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German Chancellor Angela Merkel walks past an honor guard in Beijing on Thursday.

German Chancellor Angela Merkel’s visit this week provided a potential test of the predictions of some analysts that Europe’s leaders would have to tone down their rhetoric and make compromises in exchange for China’s help in cleaning up their sovereign-debt mess. Such an approach isn’t unprecedented: In 2009, U.S. Secretary of State Hillary Clinton was careful in her public statements during a China visit, adding that while “we have to continue” to press on human rights issues, “our pressing on those issues can’t interfere with the global economic crisis, the global climate-change crisis and the security crisis.”

On Thursday, Ms. Merkel seemed to get what the Continent was looking for: a statement from Chinese Premier Wen Jiabao that Beijing is considering getting more “deeply involved” in European bailout funds.

So did Ms. Merkel cave?

While it’s always possible that certain concessions were made behind closed doors, a transcript of a speech Ms. Merkel delivered in Beijing on Thursday suggests she stood firm, at least in public. In the speech, delivered at the Chinese Academy of Social Sciences, the German leader lauded China for agreeing in principle to carbon emissions in Durban, but also highlighted differences with Beijing on issues ranging from human rights and intellectual property to Iran oil sanctions and U.N. action on the conflict in Syria.

Here are select translations from the transcript (available in German):

On global warming:

Admittedly, I say, there is still a lot of time until 2020. It would of course have been better and nicer, if we could have secured a direct follow-up to the Kyoto Protocol. Climate change isn’t waiting for us, after all. We in Germany feel, as do you, that we need a sustainable supply of energy and that we need more energy efficiency. We support everything that is being done in China on this point, for China needs a lot of energy. The question of energy efficiency, the question of resource efficiency in general, is as important to you as it is to us – in some cases, at least as important. This requires us to speak not only about energy production, but also, for example, about the theme of water use, on which we have good chances of cooperation.

On Iran and Syria:

In terms of foreign policy, I would like to address two themes that are particularly important to us at the moment. One is Iran’s nuclear program. Here we have the negotiations of the E3+3, which also include China. We hope that these negotiations can be continued. We do however have the opinion that, because these talks have had no success in recent years, and because Iran is not acting transparently, we need sanctions as one possibility for trying to get Iran to change course. We are agreed that we do not want an Iranian nuclear program

As a second point, I would like to mention Syria. In Syria, human rights are being violated in a dramatic fashion. During our trip here, I will certainly speak with various representatives of the political leadership of China about how we can agree on more on this issue. The Arab League has played an outstanding role in this matter. I think the UN Security Council ought to find clear words here.

On trade and intellectual property protection:

What do representatives of foreign business need? What do representatives of German business talk about? They need open markets. What I can say is that our market, the German market, is open for Chinese investment. In the same way, we would like German companies to be treated the same way as domestic companies here. That is, a common field for competition is the be-all and end-all of good economic competition. We also need effective protection for intellectual property of course. Businessmen are always saying that one needs access to the relevant financing in order to develop dynamically in China. I think we have made a lot of progress, but we will speak during my visit about those questions that still need to be solved.

On human rights:

China and Germany have been exchanging political opinions openly and honestly for a long time – even, again and again, on disputed questions. We have a dialog on human rights, we have a dialog on the rule of law, we talk a lot about inalienable human rights. That will also certainly be the case again this time. We are talking about how our societies can develop further, under very different conditions and with very different histories, in the direction of economic freedom, social security and environmental necessity. We live together in a globalized world and know that we therefore have a mutual responsibility for each other.

Ms. Merkel’s comments didn’t fall on deaf ears. On Friday, the Communist Party’s flagship People’s Daily newspaper published a commentary arguing that further tightened sanctions against Iran would disrupt energy markets and hinder the global economic recovery. The commentary appeared to go further than many previous statements on Iran by the Foreign Ministry, which has repeatedly states its economic ties to Tehran should be treated simply as a matter of business, and not politics.

