Sina Weibo

A collection of photos taken from the Harbin Pharmaceutical website and re-posted on Twitter-like microblogging site Sina Weibo by Harbin Day.

A state-run drug maker in China that came under fire for constructing a luxurious palace worthy of a Colombian cartel is now claiming that photos of the building posted online are part of an internal museum.

Harbin Pharmaceutical Group Sixth Pharm Factory, a state-owned firm based in northeast China’s Heilongjiang province, recently published a set of photos on its official website revealing its factory sumptuously awash in yellow gold and marble.

In the lobby, two plainly dressed couples–presumably employees–are shown dwarfed by four marble columns thick as tree trunks. Over them looms a triple-tiered crystal chandelier hung from the gold-plated ceiling. A photo of an indoor terrace resembles a concert hall with its white baby grand. The meeting rooms, meanwhile, have been outfitted with luxurious Chinese traditional furniture in mahogany and wooden lanterns.

The gorgeous photos have quickly drawn a barrage of criticism from Chinese Internet users for its lavish spending on the building.

“It’s a palace which is built on the pain of millions of patients,” one internet poster with the online pseudonym Medical Pioneer 2 said on China’s Twitter-like Sina Weibo microblogging site. Another web user who gave the name Mo Xi wrote: “Now I finally know why Chinese people can’t afford to go to the doctor and buy medicines.”

In the face of growing public anger, the company removed the sensational photos from its website, and said that they were of a wood-block-printing art museum located in the same building as the company’s headquarters.

The official Xinhua News Agency quoted Lu Chuanyou, head of the company, as saying that the factory’s European-style main building, constructed in 2004, has six floors –the ground to the third for working areas and the rest for the wood-block-printing museum (in Chinese)

Except for the magnificent lobby, the design and decoration of the working section is generally plain and simple, while the art museum’s section (from the fourth floor to the sixth) looks sumptuous, decked out with crystal chandeliers and finely crafted copper-coated wooden figures as well as grandly-decorated meeting rooms and parlors, the Xinhua report said.

The construction of the building and interior decorating cost the company more than 93 million yuan (US$15 million), Mr. Lu said, adding that the intention in building the museum was to promote cultural development and highlight the company’s social responsibility.

Established in 1977, Harbin Pharmaceutical Group Sixth Pharm Plant is a subsidiary of state-owned Harbin Pharmaceutical Group Holding Co., which is China’s first publicly listed drug maker. Besides manufacturing drugs, the Sixth Pharm Plant also produces beverages and health food.

It’s still unclear why the pharmaceutical company decorated the plant’s art museum section in such a luxurious style. A spokesman at the company on Friday declined to comment.

The company’s effort to deflect public attention appears to have done little to calm down the anger of the mass.

Chinese newspaper Southeast Press said on Friday in its microblog: “Simple wood-block-printing art doesn’t need an extravagant museum!” An Internet user posting under the name Ttparishilton on Sina Weibo wrote: “As long as Harbin Pharmaceutical Group Sixth Pharm Plant is a state-controlled enterprise, we are allowed to ask with whose money the company realized its art dream and who should have the right to approve the spending of the money.”

Harbin Pharmaceutical is by no means the first government entity in China to invite public scorn by spending lavishly on a building that appears to have little function beyond satisfying leaders’ vanity. As recently as March, a local government in rural Anhui province ignited a firestorm of criticism after its plans for an opulent complex covering nearly 45 acres were revealed online.

In one of the most forehead-smacking examples of government decorating excess, one local environmental protection bureau was discovered in January to have used sidewalk tiles for the blind to create a decorative pattern on either side of the main road leading into its headquarters.

Harbin Pharmaceutical, however, appears to have prompted more than the usual dose of public outrage over such indulgences — a reaction that could be attributed to widespread dissatisfaction in China over the state of the country’s health care system.

It’s unknown how profitable Harbin Pharmaceutical Group Sixth Pharm Plant is. But a research note from China Merchants Securities Co. showed that the country’s more than 100 listed drug makers had an average net profit margin of 10% in the first half of this year, up from 7.7% in 2008. By contrast, Pfizer Inc. had an average 20% net profit margin from 2006 to 2010.

