InfoseekChina

2012-02-02T08:57:00.000-08:00

Have You Heard...

Chinese Village Vote Tests Waters on Reform

2012-02-02T08:54:00.001-08:00

Source: Wall Street Journal By Brian Spegele

BEIJING—Villagers in southern China who rebelled against local leaders took a first step toward creating a new democratic local government, with potentially broad implications for the future of grass-roots democracy in China as well as the country's coming top leadership transition.

The southern Chinese village of Wukan on Wednesday held the first of two free elections that will lead to residents selecting new local leaders on March 1, according to villagers. The vote is unusual: While many local governments in China hold elections, the process is tightly controlled by the Communist Party, and critics say that the 1998 law that allowed them hasn't led to broader hoped-for political reform.

The question now is whether Wukan's election will spark further democratization elsewhere in China, and how tolerant the national government might be.

"This is just a start," said Wang Cailiang, a well-known rights lawyer in Beijing. "Even though Chinese people's ability to innovate is insufficient, their ability to copy is very strong, and there will be many villages studying this. This is an important process of democratization."

Wukan—a fishing village of about 12,000 people in China's southern Guangdong province—set up wooden voting booths inside a school, with state media reporting that 35 teachers were on hand to help villagers who might be illiterate. Results were expected to be announced later Wednesday.

"This is such big progress," said one young villager, who, like many in Wukan declined to be named. Citing the death in captivity in December of a protest leader, Xue Jinbo, the villager added, "Uncle Xue wasn't sacrificed for nothing. We wouldn't let him die for nothing."

The Wukan protests were sparked by angry villagers who accused local Communist Party officials of seizing and selling their land. It drew widespread attention in a country where the illegal seizure of farmland to build luxury homes, shopping malls and golf courses has become a leading source of social discontent.

While similar demonstrations often led to crackdowns, the Wukan protests ended peacefully after the intervention of Guangdong's reformist party secretary, Wang Yang, who sent a top lieutenant to negotiate with protest leaders. Some analysts draw contrasts with protests in 2005 in the Guangdong village of Taishi, which were crushed by police and local authorities. That case was widely viewed as a blow to village democracy efforts.

Wukan's fate is now being closely watched as a test of Beijing's willingness to tackle the failings of local government in China, including pervasive corruption, collusion between local officials and property developers, and a lack of official accountability and legal redress for victims of government abuse.

"It's a paradigm shift," said Liu Yawei, an expert on grass-roots democracy and director of the China Program at the Carter Center in Atlanta. "I think the officials, led by Wang Yang, have finally come to the conclusion that in the market economy there are groups whose interests are being violated."

Wukan's fate could also be tied to that of Wang Yang, who is seen as a reformer and supporter of the rule of law, and who has also emphasized happiness and quality of life while in the top party position in Guangdong. Perhaps the most liberal of China's ranking leadership, Mr. Wang is a candidate for promotion to the Politburo Standing Committee, the party's top decision-making body, during a leadership transition beginning late this year.

Political and legal reform efforts in China have largely stalled in recent years, as economic development took precedence and worry mounted in some political camps that grass-roots democracy could one day challenge the Communist Party's grip on power.

Wednesday's election was the first step in a multitiered process that will eventually produce a village committee, which will work with local party secretary Lin Zuluan, the village's former protest leader who was appointed to the position in January. He succeeds Xue Chang, a former village chief for about 40 years, who residents say ordered seizures of villagers' land to sell to property developers. Mr. Xue was chased from town as protests turned increasingly violent in December.

The Wednesday vote will select 11 people who will serve on an election commission that will oversee a March 1 poll to determine who will sit on the village's governing committee. How the election commission treats candidates—including potential non-Communist Party ones—will be an indicator of whether Guangdong is more fully embracing village democracy under Mr. Wang, analysts said.

"This is to ensure fairness in the coming village committee election," Mr. Lin was quoted by state-run Xinhua news agency as saying. He declined a request for an interview this week.

Protests in Wukan began in September and later intensified following the death of Mr. Xue, the protest leader, while in police custody. Protesters quickly chased police from town, and blocked them from re-entering. They lined the town's main street with banners calling for clean government. Protest leaders said at the time they didn't oppose the Communist Party as a whole and appealed to Beijing's leaders to step in and help them in their dispute with local officials.

Germany's Merkel urges China to use influence on Iran

2012-02-02T08:53:00.000-08:00

Source: Reuters By Lucy Hornby and Andreas Rinke

(Reuters) - German Chancellor Angela Merkel urged China on Thursday to use its influence to persuade Iran to give up its nuclear weapons program, at the start of a three-day visit when she will also seek China's support for the ailing euro.

Merkel is expected to make the case for tighter sanctions on Iran, originally proposed by the United States and designed to prevent it from developing nuclear weapons. She said she has already had "long discussions" with President Hu Jintao and Premier Wen Jiabao on Iran sanctions.

"If we talk about the European sanctions against Iran, the question is how China can make better use of its influence to make Iran understand that the world must not have another power with nuclear weapons," Merkel told an audience at the Chinese Academy of Social Sciences.

Merkel's China visit illustrates the delicate nature of EU-China relations, where Europe pushes China to sacrifice its commercial interests to help on Iran while at the same time asking for its help in resolving a worsening debt crisis.

Indeed, Chinese Premier Wen Jiabao appeared to reject the pressure to do more on Iran, telling journalists later in the day that China objected to Western nations politicizing the "normal commercial relationship" it has with the Islamic Republic, echoing language China has used before.

Wen also said that China was considering greater involvement in the stability funds that have been set up to help pull Europe out of its deepening debt crisis.

China, with its $3.2 trillion worth foreign exchange reserves, is often seen as a potential source for the funds that are needed to bail out some European governments.

RELUCTANT ON IRAN

Merkel said she hoped the U.N. Security Council could pass a unanimous resolution on the Iran issue.

The United States imposed the harshest sanctions on Iran when President Barack Obama, on December 31, signed into law sanctions on transactions involving Iran's central bank.

The European Union last week imposed a ban on the import, purchase or transport of Iranian oil.

China has long refused to support sanctions on Iran, although Wen Jiabao said last month that Beijing "adamantly opposes" Iran developing nuclear weapons.

Iran says its nuclear program is for civilian use. China has much to lose by cutting back on Iranian oil purchases. Beijing imports 11 percent of its crude from the Islamic Republic, its third biggest supplier.

Merkel could urge Beijing to further cut its crude imports from Iran, a German source said earlier, but that is likely to go unheeded. Turning away that oil would mean paying a higher price to get it from another supplier.

"China opposes the use of nuclear energy for proliferation but believes it is possible to use it for peaceful purposes," said Li Xiangang, an former Chinese diplomat in Tehran who is now at the China Institute of International Studies.

"Energy sanctions against Iran will only cause world oil prices to rise and hurt the global economic recovery. That is why I think China is not supportive of further sanctions on Iran."

China would only act after the International Atomic Energy Agency sends inspectors to Iran, Li said.

A CALL FOR OPEN MARKETS

Merkel also pressed China to improve protection of intellectual property rights, calling on it to ensure that German businesses had reciprocal access to its markets.

That concern will likely be repeated when she travels to Guangzhou in southern China on Friday for a business summit. Merkel is accompanied by a number of German CEOs, who during a similar summit two years ago also pressed for more market access.

On Thursday, she toured an ancient alley in Beijing that is now home to shops and restaurants, one of the few to survive the razing of the centuries-old capital to build shopping malls and office blocks.

Germany enjoys strong exports to China, especially in machinery and high-tech products. But Chinese exports have eroded manufacturing in its European neighbors, and Chinese efforts to move up the value chain could also threaten German business in future.

For China, the visit is a chance to be briefed directly on the European crisis. In her speech, Merkel emphasized that European countries will need better fiscal discipline and more budgetary integration.

European countries will need to cut red tape and barriers to employment if they are to grow, she said.

Chinese leaders view Merkel -- and Germany -- as the definitive voice on the European crisis, in part because of Germany's economic strength compared with its European neighbors, analysts say.

Market fears over the fate of the euro zone economies have eased somewhat since the European Central Bank extended liquidity to banks in December, but serious fiscal and structural problems continue to undermine investor confidence in Europe, China's biggest export market.

Facebook hopes to re-friend China despite censors

2012-02-02T08:40:00.000-08:00

Source: By Allison Jackson (AFP)

BEIJING — As Facebook prepares to go public it has its sights on China, where the social media titan is blocked, but analysts say its chances of re-entering the market of half a billion Internet users are slim.

Facebook, which filed paperwork Wednesday seeking to raise $5 billion on Wall Street, said it continued to "evaluate entering China" -- the world's largest Internet market and a huge dark spot on Facebook's global map.

"There are more than two billion global Internet users and we aim to connect all of them," the California-based company said in the listing documents filed with the US Securities and Exchange Commission.

Facebook, which has more than 800 million users around the world, is the leading social network in all but six countries, notably Russia, where local rivals are preferred, and China, where it has been banned for years.

Beijing blocked Facebook along with micro-blogging site Twitter after blaming it for fanning social unrest in the northwestern region of Xinjiang in 2009, though many web users access the site via virtual proxy networks.

Prior to the ban, web users in China enjoyed uncensored access to Facebook.

In the run up to a major leadership transition later this year, experts said Facebook has next to no chance of being allowed to operate freely in China, unless it is willing to bow to the country's army of censors.

"Under the current political structure (it has) probably zero to nil" chance of operating in China again, said Bill Bishop, a Beijing-based Internet consultant and investor.

Anne-Marie Brady, an expert in Chinese politics at New Zealand's University of Canterbury, agreed, saying the only way Facebook could re-enter China was if it followed "the same censorship requirements as Chinese-based websites".

Despite the hurdles, Facebook Chief Executive Mark Zuckerberg is clearly keen to see his company crack the Chinese market, which has more than 500 million users, nearly half of whom use weibos, which are similar to Twitter.

Zuckerberg said previously that he was "spending a lot of time" studying Chinese and visited the country in December 2010 with his girlfriend Priscilla Chan, when he met with the head of the country's biggest search engine Baidu.

Analysts believe Zuckerberg and Baidu Chief Executive Robin Li were discussing a possible tie-up that could enable Facebook to enter China, but were forced to abandon the talks after the Arab Spring protests in early 2011.

Facebook was used heavily by protesters during the upheaval across North Africa and the Middle East, underscoring Communist leaders' fears that these sites posed as a "real threat to stability and the government", Bishop said.