It highlighted what Beijing perhaps sees as a contradiction in Ms. Merkel’s demands:  Even as the struggling euro-zone has prompted the German leader to press for help from Beijing, she’s pressing political measures that analysts say could likely cause energy prices to skyrocket.

“The global economy is in a difficult recovery” the commentary read. “Because of both the U.S. and Iran’s clamoring for war, there have already been signs of oil prices rising substantially. Rising oil prices will create serious consequences on the global economy.”

– Geoffrey T. Smith, Josh Chin, Brian Spegele. Follow Josh on Twitter @joshchin and Brian at @bspegele

Facebook mentioned China several times in its initial public offering filing document, as the company races to expand its footprint in Asia. What are the chances the soon-to-be public social networking giant can tap the world’s largest Internet population?WSJ’s Deborah Kan speaks to Dow Jones Asia tech editor Yun-Hee Kim.

Reuters

It’s been a rough twelve months for China’s stock exchanges. The Shanghai Composite Index, which tracks the Shanghai Stock Exchange, is down 17% from a year earlier, while the Shenzhen exchange is down 28% and the benchmark index for Chinext — an exchange set up late 2010 for small, growth-stage firms — is down 35% since the end of January last year.

Lucky for them companies are still clambering to get listed.

On Wednesday, the China Securities Regulatory Commission published for the first time a full list of Chinese companies that have applied to launch an initial public offering in the country (here and here in Chinese). The list — seemingly an effort by the new head of the securities regulator, Guo Shuqing, to inject more transparency into the market – reveals more than 500 firms are queued up to IPO on a domestic exchange.

Why so many?

Unlike markets in developed economies, where companies are allowed to launch an IPO at a time of their own choosing as long as they fulfill the exchange’s listing criteria, companies in China can only list if the regulator gives them the all-clear. In turn, the regulator either pours or drip-feeds new issuers into the market in an effort to manage market sentiment. In late 2008 and early 2009 it even imposed what was effectively a nine-month moratorium on new IPOs so as not to draw funds away from existing stocks as the market slumped with the onset of the global financial crisis.

That’s made life difficult for many firms who need capital but have to contend with a long lag – years in some cases – between applying for an IPO and actually being allowed to sell shares. Of the 500 odd firms on the CSRC’s list, the regulator said 50 companies are undergoing preliminary reviews, one of the final hurdles before listing. The CSRC didn’t give any indication of whether this was more or less than the usual practice.

Notably, the list includes eight regional banks. After the Bank of Beijing and Bank of Nanjing were allowed to list in 2007, Beijing stopped the flow of small Chinese banks launching IPOs. However, after ramping up their lending in 2009 to help with the country’s economic stimulus efforts, many of China’s city-based commercial banks have been screaming out for capital.

There are 14 banks in total on the CSRC’s list. Instead of being allowed to list, they have come up against a banking regulator (which also has a say in whether banks can go public) that has demanded the banks up their game before giving its approval to sell shares to the public.

Now some banks appear to have reached one of the final hurdles. But unless Chinese investors start showing some enthusiasm for their stock markets, the banks might still have a while to wait.

– Dinny McMahon, with contributions from Amy Li

Getty Images

Yani Tseng

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

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

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

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

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

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

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

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

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

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

– Lorraine Luk

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

Bobby Yip/Reuters

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

Wukan Vote Tests Waters on Grass-Roots Democracy: Villagers in southern China who rebelled against local leaders took a first step toward creating a new democratic local government on Wednesday, with potentially broad implications for the future of grass roots democracy in China as well as the country’s coming central leadership transition. (Free)

Sudanese Rebels Pressure China: Sudanese rebels holding 29 Chinese workers demanded that Beijing put pressure on Khartoum, further politicizing a situation that has already strained China’s ties to a close ally. (Free)

In China, Facebook Alternatives Thrive: Investors flock into China’s social media companies, but a lack of a dominant player in the sector makes it unlikely that a “Facebook of China” will appear anytime soon. (Free)

