Routledge

If you want to understand China’s reform-era growing pains you can do a lot worse than dig into the coal industry. Coal powers China’s industry, pollutes its environment, and is the site of conflict for the state and private entrepreneurs – each eager to monopolize control of a precious resource.

Tim Wright of the University of Sheffield has made the Chinese coal industry the focus for research stretching over the last few decades. Much of that research appears in his new book “The Political Economy of the Chinese Coal Industry: Black Gold and Blood Stained Coal.”

China Real Time recent caught up with Mr. Wright to discuss the challenges facing China’s coal industry — from safety to corruption to power shortages — and how long the country can count on its stores of coal to fuel its fast-burning economy. Edited excerpts:

Why is coal mining so important in China?

Coal provides around 70% of China’s energy supplies. So it has been central to China’s rapid – and energy intensive – economic growth. Coal is also one of the major causes of pollution and environmental degradation in China, as well as a large contributor to the country’s increasing carbon emissions. Finally, the industry provides employment for well over five million workers.

Coal mining is an area where there’s been a struggle between the state and the private sector?

Since the middle of the last decade, many commentators inside and outside China have seen a trend towards “the advance of the state and the retreat of the people” (or the private sector). The attempts by central and provincial governments to control myriad small mines, especially in Shanxi, has been a major example of this and, from late 2008, the Shanxi government began a policy where the large mines owned by the province took over the small private mines. This was strongly resisted by the mine owners, many of whom were inter-provincial investors particularly from Wenzhou in Zhejiang.

The attempt to control the private sector is also about controlling the social and environmental costs of mining?

Yes, it is not simply a struggle for control. There are real safety and environmental issues involved. Small private mines certainly tend to be less safe than the large mines, and also lack the resources to tackle environmental pollution – for example by washing the coal. These factors form at least the pretext for the government’s policy.

Corruption seems to be a big part of the story?

Two factors – the high profits to be made from coal, and local governments’ control over most of the licenses necessary to mine it – make corruption both inevitable and widespread. The phenomenon is known as “official-coalmine collusion” and is often exposed in the aftermath of disasters in mines operating illegally under the protection of local governments or individual officials.

But the moralistic tone used by the Chinese press to address the issue doesn’t tell the whole story. First, corruption apart, the small mines play an important part in income and employment generation for many inland areas with few other opportunities; so there is resistance to their closure beyond that just from the owners. Second, the chronic underfunding of local government in China forces local authorities to look for other sources of revenue, so it is in their institutional – as well as personal – interest to support the local mines, even against the wishes of central government.

How have workers fared in the reform process?

Coal mine workers went through a difficult period in the 1990s. They had been the aristocrats of the working class under the planned economy but the low price of coal and the mines’ economic difficulties meant that their incomes rose less than those of other workers. The boom in coal prices and coal profits in the 2000s has, however, provided the resources to increase wages, and there has been a big improvement over the past few years, even if miners still grumble that they lag behind other workers, for example in the electric power industry.

Premier Wen Jiabao spent new year 2005 underground with some miners. Has the central government been able to get to grips with safety?

There has been a spectacular improvement in China’s coal safety record over the last decade – the number of deaths has fallen by about two-thirds during a period when output has more than doubled. Although one has to remain skeptical about the details of the official statistics, at least a major part of the decline in fatalities does reflect a real improvement. This improvement has been due to a number of factors: high profits creating the resources to invest in safety; the beginnings of labor shortages allowing workers to demand better conditions; the higher priority put on social and safety issues by the Wen Jiabao – Hu Jintao government; and collaboration with foreign safety experts.

China’s economy seems to suffer from regular power shortages, what’s the reason for that?

Partly it is just the phenomenal rate of growth of the Chinese economy (which has mostly been concentrated in high energy using sectors) putting pressure on energy supplies. But beyond that it reflects a struggle between the coal and electric power industries over the price of coal supplied to the power stations. The power stations, who have to accept electricity prices fixed by the state, have argued that they cannot afford the ever-increasing price of their main fuel, coal. The state has attempted to pressure the mines to supply coal at cheaper prices, but of course this has reduced the mines’ incentive to produce, resulting in occasional shortages and power cuts.

How much coal has China got left? Any chance of a switch toward significant imports?

China has large amounts of coal left – certainly well over 100 billion tons. But at its very high level of production – not far behind the rest of the world put together – there has already been talk of the resources running out, or at least becoming increasingly expensive to mine. Already imports have increased sharply – from only around 10 million tons a year in the early 2000s to well over 150 million tons by 2010. However, because of China’s massive use of coal, it is almost inconceivable that a major part of its demand could be fulfilled by imports – 150 million tons accounts only for 2 per cent of China’s coal consumption, but close to 20 per cent of global coal trade. For the same reason, China cannot fill the gap with oil imports. So if it is to reduce its reliance on domestically-produced coal, China will have to look for other sources of energy – optimistically renewables but perhaps more likely nuclear power.

– Tom Orlik

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).

Getty Images

To China’s many–and sometimes violent –iPhone fans, Apple says the love is mutual.

Apple CEO Tim Cook emphasized the company’s focus on China during their earnings call on Tuesday, calling iPhone demand in the world’s largest mobile market “staggering.”

“I try to be very clear in the past and I’ll do so again that we have a ton more energy in the China market today” than in other emerging geographies, Mr. Cook said, as the company announced its highest quarterly revenue and earnings in history, the first quarter ending after the death of co-founder Steve Jobs.

“That doesn’t mean that there is a lack of effort or focus on the others. It just means that it’s less than what we’re investing in China today,” he said.

The company didn’t offer many details on its retail efforts in China this time, but had said last year that its China Apple Stores were receiving the most traffic and revenue on average than of any Apple Stores in the world.

Mr. Cook said Apple is “selling through our reseller stores and our online store” for the iPhone. The company stopped selling iPhones in its five retail stores in China this month shortly after launching the iPhone 4S because unruly customers in Beijing led police to seal off a store there. “The demand is off the charts.”

Though the company has had discussions with China’s other mobile carriers, Mr. Cook did not provide any information about when the iPhone might be launched with new partners in China. “China Unicom continues to be a very key partner,” he said. “I’ve got nothing to announce today on the expansion there.”

An iPhone compatible with the mobile network of China’ third-largest mobile carrier, China Telecom, cleared a key regulatory hurdle when it was awarded a network access license earlier this month.

Apple’s growing business has also attracted increasing scrutiny from environment and human rights activists, who have complained about conditions at its suppliers and criticized the company for a lack of transparency in its supply chain. Under this pressure, the company disclosed a list of 156 companies this month that represent more of its supply chain spending than ever before. Apple will also be opening its supply chain to an independent assessment by the the non-profit Fair Labor Association, the association said in a recent press release.

“China is an extremely important market for us and we continue to look at how to grow it further,” Mr. Cook said.

– Loretta Chao. Follower on Twitter @lorettac.

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).

Agence France-Presse/Getty Images

Tsai Ing-wen, the presidential candidate of Taiwan’s opposition Democratic Progressive Party, waves to supporters at her campaign headquarters in New Taipei City on January 14, 2012 after losing her bid to challenge incumbent Ma Ying-jeou.

Taiwan’s opposition Democratic Progressive Party leader Tsai Ing-wen made history by being the island’s first female presidential candidate, but her wider-than-expected defeat last Saturday to incumbent Ma Ying-jeou of the Kuomintang has raised questions about the future of her moderate approach.

Ms. Tsai finished with 45.6% of the vote to Mr. Ma’s 51.6%, a loss that prompted her to say she would resign as DPP leader.

A professor before she became a politician, Ms. Tsai is often credited with lifting the pro-independence DPP out of the mire after former president Chen Shui-bian’s rocky and scandal-ridden tenure at the helm.

“She brings gentleness and sensibility to the party,” Joseph Wu, a former Taiwan envoy to the U.S. and a top advisor to the DPP, said shortly after the election. “She is also very capable in facilitating talks between the factions in the party and consolidating opinions.”

That conciliatory leadership style and approachable personality were what drove her surging popularity both within and outside the party, he added.

But Ms. Tsai also won support by dialing back the DPP’s pro-independence rhetoric, analysts said. An example of that more moderate China policy was her appeal for further dialogues with Beijing and her promise to accept all 16 cross-strait trade agreements signed under Mr. Ma’s leadership.

Although she adamantly rejected the 1992 Consensus—a tacit understanding between the KMT and the Chinese Communist Party that Taiwan and China are one country but each is free to define the term as they see fit—her proposal of a new “Taiwan Consensus” did not completely shut out the option of an eventual unification, a sharp detour from the policy pursued by Mr. Chen.

Despite that softening, Ms. Tsai’s candidacy still did not appear sit well with leaders in Beijing, who warned that any deviation from the 1992 Consensus would compromise the growing harmony on the Taiwan Strait. During the campaign, the “Taiwan Consensus” became one favorite points of attack for Mr. Ma and the KMT, who pointed to it as evidence that Ms. Tsai was naïve to the realities of cross-strait relations.