"Ultimately it was realised by both parties that the Chinese government was not going to approve Facebook in China," he said.

"The government is very cognitive of the power of these networks and the potential threats to the government."

But caving in to Chinese censors did not make business sense either, Bishop said. Facebook would have no "competitive advantage" over home-grown social networking sites such as Sina's Weibo, Tencent's QQ and Renren.

Beijing attempts to block content it deems politically sensitive through a censorship system known as the "Great Firewall of China".

The next 12 months are particularly sensitive for Chinese leaders as they prepare for a once-in-a-decade transition of power that begins later this year, and Beijing is stepping up efforts to keep a lid on social unrest.

Internet and technology firms have been pressured to stop the "spread of harmful information", while Beijing, Shanghai and the southern province of Guangdong have ordered weibo users to register under their real names, making it easier for authorities to track them down.

But the explosion of social networking sites poses a huge challenge to official attempts at controlling information in the country of 1.3 billion, as users can re-post news and images as fast as censors take them down.

The number of weibo users more than trebled in 2011, jumping to 250 million from just 63 million at the end of 2010, official data shows, as more and more people went online to vent their anger at official corruption and scandals.

A weibo user is believed to have broken the news of a deadly high-speed train crash in July that provoked widespread condemnation of the government, while news of a rare revolt against Communist officials in the country's south in December first emerged on weibos.

Amid the growing influence and popularity of social networks, Facebook will struggle to convince authorities obsessed with maintaining stability to unblock its website, said Duncan Clark, chairman of Beijing Internet consultancy BDA.

"In terms of 2012 I would think it unlikely that the government would send a signal of liberalisation during a season of conservatism and control ahead of the leadership transition," he said.

"There isn't much upside in any bureaucrat advocating this."

WuXi Profit Margins Dwarfing U.S. Lead China’s Drug Deal Targets

2012-02-02T08:34:00.000-08:00

Source: Bloomberg News

Companies looking to profit from the world’s fastest growing drug market and conduct animal research at half the cost of U.S. testing are making China’s WuXi PharmaTech (Cayman) Inc. and ShangPharma (SHP) Corp. takeover targets.

WuXi, China’s biggest medical contract researcher, is generating profit margins that outstrip its U.S. rivals by almost five times, according to data compiled by Bloomberg. ShangPharma, which like WuXi offers research including animal testing, traded at 7.9 times estimated 2012 profit yesterday, half the average for its U.S. rivals, the data show.

With China’s pharmaceutical market projected to grow to $115 billion by 2015, WuXi and ShangPharma’s position as the nation’s largest research contractors by sales may spur takeover offers from global rivals including Quintiles Transnational Corp. (QTRN) and Pharmaceutical Product Development Inc. (PPDI), Oppenheimer & Co. and CLSA said. WuXi, which analysts project will post record sales for four more years, could justify a bid 60 percent higher than yesterday’s price, according to William Blair & Co.

“We see a big gap between WuXi and ShangPharma valuations versus their U.S. peers,” said Ingrid Yin, New York-based China health-care analyst with Oppenheimer. “WuXi and ShangPharma are both very interesting potential targets. They represent a big opportunity in China.”

WuXi’s (WX) shares climbed 3.4 percent to $14.02 at 11:04 a.m. in New York today, while ShangPharma rose 2.3 percent to $8.90.

‘Not Surprising’

Ron Aldridge, a spokesman for Shanghai-based WuXi, declined to comment on takeover speculation.

“Given the current valuations and multiples, it’s not surprising that a lot of people are interested in ShangPharma from a value perspective,” William Dai, chief financial officer for Shanghai-based ShangPharma, said in a telephone interview. He declined to comment on whether the company has been approached by potential buyers.

Quintiles, the world’s biggest conductor of medical studies, would be “delighted to acquire” companies of the right quality, Chief Executive Officer Dennis Gillings said in a Jan. 13 interview in Shanghai. He didn’t specifically refer to WuXi or ShangPharma.

Growing wealth and changing lifestyles are opening up new markets for drugmakers in China, where almost 100 million people suffer from diabetes alone. The Chinese pharmaceutical market is forecast to grow as much as 22 percent a year to reach about $115 billion by 2015, the fastest pace in the world, according to research firm IMS Health Inc.

Local Testing

With China demanding local testing of medicines before it licenses them domestically, and the cost of conducting animal research about half that in the U.S., demand for services of contract research organizations, or CROs, is surging, said Greg Scott, president of Shanghai-based ChinaBio LLC, which advises companies on biotechnology investments in the country. Revenue at China’s CROs may grow between 20 and 25 percent annually over the next three to five years, from an estimated $1.35 billion last year, according to McKinsey & Co.

WuXi and ShangPharma’s success reflects their “ability to deliver a cost advantage while maintaining very high quality,” said Scott. “WuXi and ShangPharma have really brought the quality up significantly compared to what it was in China several years ago.”

WuXi, which employs 5,600 people in its more than 3 million square feet of laboratory facilities, derives more than 70 percent of its revenue from research for U.S. companies, according to data compiled by Bloomberg. Analysts estimate WuXi will report sales of $406 million for 2011, triple its revenue in 2007, the year it first sold shares in the U.S.

Charles River Deal

The company, which counts nine of the top 10 drugmakers among its clients, agreed to a $1.6 billion takeover by Wilmington, Massachusetts-based Charles River Laboratories International Inc. (CRL) in April 2010. The bid, which valued WuXi at about 30 times 2009 profit, was scrapped three months later after Charles River’s shareholders objected to the “unreasonable price.”

The management of WuXi, which had a market value of $964 million yesterday, is unlikely to accept a takeover worth less than the Charles River bid, according to Liping Cai, a Shanghai- based health-care analyst for William Blair. An offer with an equity value of $1.6 billion would represent a 66 percent premium above WuXi’s price yesterday, Bloomberg data show.

‘Improved a Lot’

With WuXi’s 2011 earnings estimated to have increased 49 percent from the 2009 level, Charles River’s bid would now value the company at about 20 times profit, data compiled by Bloomberg show. Including net cash, a $3.4 billion bid for PPD by Carlyle Group LP and Hellman & Friedman last year valued the company at 21 times, data compiled by Bloomberg show.

WuXi’s “earning capabilities have improved a lot,” Oppenheimer’s Yin said.

The company earned about 19 cents for every dollar of sales in the past 12 months, according to data compiled by Bloomberg. That’s almost five times the median profit margin of 4 percent for 23 U.S. health-care service companies with market values of more than $100 million. WuXi’s rivals Covance Inc. (CVD), Icon Plc (ICON) and Parexel International Corp. (PRXL) all have profit margins of less than 6 percent, the data show.

Covance, Icon (ICLR) and Parexel all traded for at least 16 times estimated 2012 earnings yesterday, compared with a price-to- earnings ratio of 10.8 for WuXi. ShangPharma, which had a market value of $163 million, traded for 7.9 times projected profit. The average U.S. health-care services company had a multiple of 21 times, the data show.

‘More Interesting’

“WuXi has a larger scale and ShangPharma is smaller but sometimes smaller could be more interesting to strategic buyers,” Oppenheimer’s Yin said.

ShangPharma’s sales reached $113 million last year, according to analysts’ estimates compiled by Bloomberg. That’s an 86 percent increase from 2008’s level, the data show.

Like WuXi, ShangPharma gets most of its revenue from U.S.- based companies, the data show. ShangPharma is focused on early stage discovery research, screening compounds to see which have the potential to cure diseases.

Both companies generate the bulk of their revenue from laboratory research, rather than the later stage of drug testing -- conducted on patients in doctor’s offices or hospitals --that many global peers focus on.

The former requires infrastructure with high fixed costs and may deter buyers, said Tim Evans, New York-based senior health care analyst for Wells Fargo & Co.

“The businesses have very different economics,” he said.

‘In China Somehow’

Still, the industry has lured bids from private equity firms, which are interested in generating cash flow from the CROs, according to Paul Knight, New York-based life sciences analyst with CLSA. Avista Capital Partners and Ontario Teachers Pension Plan last year agreed to pay $341 million, including debt, to purchase Kendle International Inc. (KNDL)

Global CROs, including PPD, would also be potential bidders, he said. The early stage of research WuXi and ShangPharma focus on ”might be complementary to international CROs like Quintiles,” Oppenheimer’s Yin said.

“They’ve got to be in China somehow,” Knight said. “The opportunity is going to be immense.”

2012-02-01T08:59:00.000-08:00

Have You Heard...

China's Workers Are Targeted as Its Overseas Reach Grows

2012-02-01T08:56:00.000-08:00

Source: Wall Street Journal By Brian Spegele, Peter Wonacott and Nicholas Bariyo

Assailants in Egypt released 25 Chinese workers kidnapped on Tuesday, even as tensions appeared to rise between China and Sudan over Chinese held by rebels there.

The abductions underscored a hard truth for Beijing: As China has extended its investment and presence into the world's trouble spots, its people have become targets.

Confusion continued to surround the kidnapping over the weekend of 29 Chinese workers by Sudanese rebels. Sudanese officials on Monday said they had freed 14 of the hostages, but on Tuesday Beijing asserted—and Sudanese officials later confirmed—that the 29 remain in the hands of Sudan People's Liberation Movement-North.

China's surge to become the world's No. 2 economy in recent years has sharpened its appetite for oil, iron ore and other raw materials. That has put China in a number of places other investors might fear to tread, from Pakistan and Libya to Egypt and Sudan. As a result, governments of unstable countries have come to rely on Chinese capital and know-how, making companies and officials from China sought-after partners. For insurgents and criminal gangs, the Chinese can be sought-after targets, raising questions about how well Beijing protects its citizens abroad.

"Because Chinese tend to work in enclaves in Africa, you have by definition a concentrated group of targets," says Harry G. Broadman, chief economist at PricewaterhouseCoopers and an expert on China-Africa trade. "So if you're in the hostage taking business that facilitates things."

Corporate China's appetite for risky investments stems from a drive to break into global markets largely unpopulated by western rivals. As a result, previous incidents in which Chinese personnel were kidnapped, or killed, haven't slowed China's efforts to invest and secure resources in troubled areas.

"This will be seen—by the government anyway—as part of the learning curve and the price to be paid in 'going global,' " said Deborah Brautigam, a professor at American University and an expert on China's business interests in Africa.