Wen Pledges Help for Small Businesses: Chinese Premier Wen Jiabao said the government will move to help the country’s economically vital but financially strapped small businesses, including setting up a 15-billion-yuan ($2.39 billion) special fund to support the development of small and midsize enterprises. (Free)

Sino-Forest Probe Fails to Answer Key Questions: The final report from the independent committee investigating fraud allegations against Sino-Forest doesn’t shed light on whether the company valued its assets correctly. (Subscriber Content)

Reuters

Villagers write ballots at voting booths inside a classroom at a school, turned into a polling station, at Wukan village in Lufeng, Guangdong province February 1, 2012.

In late December, Chinese Internet users searching the country’s Twitter-like microblogging services for information about Wukan, the southern fishing village then in midst of a rebellion against local officials over land grabs, turned up little more than censorship notices. Six weeks later, Wukan has become the subject of an unusually open–and borderline euphoric–online discussion about the prospects for democracy in China.

“This is a model,” Chinese real-estate mogul Ren Zhiqiang said Wednesday via the popular microblogging service Sina Weibo, where searches for Wukan were producing nearly a million posts.

“The start of something new,” observed another user of the service.

The reason for the outpouring: An election–-the first of two-–to select Wukan’s new leaders. Elections at the village level are common in China, but this one was unique for coming on the heels of December’s protests and for appearing to be free of the Communist Party meddling that typically mars Chinese election results. While the process still has a ways to go, images of Wukan’s villagers filling out ballots in voting booths made of pressboard boxes and sheets of garish pink cloth have sent waves of giddiness rippling through the mostly cynical confines of Chinese cyberspace.

For many, the election brought to mind one of Mao Zedong’s favorite revolutionary slogans: “If you want freedom and democracy, you have to fight for it yourself,” wrote one Internet user in the popular discussion forum Maoyan Kanren. “A single spark can start a prairie fire.”

Others saw in the elections a rebuke of people, like martial-arts star Jackie Chan, who’ve questioned whether Chinese culture is compatible with democratic government.

“After this, whoever says Chinese people aren’t good enough for democracy, I’ll sue the bastard,” one particularly excited blogger promised on Sina Weibo.

The enthusiasm around the topic of Wukan on Sina Weibo appears to be due in part to Sina Corp. executive and top editor Chen Tong, who gave his implicit blessing to the discussion by forwarding a photo from the village with a note: “Broadcasting the Wukan village committee elections.”

Not everyone saw the election as the harbinger of a democratic China. Some dismissed it as a show, saying Wukan’s election, like elections in other villages, would be bought. Others tried to temper expectations.

“This is an election supported by detailed regulations in the constitution of the People’s Republic of China,” Yang Hua, a fire control engineer from Shandong province, wrote on his Weibo feed. “It’s not new and it doesn’t count as reform, but it is a symbol of the implementation of the constitution.”

Still others found time to poke fun at makeshift quality of the vote. “That’s unique,” one Weibo user wrote in response to a photo of several people crammed into a single pink voting booth. “Are they a family?”

Still, the mood among those who took the time to comment was overwhelmingly optimistic.

“History always moves forward. This is something no one can change,” read one post in the Maoyan Kanren forum. “Congratulations to the people of Wukan!”

– Josh Chin. Follow him on Twitter @joshchin

Apple Daily

An ad in a local Hong Kong newspaper denounced mainland Chinese visitors as ‘locusts’ who overwhelm the city and sap it of its resources.

One side calls the other “locusts,” the other responds with “dogs.” An illustrated tour of recent events that underscore growing tension between Hong Kong and mainland China.

Bloomberg News

John Tsang

Hong Kong’s coffers are full again as the city’s government prepares to announce another hefty budget surplus Wednesday, with calls for sweeteners to support the slowing economy and the city’s low-income groups. But any budget plans are likely to be constrained by political reality: a change of government in a few months.