Yet some analysts said they expected Beijing might still be open to dialogue with a Tsai administration — a notion considered far-fetched during the previous DPP regime.

What effect Ms. Tsai’s loss will have on the party’s platform remains to be seen. The fact that she lost by six percentage points – late polls had her losing by between 3% and 5% — is already being interpreted by some as an indictment of her decision to emphasize social equality and her deviation from the party’s anti-China orthodoxy.

“Obviously, a campaign focused on social justice was not enough to excite the traditional DPP supporters,” said Wu, adding in the future, the party should incorporate more of the possible threats to Taiwan’s sovereignty under the KMT such as China’s continual interference in Taiwan’s quest for more international participation.

Shelley Rigger, a professor of political science at Davidson College expressed similar views, saying that while Ms. Tsai should be lauded for restoring burnishing the DPP’s image, she might have overlooked a key constituency – the “green” pro-independence die-hards—who might constrain the DPP from moving to the center.

“[Tsai] did as well as anyone could have done at pacifying the deep greens, by refusing to accept the ’92 consensus, and at the same time minimizing the role of those ideological issues in the elections, by trying not to talk about that anymore than she had to. The result was still hitting that 45% ceiling,” she said.

Ms. Tsai’s tenure as party leader will officially terminate on March 1, the DPP said, and it’s unclear what she plans to do next. She has said she plans to maintain an office and rumors suggest she may take the reins at a think tank she helped set up.

Analysts say Beijing is concerned less about Ms. Tsia’s future and more about who her successor might be and whether that person will continue the moderate stance she has championed.

“Beijing takes a great interest in the DPP’s leadership because there is always a chance that the DPP might return to power. But I think no matter who becomes the next DPP chairman, the party will retain the more moderate stance,” said Shih Cheng-feng, a dean at National Dong Hwa University.

Party heavyweights Frank Hsieh and Su Tseng-chang are widely speculated to be vying for the seat, though some political commentators on the island say the party should allow up-and-coming stars, such as some of the current DPP county magistrates, to have a shot.

Whether or not Ms. Tsai tries her luck again in 2016, her contribution to the DPP seems likely to be remembered as revolutionary, in a moderate way.

– Jenny W. Hsu

Associated Press

By Andrew Erickson and Gabe Collins

As policymakers in Washington focus on China’s expanding presence in Africa and growing assertiveness in the South China Sea and Indian Ocean region, Danish diplomatic assistance is opening the gate for China to establish a strategic foothold in the Arctic.

Denmark has made a strategic decision to prioritize its economic relationship with China and is now becoming the key gateway for Beijing’s commercial and strategic entrée into the Arctic. Denmark advocates giving China a seat at the Arctic policy table. Friis Arne Peterson, the Danish ambassador to China, stated in October that China has “natural and legitimate economic and scientific interests in the Arctic.” Copenhagen likewise supports giving China permanent membership on the Arctic Council, the eight-nation forum that includes the five Arctic Ocean coastal states (the U.S., Canada, Denmark, Norway and Russia) as well as Sweden, Iceland and Finland.

Greenland’s substantial deposits of minerals including rare earths, uranium, iron ore, lead, zinc, petroleum, and gemstones make the Arctic island a key bargaining chip as Denmark cultivates Beijing. Copenhagen administers Greenland’s foreign policy and will likely dangle the island’s rich geological potential in front of Beijing as it works to bolster the China-Denmark trade relationship. Indeed, Greenland’s minister for minerals, industry, and labor traveled to China for a trade mission in November that included participation in a major mining and minerals trade show in Tianjin.

Danish exports to China rose 17% and Chinese exports to Denmark rose 25% in 2010, according to figures provided by the Danish embassy in Beijing. Yet Danish exports to China were worth just US$2.6 billion and Chinese exports to Denmark amounted to US$6.9 billion, a small fraction of the volumes traded between China and its primary trade partners. The minerals that lie under Greenland’s snow are the real prize, worth far more in both monetary and strategic terms to China than the imported goods or export market Denmark itself can provide.

Danish diplomacy is literally following the money as some of the country’s policy elites turn away from the U.S. Copenhagen’s largest embassy is in Beijing, and is twice the size of its embassy in Washington. Denmark’s ploy to pull China closer is likely to work: From Beijing’s perspective, having Chinese companies buy several billion dollars per year worth of pharmaceuticals and machinery and doing container shipping business with Maersk is well worth it to gain access to Arctic negotiating tables and Greenland’s minerals.

Greenland is the best geographic entry point for Chinese entities interested in Arctic mineral resources because its government lacks the ability to develop mineral resources independently and because its Danish overseer will likely actively support Chinese investment in the island’s resources. Companies from Russia, the U.S., Canada and Norway already dominate the development of oil, gas and other natural resources within their home countries’ respective territorial zones.

With this politically and geologically favorable backdrop, Greenland’s high mineral production potential will likely attract Chinese interest despite the risk and uncertainty inherent in developing a new mineral source. London Mining aims to produce 15 million tonnes per year of high grade iron ore pellets by 2015 at its Isua project, which includes investment from Sinosteel and China Communications Construction Corp. Greenland Minerals and Energy claims its Kvanefjeld deposit could produce 20% of the global rare earth supply and large amounts of uranium with first production in 2016 (pdf). Kvanefjeld’s potential to influence global prices would make it a project of strategic interest to Chinese companies like Inner Mongolia Baotou Steel Rare Earth, the world’s largest rare earth metals producer.

Chinese firms will not have first-mover advantages in Greenland, as small miners from Australia and the UK dominate the local investment scene. That said, they stand to enjoy active support from the Danish government should they choose to invest on the island. We anticipate that larger companies, including buyers from China, will seek strategic stakes in mining projects initiated by enterprising smaller firms like those mentioned above. It is also very likely that given Greenland’s small population, Chinese firms will import substantial numbers of workers from China to build the power plants, transmission lines, ore processing facilities and other supporting infrastructure for Chinese-invested mines in Greenland.

As in so many other areas, China is entering a new global arena. It remains to be seen whether it will follow existing norms, or attempt to change the system over time. “China has a legitimate right to be interested in and participate in what happens in the Arctic, but it requires that the rules are observed,” Greenland premier Kuupik Kleist said in November. Countries like China “must not believe that they can come and decide about the residents and just take care of the resources in the Arctic, which are regulated by laws, treaties and binding agreements. Those cannot be tampered with.”

It will be interesting to watch how Danish and other regional experts’ perceptions evolve on this issue as China’s Arctic presence increases. According to SIPRI researcher Linda Jakobson, “There is some irony in the statements by Chinese officials calling on the Arctic states to consider the interests of mankind so that all states can share the Arctic. These statements appear to be contrary to China’s long-standing principles of respect for sovereignty and the internal affairs of other states.” (pdf)

In the three Near Seas (Yellow, East China and South China), Beijing promotes an extreme minority perspective on international law at odds with the UN Convention on the Law of the Sea that holds that coastal states have the right to regulate and restrict non-resource-related activities between the 12 nautical mile limit of their territorial waters and the 200 nautical mile limit of their claimed exclusive economic zone, or EEZ. Beyond its own region, by this logic, Beijing must honor similar claims by Arctic states. Canada, for instance, maintains that foreign vessels must obtain permission before transiting its vast northern archipelago.

Transit permission may become important if China continues building its icebreaker fleet and summer passage through the Canadian and Russian Arctic routes becomes increasingly viable. China currently has only one operational icebreaker, the Xuelong, but a new 8,000 tonne vessel is due to enter the fleet in 2014. The likely westbound route from Nuuk in Western Greenland to Qingdao via the Canadian Arctic is around one-half the distance to Qingdao through the Panama Canal, while the likely eastbound route via the Russian Arctic is less than two-thirds the distance to Qingdao via the Cape of Good Hope.

The Great Game for Arctic resources is heating up and China is likely to play an expanding role as Denmark opens the door for Beijing to enter the Arctic on the diplomatic front and on the investment front via mining projects in Greenland.

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.

Reuters

The number of Chinese people using Twitter-like microblogs at the end of 2011 nearly quadrupled from a year earlier, but the era of high growth for microblogs in China may be over.

That’s the word from the China Internet Network Information Center, a government research agency and the administrator of Chinese Internet addresses, which released the results of its latest survey of Internet users on Monday.

Chinese Internet portal operators Sina and Tencent are both investing heavily to develop and promote their “Weibo” microblog services as a new driver of business growth. Both services have grown quickly, but analysts say they face challenges in maintaining their high user growth and in navigating increasing government regulation.

About 250 million people in China were using microblogs at the end of 2011, compared to 63 million at the end of 2010, CNNIC said in a report on the results of its survey (pdf)

That meant nearly half of China’s total 513 million Internet users were using microblogs, CNNIC said. The total number of Internet users, defined by CNNIC as anyone who used the Internet in the last six months, was up from 457 million at the end of 2010.

But user growth for China’s microblog services has slowed, the report said. “The explosion in users occurred in the first half of the year, with the user growth rate slowing in the second half… showing that after reaching high levels, microblog usage rates have ended their explosive growth.”