Citing an official at the Chinese embassy in Cairo, China's state-run Xinhua news agency said on Wednesday that 25 Chinese cement-factory workers in Egypt's northern Sinai region had been released unharmed after being kidnapped on Tuesday on their way to work. No further information was immediately available. Xinhua didn't further identify the kidnappers, though the Associated Press reported they were an al Qaeda-inspired group demanding the release of militants imprisoned after a 2005 bombing. It was unclear which company employs the workers.

Deeply insular tribal communities, including Bedouins, have been engaged in running battles with Egyptian security forces since the summer of 2010. But violence in the sparsely populated peninsula spiked after police voided Egypt's streets during the revolution last year. Many Bedouin leaders say they were forced into the smuggling and kidnapping business by a lack of job opportunities.

Meanwhile, in Sudan, the kidnapping of the Chinese workers appeared to be leading to a diplomatic rift between the two close allies. In an unusual move, the Foreign Ministry summoned Sudan's charge d'affaires in Beijing, Omer Eisa Ahmed, and "lodged urgent representations" over the matter, according to Xinhua. Vice Foreign Minister Xie Hangsheng told Mr. Eisa that he was "deeply shocked" by the abductions and said "the Chinese side urged the Sudanese side to keep in mind the overall situation of bilateral friendship and cooperation," Xinhua said. Calls to Sudan's Embassy in Beijing went unanswered.

The two countries on Tuesday continue to disagree on basic facts surrounding the incident, including the number originally kidnapped on Saturday.

Rabie Abdelaty, a Sudan government spokesman, attributed the discrepancy of the reports to miscommunications with personnel in the field. Sudanese forces continued their efforts to free the hostages on Tuesday, he said, but the task may have become more difficult after the rebels moved deep into mountainous territory. "We shall continue with the military operations until we rescue all of them," he said.

Beijing appears to be frustrated with the Sudan rescue operation. Citing China's Foreign Ministry, Xinhua said on Tuesday that personnel from the ministry and from the State-owned Assets Supervision and Administration Commission—which oversees China's biggest state-owned enterprises—have departed for Sudan to assist with rescue efforts. The Foreign Ministry didn't respond to requests for comment.

Analyst estimates from 2010 put the number of Chinese citizens working in Sudan at about 24,000, including both Sudan and South Sudan.

Long a major destination for foreign investment, China has begun to spend its own money abroad. Outward flows of foreign direct investment totaled $68 billion in 2010, according to United Nations data, more than triple the figure of three years before. China's workers also have gone abroad: 847,000 Chinese workers officially worked in other countries in 2010, according to Ms. Brautigam, with ut oabout 229,964 Chinese workers in Africa.

The past year's events have illustrated China's growing presence abroad, especially in places that traditionally have had trouble attracting foreign investment. In February 2011, China evacuated more than 35,000 of its citizens from Libya amid a national rebellion. Xinhua said in October that one Chinese oil worker in Sudan had been shot and killed and another had been wounded by unidentified assailants. Also in October, 13 Chinese sailors on a cargo vessel were killed on Thailand's portion of the Mekong River

China's government only in very limited circumstances uses its police or military to protect citizens outside China's borders, despite growing calls at home to be more aggressive. Sudanese military officials said on Tuesday that the Chinese camp attacked over the weekend was lightly guarded, though that claim couldn't be independently verified. A senior Chinese diplomat in Ethiopia said China's Foreign Ministry typically issues travel advisories for trouble spots, much like the U.S. State Department, and it's up to the individual companies to heed them.

That situation may be changing. In Sudan, a dozen armed Chinese private security contractors have joined more than 1,000 Sudanese troops in the current rescue effort, according to Sudanese military officials.

A potential diplomatic rift between the countries could be painful for Khartoum, which relies on Beijing for crude purchases as well as political protection for Sudanese President Omar al-Bashir, who is wanted by the International Criminal Court for alleged crimes against humanity in the Darfur region. Mr. Bashir denies the accusations.

Additionally, China has been instrumental in brokering a peace between Sudan and the newly independent South Sudan, and has worked in recent months as a mediator in resolving an ongoing oil transit dispute between the countries.

The Chinese workers are being held by an armed wing of the Sudan People's Liberation Movement, which serves as a key opposition force to Mr. Bashir's rule. Khartoum claims the rebels receive orders and funds from South Sudan, where a leading political party is also called the Sudan People's Liberation Movement. The rebels say they are independent of South Sudan's government.

Of the two nations' oil fields, most are located in South Sudan but supplies must travel by pipeline to ports in the north for export.

Russia, China oppose 'forced regime change" in Syria

2012-02-01T08:50:00.000-08:00

Source: Reuters By Sui-Lee Wee

(Reuters) - China and Russia have reiterated their opposition to the use of force to resolve the crisis in Syria, where escalating violence has killed thousands of civilians who oppose President Bashar al-Assad.

Arab and Western states urged the U.N. Security Council on Tuesday at act swiftly on a resolution calling for Assad to step aside.

The United States strongly backed the call by the Arab League and Qatar for "rapid and decisive action", which came as Assad's government forces reasserted control of Damascus suburbs after beating back rebels at the gates of the capital.

"China is firmly opposed to the use of force to solve the Syrian problem and resolutely opposes pushing for forced regime change in Syria, as it violates the United Nations Charter and the basic norms guiding the practice of international relations," Xinhua quoted Chinese Ambassador to the United Nations Li Baodong as saying to the Security Council.

The brief news report from Xinhua did not give other details.

China, along with Russia, has resisted a Western push for a Security Council resolution condemning the Syrian government's 10-month crackdown on pro-reform protests.

Russian Foreign Minister Sergei Lavrov said they would not support any action that would be imposed on Syria and would avoid taking sides in an internal conflict.

"The international community unfortunately did take sides in Libya and we would never allow the Security Council to authorize anything similar to what happened in Libya," Lavrov said in an interview with the Australian Broadcasting Corporation.

"Yes, we condemn strongly the use of force by government forces against civilians, but we can condemn in the same strong way the activities of the armed extremist groups who attack government positions, who attack administration in various provinces of Syria, who attack a police station and who terrorize people telling them not to come to jobs, not to come to hospitals, not to come to shops."

"KILLING MACHINE STILL AT WORK"

China and Russia have prevented the Security Council from approving any military intervention in Syria and vetoed a Western-backed resolution against Assad's government.

Arab League Secretary-General Nabil Elaraby called on the council to take "rapid and decisive action" by approving the resolution. Qatari Prime Minister Sheikh Hamad bin Jassim al-Thani warned that Syria's "killing machine is still at work."

"Do not let the Syrian people down in its plight," Elaraby said.

Syrian U.N. Ambassador Bashar Ja'afari rejected the suggestion his government was responsible for the crisis, and accused Western powers of dreaming of "the return of colonialism and hegemony" in the Middle East.

Elaraby said Arab nations wanted to avoid foreign military intervention in the Syrian crisis, which has killed more than 5,000 civilians according to U.N. Qatari leader Sheikh Hamad emphasized the same point and suggested the council should use economic leverage instead.

"We are not calling for a military intervention," Sheikh Hamad said. "We are advocating the exertion of a concrete economic pressure so that the Syrian regime might realize that it is imperative to meet the demands of its people."

Lavrov said the policy of isolation and seeking regime change risked igniting a "much bigger drama" in the Middle East.

"The people who are obsessed with removing regimes in the region, they should be really thinking about the broader picture. And I'm afraid that if this vigor to change regimes persists, we are going to witness a very bad situation much, much, much broader than just Syria, Libya, Egypt or any other single country."

Beijing, which generally avoids taking action in the domestic affairs of other nations, has played a low-key role in the turmoil that has swept the Middle East and North Africa.

But it has also moved swiftly to normalize ties with governments that have been overthrown by popular revolts, such as in Libya.

Clinton told the Security Council on Tuesday the rest of the world faced a choice to "stand with the people of Syria and the region or become complicit in the continuing violence there".

"The evidence is clear that Assad's forces are initiating nearly all the attacks that kill civilians, but as more citizens take up arms to resist the regime's brutality, violence is increasingly likely to spiral out of control," she said.

China announces $2.5B fund for small businesses

2012-02-01T08:46:00.000-08:00

Source: By Joe McDonald, AP Business Writer

BEIJING (AP) — China announced more help Wednesday for its struggling private business sector, unveiling a $2.5 billion fund to finance new small businesses and promising tax breaks and more lending for entrepreneurs.

The Cabinet announcement was one of the first concrete measures announced by the government following repeated pledges to help entrepreneurs who have been squeezed by a slump in U.S. and European demand and curbs on bank lending.

Entrepreneurs generate most of China's new jobs and wealth, but thousands have been driven out of business. The survivors have slashed payrolls, raising concern among China's communist leaders about possible unrest.

A Cabinet statement issued after a meeting led by Premier Wen Jiabao, the country's top economic official, said small companies were essential to helping China keep growth fast and stable despite the global downturn.

The government will create a 15 billion yuan ($2.5 billion) fund "primarily to support the start-up of small and micro-enterprises," it said.

It gave no details but also promised a cut in taxes and fees and said small businesses will be guaranteed a portion of government purchases of goods and services.

Beijing ordered the state-owned banking industry to lend freely to help China's economy rebound from the 2008 global crisis. But it clamped down on credit to preventing overheating after annual economic growth soared above 10 percent in 2010.

Economic growth fell to a 2 1/2-year low of 8.9 percent in the final quarter of 2011.

Two surveys released Wednesday gave mixed signals on manufacturing activity in January but both showed it largely unchanged.

The state-affiliated China Federation of Logistics and Purchasing said its purchasing managers index rose 0.2 points to 50.5 from December's 50.3 on a 100-point scale on which numbers above 50 indicate growth.

HSBC Corp. said its HSBC China Manufacturing PMI was little changed at 48.8 from December's 48.7, suggesting a "moderate deterioration."

The credit clampdown battered entrepreneurs as banks channeled their limited lending to politically favored government companies. Entrepreneurs turned to high-interest underground lenders. Thousands went bankrupt, leaving employees and suppliers unpaid.

The government responded in October by ordering banks to step up lending to small businesses, though it is unclear whether credit has increased.

Wednesday's statement promised to create more small-scale financial institutions to serve entrepreneurs and rural companies.

Tide of Yuan Ebbs in Hong Kong

2012-02-01T08:42:00.000-08:00

Source: Wall Street Journal Fiona Law

HONG KONG—More yuan deposits than in any previous month flowed out of Hong Kong in December as more importers paid their mainland suppliers in the currency, taking advantage of efforts by Beijing to make it easier to move funds back to China.