Financial Secretary John Tsang will deliver the speech at 11am, with economists forecasting goodies similar to previous budgets like one-off tax rebates and temporary waivers of public housing rental, but no big surprises.

The government is likely to report about HK$65 billion (US$8.4 billion) budget surplus for the current fiscal year ending March 31, 2012, a person familiar with the situation said Monday, adding that Tsang will also say Hong Kong’s GDP rose about 5% in 2011, but forecasts slower growth, of below 3%, this year due to the weakening global economy.

“Given the imminent change in top government posts, we expect the upcoming budget to be long on one-off concessions and short on new vision,” Standard Chartered economist Kelvin Lau said. “One-off relief measures should prove timely given that growth is set to slow further in 2012.”

For the property market, Citigroup also believes the Hong Kong government is unlikely to announce any new measures in the upcoming budget that may hurt the property market, given prices stopped rising in June.

“Hong Kong government officials have no intention of causing a home price collapse, especially when senior government officials are worried about the European debt crisis,” Citigroup said in a report.

While Mr. Tsang is expected to push forward infrastructure projects that have been widely flagged to create jobs as an economic slowdown starts to bite, Hong Kongers probably can’t count too much on other measures.

– Chester Yung

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).

Originally posted on Scene Asia:

China’s appetite for an obscure fungus found on caterpillars and foraged in remote regions of Tibet, Nepal and Bhutan has pushed prices to levels usually reserved for precious metals. But the competition for retrieving them can sometimes prove fatal.

It is known as yarchagumba to some, Himalayan Viagra to others, and it fetches as much as $11,500 per pound. Its high value supports rural families who live in the mountains where it can be found, but at a human cost: In November, six foragers in Nepal were found guilty of killing seven rivals who were invading their turf.

The murders were big news in the country and were featured in an Outside magazine article whose writer traveled to the remote villages where the convicted came from. Yarchagumba has long played a role in Nepal’s turbulent history: Maoist rebels used to tax pickers as a way to fund their war against the monarchy.

Traditional herbalists believe the yarchagumba fungus boosts sexual performance and can cure other ailments as well. It is typically boiled in water to make a tea, ground into a powder and then sprinkled on food, or added whole to soups or stews. It was relatively unknown to the West until 1993, when it was cited as one of the secrets to the success of the Chinese women’s record-setting track team. Coach Ma Junren boasted he administered a combination of the fungus and turtle’s blood to his athletes.

Some Chinese like to incorporate it into their Chinese New Year’s feasts as well. Earlier this week, Australian customs authorities intercepted a bounty of food as Chinese tourists on charter flights to the country tried to bring more than 60 pounds of fresh fruit, pig’s trotters, chicken feet and yarchagumba.

The fungus is among several unusual commodities and collectibles whose prices are climbing as Chinese investors speculate in nontraditional markets.

Does ingesting caterpillar fungus really provide the boost that so many seek? There hasn’t been any definitive research conducted by Western scientists. But because its value is already somewhere between silver and gold, it is likely to inspire more spats in the future.

– Jason Chow

News:

* A patrol for every village: 8,000 new police headed to Xinjiang (Associated Press)

* Efforts to contain the recent cadmium spill upstream from Liuzhou aren’t going well (Guardian)

* China’s fuel prices hit the hike threshold (Reuters)

* A fitting end: Real estate developers demolish the former home of architects famous for trying to save old Beijing (Guardian)

* Signs China’s shopping spree may be slowing down (FT)

Analysis and Commentary:

* David Bandurski examines the evolving legacy of Wukan, China’s rebel village (China Media Project)

* Veteran journalist Chang Ping offers the pragmatists’ case for democracy in China (NYRB blog)

* Boycott Apple over it’s China supply chain? Tim Worstall says the idea is based on nonsense (Forbes)

Just Because:

* Want to buy a knife in Beijing? We’ll need to see your ID (Tea Leaf Nation)

* J.R. Smith’s family making a habit of dramatic exits at Chinese basketball games (Deadspin)

Getty Images

A shop in Tahrir Square is spray-painted with the word Twitter after the government shut off Internet access on Feb. 4 in Cairo, Egypt.