The government agency’s findings don’t entirely match data from the country’s microblog operators, possibly due to differing methodology and definitions. Tencent said it had 310 million registered Tencent Weibo users at the end of September, marking fast growth from the more than 200 million users it said it had in June, and exceeding the total number of Weibo users in China reported by CNNIC.

Sina reported having 227 million registered accounts on Sina Weibo at the end of September, an increase of 21% from the previous quarter.

Government policies are among factors that will affect the future of microblogging in China, CNNIC said. “The microblog real-name registration policy came out in late 2011. How to effectively regulate information dissemination on microblogs has become an issue paid close attention by the government. How these supervisory policies are implemented will have an important effect on the future growth of microblog users,” it said.

CNNIC also noted that the rise of microblogging in China has led to a smaller proportion of people using other Internet communication services like email and message boards. Email’s usage rate fell to 48% of Internet users in 2011 from 55% a year earlier, it said.

– Owen Fletcher. Follow him on Twitter @owenfletcher

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

Reuters

Taiwan’s President and Nationalist Party (KMT) presidential candidate Ma Ying-jeou.

Taiwan’s deadlocked presidential election has been read by some as a sign that the island’s voters are less and less enamored of incumbent Ma Ying-jeou’s focus on warming ties with China. Others see it as referendum on the state of the domestic economy. But among many more moderate voters, sentiment doesn’t so closely align with ideology.

For some, it’s a simple matter of balance.

Speaking at a rally for opposition presidential candidate and Democratic Progressive Party chairwoman Tsai Ing-wen in Taichung, a man surnamed Chen who said he voted for Mr. Ma and the Kuomintang, or Nationalist Party, in the last election said “Right now I think the KMT has too much power in their hands. I want Ms. Tsai to win to fight some of the KMT influence — it will make [Taiwan] more democratic.”

Although Mr. Chen’s opinions are most likely in the minority, it’s not uncommon to hear such thoughts voiced. As Shelley Rigger, a professor of political science at Davidson College said in an interview with China Real Time, the idea that Taiwan needs a strong opposition party has been part of the reason the DPP has been able to come back so quickly from its drubbing four years ago amid widespread corruption accusations against former president and DPP leader Chen Shui-bian.

“[There] is a sense that there has to be a second party. You can’t have a democracy without an opposition,” she said. “So a lot of people have been waiting breathlessly for the DPP to get its act together because it is necessary and they’re going to give them a chance because they’ve done pretty well.”

Beyond a push for balance, other Taiwanese voters seem less enthralled with any specific policies of Ms. Tsai, who has been light on specific promises. Instead they focus on the fact that she offers a change in face and focus.

“No matter who will be in the position of president, [conditions] will be the same, but the thing is, where is your main focus, it seems to me that [Tsai Ing-wen] has the focus on the Taiwanese standard, her eyesight is on Taiwan,” said Steven Huang, a businessman.

With three days left before polling, voices like Mr. Chen’s and Mr. Huang’s are one reason Taiwan’s presidential contest has become a very tight race, with analysts still divided on who is likely to win. Every vote turning to the DPP from the KMT makes for a two-vote swing, but Mr. Ma is well-funded, endorsed by the island’s business leaders, and popular among a large number in Taiwan who back his policy moves to enhance trade and investment ties to China.

Over the past few months, both parties have harped on how important it is to lure independent and moderate voters to their side. But strategists have said at this point in the race, the most important thing is mobilize each party’s base and fight the election exhaustion that has begun to set in after months of political sniping.

– Paul Mozur. Follow him on Twitter @paulmozur

Agence France-Presse/Getty Images

Inflation in China slowed slightly in December with the country’s consumer price index rising 4.1% from a year earlier, down from 4.2% in November. It was the fifth month in a row that China saw moderating inflation. Analysts weigh in:

This continued moderation in price pressures is a welcome development and will increase the scope for policy to respond should growth start to weaken more sharply in coming months. For now, however, we think Beijing is reasonably comfortable with policy settings, with any shift in the near-term likely to take the form of lower bank reserve requirements rather than cuts in benchmark interest rates. – Brian Jackson, Royal Bank of Canada

The easing inflation pressure is good news and provides further room for policymakers to shift their focus towards growth concerns. We expect that the central bank will cut [the reserve requirement ratio] by 50 basis points before the Chinese New Year, most likely this week, so as to alleviate liquidity pressure due to seasonal factors (cash demand ahead of the Chinese New Year and increase in fiscal deposits in January). Looking ahead, monetary policy will be biased towards moderate easing…We expect China’s headline CPI inflation to trend down and reach below 3% in mid-2012. – Haibin Zhu, Grace Ng and Lu Jiang, JP Morgan Chase

The inflation story will move out of the limelight this year, ceding its place to growth preservation and Eurozone contagion…In theory, this should open up some more space for monetary loosening to combat slowing growth and a tumbling property market…That said, CPI was firmly lodged above the government’s 2011 target of 4% every month of the year, with full-year inflation coming in at 5.4%. With China facing a structurally higher rate of inflation, the policy space in which to loosen remains relatively narrow. – Xianfang Ren and Alistair Thornton, IHS Global Insight

Though the Chinese government will remain cautious about inflation, taming inflation is not the top priority at the moment. Policies in Beijing are increasingly shifted towards pro-growth step by step. That being said, the market should also be conservative when expecting stimulus measures, as it’s impossible for the government to introduce another big-bang stimulus package without a major external shock. – Ting Lu and Xiaojia Zhi, Bank of America-Merrill Lynch

We see the continued fall in CPI and PPI inflation as mainly a reflection of below-trend aggregate demand growth in the months prior to November 2011 and believe the low underlying inflation leaves more room for policy makers to keep policy stance accommodative. As we believe aggregate demand growth has been reaccelerating on the back of this policy loosening and resilient external demand, underlying inflationary pressures may start to rise…However, the level of aggregate demand growth was probably just slightly above trend level towards the very end of the 2011… so these pressures are still modest and given the fact that sequential inflation is already at negative territory, a major rebound in inflation is still not an immediate risk. – Yu Song, Goldman Sachs

– compiled by Josh Chin and Aaron Back

Paul Mozur/The Wall Street Journal

Kuomintang vice-presidential candidate Wu Wu Den-yih (center left) visits a temple in Taichung with local legislator Yen Ching-piao (center right) on January 3, 2011.

Even as Taiwan’s opposition Democratic Progressive Party organized a rally in the southern city of Taichung that would attract roughly 12,000 followers, a senior official of the ruling Kuomintang held his own audience with a much smaller – but perhaps more powerful – nearby constituency.

KMT vice-presidential candidate Wu Den-yih on Tuesday evening visited a local temple and about fifty of its followers. Glued to his side during the visit was Yen Ching-piao, who once served prison sentences for racketeering and weapons but has since become a legislator. Mr. Yen – nicknamed “Dong gua-piao” by the local press, a label that compares his girth to the shape of a melon — is renowned in Taiwan politics for his extensive patronage network in the area. He holds considerable influence over the temple through his leadership of a larger temple outside Taichung.

Arriving in an escorted cavalcade, Mr. Wu met with the followers, who donned yellow vests broadcasting the virtues of their temple, and then went to the altar at the temple where he bowed several times while lifting up symbolic offerings provided to him by helpers. He and Mr. Yen then spoke to the crowd before retiring to a side room in the temple’s office and ate fruit with the followers. In less than an hour Mr. Wu hopped back into his van and speeding off into the night.

Addressing the followers in Taiwanese, Mr. Yen touted the many positions Mr. Wu has held, adding, “Whether you’re in the north of Taiwan, or the center, or the south, Mr. Wu is like your friendly neighbor.”

Mr. Wu is famous for his superstitions, and local media attribute his canny political moves to a fortune teller his wife consults in Hong Kong. Still, it’s unlikely piety brought him to the temple. Mr. Yen controls tens of thousands of votes, and in making appearances with Mr. Wu he is making it clear who his followers should vote for.

The DPP’s rally that same night pushed supporters to jump up and down and wave banners to the speeches of party heavyweights, but Mr. Wu’s 40-minute visit might have been more-effective politics. The KMT often makes use of temple-centered networks to drum up support. The temples act just not as centers for worship, but are also places to hold activities and where community members can gather and shoot the breeze.

With roughly a week until Taiwan’s key presidential elections which pit current president Ma Ying-jeou against opposition DPP candidate Tsai Ing-wen, strategists with both parties have said they have more or less abandoned trying to convince independent voters and are now focusing on ensuring their own supporters hit the polls in big numbers. Both parties each use familiar methods of advertisements, rallies and phone banks. But where the DPP excels at throwing rallies, the KMT has remained adept at pulling the strings of these networks.

The relationships between local politicians and temple leaders and their supporters allows the KMT to keep close tabs on how many votes it will receive in each area and distribute resources accordingly to areas where it’s weak, said Ketty Chen, visiting research fellow at National Taiwan University. The networks are built on years of close cultivation of relationships and cooperation with local communities. Inherently based around a patron-client relationship, major figures will attend local weddings and funerals, politicians will distribute pork-barrel type projects, and local temple offices will provide local services as small as allowing community members to use office fax machines, according to Ms. Chen.