Bankers cited overseas investors' reduced interest in holding the Chinese currency, given reduced confidence the yuan will keep rising, as another reason for the outflow.

Local banks, which used to have more yuan deposits than they could use, are now looking for more yuan funds to take advantage of lending opportunities to Chinese companies amid tight credit conditions on the mainland. Their cost of borrowing in the currency is rising as a result.

The yuan market in Hong Kong, China's laboratory for liberalizing its currency, has taken off since Beijing relaxed rules for the use of yuan in the city in July 2010. Deposits in yuan grew briskly, fueled by expectations that the currency will appreciate rapidly.

In recent months, however, the growth in yuan deposits in Hong Kong has almost halted as investors shifted to the safe-haven U.S. dollar as markets gyrated in response to the euro-zone debt crisis and U.S. credit-rating downgrade in August.

By the end of December 2011, yuan funds parked in Hong Kong totaled 588.5 billion yuan ($93.2 billion), down 6.2% from 627.3 billion yuan, or renminbi, in November, according to figures the Hong Kong Monetary Authority released Tuesday.

"I still see some clients reducing their renminbi positions, and investors in general are unwilling to bet more money on the Chinese currency, as they expect only a moderate appreciation for the currency this year," said Thomas Poon, head of business planning and strategy for HSBC Holdings PLC in Hong Kong.

Until recently, the majority of yuan trade settlement has involved Chinese companies paying foreign suppliers in yuan. Now, bankers and analysts say, offshore companies are increasingly paying for their purchases from China in yuan because Beijing has extended a program allowing the use of yuan to settle cross-border trade to the entire country.

More companies are also moving yuan funds back to mainland China, taking advantage of initiatives announced by Chinese Vice Premier Li Keqiang in August to broaden the means for yuan to be repatriated to China, part of an effort to internationalize the currency.

As the pool of yuan in Hong Kong shrinks, local banks, eager to stock up on the currency in case of a surge in demand for loans, are competing harder for the available funds. Their cost to borrow offshore yuan is rising.

In January, five lenders issued eight certificates of deposits with maturities from six months to a year, raising a combined US$330 million worth of yuan funds, 50% more than the amount of cash tapped with the same tools in December, according to data provider Dealogic. That compares with US$95 million worth of similar issues in November, Dealogic data showed.

Certificate of deposits are securities that banks and companies issue to raise short-term cash.

One bank that has tapped the yuan money market at a higher cost is Bank of Communications Co.'s Hong Kong unit. In January, it paid an interest rate of 3% for a 240 million yuan 12-month yuan-denominated CD. In April last year, it paid 0.7% for a larger 12-month CD, according to Dealogic.

"As long as corporate customers' renminbi loan demand continues to mount, banks' push for liquidity in CNH (offshore yuan) will remain in place in the long run," said Tommy Ong, head of wealth-management solutions at DBS Group Holdings Ltd.'s Hong Kong unit.

Hong Kong's yuan lending has started to pick up in the past few months. Outstanding yuan loans in Hong Kong ballooned to 30.8 billion yuan by the end of last year from 2 billion yuan early last year, according to the HKMA.

China to invest in agriculture innovation to boost food security

2012-02-01T08:37:00.000-08:00

Source: Reuters

(Reuters) - China said on Wednesday it would boost agriculture innovation in an effort to increase food output, signaling that the world's most populous country is trying to tackle outdated farm and food infrastructure to feed its people.

China accounts for a fifth of the world's population with less than 9 percent of its arable land, and the cabinet suggested in a document that China's leaders were aiming to get serious about technology to ensure long-term food supplies.

The State Council, or cabinet, said in the first policy document of the year it would increase investment and subsidies for the agricultural technology sector this year to stabilize grain production, state media reported.

Technological innovation in the sector would "improve land yield, resource efficiency and labor productivity," the official Xinhua news agency said.

The No. 1 Document, as it is called, has for the past nine years focused on rural issues, including agriculture, water conservation, farmers' income, and land transfer issues.

The State Council said in this year's paper the government would encourage research focusing on areas including bio-technology, seed production and effective use of farmland, Xinhua reported.

It also said the government would seek to push banks to increase lending to rural areas and keep prices of agricultural commodities at "a reasonable level."

China has been battling persistent consumer inflation, which was largely driven by food prices, and hit a peak in July of 6.5 percent.

Agriculture experts had expected the State Council to set guidelines on seed cultivation and on implementing a program of promoting the application of genetically modified technology that was introduced in 2008.

The central government estimates that China's national grain consumption will reach 572.5 million tonnes by 2020. Although China is largely self sufficient in wheat, it is not in soybeans and corn.

In 2010, China returned to importing corn in earnest after years of blocking foreign grain, buying a record 1.57 million tonnes, up 18 times from the previous year because domestic production couldn't keep up with demand.

Some analysts say China's agricultural production growth lags behind the country's overall economic growth.

The country is expected to triple corn purchases this year, and rice imports are also expected to rise.

2012-01-31T09:43:00.000-08:00

Have You Heard...

Global "great power politics" returns to Mideast

2012-01-31T09:39:00.000-08:00

Source: Reuters By Peter Apps, Political Risk Correspondent

(Reuters) - With Russia sending warships to discourage foreign intervention in Syria, and China drawn more deeply into Iran's confrontation with the West, "great power" politics is swiftly returning to the Middle East.

After Russia pulled back from the region at the end of the Cold War, the United States and its Western allies faced few external rivals in attempts to influence events. But as the US withdraws from Iraq, emerging economic powers reshape the globe and are themselves sucked ever deeper into the Gulf by their energy needs, that era seems over.

"What we are seeing is the U.S. losing its ability to shape events in the region, even though it remains by far the pre-eminent military power," says Waleed Hazbun, director of the Centre for Arab and Middle Eastern Studies at the American University in Beirut.

"You're seeing others moving in to fill the gap."

In some ways, experts say, there are echoes of 19th and 20th century scrambles for resources, territory and influence.

"Bottom line: there will be more players in the sandbox," says Hayat Alvi, lecturer in Middle Eastern studies at the US Naval War College. "The Middle East has always been the venue for the "Great Game.".. Rising powers will see opportunities and advantages in engaging in (that), just like the colonial powers."

Whereas Moscow and Beijing remained largely on the diplomatic sidelines for the 1991 and 2003 Iraq wars and even last year's Libya campaign, they increasingly demand their voices are heard.

Both have signaled a clear intention to prevent any "regime change" intervention in Syria; but Russia's deployment of its flagship aircraft carrier and escorts to Syria's port of Tarsus this month drew a starker than usual line in the sand.

Whilst some Russian officials talked down the importance of the visit, saying it was preplanned, others said it was intended as a signal. The warships have since moved on, however, and as violence continues to escalate, Moscow is finding itself under ever greater pressure to abandon its one-time ally.

Meanwhile, the success of U.S. and EU sanctions against Iran will be almost entirely dependent on the extent to which China joins -- with growing signs Beijing views Tehran as a useful tool to divert US military force from Southeast Asia. India, too, looks reluctant to play along with the wider western strategy of attempting to strangle Tehran economically to push it from its nuclear program and is also seen as a rising regional player.

There are stark differences to the colonial era, however.

Outside players must contend with increasingly assertive local powers, particularly Turkey, Saudi Arabia and Iran itself, keen to fill the gap left by a U.S. pullback. To make matters more complex, the "Arab Spring" overturned long-held assumptions of stability and the control governments can exert on events.

"Things are becoming less manageable as the region degenerates into deepening socio-economic malaise," says Asher Susser, professor of Middle Eastern politics at Tel Aviv University, "Local trends are forcing external powers to pay attention and not vice versa."

GLOBAL PRIORITIES

Nevertheless, the more muscular regional approach of Moscow and Beijing in particular appears already increasingly tied to their wider global agendas.

Russia's support for Syria's Bashar al-Assad is seen largely as a move to defend its Cold War-era foothold in the country as well as block the road to future Libya-style intervention. With presidential elections due later this year, Prime Minister Vladimir Putin is seen keen to show himself facing down the West and making his mark beyond Russia's borders.

With both Moscow and Beijing facing an uptick in protest on their own territory in the last year, neither has any desire to watch another autocratic leader dragged from office. If the Kremlin allows passage of an Arab League proposal to the U.N. Security Council for Assad to yield power, it will do so only with great reservations and provision excluding military force.

With its own colossal energy reserves, Moscow has little need to keep the region's energy states on side. China's dependence on Middle Eastern oil and gas, however, is expected to rise further in the years to come, perhaps drawing Beijing ever deeper into its conflicts and politics whether it wants to be or not.

If the United States succeeds in its ambition to become more energy self-sufficient with new technology and greater domestic resource exploitation and pulls back from the region, some believe China could even become the pre-eminent external power in the Middle East -- perhaps in a growing rivalry with India, also pulled in by its energy needs.

In the shorter term, there are clear signs the face-off over Iran's nuclear program may also be tied into a wider growing geopolitical rivalry with the West. With Beijing increasingly concerned over the buildup of U.S. forces in its immediate neighborhood, some voices argue Iran plays a useful role in keeping US forces deployed elsewhere.

"The US strategic adjustment highlights the importance of Iran to China," said an editorial in China's English-language Communist Party-published "Global Times" on January 6 after Washington unveiled its new Asia-facing defense strategy. "Iran's existence and its stance form a strong check against the U.S. China should not treat Iran following US cultural, social and political values."

Chinese officials might be willing to use sanctions to negotiate better oil prices from Iran, but there seems relatively little prospect that they will stop buying even if Tehran's rival Saudi Arabia makes up the difference in output.

"Each time the West tightens the leash, Beijing quietly avails itself of the slack," says Thomas Barnett, a former strategist for the U.S. Navy and now chief analyst at political risk consultancy Wikstrat. "The more explicitly Washington bases its global strategic military posture on the perceived Chinese threat, the more Beijing will welcome - and even overtly encourage - these diversions."

REGION TIRED OF US DOMINANCE?

In Washington, Tel Aviv and elsewhere, there are openly discussed worries a more assertive China and Russia could prove "drivers of instability," extending a lifeline to regimes the West would rather see isolated and weakened.

For Israel in particular -- long a beneficiary of U.S. power in the region and already somewhat struggling to manage relationships with a more assertive Turkey and post-revolution Egypt less influenced by Washington -- that could prove an awkward dynamic.

Moscow and Beijing, however, say their aim is simply to secure peace and avoid conflict -- particularly important to a China desperate to maintain the flow of Gulf oil and avoid the kind of global economic shock a regional war would produce.