Twitter’s announcement late last week that it can now censor tweets within specific countries may not be aimed at earning entry into China, but it has nevertheless earned the company kudos from a state-run Chinese newspaper.

“It is impossible to have boundless freedom, even on the Internet and even in countries that make freedom their main selling point,” read an editorial published Monday on the English-language website of the Global Times. “The announcement of Twitter might have shown that it has already realized the fact and made a choice between being an idealistic political tool as many hope and following pragmatic commercial rules as a company.”

In a move that may or may not be related, Global Times editor-in-chief and censorship advocate Hu Xijin on Sunday night started an account on Twitter, dipping his toe into the Twitterverse with a message in English:

Twitter’s revelation of its new ability to selectively censor posts set off a speculation that the company might be laying the groundwork for a move into China, where it is currently blocked, and prompted threats of a boycott from some of its Chinese users. People in China need Internet workarounds, like proxy services, to access Twitter.

A lawyer for Twitter sought to calm the flurry of criticism the next day, arguing that country-specific filtration would allow Twitter to avoid having to remove posts globally. “We don’t want to enter a country that would compromise [our] ideals,” he added.

Beijing-based investor and Chinese Internet watcher Bill Bishop told China Real Time on Friday that he doubted Twitter was making a play for China, saying the company would have to be “incredibly naïve” to think it could compete in a market already saturated with microblogging services that had earned the trust of the government. The main question, Mr. Bishop said, was whether Chinese state media would seize on the announcement as evidence of the need for Internet censorship.

He didn’t have to wait long for an answer.

In its editorial, Global Times, a nationalist-leaning tabloid published by Communist Party flagship newspaper People’s Daily, described selective censorship as “normal practice” and “a necessary step in the evolution of Twitter.” It’s important for Twitter “to respect the cultures and ideas of different countries so as to blend into local environments harmoniously,” the paper added.

While the editorial may have been expected, the appearance on Twitter of Mr. Hu, a staunch defender of China’s need to censor the Internet, was something of a surprise. A number of China-based Twitter users, including long-time Chinese media watcher Jeremy Goldkorn, immediately questioned what Internet proxy the Global Times editor had used to access the service.

Mr. Hu faced additional questions from Twitter users, including whether the account was real and what he thought of the use of guns in putting down recent protests by Tibetans.

The editor didn’t immediately answer those questions, but he did offer a job description: “I regard my work as reporting a complicated China and commenting on a complicated world,” he wrote in English.

Reached Monday afternoon, a man surnamed Yin and identifying himself as Global Times’s office director confirmed to China Real Time that the account was real but said Mr. Hu was in meetings and therefore not available to offer details about how or why he started using Twitter.

– Josh Chin, with contributions from Kersten Zhang. Follow him on Twitter @joshchin

Bloomberg News

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

– Dinny McMahon, with contributions from Olivia Geng.

Agence France-Presse/Getty Images

Su Tong, who won the 2009 Man Asian Literary Prize, is among the writers featured at Macau’s Script Road literary festival.

A group of heavyweights is trying to build something big in Macau, and for once it’s not a casino.

Media magnate Ricardo Pinto is this week launching the Script Road, the former Portuguese colony’s first literary festival, with the help of writers, filmmakers, musicians and artists from China and the Portuguese-speaking world.

The Chinese territory is best known for its casino industry, which is by far the biggest in the world, racking up more than five times the gambling revenue of the Las Vegas Strip last year.

But Mr. Pinto said he hopes the festival, which he intends to make an annual event, will celebrate Macau’s unique role as a cultural crossroads through a series of panels, workshops, film screenings and concerts.

“The idea is there are several ways of writing,” said Mr. Pinto, 49. “You can write for books, films, songs.”