Chinese pharmaceutical makers’ lower net profit margin suggests their operations are less efficient. In fact, complaints about costly medicines have been on the rise in recent years, making the high cost of health care services — along with surging housing prices and education spending — among the biggest source of public discontent in China.

Hospitals all over the country are notorious for padding the bonuses of doctors who prescribe expensive medicines or order up high-tech tests. Data from the Ministry of Health show that around 50% of total health spending is for drug purchases in China, a disproportionately high amount compared to other countries (in Chinese). In the U.S., the figure stands at about 10%.

– Rose Yu with contributions from Jean Yung

Hoteliers are bending over backward to woo Chinese travelers these days, and hotel chain Hilton Worldwide thinks slippers and tea will do the trick.

The international chain unveiled on Monday a new program called “Hilton Huanying” (which means “welcome” in Mandarin) — what the company touted as “a tailored experience for Chinese travelers.” Thirty hotels in destinations around the world are part of the program, which, the hotel company says, has been backed by extensive research in the ethnic demographic.

So what does Hilton think Chinese travelers want from a hotel?

Continue reading at Scene Asia.

Associated Press

Retirees sing revolutionary “red” songs at a morning gathering in Shaping Park in southwest China’s Chongqing Municipality Thursday March 3, 2011.

The propaganda department of Chongqing, China’s largest and fastest growing city famous for its irresistibly spicy cuisine, has unveiled its latest assignment for local residents in the municipality’s populist campaign: learn by heart a bevy of new songs that celebrate the beauty of life and the greatness of the motherland.

According to a report in Wednesday’s Chongqing Daily (in Chinese), the city has selected a total of 36 songs it wants residents to memorize and has instructed official TV, radio and newspapers to intensively promote them as part of a new local singing contest.

“These 36 songs have a diversity of styles, beautiful melodies and reflect the main themes of the times,” Chongqing Daily quoted a notice from the municipal propaganda department as saying. “They are refreshing and excellent ‘red’ songs for people to sing.”

The campaign is the latest manifestation of a “red” movement championed by Bo Xilai, the charismatic Communist Party leader in Chongqing, who has been pushing a nostalgic brand of populism as he jockeys for power ahead of a scheduled leadership change in 2012.

The city isn’t holding back in its efforts to get citizens on board. The Study Publishing House and the People’s Music Publishing House have both released CDs and DVDs to help familiarize people with the red tunes, while local radio stations have been told to play the songs continuously throughout the day.

This latest effort to “further enrich people’s spiritual and cultural life” comes despite news that Chongqing TV, which broadcasts an exclusive diet of revolutionary programs and drama series and is no longer running commercials, is suffering massive losses.

The current commercials-free model — part of the broadcaster’s effort to make itself into “China’s BBC” — is costing around 300 million yuan per year, according to the Beijing Daily (in Chinese). The loss in revenue has forced the station’s parent company to lay off 20% of the staff in its advertising department.

Despite the expense, local authorities appear undeterred and have pledged to plug the financial hole for the “Red Channel.” The latest singing contest suggests the spiritual campaign continues to race ahead at full speed, regardless of what the market has to say about it.

– Shen Hong

Dolce & Gabbana

A model presents a dress made on-the-spot by Italian fashion giants Domenico Dolce (far left) and Stefano Gabbana (far right) based on the design of Wei Tengfei (second from right) at an event held at the Central Academy of Fine Arts in Beijing, Monday, March 21, 2011.

Italian luxury designers Domenico Dolce and Stefano Gabbana have their eyes on China’s emerging designers.

At China’s Central Academy of Fine Arts in Beijing on Monday afternoon, the Italian duo, who run their own famed fashion house Dolce & Gabbana, stood in front of a crowd of aspiring designers who wanted to know what it takes to build a brand like D&G, which has swelled globally over the past decade, creating a fashion empire with sales of nearly $1.5 billion last year.

“Fashion has to be your love,” said Mr. Dolce. “Look at me, I am a fashion priest–no boyfriend, no husband, no family, only fashion,” he said.