The West's actions in Iraq in particular, officials from both powers argue, did little to improve regional stability. A "pre-emptive" war in the Gulf, they say, could ultimately prove just as dangerous as a nuclear armed Iran.

With the "Arab Spring" in part a rejection of a US policy of backing autocratic "client states," some even in the US believe such arguments could play well amongst Middle East populations.

"The regional public is tired of the same superpower exerting its will on the region," says Alvi at the US Naval War College. "They might just set out the welcome mat to the Chinese."

But others say it is far too soon to write off the United States, at least as long as its military remains by far the most potent force in the area and the primary guarantor of security for many of its states.

"The entire issue of American decline -- globally and in the Middle East particularly -- is overblown and exaggerated," said Robert Satloff, executive director of the Washington Institute for Near East Policy. "The day I see Middle Easterners lining up outside the Chinese embassy for visas, sending their kids to Chinese universities or preferring that Chinese aircraft carriers -- and drones and missile defense systems etc -- protect their territory and assets, then we can have a serious discussion about decline."

Taiwan President Names Chen Premier to Tackle Slowest Growth in Two Years

2012-01-31T09:35:00.000-08:00

Source: Bloomberg By Chinmei Sung and Yu-Huay Sun

Taiwan President Ma Ying-jeou named Sean Chen as premier, choosing an official who oversaw the island’s markets during the 2008 financial crisis to revive growth in an economy expanding at the slowest pace in two years.

Chen announced later yesterday that Christina Liu, head of the Council for Economic Planning and Development, would be finance minister. The appointments were part of a leadership transition after Jan. 14 elections saw Ma win a second term and the ruling Kuomintang party keep its majority in parliament.

Appointing Chen suggests that Ma’s main priorities in his next four-year term will be restoring growth and helping Taiwan’s export-driven economy weather the global economic downturn, said Ellen Shen, a Taipei-based fund manager at Union Securities Investment Trust Co. Taiwan’s economy expanded 1.9 percent in the fourth quarter, the slowest pace since the third quarter of 2009, the statistics bureau said yesterday.

The Taiex Index gained 1.5 percent to close at 7,517.08, the highest since Nov. 14, before Chen’s appointment was announced. The index has risen 5.8 percent since Taiwan’s Liberty Times reported on Jan. 16 that Ma may appoint Chen his premier.

“The global economic slowdown is the biggest challenge facing the new Cabinet,” Shen said. “Chen should be able to handle it, given his background in economy and finance.”

Slower Growth

The government’s challenges became clear after the statistics bureau released yesterday’s economic data, which showed the economy had entered a technical recession. The economy contracted 0.25 percent last quarter from the prior three months, shrinking for a second successive quarter, yesterday’s report showed.

The 1.9 percent growth rate for the last three months of 2011 was the slowest since a 1.41 percent contraction in the third quarter of 2009, according to data compiled by Bloomberg. The median estimate of nine economists in a Bloomberg News survey was for a 2.8 percent expansion.

Europe’s sovereign-debt crisis is hurting Asian exporters from Singapore to South Korea, and policy makers have either cut borrowing costs or refrained from further increases in recent meetings.

“Faltering external demand proved to be a considerable drag on investment, and hence GDP growth,” Raymond Yeung, a senior economist in Hong Kong at Australia & New Zealand Banking Group Ltd., said after the report. “But I don’t think the trend will continue in 2012. Political uncertainties have waned” after the Kuomintang’s re-election.

Victory Signal

Ma saw his victory as a signal that voters don’t want major policy or leadership changes in his second term, according to government spokesman Philip Yang.

“There’s continuity in the government,” Yang said. “Taiwan weathered the financial tsunami and Europe debt crisis better than a lot countries, recovering in a very short period of time.”

Chen has served as deputy finance minister and headed the Financial Supervisory Commission. Liu was chief economist at Chinatrust Financial Holding Co. before she became minister of the Council for Economic Planning and Development. She was also a member of the Cabinet’s tax reform committee between 2008 and 2009.

Chen also announced that Jiang Yi-Huah, the current interior minister, will be promoted to vice premier.

Campaign Promises

Ma won re-election after making campaign promises to push ahead with his policy of closer ties with China. He restored air, sea and postal links for the first time in six decades during his first term and signed trade agreements with the mainland.

The new parliament will take office today, while Ma and Vice President-elect Wu Den-yih, the outgoing premier, will take office on May 20.

Overseas sales, which are equivalent to about two-thirds of Taiwan’s economy, rose at the slowest pace in 26 months in December. Export orders, an indication of shipments in the next one to three months, fell last month for the first time since 2009 as demand from China and Japan declined.

Slowing overseas demand is already affecting Taiwan’s manufacturers and the nation’s job market.

HTC Corp., Asia’s second-largest smartphone maker, this month reported its first quarterly profit decline in two years. Nanya Technology Corp. and Inotera Memories Inc., Taiwan’s second- and third-largest memory-chip makers, reported their eighth quarter of losses as slowing demand for personal computers pushed down prices.

Heartland Return for Chinese Leader

2012-01-31T09:30:00.000-08:00

Source: Wall Street Journal By Jeremy Page and Mark Peters

MUSCATINE, Iowa—This small city on the Mississippi River has long boasted that Mark Twain briefly called it home in 1854. Now, residents realize they have a more unusual bragging point: Muscatine played a minor but memorable role in the ascent of Xi Jinping, the man expected to become China's top leader this fall.

Twenty-seven years ago, Mr. Xi, then an up-and-coming official in a pig-farming region in China, led an animal-feed delegation to Iowa. He toured farms, visited a Rotary Club and watched a baseball game. He spent two nights in the split-level home of a Muscatine couple, sleeping amid the Star Trek toys on display in the bedroom of their two boys, who were away at college. It is believed to have been his first trip outside China.

On Feb. 15, one day after he visits the White House for the first time, Mr. Xi, now China's vice president, plans to return to Muscatine and share tea with the people he met in 1985. His trip back to the American heartland appears intended to showcase what makes him so different from China's current leader, Hu Jintao—a confident, personable style and easygoing familiarity with the U.S.

Chinese leaders have staged photo opportunities in the U.S. before. Deng Xiaoping donned a cowboy hat at a Texas rodeo in 1979. But none has ever made such a clear attempt to demonstrate a long personal connection to America.

Over the years, Mr. Xi, who is 58 years old, has made periodic trips to the U.S. His daughter attends Harvard. He has had regular dealings with U.S. officials and business leaders, including Henry Paulson, the former Treasury Secretary. When Vice President Joe Biden visited China last August, Mr. Xi accompanied him to the western province of Sichuan and shared dinner with him at a local restaurant.

China is on the cusp of a once-in-a-decade political change. In October or November, Mr. Hu and six other members of the nine-man Politburo Standing Committee, the top decision-making body, are set to retire. The Communist Party's next generation of leaders, led by Mr. Xi, will take over at a time of slowing growth for the world's second-largest economy and mounting public pressure to address a raft of social, economic and environmental problems.

Mr. Xi's personality and relative popularity have raised hopes in some quarters, both inside and outside of China, that he will resume the kind of reforms that marked the 1990s but ground to a halt in the past 10 years. The U.S., for its part, is eager to see whether his ascent to Communist Party chief and president will lead to changes in the combative diplomacy that has alarmed many of China's Asian neighbors in recent years and prompted the U.S. to focus more on the region in its military planning and diplomacy.

Mr. Xi is the most prominent member of a group known in China as "princelings"—the sons of well-known revolutionary leaders, many of whom grew up together. His father, Xi Zhongxun, helped lead Communist forces to victory, was purged in 1962, then was politically rehabilitated and helped oversee economic reforms before his death in 2002.

That background distinguishes Mr. Xi from the man he is expected to replace. Mr. Hu, whose father ran a tea shop, had to clamber up through party ranks. Once in power, Mr. Hu promoted and relied on people from a similar background, including current Vice Premier Li Keqiang, whom he favored as his successor.

Mr. Xi "is a key figure among princelings. His father was a very popular figure," says Zheng Yongnian, an expert on Chinese politics at the National University of Singapore."That makes him more confident, while at a personal level he's much more knowledgeable about the West. I think he's confident that he can consolidate power much faster than Hu did."

Mr. Xi will have a greater familiarity with the West than any of his predecessors, including Mr. Deng, who studied in France in the 1920s and made a landmark visit to the U.S. in 1979 after diplomatic relations were re-established. Mr. Hu, like Mr. Xi, made his first foreign trip in 1985, but it was to North Korea, and he didn't visit the U.S. until shortly before he took power in 2002.

Mr. Paulson, who last met Mr. Xi in December, describes him as a "strong, confident leader" with an easy manner, good communication skills and an understanding of the U.S. that has been growing since his first Iowa visit.

After meeting Mr. Xi for the third time last year, Henry Kissinger, the former U.S. Secretary of State, said: "He's more assertive than Hu Jintao. When he enters the room, you know there is a significant presence here."

Mr. Xi's father is renowned within the party as one of its most capable and outspoken early leaders. After helping lead Communist forces to victory, he served as vice premier until he was purged in 1962 for supporting the publication of a book deemed critical of Chairman Mao Zedong. After his rehabilitation in 1978, he proposed and supervised the establishment of China's first special economic zone, in the southern province of Guangdong—an important step in the nation's emergence as a manufacturing powerhouse.

The senior Mr. Xi was a relative political liberal, speaking out in defense of a reformist party leader sacked in 1987 and condemning the violent 1989 crackdown on Tiananmen Square protesters, according to some people close to the party elite. That put him out of favor once again.

His roller-coaster political career made for a turbulent upbringing for his children. Xi Jinping was born into the relative luxury of a party leaders' compound in Beijing. He was just nine years old when his father was placed under house arrest, which lasted for most of the next 16 years.

At age 15, Mr. Xi was among millions of Chinese students sent to work in the countryside during the Cultural Revolution. He was sent to the northern province of Shaanxi, where his father was famous for having helped to lead Communist partisans in the 1930s. "Everyone knew who his father was, so they treated him well," says one person who knew the family well in the 1970s.

Mr. Xi didn't return home for seven years. He lived for much of that time, according to state media, in a traditional cave dwelling in the village of Liangjiahe, where he dug ditches and explored ways to collect methane gas from animal waste.

In an interview with a state-run magazine in 1996, Mr. Xi said that during his youth he had "borne a lot more hardships than most people" because of his background. He told another reporter he was forced to denounce his own father, and had himself been jailed three times.