The festival officially started Sunday and runs to Feb. 4, and will feature sessions with authors such as China’s Su Tong, who won the Man Asian Literary Prize in 2009 and whose novella “Wives and Concubines” was turned into Zhang Yimou’s 1991 Oscar-nominated film “Raise the Red Lantern.”

See more on this at Scene Asia

Associated Press

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

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

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

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

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

Agence France-Presse/Getty Images

Customers use computers at an internet cafe in Hami, northwest China’s Xinjiang region. China now has more than 500 million people on the Internet and nearly half use weibo, microblogs similar to Twitter.

Twitter sent its digital street cred tumbling on Thursday night when it announced that it would being selectively censoring content as a way to enter countries with “different ideas” about freedom of expression. Though Twitter has never made promises along the lines of Google’s “Don’t Be Evil,” the move nevertheless comes as a surprise for a company that took pride in helping grease the wheels of last year’s Arab Spring uprisings.

In China, where Twitter is blocked but still accessible to those with the technical know-how to skirt the country’s Web filters, the revelation seems to have hit particularly hard.

Among the first to comment on the announcement was Wen Yunchao, one of many Chinese dissidents who’ve embraced Twitter as an uncensored alternative to China’s own heavily managed microblogging services:

Oh no! @Twitter says going to start censoring tweets in certain countries. Pls RT!act.demandprogress.org/act/twitter_ce… 通过 @demandprogress

— 北风 (@wenyunchao) January 27, 2012

It didn’t take long for speculation to spread that Twitter had announced the change because it planned to make a play for the China market. A number of Chinese users promptly declared their intention boycott the service. Among those leveling the boycott threat was activist artist Ai Weiwei, who wrote in a characteristically pithy post, “If Twitter starts censoring, I’ll stop tweeting”:

推若审查，我即停推。 RT @wenyunchao: @aiww 商人在商言商，道这东东，能像谷歌那样最好，不能也不能强求。 — 艾未未Ai Weiwei (@aiww) January 27, 2012

But how likely is it that Twitter’s proposed changes are aimed at earning access to the world’s largest population of Internet users?

“Unlikely” says the answer from Beijing- based investor and Internet watcher Bill Bishop.

As Mr. Bishop notes, a large part of the speculation that Twitter might be getting ready to kow-tow to China’s censors stems from Twitter co-founder Jack Dorsey’s visit to Shanghai earlier this month, during which he complained about not being able to read his tweets. That trip came almost exactly a year after the founder of another social-media site banned in China, Facebook’s Mark Zuckerberg, visited Beijing amid talk of trying to tap the Chinese market.

But for all the salivating over China’s potential in board rooms across Silicon Valley, Mr. Bishop says Twitter would have to be “incredibly naive” to think they could wedge their way into the country.

“It would be stupidity,” he says. “One, I don’t think the government would go for it. And two, the market is already saturated.”

Twitter did not immediately respond to requests for comment.

The key issue, Mr. Bishop says, is whether or not the government would be able to trust Twitter. One sign that Twitter isn’t likely to do what it takes to earn that trust is its plan to partner with Chilling Effects, an Internet freedom advocacy website, to publish government take-down notices — a problematic strategy in a country where banned keywords are treated like state secrets.

Even if Twitter were somehow able to get in Beijing’s good graces, Mr. Bishop says, it would have almost no shot at competing with home-grown “weibo” microblogging products from Sina and Tencent that are already well-established and offer more features. “Sina Weibo and Tencent Weibo are better products,” he says. “Twitter’s only competitive advantage here is freedom of speech. Once you start censoring, what do you have left to offer?”

Indeed, Mr. Dorsey himself quashed the idea of Twitter being able to break into China in an interview in Hong Kong in October in which he said his company “just can’t compete” in China “and that’s not up to us to change.”