Politics may rarely be overtly discussed, Ms. Chen says, but when local community members wander into temple offices, they are given reasons why they should support the KMT. If the community members have been helped in some way, come election time, local temple leaders will remind local followers how certain figures and parties have helped them in the past.

“They don’t talk unification or national policy things that you hear the big politicians in Taipei talk about,” she said. “They deal with very local neighborhood stuff, and if you can help people with that, people will tend to vote for the candidate.”

The DPP is renowned for its ability to throw passionate rallies that would soften the heart of the most cynical political observer. But despite the crowds, many times in the past the KMT’s low-level work pays off when it comes time to count votes. It’s a reminder that as the vote nears and the parties continue to throw resources at massive rallies – the DPP’s Ms. Tsai has roughly 30 more to go in the last eight days – it’s not who throws the biggest party, but who is awake the next morning to vote.

–Paul Mozur and Jenny W. Hsu

Associated Press

Former Taiwan President Chen Shui-bian raised his hands with handcuffs as he was led away from the Taiwan prosecutor’s office in Taipei, in a 2008 photo.

It wouldn’t be a Taiwan election without Chen Shui-bian.

During his eight years in power, the former president was a master of electioneering, courting controversy and stirring passions with his powerful speeches and surprise declarations at what might have otherwise been tame political events. And even after stepping down in 2008, it seems a Taiwan election can’t come by without Mr. Chen somehow finding his way into the media.

In 2008’s presidential election, which saw current president Ma Ying-jeou handily defeat the Democratic Progressive Party’s Frank Hsieh, Mr. Chen remained a central figure. Lengthy corruption cases involving Mr. Chen, who had led the DPP, stole headlines through last year’s 2010 mayoral elections.

Mr. Chen’s impact was ultimately minimal in the 2010 election. This time, his influence has been even more limited, reduced to a few columns he has penned from prison after his corruption conviction and occasional attempts by Mr. Ma to compare the unpopular Mr. Chen to his opponent, DPP Chairwoman Tsai Ing-wen.

But with Saturday’s announcement that Mr. Chen’s mother-in-law, Wu Wang Hsia, passed away, the spotlight has once again fallen on Mr. Chen. It comes amid a tight race between Mr. Ma and Ms. Tsai, meaning even a small impact could shift momentum one way or the other.

Ms. Wu’s funeral is scheduled for Jan. 10, just four days ahead of the election, and the Taiwanese government has said Mr. Chen can attend, in handcuffs and without permission to speak to media, if he applies for permission to do so. It poses a special challenge for the DPP, coming as Mr. Ma pushes to equate the still unpopular Mr. Chen with the current DPP. Under the leadership of Ms. Tsai, the DPP has fought hard to leave behind Mr. Chen and restore its credibility.

Pundits say the DPP has done an effective job separating itself and its policies with those of Mr. Chen. In particular, Ms. Tsai has struck a tone of moderation on cross-strait relations with China and has focused her campaign on social justice as Taiwan has continues to face slow wage growth and a growing wealth gap.

What’s more, this year’s presidential election has featured its fair share of scandalous or insulting accusations, but none has truly caught the imagination of the Taiwan voter.

While diagnosing voter motivation is difficult, many analysts argue Taiwan’s voters are maturing and therefore are paying less attention to disputes that distract from underlying issues.

“I think most of the general public is almost bulletproof. They know politicians will use dirty tricks during campaign season,” said Tamkang University professor Alex Huang.

Many observers have noted that Taiwanese voters also seem to be growing increasingly apathetic. For now that apathy or disillusionment doesn’t seem to be a major cause for concern, according to Davidson College professor of political science Shelley Rigger, considering that voter participation remains high.

But she notes the possibility is dangerous as Taiwan ponders the future of its self-government while it keeps what she called its “steady gaze” toward China. “They need steady leaders who will give them courage to keep that gaze and not promise them things that can’t be attained, but also not give them cause to feel like the game is over.”

–Paul Mozur; follow him on Twitter at @paulmozur

Getty Images

Green bicycles prepared for the new year gala at the Temple of Heaven Park on Friday.

Every year on Dec. 31, a number of cities stand out as being the hottest spots to ring in the New Year: New York, London, Sydney and Tokyo. Now Beijing wants to join that list too—and hopes doing so will help boost tourism to the city.

And if not many people show up to the party? Well, that’s part of the plan, too.

The city is unveiling its first-ever western New Year’s extravaganza, rolling out a digital light show surrounding one of the city’s most renowned cultural icons–the Temple of Heaven, where Chinese emperors in centuries past went to pray for good harvests.

As midnight approaches, digital lights will transform part of the temple grounds into a giant, skyward-facing analog clock. Hundreds of local students will ride stationary green bikes that have been placed facing the temple and will light up—an intended salute to the importance of environmental protection. Meanwhile, LED lights will shoot colored beams into the sky and a countdown of the final seconds left in 2011 will be projected onto the temple itself, a triple-tiered gable structure built in the early 1400’s, creating 3-D visual effects.

But there will be one major difference between Beijing’s attempt and other hyped international celebrations, such as New York’s famed ball-dropping and the ringing chimes coming from Big Ben in London.  Unlike Times Square, where one million people flock each New Year’s Eve, according to the Times Square Alliance, Beijing’s festivities won’t be open to the public.

“The park isn’t big enough to hold that many people,” said Sun Weijia, the vice chairman of Beijing Municipal Commission of Tourism Development and one of the event’s organizers. Organizers have, however, contacted travel agencies to extend invitations to more than 500 foreign tourists who will be in the city, and journalists have also received invitations, Mr. Sun said, predicting a total audience of more than 3,000 people.

The goal of the event is not to draw big crowds to one site but to serve as an advertisement to the world’s tourists, Mr. Sun said, adding that the city gained global attention in the run-up to the Olympics and that the spotlight has since faded.

“Some zones [at the event] won’t have an audience,” he said, adding, “we designed them especially for television broadcasts.”

Some might point out that China is home to one of the world’s largest public squares, a space that dwarfs Times Square and could fit many more people.

But China’s leaders have long opposed big public gatherings, especially at Tiananmen Square. The image of thousands of students rallying for democratic rights in 1989 remains a fresh threat in the minds of many officials. In this upcoming year of leadership transition, the focus will be on stability.

China’s masses will have to watch the celebration from their televisions at home. Events will be broadcast by those lucky enough to invited to the Temple of Heaven — camera crews and other media types who can broadcast the show across the nation and to the rest of the world.

Beijing’s New Year’s bash will differ from those in many cities in another respect, too: a lack of fireworks. Fireworks of the tube-launched, explosive variety are by no means rare on the streets of Beijing, and their public use can be a substantial fire hazard in the period around Chinese New Year (which will fall in late January in 2012).

But the Beijing government’s countdown won’t have any. “Beijing doesn’t allow the use of fireworks, especially in imperial parks,” Mr. Sun said.

–Laurie Burkitt and Owen Fletcher; follow Laurie at @lburkitt and follow Owen at @owenfletcher.

European Pressphoto Agency

Actor Charmaine Sheh of the Hong Kong drama “When Heaven Burns,” at an award show in Seoul in August.

A controversial Hong Kong television drama depicting scenes of cannibalism has touched the nerve in Beijing, for reasons that may go much further than a mere disapproval of its violent content.

“When Heaven Burns,” a bleak portrayal of humanity produced by broadcaster Television Broadcasts Ltd., has been banned in mainland China in what the Hong Kong media said was the first such move against a Hong Kong soap opera in more than two decades. With just four episodes to go, Chinese state censors ordered TVB’s mainland sub-licensees, online video companies Youku.com and Tudou.com and nine other website operators to remove the show from their sites, the television station said. TVB said Wednesday it is trying to seek clarification from Chinese authorities.

While the reason for the censorship remains unclear, the move is set to intensify an already heated online discussion about the show because of its unusual plot point: cannibalism.

The 30-episode series centers on a fictional tragic incident in 1992. During a mountaineering trip in the Chinese region of Xinjiang, four young, aspiring pop musicians become stranded on a snow-capped mountain. Out of desperation, three of them eat and kill the fourth. The story looks at how the three survivors and the people close to them are haunted by the experience years later. The story also laments a lack of originality in popular music and stresses the need to stay true to one’s dreams despite the suppression of society.

Those features might make it easy to see why Beijing’s censors would stop the show, given their focus on programming that steers away from controversy. But the ban also follows comments by the show’s screenwriter that might have given authorities other reasons to step in.

In an interview with Hong Kong’s Apple Daily on Monday, show screenwriter Chow Yuk-ming said that the story was inspired by the events of the Tiananmen Square crackdown in June 1989. He said he moved the date of the cannibal incident in the drama to 1992 from 1989 to avoid stirring controversy. Discussion of the 1989 failed student democracy movement remains taboo in mainland China.