Nevertheless, he applied repeatedly to join the Communist Party while he was in the countryside, according to a 2003 essay by Mr. Xi. After being rejected nine times because of his father, he was accepted in 1974. His applications to the prestigious Tsinghua University in Beijing were rejected twice. He was accepted after his father arranged for a note to be sent to the university saying his political problems shouldn't affect his son's education.

By the time Mr. Xi graduated in 1979 with a degree in organic chemistry, his father was back in the party elite. Mr. Xi got a job as a personal secretary to one of his father's old comrades in arms, Geng Biao, a vice premier and defense minister. That uniformed job would provide Mr. Xi with enduring connections to the military—something both Mr. Hu and his predecessor, Jiang Zemin, lacked.

Mr. Xi shed his uniform in 1982 and took a job as deputy Communist Party chief of Zhengding county, a pig-farming region in the northern province of Hebei. That is when he first met Terry E. Branstad, the current governor of Iowa, who visited Hebei in 1984 as part of a "sister-states" exchange. The following year, Mr. Xi led the animal-feed delegation to Iowa.

Sarah Lande of Muscatine worked for the exchange organization back then and hosted the delegation for dinner one evening. "Some people in town were wondering why we were hosting people from a Communist country," she recalls. At the dinner, she says, "we were inquiring about China, and they were asking lots of questions, too. I remember hogs were very important to them as they needed more lean meat at the time."

Mr. Xi's group came to inspect the greenhouse where vegetable farmer Tom Hoopes was growing seedlings for sweet potatoes. "I kind of explained to them what I was doing," Mr. Hoopes recalls. "Golly, I really don't remember much more than that."

Mr. Xi spent two nights at the four-bedroom home of Eleanor and Thomas Dvorchak. Ms. Dvorchak, who now lives in Florida, recalls that in the morning she would serve him tea—not coffee—before a car would pick him up for his daily rounds. When his translator was absent, she says, they struggled to communicate.

She says Mr. Xi gave them a bottle of Chinese spirits when he left. "Whoa, it was tough," she recalls of the drink.

Back in China, Mr. Xi rose steadily in the party. The Hebei job led to one as deputy mayor of the eastern port of Xiamen, working for another protégé of his father. After that came powerful posts leading Fujian and Zhejiang, two of China's most economically dynamic provinces, where he proved himself as a capable and business-friendly administrator.

While Mr. Hu was handpicked by Mr. Deng as a future leader 10 years before he took power, Mr. Xi emerged unexpectedly as heir apparent in 2007 through an informal vote within the party's upper ranks.

When Mr. Xi assumes the top leadership posts, he will be the first among equals on the standing committee. His main duties will be to maintain unity and forge consensus among its members.

It remains to be seen whether Mr. Xi will be more assertive than Mr. Hu in handling bureaucratic and business interests that oppose reform, or the hawkish generals who have shaped China's diplomacy in recent years.

Many Chinese regard him as a more likable figure than Mr. Hu, thanks in part to his easy smile and glamorous wife—famous folk singer Peng Liyuan—and common touch that some friends attribute to his years in the countryside.

Mr. Xi's visit to Iowa years ago apparently made a lasting impression on him. John Tkacik, a former U.S. diplomat, recalls Mr. Xi telling him in 1991 that he also had visited Oregon and California, but most enjoyed his home stay in Muscatine.

When Mr. Branstad, the Iowa governor, met Mr. Xi last year on a trade mission to China, the vice president immediately recalled his visit to Iowa, the governor said in an interview.

"The first thing he said was: 'I met you in your office in the state capital on April 26, 1985,'" Mr. Branstad said. "Then he named some of the people he met."

Late last year, Mr. Branstad wrote to Mr. Xi to invite him back to Iowa, suggesting a reunion with his 1985 hosts.

About two weeks ago, the Chinese consulate in Chicago informed the governor they were considering the invitation. A few days later, the Chinese ambassador in Washington flew to Iowa to help with arrangements. The Chinese Embassy in Washington and the Foreign Ministry in Beijing didn't respond to requests for comment.

Mr. Xi's return to Iowa is partly diplomatic theater. He will be the most senior foreign leader to visit the state since Nikita Khrushchev came to inspect American agriculture in 1959 on the first visit to the U.S. by a Soviet leader. Mr. Xi's trip is an opportunity to demonstrate the benefits of trading with China, which bought $627 million of Iowan exports in 2010, according to the U.S.-China Business Council.

Few people in Muscatine had any inkling of what had become of their long-ago visitor until they started getting calls about a reunion. Mr. Hoopes, the now-retired vegetable farmer, says that when he found out that one of the delegation was about to become China's top leader, it "just blew my mind."

Ms. Lande had traveled to China four times, but she hadn't followed Mr. Xi's career. She says she was surprised when the governor called her two weeks ago to tell her she might have a visitor.

Since then, she has been helping with preparations, including tracking down the people Mr. Xi met. She says the Chinese advance party had requested a photograph of the bedroom in which he slept. The Dvorchaks plan to travel up from Florida for his visit.

The reunion, Ms. Lande says, will be an informal affair, probably a teatime reception. "He only wants to meet with his old friends," she says.

China Loses Trade Appeal Over Its Curbs on Exports

2012-01-31T09:25:00.000-08:00

Source: Wall Street Journal By Tom Barkley

WASHINGTON—A World Trade Organization appeals panel ruled against China's efforts to limit the export of raw materials used in the steel and chemicals industries, a decision that could provide the U.S. and Europe with ammunition against similar limits on China's rare-earth exports.

U.S. Trade Representative Ron Kirk on Monday called the WTO decision a "tremendous victory."

"Today's decision ensures that core manufacturing industries in this country can get the materials they need to produce and compete on a level playing field," he said in a statement.

China pledged to scrap export controls when it joined the WTO in 2001. But under pressure to retain raw materials for domestic needs, Beijing has gradually restricted exports, defending its curbs on environmental grounds, saying it needs to conserve some of the materials and limit the environmental impact of the production of others.

It has made similar arguments in defense of its export quotas on rare earths, 17 elements that are key to the production of high-tech products.

The WTO panel Monday confirmed that China's export duties and export quotas on raw materials violated global trade rules and had to be changed. While WTO rules let countries restrict exports to protect the environment, it has said China hasn't demonstrated that it accompanied the export restrictions with limits on domestic production or consumption of the materials.

The European Union and Mexico had joined the U.S. in the case, which began in 2009. The countries have argued that Chinese restrictions on the export of several raw materials—bauxite, coke, fluorspar, magnesium, manganese, silicon carbide, silicon metal, yellow phosphorus and zinc—gave Chinese companies an unfair advantage by keeping the price of domestic raw materials low compared with prices in other parts of the world.

The case has been watched closely as the U.S. and others weigh how to increase pressure on China over rare earths, whose prices have climbed sharply due to China's export quotas.

The appeals panel decision could result in an easing of exports of the coveted minerals, say U.S. and European officials.

"We certainly expect China to get rid of the export restraints," a senior U.S. trade official said in an interview. "And to the extent that these export restraints cover a much broader set of products than just the one we brought—including rare earths—then we would expect them to move on those fronts."

The official reiterated that the raw-materials ruling could help determine the course of action on rare earths, while adding that no decision has been made.

"Obviously we had some pretty serious concerns about rare earths to begin with, and this decision just compounds those. So we are looking at it very carefully," the official said.

EU Trade Commissioner Karel De Gucht also signaled that the ruling has rare-earth implications. "China now must comply by removing these export restrictions swiftly and furthermore, I expect China to bring its overall export regime—including for rare earths—in line with WTO rules," he saidin a statement.

Chinese officials "regret" the WTO decision, the Ministry of Commerce said on Tuesday, according to the state-run Xinhua news agency. In a statement on the ministry's website, an official reiterated China has tightened oversight of high energy-consuming and polluting resources in recent years. "The WTO should not only uphold free trade but also allow members to take necessary steps to protect the environment and natural resources," it said.

The appeals panel didn't uphold all of the initial rulings that favored the U.S., Europe and Mexico, reversing findings on China's export-licensing requirements, minimum export-price requirements and some administrative and fee matters. But the main ruling—that the export duties and quotas violate WTO rules—survived with the appeals panel rejecting China's argument for the restrictions.

The WTO's dispute-settlement body will decide whether to adopt the panel report within 30 days, after which China would have to come up with a proposal to comply with the ruling.

The ruling comes as the U.S. is taking a more muscular approach to conflicts with one of its major trading partners. President Barack Obama, in last week's State of the Union address, said the U.S. was forming a high-level panel to deal with trade disputes with China.

"The Obama administration will continue to ensure that China and every other country play by the rules so that U.S. workers and companies can compete and succeed on a level playing field," Mr. Kirk said.

The administration faces pressure political pressure—both in Congress and on the election trail—to take a bolder stance against China's trade and currency policies. U.S. Sen. Sherrod Brown (D., Ohio) said he plans to call for more aggressive trade enforcement action against China on Tuesday, holding an event with labor leaders at the Capitol on highlighting American job losses caused by alleged Chinese unfair practices in the auto-parts trade.

China Gets Tough on Superships

2012-01-31T09:19:00.000-08:00

Source: Wall Street Journal By Chuin-Wei Yap

BEIJING—China's central government put a tight rein on the ability of a new breed of supersize iron-ore freighters to stop at Chinese ports, potentially complicating efforts by Brazilian mining company Vale SA to gain access to the lucrative market.

China's Transport Ministry called for more stringent review for accepting such ships into ports. It also said port operators no longer would enjoy discretion in allowing dry-bulk and oil ships exceeding current weight limits to berth at the ports.

"The safety outlook regarding oversized ships is not good, and the risks from their stopping at ports is on the higher side," the ministry said on its website Tuesday. China had given port operators discretion to permit oversize ships to berth three times a year.

The ministry's statement stopped short of an outright ban on the ships, an apparent compromise in the face of competing agendas from Chinese companies that see profit and peril in the ships.

The move appeared aimed at Vale, one of the world's largest producers of iron ore, a critical ingredient for making steel. Vale is counting on a new class of ships, known as very large ore carriers, with enough cargo capacity to offset the long distance its ships travel across the Pacific Ocean. Without them, the Brazilian miner has a disadvantage against Anglo-Australian rivals BHP Billiton and Rio Tinto, which ship iron ore from Australia.

A Vale spokeswoman in Shanghai declined to comment.