In developing the ability to censor tweets by region, Twitter more likely has different markets in mind. The only countries mentioned by name in the blog post announcing the new policy were France and Germany, both of which, the post notes, ban pro-Nazi content. How to handle that ban is a dilemma that Yahoo, Google and Facebook have all struggled with in Germany.

Mr. Dorsey visited Germany earlier this week to announce his desire to hire a team there.

Twitter’s announcement also acknowledges there are some countries with severe restrictions on speech where the company simply cannot exist.

That’s not to say Twitter’s latest move won’t have an impact on China. Implausible as it may be for the company to establish itself in the country, Mr. Bishop notes, its embrace of content filtering could aid Beijing in making the argument that the Internet is a space in need of censorship.

– Josh Chin. Follow him on Twitter @joshchin.

Agence France-Presse/Getty Images

Customers use computers at an internet cafe in Hami, northwest China’s Xinjiang region. China now has more than 500 million people on the Internet and nearly half use weibo, microblogs similar to Twitter.

Twitter sent its digital street cred tumbling on Thursday night when it announced that it would being selectively censoring content as a way to enter countries with “different ideas” about freedom of expression. Though Twitter has never made promises along the lines of Google’s “Don’t Be Evil,” the move nevertheless comes as a surprise for a company that took pride in helping grease the wheels of last year’s Arab Spring uprisings.

In China, where Twitter is blocked but still accessible to those with the technical know-how to skirt the country’s Web filters, the revelation seems to have hit particularly hard.

Among the first to comment on the announcement was Wen Yunchao, one of many Chinese dissidents who’ve embraced Twitter as an uncensored alternative to China’s own heavily managed microblogging services:

Oh no! @Twitter says going to start censoring tweets in certain countries. Pls RT!act.demandprogress.org/act/twitter_ce… 通过 @demandprogress

— 北风 (@wenyunchao) January 27, 2012

It didn’t take long for speculation to spread that Twitter had announced the change because it planned to make a play for the China market. A number of Chinese users promptly declared their intention boycott the service. Among those leveling the boycott threat was activist artist Ai Weiwei, who wrote in a characteristically pithy post, “If Twitter starts censoring, I’ll stop tweeting”:

推若审查，我即停推。 RT @wenyunchao: @aiww 商人在商言商，道这东东，能像谷歌那样最好，不能也不能强求。 — 艾未未Ai Weiwei (@aiww) January 27, 2012

But how likely is it that Twitter’s proposed changes are aimed at earning access to the world’s largest population of Internet users?

“Unlikely” says the answer from Beijing- based investor and Internet watcher Bill Bishop.

As Mr. Bishop notes, a large part of the speculation that Twitter might be getting ready to kow-tow to China’s censors stems from Twitter co-founder Jack Dorsey’s visit to Shanghai earlier this month, during which he complained about not being able to read his tweets. That trip came almost exactly a year after the founder of another social-media site banned in China, Facebook’s Mark Zuckerberg, visited Beijing amid talk of trying to tap the Chinese market.

But for all the salivating over China’s potential in board rooms across Silicon Valley, Mr. Bishop says Twitter would have to be “incredibly naive” to think they could wedge their way into the country.

“It would be stupidity,” he says. “One, I don’t think the government would go for it. And two, the market is already saturated.”

Twitter did not immediately respond to requests for comment.

The key issue, Mr. Bishop says, is whether or not the government would be able to trust Twitter. One sign that Twitter isn’t likely to do what it takes to earn that trust is its plan to partner with Chilling Effects, an Internet freedom advocacy website, to publish government take-down notices — a problematic strategy in a country where banned keywords are treated like state secrets.

Even if Twitter were somehow able to get in Beijing’s good graces, Mr. Bishop says, it would have almost no shot at competing with home-grown “weibo” microblogging products from Sina and Tencent that are already well-established and offer more features. “Sina Weibo and Tencent Weibo are better products,” he says. “Twitter’s only competitive advantage here is freedom of speech. Once you start censoring, what do you have left to offer?”

