the zodiac cycle will be powerful and mystical, it is perhaps not surprising that the 2012 hype has built to such a crescendo.

To be sure, not every Chinese citizen subscribes to the movie’s predictions for 2012. Some are fairly aware of the likely outcome that all this dragon baby and apocalypse fury will have.

“It’s dragon year and if the end of the world doesn’t really come, 2013 will be a major baby boom for the world,” another Weibo user wrote.

– Laurie Burkitt. Follower her on Twitter @lburkitt.

A new dispute over access to accounting information on U.S.-listed Chinese companies should give American investors pause.

Recently, investors in Chinese companies listed on U.S. stock exchanges that are suspected of fraud, as well as U.S. accounting firms that audit those companies, have been unable to obtain audits performed in China by Chinese accountants acting on behalf of the U.S. firms, perhaps because of a Chinese law forbidding disclosure of “state secrets.”

U.S. and Chinese regulators have so far been unable to agree on how review of those audits should be conducted, but this stalemate needs to be resolved. Sovereignty should not be used as a cover for inadequate financial transparency.

The dispute stems from the fact that American auditing companies cannot open their own auditing offices in China and must operate through Chinese affiliates. The Chinese government has long rejected American requests to investigate Chinese auditing companies on the grounds of protecting Chinese sovereignty. The American accounting firm Deloitte Touche Tohmatsu is “caught in the middle of conflicting demands by two government regulators,” according to a company spokesman. The U.S. Securities and Exchange Commission (SEC), investigating fraud by a Chinese company listed on the New York Stock Exchange, has demanded that Deloitte produce audits by Deloitte’s Shanghai affiliate. Deloitte has refused to comply with the SEC demand (now the subject of a subpoena from a Federal court) because it fears punishment under Chinese secrecy laws.

Deloitte’s China-based unit had been the auditors of Longtop Financial Technologies, Ltd, which listed on the New York Stock Exchange in 2007 for $17.50 a share. The SEC’s scrutiny of Longtop began after Deloitte expressed concern about whether the company’s cash balances had been correctly reported to Deloitte’s affiliate in China. Deloitte “smelled trouble” and resigned as Longtop’s auditor following threats and intervention by the company when Deloitte’s affiliate tried to confirm Longtop’s cash balances at local banks. The SEC subsequently delisted Longtop and subpoenaed papers from the accounting firm’s audit of Longtop.

In explaining its refusal to comply with the subpoena, Deloitte argued that “turning over [its Shanghai affiliate’s] work papers could violate Chinese law prohibiting the disclosure of ‘state secrets,’ which it says includes information about the ‘national economy and social development.’ ’’ The SEC, in a court filing seeking enforcement of its subpoena of the audit, reported that Deloitte had approached the China Securities Regulatory Commission (regulator of Deloitte’s China unit) as well as three other Chinese agencies seeking permission to transfer the documents, but none replied.

Negotiations between Chinese government regulators and the Public Company Accounting Oversight Board (PCAOB) based in Washington, D.C. began last year. The PCAOB is a non-profit corporation that was created by the 2002 Sarbanes-Oxley law to oversee the audits of public companies in order to protect investors in the wake of high-profile accounting scandals such as WorldCom and Enron.

In addition to the Deloitte-Longtop case, there are other problematic cross-border accounting cases that involve Chinese companies accused of fraud that were able to obtain U.S. listings without undergoing the due diligence that is performed by an underwriter of an IPO. Instead, Chinese companies have used a perfectly legal means known as a “reverse takeover” (RTO) or “reverse merger” which occurs when an unlisted company purchases a majority of shares in an inactive company that is already listed on a U.S. stock exchange.

The RTO route, as The Wall Street Journal noted, allowed companies to start trading without a formal underwriting process or SEC review of the prospectus, and many of those companies used tiny U.S. audit firms that appeared to do very little work. The consequences of this gap in U.S. securities regulation are by now apparent, with more than two dozen Chinese companies listed through reverse mergers having announced auditor resignations or other accounting problems as of July 2011.

Since the RTO problems surfaced, the SEC has approved more rigorous rules: Reverse merger companies cannot be listed unless they have filed audited financial statements covering a full fiscal year commencing after the filing of specified initial documentation.

But while the RTO rules have changed, troubling questions remain. How can American accounting firms adequately confirm the accuracy of their affiliates’ audits if they are denied access to accounting information on listed Chinese companies that may have engaged in fraudulent conduct? In November, 2011 a report appeared that Chinese officials had met with “representatives of the top worldwide accounting firms to warn them about releasing information to outside parties as a possible violation of Chinese secrecy laws.”

Are state secrets really involved? The SEC, in its request to a Federal court to force Deloitte to hand over audit papers, argued “it is entirely unclear what national interests of China are truly at stake.” Although Chinese law is vague, an amendment to the State Secrets Law promulgated in April 2010 provided that only commercial information from “central enterprises” — 120 state-owned companies under the jurisdiction of the State Assets Supervision and Administration (SASAC) — could be considered “state secrets.” Some transactions of audited companies with such “central enterprises” could be classified as “state secrets,” but so far there has been no hint of this in the cases mentioned here.

Another issue underlies these cases: The PCAOB evaluates the firms that audit the books of companies traded in the U.S., and for that reason has been trying for some time to gain access to the audits performed by some 50 auditing Chinese companies. The PCAOB has requested that it be permitted to conduct joint inspections with Chinese regulators but this has been rejected so far. A dialogue with Chinese regulators last summer ended without agreement. Another meeting was scheduled for the fall, but the Chinese canceled. The President of the PCAOB has recently announced that another meeting will be held soon.

These problems need quick resolution, and the U.S. should push forcefully for it. U.S. investors, who are sought by Chinese firms, need sufficient evidence of the soundness of those firms, while the Chinese government wants companies to be able to obtain foreign financing. It is reasonable for the U.S. to support requests for adequate information in order to protect American investors.

Chinese national sovereignty would not be violated if China permits American regulators within its boundaries solely in order to inspect the finances of U.S.-listed Chinese companies. A hard economic reality may underlie China’s resistance to foreign inspection of Chinese audits: Rather than uncovering any “state secrets” protected by Chinese law, thorough inquiries could disclose embarrassing flaws in Chinese financial and auditing practices. But continuing to shield companies from the consequences will only deepen investor mistrust even as China’s presence expands in global markets.

Stanley Lubman, a long-time specialist on Chinese law, is a Distinguished Lecturer in Residence at the University of California, Berkeley, School of Law and is the author of “Bird in a Cage: Legal Reform in China After Mao,” (Stanford University Press, 1999).