The bigger ships indicate the importance of China, which is the world's largest producer and consumer of steel, to resource companies. And the ministry's compromise move indicated their influence.

China's steel industry had opposed allowing the ships, saying a large pile of iron ore at its doorstep would undermine the country's attempts to set iron-ore prices. And the China Shipowners' Association, which could face increasing competition from very large ore carriers, has called the ships "safety and pollution risks." The association in December cited how the Vale Beijing, a VLOC, had to be towed for repairs after cracks appeared in its ballast tanks. Vale says the ships, also known as Valemaxes, are viable.

But as Chinese steelmakers have been less active in attempting to secure a unified iron-ore price, they have been less vocal in opposing the supersize ships. And the ministry's decision not to ban VLOCs reflected the competing needs of Chinese shipowners, who view the ships as a threat, and shipbuilders, who want lucrative construction contracts.

"The shipowners don't want VLOCs, but the shipyards do," said Jay Hsiao, a Beijing-based executive with global ship broker Braemar Seascope. "Within China, there is a dilemma as well."

China Rongsheng Heavy Industries Group Holdings Ltd. is building 12 of the superships for Vale and delivered its first in November. China Rongsheng competes with such shipyards as South Korea's STX Pan Ocean Co., which also is building VLOCs for Vale.

The ministry on Tuesday revived a law enacted in March 2006 that spelled out a stringent 20-day review process that calls for expert opinions and the ministry's permission to allow oversize ships to berth at Chinese ports. By the end of that year, that strict review had given way to allowing port operators the discretion to allow oversize ships.

The VLOCs, typically with capacities of 300,000-400,000 deadweight tons, are about twice the size of Capesizes, the next-largest class, at around 180,000 tons.

China's largest berth currently appears to be Dalian, with a formal limit of 300,000 deadweight tons, Mr. Hsiao said, based on a review of the Netpas global maritime database.

A handful of Chinese port operators—including the ports of Qingdao and Dongjiakou in Shandong province and Zhanjiang in southern Guangdong province—have been renovating or building new berths to accommodate VLOCs.

China's state TV expanding, but fetters remain

2012-01-31T09:13:00.000-08:00

Source: By Christopher Bodeen, Associated Press

BEIJING (AP) — The killing of a South Korean coast guard officer by a Chinese fisherman should have been tailor-made for China's CCTV News as it embarks on an ambitious plan to become a global network with assertive international coverage.

Instead, according to CCTV employees, the story languished for hours as editors awaited political guidance from above, while would-be competitors such as Qatar's Al-Jazeera reported extensively on December's attack.

In charting its growth, CCTV is closely studying other models, especially Al-Jazeera, which rolled out a global English language 24-hour news network five years ago and quickly made a name for itself.

Qatar's government bankrolled the station as part of its ambitions to parley its massive energy wealth into international influence, much as China is seeking global media stature behooving its booming economy, which now ranks second largest in the world behind the U.S.

But while Al-Jazeera's access and deep knowledge of the Middle East — and a hands-off approach by its masters — have been its greatest assets, state-run CCTV's emphatic allegiance to the authoritarian communist state and the party seem to be its biggest liability.

This greatly challenges CCTV's credibility and agenda to influence and channel global public opinion, said David Bandurski, editor of the China Media Project website at the University of Hong Kong.

"The role of the media as defined by the (Communist) Party is to serve the party's interests," Bandurski said.

A longtime CCTV program producer who asked to remain anonymous because of the sensitivity of the topic said virtually everything in the news report is decided based on political considerations. The issues are discussed at meetings, but the decision always lies with the top bosses while the journalists have no say in the outcome, she said.

Still, CCTV is gearing up to supersize its global footprint this year in pursuit of swaying a foreign audience to China's views and confronting what Beijing considers the Western media's inate anti-China bias.

The network is opening studios in Washington and Nairobi, Kenya, each employing as many as 200 staffers. Worldwide, it will increase numbers of foreign correspondents from 66 to 80 by the end of 2012, with more to come, according to people familiar with the plans.

In Africa, CCTV has linked up with major satellite TV operator MIH Group and plans to operate upward of a dozen offices, according to Martyn J. Davies, director of the Center for Chinese Studies at Stellenbosch University in South Africa who has discussed the expansion with CCTV officials.

"China is a major player in Africa but its media has been very low key," said Davies, who in 2004 helped set up Africa's first Beijing-sponsored Confucius Institute for Chinese language studies.

Yin Fan, spokeswoman for CCTV's international department, said the station was withholding comment until a formal launch of the expanded service. Individual employees said they had been told not to speak to the media about the expansion plans.

Many of the reporters, cameramen and technical staff are being lured from other news organizations with high salaries and attractive perks. One freelance reporter in east Africa said CCTV recruited him aggressively and agreed to almost doubled his fee from $350 to $600 dollars per report. It also offered him the chance to present his reports in front of the camera instead of passing the footage to others. The reporter asked not to be identified by name.

Veteran U.S. foreign correspondent Jim Laurie, hired to help in Washington, said on his website he was looking for experienced news professionals and that plans call for the U.S. operation to produce four hours of programming daily by June. Laurie declined to comment for this article.

At a time when budgets are tightening in news rooms, China's government appears willing to pour billions of dollars into expanding its international media footprint. Hong Kong's South China Morning Post newspaper has reported the total budget to be as high as 45 billion yuan ($7.1 billion), although no official announcement has been made.

Expansion plans found support after 2008, a year in which China's image was walloped by protests among Tibetans and chaotic scenes accompanying the Beijing Olympic Torch on its journey around the globe, said Zhong Xin, a professor of mass media at Beijing's elite Renmin University.

Many Chinese opinion makers also felt let down by Olympics coverage that praised China's organization but also spotlighted political repression and stifling security, Zhong said.

CCTV was already broadening its overseas offerings to include programing in Russian, Arabic, Spanish and French, along with Chinese and English, claiming to reach 219 million households in 156 countries and regions. Programming is distributed on cable and satellite carriers in the U.S. as well as over the Internet. The Associated Press distributes a selection of CCTV news content to broadcast subscribers and also provides content and other services to the Chinese state broadcaster.
Many of the biggest stories emerging from China in 2011 are off-limits, including arrests of lawyers and dissidents and the detention of internationally famed artist Ai Weiwei. Reports on the much-criticized response to a deadly high-speed rail crash hewed to the official line, while unflattering stories such as December's stabbing in the Yellow Sea that sparked anti-Chinese protests in Seoul can be downplayed or ignored entirely.

Still, even that marks an improvement from years past, says Renmin University's Zhong.

"CCTV is basically trying to follow the model of CNN and BBC in delivering balanced information and reporting swiftly and from all angles," she said. "We've seen major changes in the reports over the past few years, both in their content and the way they're presented."

Slick production values have been embraced, along with varied reports on sports, the economy, travel and culture.

Notwithstanding the cosmetic changes, the fact is that CCTV is controlled by the state.

Its head is appointed by the party and the latest pick, longtime Communist Party newspaper editor Hu Zhanfan, seems intent to cement its control. Shortly before his appointment in November, Hu upbraided journalists who placed the truth above loyalty to the party, saying news must always reflect "our party and country's political stance."

"It takes a lot more than very smart looking programs to overcome perceptions about China and the Chinese government," said Anne-Marie Brady, who teaches at New Zealand's University of Canterbury.

2012-01-30T09:00:00.000-08:00

Have You Heard...

China to make Shanghai global yuan hub by 2015

2012-01-30T08:57:00.000-08:00

Source: Reuters By Kazunori Takada and Samuel Shen

(Reuters) - China intends to establish Shanghai as the global centre for yuan trading, clearing and pricing over the next three years as part of broader plans to make the commercial hub an international financial centre by 2020.

The plan for Shanghai's financial innovations through 2015, published jointly by the country's economic planning agency and the Shanghai government on Monday, set goals on a wide range of areas aimed at further developing Shanghai, though some analysts said many of them appeared ambitious.

"This anticipated pace of development looks a bit quick to me," said Frances Cheung, a strategist at Credit Agricole in Hong Kong.

China wants to transform Shanghai into an international financial centre on par with the likes of New York and London by 2020. That goal was set in 2009 by the State Council and analysts have taken it as a broad deadline for liberalizing the currency.

The state economic planning agency, the National Development and Reform Commission, outlined a series of goals under the 2015 yuan plan.

These included making the daily yuan mid-point published by the central bank in the onshore yuan market serve as the benchmark for both domestic and foreign yuan trading markets.

Currency traders interpreted the statement partly as a message from Beijing that the yuan's movements, which have increasingly been influenced by the offshore market over the past few months, should be decided by the government.

"There have been recent developments that have put Hong Kong's offshore market in the spotlight from time to time, such as its pricing of the yuan quite differently from the onshore market," said a trader at a European bank in Shanghai.

"In this sense, the NDRC statement is published at a sensitive time and means the government once again wants to emphasize that it has the final say in the value of the yuan."

The plan also aims to make the government-backed Shanghai Interbank Offered Rate (Shibor) the benchmark for yuan credit everywhere and targeting to more than double the annual non-forex financial market trading volume to 1,000 trillion yuan by 2015.

While the plan lacked details on how China would achieve these targets, analysts were skeptical on the feasibility of some of the planks in the platform.

"Shibor is not even a very well established benchmark onshore," Cheung said. Markets currently use the government's seven-day repurchase rate as the lending benchmark.

Analysts said the NDRC's plan gave no fresh insight into how quickly China would liberalize its capital account, a crucial step in Shanghai's attempt to become a global money hub.

China has taken a series of measures over the past two years to invigorate the offshore yuan market in Hong Kong as part of a longer-term plan to promote the use of the yuan overseas and make it a fully-convertible and international reserve currency along with the U.S. dollar.

Earlier this month, Britain said it was teaming up with its former colony to secure London a top spot as an offshore trading centre for the yuan.

The NDRC's plan would not threaten Hong Kong's current position as the main offshore yuan centre, analysts said.

"Promoting Shanghai as an onshore yuan centre complements Hong Kong's growing role as an offshore yuan center, and should help to strengthen the circle of onshore-offshore yuan flows underpinning the yuan trade settlement process," said Donna H J Kwok, economist at HSBC in Hong Kong.

China will also encourage overseas companies to sell yuan-denominated shares in its domestic stock markets, but the plan did not give a detailed timetable.

Authorities have been discussing launching a so-called "international board" on the Shanghai stock exchange for listing foreign companies' shares, seen as a centerpiece for the 2020 goal, but the city's mayor said this month that the time was not currently right for its launch.