Indeed, Mr. Dorsey himself quashed the idea of Twitter being able to break into China in an interview in Hong Kong in October in which he said his company “just can’t compete” in China “and that’s not up to us to change.”

In developing the ability to censor tweets by region, Twitter more likely has different markets in mind. The only countries mentioned by name in the blog post announcing the new policy were France and Germany, both of which, the post notes, ban pro-Nazi content. How to handle that ban is a dilemma that Yahoo, Google and Facebook have all struggled with in Germany.

Mr. Dorsey visited Germany earlier this week to announce his desire to hire a team there.

Twitter’s announcement also acknowledges there are some countries with severe restrictions on speech where the company simply cannot exist.

That’s not to say Twitter’s latest move won’t have an impact on China. Implausible as it may be for the company to establish itself in the country, Mr. Bishop notes, its embrace of content filtering could aid Beijing in making the argument that the Internet is a space in need of censorship.

– Josh Chin. Follow him on Twitter @joshchin.

At a panel discussion in Davos on how China should invest its massive foreign exchange reserves, moderator Rui Chenggang, a famous Chinese television personality, kicked off the discussion by complaining that he was overcharged on a restaurant bill in Belgium because he is Chinese and was therefore perceived to be rich.

John Zhao, chief executive of Chinese private equity fund Hony Capital, said that China remains a poor country, and it is only a wealthy minority that travels abroad and spends money. At the same time, there’s no denying that China in the aggregate is wealthy. “As a society China can unite resources,” Mr. Zhao added. “Look at the Olympic games. How can a poor country afford a luxury like that?”

Besides Mr. Zhao, the panel included Robert Greifeld, Chief Executive Officer of Nasdaq OMX Group, Pascal Lamy, Director-General of the World Trade Organization, and Richard Levin, President of Yale University. In short, a group of people that have very little if any connection to how China invests its reserves.

“If you were in charge of China’s foreign exchange management what would you do?” moderator Mr. Rui asked Yale’s Mr. Levin. “That would be fun,” he replied, before going on to say that China should spend the reserves domestically to build up its social safety net.

That suggestion is a popular one within China, but many analysts and even top officials at the country’s central have dismissed it as unworkable, because it would be difficult to convert the reserves to domestic currency without igniting inflation.

The panelists were unanimous that China can’t use its reserves to bail out Europe. “The scale of western problems dwarf the dollars we are talking about,” said Greifeld.  He noted that Italy’s national debt alone is at 1.9 trillion euros ($2.5 trillion), which itself is over half China’s reserves at $3.18 trillion.  “China can’t solve the problem even if they wanted to,” he said.

Mr. Lamy dismissed speculation that China would invest in European debt in return for some political or trade concessions by the European side, saying it is “media fluff-fluff” and that he doesn’t believe it “for one second.”

He added: “They don’t even do that with the U.S., they buy the U.S. debt without any condition.”

– Aaron Back. Follow him on Twitter @AaronBack.

News:

* A sobering look into the dark, and sometimes deadly, corners of Apple’s China supply chain (NYT)

* Not what you might expect: Chinese reader reactions to the Apple story (NYT blog)

* Norway considers a bit of diplomatic revenge (Guardian)

* China is causing the Philippines to think about allowing a bigger U.S military presence (Washington Post)

* River pollution sets off panic buying of bottled water in a southern city (AFP)

* ConocoPhillips forks out $158 million for its role in last year’s Bohai oil spill (BBC)

Analysis and Commentary:

* A former Red Guard and think tank chairman joins the chorus pushing for reform to continue (China Media Project)

* Arthur Kroeber says don’t make too much of Obama’s tough talk on China in the State of the Union address (New Yorker)

Just Because:

* The latest hot Spring Festival gift: organic pork (China Daily)

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

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

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

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

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

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

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

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

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

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

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

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

Sony Pictures

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

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

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

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

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

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

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

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

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

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

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

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

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

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

– Laurie Burkitt. Follower her on Twitter @lburkitt.