His statement spurred a flurry of speculation in Hong Kong as to whether other elements of the show also allude to the Tiananmen crackdown, with some local pundits speculating that the decline of original music in Hong Kong represents the city’s forgetfulness of past events.

TVB on Wednesday acknowledged that Mr. Chow’s show nodded to Tiananmen as well as other historical events, though it said that doesn’t necessarily mean the plot of the drama is a metaphor of the June 4 crackdown.

Whatever influenced the censors’ decision, the ban on “When Heaven Burns” could attract further debate and help boost what has so far been mediocre ratings in Hong Kong. Though the drama has attracted somewhat of a cult following among younger viewers, older viewers have largely dismissed the program. Many have complained that the drama’s unique storyline– accompanied by unconventional filming techniques that include frequent scenes of the main characters gulping down pieces of near-raw steak–are hard to follow, and that the subject matter is too deep.

–Polly Hui

Reuters

With more Chinese investors like this, Europe’s outlook might not be so bleak after all.

“When I go to Paris, it feels like I’ve returned home. My wife jokes that 400 years ago in a previous life I was French,” said Adam Tan, director of closely held HNA Group and chairman of its HNA Capital Holding financial-services arm. “She says that I have a romantic heart. I have a deep love for France.”

The sharply dressed and English-speaking Mr. Tan is in the driver’s seat of an aggressive international expansion by HNA. Chinese money has become ubiquitous around the globe, but privately-held HNA’s approach differs from that of the predominately state-owned firms that have been snapping up mines and energy resources in recent years. HNA, which focuses on transport, logistics and tourism, is buying into the services sector, an area Chinese firms have traditionally neglected overseas. And whereas Chinese investment has until recently been focused on emerging markets, HNA is more interested in developed economies. Nominally that’s because the legal system makes it easier to do business, but there seems to be more to it than that.

“Personally I really like Europe. My dream is to help my Chinese countrymen see such beautiful places” as Spain, he said. HNA’s flagship airline, Hainan Airlines, offers flights to Madrid and Barcelona.

That affection stretches to HNA deals. HNA last week backed out of deal to take a 20% stake in Spanish hotel chain NH Hoteles, paying $15 million breakup fee. But Mr. Tan holds out hope that the two firms can still come together.

“You know the song ‘Will you still love me tomorrow?’ I still love NH Hoteles, and will still love them the day after tomorrow,” said Mr. Tan. He said that love comes from NH’s ability to turn itself around and gradually reduce the size of its losses. He expects the company to post a profit in its next earnings report.

He said the feels NH Hoteles still loves him too.

– Dinny McMahon

James T. Areddy/The Wall Street Journal

The entrance to Shanghai’s D.P.R Korean Restaurant

North Korean restaurants in China offer a rare and somewhat surreal opportunity for outsiders to interact with citizens of the hermit kingdom.

Flag pins usually give away the fact that a Korean restaurant serves cuisine of the north, instead of the south. The authentic northerners wear the blue-and-red pins on their chests, keep their opinions focused on the food and offer minimal personality during the requisite dinner-time performance that accompanies a barbeque meal.

News Monday of the death of Kim Jong Il appeared to leave some of China’s North Korean restaurateurs in shock, though it was exhibited in different ways.

In the Shanghai district Hongqiao, the glass façade of the almost-clinically clean D.P.R Korean Restaurant displays intertwined Korean and Chinese flags, plus Santa Claus. But the mood Monday was far from jolly inside the suddenly and indefinitely closed establishment.

A lone woman in a black sweater – presumably the manager – sat sobbing at the table furthest from the door. With a vacant stare and warming her hands on a cup of tea, the woman’s eyes were puffy and red. The noise of would-be patrons brought four younger women out from a back room. All were wearing traditional choson-ot and likewise had moist eyes and sullen faces.

A question about Kim was met with a single word in Chinese from one of the young women: “Leave.”

At kilometer or so away at another Shanghai restaurant, Pyongyang KoRyo, it was all bustle. Staff wearing expressions as bright as their pink choson-ot smiled as they confirmed themselves to be North Korean while offering to seat guests.

But the elegant young woman in charge drew a firm line at questions, even as she bowed to her inquisitive new arrivals.

At the mention of Kim’s name, she reflexively dropped her gaze and lifted her finger to her lips with a motion – a demand – to hush.

“Shi jia-de,” she said in Mandarin: “It is fake.”

A gentle press for more explanation was met with a whispered but firm request to go. “This news has not been delivered to us. If you are going to ask about that please leave,” she said pointing to the winding stairway that leads to the street. The buzz of young waitresses – a half dozen of whom had earlier said they were from the north – suggested they indeed may not have been told.

Outside Pyongyang KoRyo after the lunch rush, two Korean men in track suits manned the entrance and declined to speak, shooing two young workers back inside when a reporter approached. Minutes later one of the men guided five or six of the waitresses, some wearing identical winter jackets, out of the restaurant and down the street, moments before arrival of a television crew.

Beijing-based users of the popular Twitter-like microblogging service Sina Weibo reported similar scenes at North Korean restaurants in the capital.

Weibo user He Jianye wrote that he was halfway through lunch at an unspecified North Korean restaurant in the city when the waitresses suddenly started to weep – “each crying up a storm” – and the restaurant was temporarily closed.

Another user, He Huafeng, said he went to Beijing’s Pyongyang Mudanfeng, where waitresses, some red-eyed and holding back tears, were wearing black aprons on top of their usual work outfits. “After we finished eating, we were told to go out the back door. The front door was shut with a sign saying ‘temporarily closed.”

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

At the same time that a central leadership meeting on holding the economy together was getting underway in Beijing, a far stranger get-together took place on the sidelines.

Representatives of the municipality of Chongqing and Guangdong province met earlier this week and signed a deal to widen and deepen regional cooperation (story in Chinese). The agreement came on the second year anniversary of a previous accord; like the first, the pact focuses on economic exchanges, market opening, investment, and other industrial undertakings.

None of that is especially noteworthy, given that one major focus of the Hu leadership has been to recentralize economic decision-making at the top, in part by breaking down the barriers on inter-provincial trade and compelling regional officials to answer to Beijing.

What’s stunning about the meeting, however, was the mutual admiration that appears to have broken out suddenly between political rivals Bo Xilai and Wang Yang, the Communist Party chiefs of Chongqing and Guangdong respectively.

In his public remarks published in Chongqing Daily and reprinted in the central media, Bo was lavish in his praise of Wang, his predecessor in Chongqing, saying that “today, we sit together with Comrade Wang Yang [who] during his time in Chongqing led us all to lay the foundations, worked for long-term plans and significant events, and gave important meaning to the present conditions of the people of Chongqing.” Bo went on to say that when he spoke to Wang, he was “brimming over with true feelings”, noting that “the old saying of the first step is the most difficult” applied to Wang’s contribution to Chongqing’s present development.

All of this from the same Bo Xilai who has not been at all shy about making a clean sweep of Wang’s legacy, especially as Wang is considered by many officials there to have skipped town abruptly, leaving behind a city they saw as half-completed and in social disarray.

For his part, Wang Yang said that even after he departed Chongqing, he “remained concerned” with its well-being, even so far as to plant a native tree from Chongqing downstairs from his office to watch its development. Passing it every day after he left work, Wang said, he was reminded of his time there. While his praise of Bo personally was spare and not nearly as effusive as the remarks made by his successor, Wang noted that he was “emotionally gratified and proud” of the progress made in Chongqing since his exit, implying that Bo was not the disruptor he had made out to be, but a fine economic partner.

What’s going on?

For all the good fellowship displayed at the meeting, these two remain competitors. After all, Bo has made his national name recently by remaking Chongqing and being different from Wang where politics is concerned.

Bo’s methods—the Chongqing political model–emphasize the red glare of populism and nostalgia amid the gleam of urban reconstruction. Wang, on the other hand, has been promoting the notion of a wider responsibility for government in Guangdong; that Party officials should be judged not on the renovations they produce, but the social happiness they provide for a public pressed by the stresses and strains of modern city life. While Bo may be pining for a return to politics practiced by the masses, Wang wants to reorient politics towards the masses, away from a focus on elites and infrastructure exclusively.

The problem for both Bo and Wang is that the central leadership does not need any more rivalries; it’s riven quite enough by debates about how to handle the economic slowdown and what should be done about those sections of society here that are growing increasingly disgruntled. (An example of just how disgruntled some have become is the village of Wukan, in Wang’s backyard, where residents angry over land seizures have erupted in open revolt against the local government.)

Unfortunately for Bo and Wang, the space for fighting has narrowed. The hardline center in the Party still holds the advantage. Bo and Wang have been brought to heel. Their inclusion the economic summit here depended on their willingness to come to some common ground and to do so publicly.

It would be nice to think that Bo and Wang have made amends, that some middle ground in the political landscape has finally been reached. But Bo and Wang did not jump; they were pushed.

And while the joint announcement said that the accord was “a win-win,” the ultimate victor in the meeting was neither Chongqing nor Guangdong. It was Beijing that prevailed, showing that sometimes the center can hold.