On-looking students, an estimated 300 or so, listened attentively, scribbled notes, and then bombarded the pair with questions. A few examples: “Why don’t you collaborate with other retailers like Zara and H&M?”; “What do you think of China’s designers?”

Messrs. Dolce and Gabbana had much to say about their lack of desire to work with clothing retailers. They’ve turned down H&M’s offers for collaboration three times to protect their own brand and business, Mr. Gabbana said. They limit partnerships to select stars, such as Madonna, Beyonce, and Scarlett Johansson.

When it came to giving their opinion on Chinese designers, the team made it clear they were on the lookout for more talent coming out of the country, where they’re hoping to make it big over the next few years.

Beyond the pair’s desire to do more business in the China, they’re also looking for talent to feed into a new project they’ve taken on to give up-and-coming designers more opportunities. In September of last year, the company opened Spiga2, a Milan-based store that features and sells the work of emerging international designers, including Lu Kun, a Shanghai-native whose career began to take off after winning the Shanghai Fashion Federation’s award for best young designer in 2004.

Mr. Lu (pdf) has already hit it big in the global fashion world. He made it to New York fashion week in 2008 and has designed dresses for celebrities like Chinese actress Yue-Sai Kan and American fashion icon Paris Hilton.

Another goal is to see design from the Chinese perspective and to see the China that Chinese people see, Mr. Dolce said in an interview Monday. “Some Europeans look at things that come from this country as being lower quality,” Mr. Dolce said. “But we see eccentricity,” he said, adding that Chinese designers are willing to put in the hard work “without talking nonsense all the time.”

Messrs. Dolce and Gabbana aren’t alone in seeing potential for Chinese fashion. In a recent article looking at the future of Chinese fashion, Reuters quoted Italian trend-setter Elio Fiorucci as saying designers from the world’s second-largest economy are likely to play a bigger role in setting global trends going forward: “We know little about Chinese sense of beauty. Chinese designers have got talent, they know all about us and they will be the next big surprise.”

After the Q and A session at the Central Academy of Fine Arts ended Monday, Messrs. Dolce and Gabbana picked at random a student sketch to construct. Like a scene from reality design show Project Runway, the pair whipped together in about 15 to 20 minutes a wearable version of a dress designed by Wei Tengfei, a 22 year-old aspiring designer from Beijing.

“I’ve only dreamed of having one of my dresses made by these guys,” Mr. Wei said.

Commenting on the design, an asymmetrical cocktail dress that revealed the model’s back and bra straps, Mr. Dolce remarked: “It’s certainly not something we would have created.”

– Laurie Burkitt. Follow her on Twitter @lburkitt

WSJ Highlights:

• China recorded inflation of 4.9% for the second straight month amid government efforts to rein in prices.
• The family of gambling magnate Stanley Ho appears to have settled a fight over control of his multibillion dollar casino empire.
• After its chairman stepped down Tuesday, Chinese electronics retailer Gome is expected to expand rapidly—maybe too rapidly.

News Items:

• China has unveiled a strict accountability system for local officials it says will guarantee land supplies for affordable housing projects. (China Daily)
• New government statistics show China had more than 30 million students pursuing higher education in 2010, a 35% increase over 2005. (People’s Daily Online)
• Rescuers have started searching for survivors of an earthquake that struck Yunnan Province on Thursday and has killed at least 25. (Xinhua)

Digging Deeper:

• Faking Lafite: With China’s developing a healthy thirst for expensive wine, CNN looks into a growing problem of wine counterfeiting.
• The good news for Beijing about last month’s trade deficit? As Bloomberg reports, it might help China fend off criticism over the value of the yuan.
• Always a way: China Daily reports that real-estate agents in Beijing have found a way to get around new restrictions on sales of apartments to nonresidents.
• Whence happiness? The Guardian’s Isabel Hilton describes the new obsession gripping leaders in Beijing.

Internet Watch:

• To IPO or not to IPO? Forbes writer Gady Epstein considers whether Sina should spin off microblogging service Sina Weibo.
• China’s Facebook syndrome: Businessweek considers whether Chinese Internet censorship should be considered a trade policy issue.