Russell Leigh Moses is a Beijing-based analyst and professor who writes on Chinese politics. He is writing a book on the changing role of power in the Chinese political system.

Jiong Sheng via Wikimedia Commons

By Russell Leigh Moses

How should the Communist Party handle growing disquiet in Chinese society?

This question is troubling Chinese policy-makers recently, especially with outrage and discontent stemming from everything from persistent pollution in the nation’s capital and how to measure it to the death of a 10 year-old girl in Xian, struck by a speeding construction truck.

Concerns about public anxiety had already prompted the leadership to look at restlessness earlier this year through the idea of “social management,” which has come to mean different things for different political factions. Leftists have looked to cultural reform or engineering “the moral maturity of each citizen” to stave off rebellion. On the other end of the political spectrum, small-government advocates have hoped for a supervisory role for the public that would lend legitimacy to the Party.

For a while, the debate looked to be gridlocked. But now an alternative for promoting social harmony is being tried in Ningbo, in Zhejiang province. Its approach is far more sophisticated than some might expect: That social discontent might be best managed, not by tightening or loosening the reigns of control, but by cadres going out to talk to people directly about grievances they have filed.

The Ningbo prototype focuses on setting up listening offices for cadres to read petitions, and to hear cases and complaints about anything from waste water discharges to the conditions of replacement housing. Officials at different levels of government are tasked to follow claims of distress from the outset, and to visit the people or local communities that file complaints. Dispute mediation centers, as well as administrative service offices, are staffed to prevent small problems from escalating into social confrontations with Party and government officials.

“Going to the grass roots” and “engaging in research to find out that true conditions”—two major precepts of social stability as advanced by Hu Jintao—are applied here through dialogue, instead of denial or cracking down.

Ningbo’s experiment bypasses arguments about ideology, or where injustice comes from, or whether a new concept of neighborhood is necessary. Instead, “deep-seated contradictions” are simply seen as gaining in strength, and if unaddressed, will impede future economic and social progress. The approach assumes that even the sort of local affluence enjoyed in Ningbo, a coastal city grown wealthy on textile and electronics exports, creates social challenges that are better addressed by a new system of interaction between cadres and the masses.

The Ningbo strategy passed a major test this past week when an advocate of harmony-through-hardline politics, Politburo member and security car Zhou Yongkang, sounded impressed by a fact-finding visit there. According to an account of his visit by the state-run Xinhua news agency, Zhou said that the pilot project had “unique advantages”—heady stuff from someone better known for addressing social ills through the security forces, instead of through public services.

Zhou is not alone in signaling satisfaction with a softer approach. On Sunday, the Party’s main media outlet, the People’s Daily, highlighted a new policy implemented in the city of Zhenjiang in nearby Jiangsu province of not deleting posts critical of the government but instead using them as a means of gauging public perceptions of shortcomings by officials. “We can’t dodge problems,”the paper quoted Bao Jianguo, director of the city’s Internet Information Office, as saying. “If the problems raised by Internet users really exist, then relevant departments must solve them quickly.”

Such experiments in cities around Shanghai may be a prototype for what former Shanghai Party chief Xi Jingping is planning next year, assuming he succeeds Hu Jintao as China’s president.

Whether these attempts represent a model or just a moment will depend on precisely that sort of political backing from the top. In the midst of a leadership transition, that’s not easy to sustain. After all, we’ve seen these sorts of efforts to be bold and different before, and they usually get filed away or fade away on their own, unrepeated and left to molder. Ningbo might turn out to be one of those experiments that never get quite enough political support to be tried in other places.

But one matter is certain: Some in the Party hierarchy are as nervous about China’s future as the society they’re struggling to govern—and at least a few of them are not waiting for the formal leadership changeover next year to do something about it.

Russell Leigh Moses is a Beijing-based analyst and professor who writes on Chinese politics. He is writing a book on the changing role of power in the Chinese political system.

Jiong Sheng via Wikimedia Commons

By Russell Leigh Moses

How should the Communist Party handle growing disquiet in Chinese society?

This question is troubling Chinese policy-makers recently, especially with outrage and discontent stemming from everything from persistent pollution in the nation’s capital and how to measure it to the death of a 10 year-old girl in Xian, struck by a speeding construction truck.

Concerns about public anxiety had already prompted the leadership to look at restlessness earlier this year through the idea of “social management,” which has come to mean different things for different political factions. Leftists have looked to cultural reform or engineering “the moral maturity of each citizen” to stave off rebellion. On the other end of the political spectrum, small-government advocates have hoped for a supervisory role for the public that would lend legitimacy to the Party.

For a while, the debate looked to be gridlocked. But now an alternative for promoting social harmony is being tried in Ningbo, in Zhejiang province. Its approach is far more sophisticated than some might expect: That social discontent might be best managed, not by tightening or loosening the reigns of control, but by cadres going out to talk to people directly about grievances they have filed.

The Ningbo prototype focuses on setting up listening offices for cadres to read petitions, and to hear cases and complaints about anything from waste water discharges to the conditions of replacement housing. Officials at different levels of government are tasked to follow claims of distress from the outset, and to visit the people or local communities that file complaints. Dispute mediation centers, as well as administrative service offices, are staffed to prevent small problems from escalating into social confrontations with Party and government officials.

“Going to the grass roots” and “engaging in research to find out that true conditions”—two major precepts of social stability as advanced by Hu Jintao—are applied here through dialogue, instead of denial or cracking down.

Ningbo’s experiment bypasses arguments about ideology, or where injustice comes from, or whether a new concept of neighborhood is necessary. Instead, “deep-seated contradictions” are simply seen as gaining in strength, and if unaddressed, will impede future economic and social progress. The approach assumes that even the sort of local affluence enjoyed in Ningbo, a coastal city grown wealthy on textile and electronics exports, creates social challenges that are better addressed by a new system of interaction between cadres and the masses.

The Ningbo strategy passed a major test this past week when an advocate of harmony-through-hardline politics, Politburo member and security czar Zhou Yongkang, sounded impressed by a fact-finding visit there. According to an account of his visit by the state-run Xinhua news agency, Zhou said that the pilot project had “unique advantages”—heady stuff from someone better known for addressing social ills through the security forces, instead of through public services.

Zhou is not alone in signaling satisfaction with a softer approach. On Sunday, the Party’s main media outlet, the People’s Daily, highlighted a new policy implemented in the city of Zhenjiang in nearby Jiangsu province of not deleting posts critical of the government but instead using them as a means of gauging public perceptions of shortcomings by officials. “We can’t dodge problems,”the paper quoted Bao Jianguo, director of the city’s Internet Information Office, as saying. “If the problems raised by Internet users really exist, then relevant departments must solve them quickly.”

Such experiments in cities around Shanghai may be a prototype for what former Shanghai Party chief Xi Jingping is planning next year, assuming he succeeds Hu Jintao as China’s president.

Whether these attempts represent a model or just a moment will depend on precisely that sort of political backing from the top. In the midst of a leadership transition, that’s not easy to sustain. After all, we’ve seen these sorts of efforts to be bold and different before, and they usually get filed away or fade away on their own, unrepeated and left to molder. Ningbo might turn out to be one of those experiments that never get quite enough political support to be tried in other places.

But one matter is certain: Some in the Party hierarchy are as nervous about China’s future as the society they’re struggling to govern—and at least a few of them are not waiting for the formal leadership changeover next year to do something about it.

Russell Leigh Moses is a Beijing-based analyst and professor who writes on Chinese politics. He is writing a book on the changing role of power in the Chinese political system.

Beijing New Picture Film Co.

Leading Chinese filmmaker Zhang Yimou is hoping to hit it big in China and globally with his new film, “The Flowers of the War” (金陵十三钗). The question is, can he do it?

Featuring Hollywood star Christian Bale, “The Flowers of the War” is China’s Academy Award entry for best foreign language film and tackles subject matter familiar within China: Japan’s brutal occupation of China’s southern city of Nanjing in 1937.

Chinese audiences may be drawn to the film for that reason, but it’s also sumptuously shot, rolling out Hollywood-like special effects with a plot that pulls no emotional punches.

The movie, which opens on Friday in China and a week later in the U.S., centers on a character named John Miller, played by Mr. Bale, who is a dissolute American mortician arrived in Nanjing to bury the town’s catholic priest. He finds salvation attempting to rescue an unlikely assortment of Chinese schoolgirls and local prostitutes sheltering in the cathedral from the horror of the Japanese occupation.

Mr. Zhang’s portrayal of the Japanese brutality leaves little to the imagination. Nuanced treatment of the Chinese characters is in stark contrast with portrayal of the Japanese as monochrome monsters. At one point, a Japanese soldier chasing the Chinese schoolgirls through the cathedral shouts: ‘Lieutenant come up here, we’ve got virgins!”

That might play well with the home crowd. But playing to nationalist sentiment in China risks alienating the wider foreign audience that Zhang is presumably angling for by placing an American at the center of the action. Chinese director Jiang Wen’s critically acclaimed “Devils on the Doorstep” was presented mainly in black and white, but still brought more nuanced color to its treatment of the Japanese occupation.

When asked if the story may come across as a nationalistic piece propping up China, Mr. Bale said he has never viewed it as such. “That would be a bit of a knee-jerk reaction,” Mr. Bale said. “This is a historical piece.”

Mr. Zhang’s film, which jumps nimbly between English, the Nanjing dialect of Chinese, and occasional barks of Japanese, clearly attempts to appeal to global audiences and is part of a global push from China to create a homegrown film industry that can rival Hollywood’s.

China’s film industry , ranking ninth in international box-office revenues, generated ticket sales totaling 10.17 billion yuan (roughly $1.5 billion) in 2010, up from 6.2 billion yuan in 2009. The U.S. topped the global market at $9.87 billion.

China wants to create production and distribution companies big enough to compete with U.S. film giants like Warner Bros. and Sony Pictures. The government believes that if China becomes a major player in the global film industry it will help to export the country’s culture and soften its image overseas.

With a budget nearing $100 million, “Flowers of War” is the most expensive Chinese movie ever made.

Mr. Bale said he’s not attempting to bridge the divide between the Chinese film market and America’s. “Leave it up to the businessmen to decide if China and Hollywood can become a single market in the future,” Mr. Bale said. “I just thought this would be a good opportunity.”

Mr. Zhang and Mr. Bale both say they are not focused on the business side of movie-making and are artists who are more focused on the craft of fine story-telling and the art of cinematography.

But with one of the most sensitive episodes in recent Chinese history at its center, and with a first screening taking place in a government building in the center of Beijing, it is the politics, rather than the cinematography, that will draw the most attention.

Zhang, the director who choreographed the opening ceremony of the Beijing Olympics, has already come under fire for cozying up to the communist regime and their partial view of China’s troubled history. “The Flowers of War” will likely do little to alter that reputation.

– Laurie Burkitt and Tom Orlik

Mr. Chan is firmly part of the China-U.S. thinking establishment, serving on various academic and think-tank boards. He’s co-chairman of the Asia Society, a nonpartisan cultural and political organization. On foreign relations, he says the U.S. is “encircling” China by enhancing relations around its borders in places like Vietnam and Myanmar, potentially raising tensions in the region.

Mr. Chan sat down with The Wall Street Journal for a broad ranging conversation. Edited excerpts:

WSJ: Europe is entering a critical phase in talks to save the euro and there’s fear of how the pain in Europe’s banking system is rippling to Asian markets. What’s your take?

MR. CHAN: My business is pretty removed, but we are linked up whether we like it or not. We have collateral effects. Europe is more or less in hell…the U.S. is walking on the edge of the Grand Canyon and China is walking just a little bit randomly. That means you also have the danger of falling off the cliff. With all three places one way or another in a difficult place, I’m not sure how the world will be a particularly encouraging place.

Hong Kong is feeling the pain for several reasons. One of the reasons being that the European banks are gone…Europeans lend more in Hong Kong than Americans. But Hong Kong is fortunate that we are not dependant on the European banks and even less so the Americans. There are three other groups active here. Hong Kong local banks, such as Hong Kong Bank [HSBC], Standard Chartered, Bank of East Asia, Bank of China. The other group are Japanese banks. And the mainland Chinese banks have become increasingly active. Thank God, Hong Kong is a little bit diversified in terms of banking services.

WSJ: What makes you so pessimistic about China’s economic prospects?

MR. CHAN: I’ve always been pessimistic about China. I can’t see China going on without economic or social issues. People say, ‘Ronnie you’ve been wrong on China for 10 years.’ My answer is I’m 10 years closer to being correct.

Then people say, hey why do I invest so much in China? I don’t have a whole lot of strategic alternatives. I don’t know when China is going to get in trouble, and before that China might boom like hell, exactly like the last 10 years…We bet on China, we’ve done well with it, but we’re also cautious and hence we don’t borrow any money. We have zero [net] debt.

A year ago, when I raised equity in the market, people said “What the hell are you doing? You are cash rich, you are sitting on 20 billion Hong Kong dollars.” Well I like to think I know the market. I don’t know when it’s going to come down but I know it’s going to, and problems are going to show. Now I have 10 billion Hong Kong dollars of cash. I raised 11 billion Hong Kong dollars a year ago. If I didn’t raise it, I’d be in a debt position today. And trying to borrow from the bank is not a pleasant thing today. In mainland China, it’s almost gone. In Hong Kong, it’s almost as difficult. And then on the other hand on the positive side, I may be staring at a huge buying opportunity in the next year or two…Anybody who laughed at us are now shut up. You have to prepare for rainy days. And it’s raining.

WSJ: What your view on the state of U.S.-China relations?

MR. CHAN: I can’t accept the fact that America isn’t trying to encircle China. You have India on the west, and you always got issues on Tibet. You have Myanmar, troops in Australia…Even Vietnam, which never had good relations with China. And you have Japan, which is an unsinkable aircraft carrier. My fear is China will feel isolated again. And it will really encourage certain elements in Chinese society. Chinese are not uniform. They have far right and far left too and this is really giving credence to elements in Chinese society that are suspicious of America. And suspicions feed on themselves.

WSJ: Some say China is losing its way when it comes to reforms, that it’s become too timid. Has China lost its way?

MR. CHAN: You need strong leadership to effectuate change and the easiest way is to keep everything status quo. And sometimes changes are necessary. If not, you build up too much potential energy. It’s not easy to have leaders with that really strong leadership…You have Obama with lack of leadership, and you have China that perhaps also lacks leadership. In America, if you have lack of leadership, you just gradually deteriorate. But in China, there is the possibility of things going very badly.

– Alex Frangos

Reuters

Trade economists would agree the Doha global trade round is dying, if it isn’t dead already. A new World Bank paper argues the way to revive the round is to refocus the negotiations on China.

The authors of the report (pdf), World Bank trade economist Aaditya Mattoo and Arvind Subramanian of the Peterson Institute for International Economics, say the reason that negotiators are having such trouble completing a deal is because the subject matter is largely irrelevant. What World Trade Organization members really want, they say, is a way to deal with China, which looms ever larger in global trading.

In areas covered by trade protection – apparel, footwear and the like – China’s share of imports into the U.S., Europe and other major nations “dwarfs that of any other supplier,” write Messrs. Mattoo and Subramanian. Thus, trade liberalization has become “increasingly about other countries opening their markets to Chinese exports.”

Trouble is, the authors say, the Doha negotiations don’t focus on ways to get China to reduce protectionism and subsidies, which would be of great interest to China’s trading partners. Nor are they aimed at getting China’s trading partners to drop barriers to Chinese investment, which would be of great interest to Beijing.

The authors suggest topics that could lead to an ultimate compromise: China’s trading partners want China to liberalize its currency practices, so that the yuan trades at its market price. They also want China to open its services market to foreign firms and to curb export restrictions on things like rare earth minerals. Why should China make such concessions? Because the world’s second largest economy wants to assure itself access to energy and food sold abroad, especially during times of upheaval. It also wants fewer restrictions on Chinese investments abroad.

All those subjects could be on the table, the authors say, presenting the possibility of a grand bargain. Doha “is failing because the issues of greatest concern for the private sector were not on the agenda,” they argue, “and because it did not take account of the rise of China.”

The authors may be too late with their suggestions, given all the work that’s been done on Doha. More likely is that the Doha negotiators cut a small deal, declare victory and then rethink what should be done next on the global trade front.

– Bob Davis

Agence France-Presse

The list of Chinese companies waiting for overseas listings keeps growing longer, with market volatility delaying deals even as more companies sign on in pursuit of funding—but not all the deals will get done, a senior China banker said.

JP Morgan Chase & Co. has “the largest pipeline” of Chinese companies seeking to list abroad that the bank’s vice chairman of Asia investment banking, Fang Fang, has seen in his 17 years as a banker, he told Dow Jones Newswires in an interview.

“A lot of IPOs have been pushed back by the narrowing market window as the European crisis evolves, but we’ve seen more companies eager to tap overseas capital for their expansion,” said Mr. Fang, who is also the bank’s chief executive of China investment banking. “This is driven on one hand by the continued urbanization, fixed-asset investment, and domestic consumption, and on the other hand by tight monetary supply in China.”

The IPOs that will be less easy to get done, he said, will be from companies selling export-oriented products catering to the West, suffering a slowdown, and to ultra-high-end luxury Chinese consumers.

“There’s been a marked slowdown in the ultra-high-end luxury space—you can see that with empty villas in Hainan that are unlikely to be sold anytime soon and a slowdown of luxury auto sales or art auctions,” said Mr. Fang, the only Wall Street banker on the Chinese People’s Political Consultative Conference, an advisory body that meets alongside the National People’s Congress, China’s legislature.