Economists Hold Forth:

• University of California, Berkeley economist Barry Eichengreen ponders whether China’s leaders should be believed when they predict slower growth over the next five years.
• Notes from a Carnegie Foundation panel discussion featuring the IMF’s Vivek Arora, former People’s Bank of China deputy governor Min Zhu and others on the implications of China’s rebalancing efforts for the rest of Asia.

–complied by Josh China. Follow him on Twitter @joshchin.

The matching buildings with a honeycomb exterior are designed to house two ultraluxury hotels.

Though construction has now been restarted as the Shanghai World Expo looms, the high-profile construction project has long been dogged by ownership issues and sat idle for months. Getting it going again recently was billionaire Vincent H.S. Lo’s move to buy out the project from the original owner by upping his own stake to 100% from 15%.

Now, Lo has taken on a new partner – his brother’s company – in a deal that appears set to shake up which hotels actually open in the twin towers.

Hong Kong-listed Great Eagle Holdings Ltd. said this week (PDF here) it will pay around $73 million for one-third ownership in the uncompleted Shanghai towers now owned by private business interests associated with Lo, who heads Hong Kong-listed Shui On Land Ltd.

Lo is the older younger brother of Lo Ka Shui, chairman and chief executive officer of Great Eagle. Vincent Lo is also a non-executive director of Great Eagle.

The brothers intend to abstain from a Great Eagle shareholder vote on the plan, which for Hong Kong stock market purposes constitutes a “connected transaction.”

Neither brother’s company responded to a request for comment.

The new investment may add financial ballast to the once-stalled, but suddenly active, project.

Already in recent weeks, builders have been adding fancy sculptures to glass entranceways, cutting marble and lighting the distinctive exterior at night, even as upper floors appear unfinished. All around Shanghai, builders are racing to complete – or give a finished appearance to – projects ahead of the World Expo’s May 1 start.

Yet, the investment statement also hints at a likely change in the brands due to manage the fancy hotel-spa complex once expected to open in 2009.

Specifically, as part of the new deal, a Great Eagle-controlled management company, Langham Hotels, will hold a renewable, 20-year contract to operate a 24-floor, 357-room hotel on the property, according to the statement.

One caveat: “a third party international
hotel management group” has already been hired to operate the hotel, though, “It is anticipated that the Project Company will commence discussion with the Third Party Operator on the Third Party Operator Contract” – legalese that likely means it’s canceling that deal.

Unmentioned in the statement is Hilton Hotels Corp.’s Conrad brand, which had planned its Shanghai flagship on the premises, a 362-room hotel and spa.

In an emailed statement on Friday in response to questions, Hilton pointed TO a “management contract under which Hilton Worldwide is appointed as the manager of the operation of the Conrad Shanghai. We remain committed to managing this unique property in Shanghai. We are unable to comment further on the hotel’s ownership or the owner’s future plans for the development.”

But other signs suggest Hilton is out.

Promotional materials posted to the Hilton Web site once glowed that the Conrad’s design “pays homage to one of the most influential dynasties to rule the Middle Kingdom: the Han Dynasty.” Now on the company Web site, a Conrad Shanghai is merely listed among future sites as “(TBD)” – as in “to be determined.”

The other hotel on the project is a Jumeirah property. The Dubai company, which didn’t respond to a request for comment, continues to promote its Jumeirah Hantang Xintiandi prominantly on its Web site, noting the hotel is, according to one survey, “the most expected hotel.”

The project is important to Vincent Lo, one of the Chinese property world’s most prominent executives, not least of all because it stands at the northern gateway of his touristy nightlife area Xintiandi. He had always been the hotel project’s construction contractor and until he bought out his original partner earlier this year, owned 15% as well.

The seller in January of 85% was the project’s original visionary, a colorful Indonesian-American software magnate, Leo Koguan.

A brother also figured into Leo’s end of the deal: Rudy Suliawan, who uses the family’s Indonesian name and is something of a legend in the global hotel industry. Suliawan offered Leo advice on his project and, according to people involved in its earliest stages, the original 2005 plan was to build a hotel for Shanghai as distinctive as his older brother’s cliff-side Ayana Resort in Bali.

For reasons Leo has declined to explain, he cooled to his Shanghai hotel, making it appear as either another casualty of the global financial crisis or a bearish view on a hotel market that analysts say is overbuilt ahead of Expo 2010.