See more on this story from Deal Journal

- Short-seller Carson Block’s attack on Focus Media Holdings: Will his accusations prove to be viable?
- Chinese companies continue to retreat from U.S. stock market: What are the drivers and how long will this continue?
- What are the methods to take U.S.-listed Chinese companies private, and how expensive are they?
- How should Chinese companies decide if they should go private, and what happens afterward?
- Who will win in the end: the short-sellers or the China bulls?

Our Guest Today:
Kevin Pollack is a Managing Director at Paragon Capital, a New York-based investment firm with a focus on Chinese investments. He previously worked as an investment banker and attorney at Bank of America and Sidley Austin. He is a magna cum laude graduate of Wharton and holds J.D. and M.B.A. from Vanderbilt University.

 

中国大陆用户请点击这里去优酷网观看视频

Agence France-Presse/Getty Images

Taiwan President Ma Ying-jeou (L) shakes hands with independent presidential candidate James Soong (R) as main opposition Democratic Progressive Party (DPP) presidential candidate Tsai Ing-wen looks on before a televised debate in Taipei on December 3, 2011.

The first of three televised presidential debates in Taiwan on Saturday left audiences without many revelations, punch lines or memorable sound-bites — a marked contrast with the lively manner in which politics is usually carried out on the island.

The three candidates — incumbent President Ma Ying-jeou of the Kuomintang (or Nationalist) Party, Democratic Progressive Party chairwoman Tsai Ing-wen and People First Party founder James Soong — tread very carefully over the two-and-a-half-hour debate. It was a sign, commentators said, of how tight race the race has become, with the candidates preferring to play it safe and avoid losing votes – or inviting attacks.

A poll last week that had Ms. Tsai in the lead was recently called into question by a recent CLSA poll that places Mr. Ma squarely in the lead.

Unlike the televised debates ahead of the previous presidential election, which had been dominated by Taiwan’s relations with China, the three presidential hopefuls this time spent almost half of the time addressing economic concerns — joblessness, stagnant wages and a wide wealth gap — although none of them managed to offer much in the way of specific remedies.

“The debate was quite empty,” said Yu Tzu-hsiang, chairman of department of speech communication at Shih Hsin University. “There were moments when I expected some follow-up questions or attacks, but there weren’t.”

Mr. Ma’s strategy rested on recounting the benefits from the island’s landmark trade pact with Beijing and the thawing of the once-frosty cross-Straits relations, both of which took place during his first term. He offered no new initiatives on the economy apart from those already proposed or in place, which is seen as a major weakness of his campaign.

Ms. Tsai focused at first on distancing herself from disgraced former President and DPP leader Chen Shui-bian. “This is an election in 2012, not 2008. Standing in front of you is Tsai Ing-wen, not Chen Shui-bian,” she said. From there she continued promoting her proposal for a “Taiwan consensus” to replace the 1992 consensus struck between Beijing and the KMT. She also pledged to reduce Taiwan’s fiscal deficit and expand its export markets.

Mr. Soong, who is far behind Mr. Ma and Ms. Tsai in the polls but is seen as a “major swing factor” for his ability to take votes from the two frontrunners, said he “doesn’t have any numbers, but a direction and an attitude” on boosting the economy. Analysts have described Mr. Soong’s strategy as trying to win middle voters with a plan to form a government comprising different political parties.

Mr. Yu said Ms. Tsai, a former law professor, was too soft and not aggressive enough. “Ma wasn’t impressive as he didn’t convince us he will be able to boost our economy if he’s re-elected. But Tsai also needs to tell us why we have to replace Ma. I’m very surprised she didn’t single out the things Ma didn’t do well and attack him.”

“Soong was also much milder than I expected. I believe he doesn’t want to be too aggressive and upset the voters from the ‘blue’ (pro-Nationalist Party) camp,” Yu added.

Chen Fung-hsin, a radio host and a commentator, said: “I’m very surprised Tsai didn’t offer anything new on cross-Strait relations and other diplomatic issues,” adding that Ms. Tsai came across as less experienced in government administration than the other two challengers.

“When Soong and Ma talked about information-technology infrastructure issue, she didn’t seem to know the gist of it…Today she basically has no fire power,” Chen said.

It will probably be days before the first post-debate polls come out. To those voters who were sitting popcorn in hand in front of their TVs waiting for the typical Taiwanese political fireworks, Satuday’s debate was almost certainly a disappointment. But with all three candidates playing it equally safe, it’s not clear if any of them came out of the face-off in worse position than before.

– Aries Poon

Reuters

A China Eastern Airlines passenger jet passes in front of the moon over Shanghai May 13, 2011.

How do you say “Oops” in Chinese?

China Eastern Airlines is pledging to improve the English-language skills of its crew following an incident in the Japanese city of Osaka where a Shanghai-bound China Eastern flight took off apparently without permission from the tower, in what may have been a simple case of broken communication between the pilot and controllers.

Exact details of what happened at Osaka’s airport on Monday remain unclear, but Shanghai-based China Eastern is already promising to improve pilots’ English, the state-run Xinhua news agency reported.

Xinhua cited a report from Japan’s Kyodo news agency (in Chinese) as saying an Airbus A330-200 took off just before 2:00 p.m. on Monday even though it didn’t have clearance from controllers. The state-run China Daily newspaper said Thursday that Japanese authorities were working to see whether the pilot intentionally ignored controllers’ instructions. The pilot of the China Eastern flight, MU516, was apparently instructed to taxi to a runaway and await further instructions. The plane took off instead.

This week’s incident follows a bizarre case from August in which private Chinese airline Juneyao was temporarily banned from hiring foreign pilots after a Korean pilot on one of its flights refused to give way to a Qatar Airways jet that had issued a “mayday” call and requested immediate permission to land. In that incident, the Juneyao pilot ignored six orders from the control tower to first allow the Qatari jet to land. Both aircraft eventually touched down safely.

China Daily quoted unnamed experts as saying the pilot of the China Eastern airliner could face severe punishment from Chinese authorities. Japanese authorities have said they don’t plan to punish the pilot, according to the newspaper.

China’s civil aviation authority said in 2007 that less than one-tenth of its pilots met international standards for English proficiency.

–Brian Spegele. Follow him on Twitter @bspegele.

European Pressphoto Agency

China’s central bank cuts its bank reserve ratios for the first time since 2008 on Wednesday night, signaling a decisive shift in focus toward growth and away from inflation. On Thursday, China’s official Purchasing Managers Index showed a contraction in manufacturing activity for the first time since 2009. Analysts weigh in:

The markets have been handed a powerful one-two combo, in the form of a shocking PMI print and an aggressive [reserve requirement ratio] cut. The message is clear: the economy is slowing much faster than expected and the government has stepped into the ring. The loosening campaign has begun… Risks of a policy error remain extremely high because authorities are loosening against a backdrop of a deteriorating euro zone, a rocky real estate market, stressed local government balance sheets and capital flight. – Alistair Thornton, IHS Global Insight

The immediate impact of [the] cut to the required reserve ratio (RRR) is to ease constraints on bank lending. We estimate that the cut has an impact on banks’ ability to lend equivalent to the injection of RMB400bn ($63bn) of base money…More important is the signal the move gives to markets and to investors. The People’s Bank (PBOC) could have achieved the same end of loosening constraints on credit growth quietly through its open market operations. The fact that it chose to act in this more public way is a signal not only that policymakers are loosening but also that they want to be seen to be doing so. Accordingly, we see the reserve requirement cut as a decisive shift in policy stance. Maintaining growth, rather than tackling inflation, is now the primary focus. – Mark Williams, Capital Economics

PMI dropped 1.4 points to 49.0, lower than market and our expectations…We expect growth to slow further to 8.5% in [the fourth quarter] and slightly below 8% in [the first quarter of] 2012. [The People’s Bank of China] initiated the first RRR cut in three years yesterday, signaling a shift of policy focus from fighting inflation to growth stability, and government readiness to take more measures if necessary to avoid [a] sharp fall [in] growth. The possibility of further easing should help stabilize expectation[s] and reduce downside risks to the economic outlook. – Shuang Ding, Minggao Shen, Daxue Wang and Serena Wang, Citibank

Liquidity did not seem particularly tight in recent days, possibly because fiscal deposits were quickly deployed. The timing of the RRR cut is then a bit earlier than expected, suggesting that the government is sending a clear signal to the market about its intention with monetary easing. We think the worsening euro zone debt crisis and rapidly decelerating inflation may be two key factors behind the sooner-than-expected RRR cut…The improved liquidity conditions should help market sentiment, which is positive for the Chinese equity market. The RRR cut should also help to improve banks’ profitability at the margin. – Tao Wang and Harrison Hu, UBS

We believe weak external demand growth probably was the main contributor to the weak manufacturing activity growth and we expect exports data to be released on December 10 to show a significant deceleration. On the other hand, domestic demand probably received more support from the looser domestic policy…Headline growth going forward face a significant level of uncertain as it will be the result of a tug of war between weaker exports growth and domestic policy loosening though there are incrementally more risks on the downside. On the other hand, domestic demand growth, and especially fixed asset investment growth, undoubtedly will benefit under this situation. – Yu Song, Goldman Sachs

– compiled by Josh Chin and Aaron Back