–James T. Areddy

James T. Areddy

Sir Michael Kadoorie sang a mariachi tune at the opening party for the Peninsula Shanghai

The Kadoorie family, like no other, exemplifies the tumultuous history of foreigners in Shanghai, and specifically a presence amid the parade of Western-style buildings on the Chinese river bank known as the Bund.

Ellis Kadoorie landed in Shanghai in 1880 while an older brother, Elly, went to Hong Kong, two path-breaking Sephardic Iraqi-Jews who did trading and banking to emerge as some of the richest people in East Asia.

Over time they acquired leading Shanghai hotels, like the Palace and Astor House, then world famous. In the 1920s, the family hotels played host to dignitaries that in one case included a famous panda but also endured the bombing of one property as war ravaged the city, and eventually lost key Shanghai holdings to the People’s Liberation Army in the early 1950s.

This week, to celebrate the Kadoorie family’s homecoming of sorts to the Pearl of the Orient after six decades with the official opening of the Peninsula Shanghai, the clan toasted to, perhaps surprisingly, Mexican food and Mariachi music.

The grandson of Elly, the current family patriarch and one of the wealthiest men on Earth, Sir Michael Kadoorie, can certainly have what he wants. And he knows how to throw a party.

At Thursday’s gala, Sir Michael offered his 3,000 guests a show of acrobats dressed like bell boys in pill box hats scaling the 235-room hotel, and feted them with champagne, shark’s fin soup, Peking duck and sushi in a highly styled setting meant to recall Shanghai’s jazz-age high points in the 1920s. The party took place throughout the hotel, from a basement bebop bar, to jazz crooning in the second floor ballroom, up to a 14th floor disco called Sir Elly’s that features outstanding views from its outdoor deck – including of the still-standing Palace and Astor properties.

But in that so-Chinese setting, it was the spicy south-of-the border music, courtesy of Mexican and Colombian bands, and food prepared by Mexican chefs flown in for the event, that drew crowds to the 11th floor patio, well past the 11th hour.

As his guests munched on fancy crab mini-burritos and hot tamales, Sir Michael took the microphone and sang in Spanish along with the white and gold clad band from Mexico, “Mariachi de la Secretaria de Marina“. A crowd favorite was the song “Jalisco,” a brassy homesick tune named for one of the 31 Mexican states. A spokeswoman says Sir Michael has long enjoyed Mariachi music.

During his stay in Shanghai, Sir Michael also toured his family’s former estate, “Marble Hall.” As a young boy, he peddled a tricycle through the mansion’s long white halls and could marvel at a room-size safe that held one of the world’s largest ivory collections. Today the building is known as Children’s Palace and sports a Communist Party logo.

Opening more than five years after Kadoorie-controlled Hongkong and Shanghai Hotels Ltd. acquired its Shanghai land, and 10 years into its efforts to get back to the Bund with a Peninsula, the only new hotel on the Bund in decades cost, at $435 million, about $74 million above the company’s initial estimates (announcement in PDF here).

It is owned in partnership with David Wang’s SPG Land (Holdings) Ltd. and the two are working on a revival next door of the former British Consulate, a long planned project that is now making headway.

It won’t be the last: A strip that for decades has offered little fancy accommodation will soon have perhaps 1,000 luxury hotel rooms, with the opening of the Fairmont Peace Hotel, the Swatch Art Peace Hotel and later the Waldorf Astoria Shanghai. All of them are planned as modern versions of historic properties on the riverfront designed to evoke Shanghai’s 1920s and 1930s spirit.

In a foreword to a new 204-page book by Peter Hibbard commissioned by the hotel company and entitled “Beyond Hospitality,” Sir Michael says his family company “has always needed perseverance to realize its vision.”

He offers a positive spin rendition of the family experience in Shanghai, noting, “Other events were difficult at the time, but ultimately led to positive outcomes, such as the rise to power of the People’s Liberation Army in 1949 – one step in a process which 60 years later has seen the Company return to Shanghai, now, once again, one of the greatest cities in the world and the financial heart of emerging, modern China.”

–James T. Areddy