Shanghai will explore M&A opportunities involving overseas stock exchanges to increase its global clout, the NDRC's plan said without elaborating.

Factbox: Who's where in China's financial sector

2012-01-30T08:54:00.000-08:00

Source: Reuters

(Reuters) - China's economic planning agency and the Shanghai government have published a plan laying out the next few years of financial innovation in Shanghai, with the aim of turning it into a global financial centre by 2020.

Shanghai, however, still faces a struggle in attaining that goal. One of the disadvantages China's most populous city faces is that China's key economic policymakers and most top local and foreign banks are based in the capital city of Beijing.

Below is a list of key financial institutions in China and where they are based.

BEIJING

- The People's Bank of China (PBOC). The central bank has its market-related operations headquartered in Shanghai but the top policymakers, including the governor, are based in Beijing.

- The State Administration of Foreign Exchange, the currency regulator, which is a unit of the central bank.

- All three financial industry regulators -- the China Banking Regulatory Commission, the China Insurance Regulatory Commission and the China Securities Regulatory Commission.

- The National Development and Reform Commission, a powerful central planning agency responsible for formulating economic and social strategies.

- All the top four state-owned banks: Industrial and Commercial Bank of China, China Construction Bank, Bank of China and Agricultural Bank of China.

- China headquarters of most of the major Western investment banks, including JPMorgan, UBS, Deutsche Bank and Goldman Sachs.

SHANGHAI

- The Shanghai Stock Exchange, the country's biggest bourse.

- The Shanghai Futures Exchange, the country's biggest commodities exchange.

- China Financial Futures Exchange, the country's only such futures market. Currently there is only one product being traded -- the CSI300 Index Future for 300 Shanghai- and Shenzhen-listed firms.

- The PBOC's Shanghai head office, which is in charge mainly of the central bank's market-related functions, such as its bill sales and overseeing the interbank market.

- China Foreign Exchange Trade System (CFETS), an interbank market under the central bank, where trading in the yuan and other currency pairs, lending and borrowing rates, and government bonds takes place.

- Bank of Communications, the country's fifth-biggest lender.

- The locally incorporated commercial banking units of a number of major Western banks, including Citigroup, HSBC Holdings, Standard Chartered and Royal Bank of Scotland.

- Morgan Stanley has moved its China headquarters to Shanghai from Beijing.

China Says It Curbed Spill of Toxic Metal in River

2012-01-30T08:52:00.000-08:00

Source: New York Times By Andrew Jacobs | Photo: China Daily

BEIJING — Officials in southern China appear to have averted environmental calamity by halting the spread of a toxic metal that had threatened to foul drinking water for tens of millions of people, the state media reported Monday.

Officials said they had successfully diluted the concentration of cadmium, a poisonous component of batteries, that has been coursing down the Longjiang River in the Guangxi Zhuang Autonomous Region.

The spill, which first occurred two weeks ago, prompted a rush on bottled water in several downstream cities and prompted worries that the contamination could reach as far as Hong Kong and Macao.

The cadmium, a substance used in the production of paint, solder and solar cells as well as batteries, has been traced to discharges from a mining company in Guangxi that has since halted production, Xinhua, the state-run news agency, said.

Cadmium poisoning can cause kidney and liver damage and weaken bones.

According to officials in the city of Liuzhou, workers neutralized the cadmium contamination over the weekend by dumping tons of other chemicals into the river. The chemicals, polyaluminum chloride and sodium hydroxide, are supposed to bind with the cadmium and then settle to the river bottom. City officials said they would later dredge the river sediment.

Despite what appears to have been a disaster avoided, the episode highlighted China’s continuing struggle against contamination of its waterways. The Ministry of Environmental Protection has acknowledged that half the nation’s rivers and lakes are unfit for human contact, and news media reports of chemical and oil spills are commonplace here.

Although the central government has invested more than $3 billion to improve water quality in recent years, officials estimate that more than 300 million people still do not have access to clean drinking water.

Cadmium poisoning has been a persistent problem, especially among those working at battery plants or living near them. Last year, a study by Nanjing Agricultural University found that 10 percent of the nation’s rice crop contained excessive cadmium levels. In several southern provinces, 60 percent of rice samples were found to exceed the national standard for the heavy metal, researchers found.

Beyond stricter enforcement of existing antipollution regulations, environmental advocates say Chinese officials must embrace greater transparency when it comes to accidents like the one that fouled the waterways in Guangxi. Ma Jun, director of the Institute of Public and Environmental Affairs in Beijing, said that by concealing news of the spill for nearly two weeks, officials had allowed the damage to spread.

“Only when fish started dying did they publicly acknowledge there was a problem,” Mr. Ma said. He also criticized the initial cleanup efforts, saying that officials upstream had hastened the cadmium’s reach by releasing water from a dam while officials downstream were struggling to contain those same waters in a reservoir.

On Monday, officials in Liuzhou proclaimed that water from the Longjiang was safe to drink, but residents of Liuzhou, a city of three million, were unconvinced, or at least confused.

“We get a text message on our phones every few hours from the city government telling us the cadmium level at three places on the river, but I don’t know what the numbers mean,” said Zhang Ying, who works at a supermarket in the city.

Liao Ming, the owner of a local cafe, said that he would stick to bottled water for now but that he would probably continue using tap water to bathe. “You can’t be too picky when you are Chinese,” he said in a telephone interview, noting that his neighborhood’s air was regularly tainted by discharges from a local paper factory. “If you go down that road and get serious about this kind of stuff, you won’t have time to live.”

China Eyed as Next Educational Frontier

2012-01-30T08:48:00.000-08:00

Source: Wall Street Journal By Andrew Browne

SHANGHAI—If there was ever a need for business schools in China, it's now.

Breakneck economic growth has far outstripped the supply of management talent. Meanwhile, Chinese companies in both the private and state sectors are responding to government incentives to "Go Out" and compete against the best companies in the world—while juggling fierce competition, rapidly changing technology and shifting macro-economic forces at home.

No wonder some of the world's most prominent business schools are eyeing China as the next educational frontier.

China Europe International Business School got to China early. That gives it a head start in terms of faculty and facilities. Its new pitch: "China Depth Global Breadth," marrying insight into how China works with an international perspective that attracts students from China and around the world.

Dean John A. Quelch, a veteran of the Harvard Business School and London Business School, insists that despite economic turmoil in Europe, the CEIBS brand in China remains untarnished. "Germany is held in very high regard," he insists. Besides, he adds: "People in China take the long view."

Mr. Quelch talked with Andrew Browne in Shanghai. The following interview has been edited.

WSJ: Like everybody else in China, CEIBS seems to be investing massively in infrastructure. Tell us something about your expansion plans.

Mr. Quelch: The Shanghai campus will double in size by the end of 2013. We also have a campus that we opened in Beijing in 2010 and we currently have operations in Shenzhen that may convert into a fully fledged campus within the next two to three years.

We also have an appetite for going west, and looking at that hundred million people in the Chengdu-Xian-Chongqing triangle, who will eventually want their own business school and will not necessarily want—or be able—to fly to Beijing or Shanghai.

The reason why Stanford exists is because Harvard always thought that Californians would be happy to come east to Boston, and never imagined they'd want their own Harvard, a.k.a. Stanford.

WSJ: The No. 1 complaint of foreign companies in China is lack of management talent. Isn't that a huge opportunity for you?

Mr. Quelch: First of all, China's pace of expansion has outrun the speed with which managers can experientially develop themselves, and so our role is to be an accelerant. We take experienced or high-potential young managers, and we accelerate the speed with which they can assume more management and leadership responsibilities.

Second, because we cannot serve everybody—obviously—the admissions criteria that we apply and the rectitude of our admissions policies is extremely important to our overall economic impact.

WSJ: What's the mix of students between college graduates and mid-career managers?

Mr. Quelch: We focus on more senior executives even compared with a Harvard Business School. We graduate 1,000 people a year, roughly, 800 of them are executive MBAs; average age 40. The other 200 are MBAs; average age 30.

You have to have an extremely strong teaching faculty—very practical, very experienced—to be able to command the sustained attention and respect of 40-year-old business people.

We are the No.1 revenue-generating business school in executive education in Asia built around our unique ability to deliver both "China Depth and Global Breadth."

WSJ: How do the changes in the CEIBS syllabus over the years reflect the shifting dynamics of the Chinese economy?

Mr. Quelch: Initially the focus was on functional competency [in] finance, accounting and marketing etc. Now the emphasis is on integrated general management and problem-solving across functional silos. Teamwork and leadership in fast-growth markets are stressed in our curriculum.

WSJ: Lack of integrated management is said to be one of the weaknesses of many Chinese companies? Why is that?

Mr. Quelch: The main reason is that China is run by engineers [who] typically have strong skills in finance and accounting and economics, but with less developed skills in the areas of leadership, change management, marketing, to some extent strategy as well.

So the soft skills, as we refer to them in the States, are the ones which are underdeveloped in China. The hard skills are well-developed. And so our curriculum places considerable emphasis on overlaying soft skills on the foundation of hard skills that many students bring to the classroom.

WSJ: Isn't part of the problem that state-owned enterprises have many of the same kinds of rigid hierarchies that you have in the Communist Party?

Mr. Quelch: That may be the case. But there's one thing that I've discovered in China: no-one—and I'm talking about the state sector—gets promoted for breaking the rules, but no-one gets to the top if they just follow the rules. So there is an art in China to taking new initiatives but doing so in a manner that is not destabilizing.

WSJ: But can that system generate true innovation?

Mr. Quelch: I think you can, if you throw a considerable amount of money behind it. But certainly a major challenge in the state-owned sector is to achieve innovation.

In every country the public sector is different from the private sector, whether it's the U.K. or the U.S., there's an approach, a culture and a style that is different, norms that are different. But in China I think that the gap is wider, certainly than it is in the States, and it's almost a case of natural selection where people come to a fork in the road in China and either go to the state sector or to the private sector. And the mental mind-set associated with each is more substantially different than it is in the U.K. or the U.S.

The innovation in China is much more likely to be generated out of the private sector, even though the state sector is hugely well-endowed with resources that could fund innovation.

WSJ: What advice would you give to Chinese companies headed overseas?

Mr. Quelch: Chinese companies should not go abroad as Chinese companies. They should go abroad as companies with an important differentiated value offering that consumers will be happy to pay for—and the country of origin is irrelevant.

WSJ: When will we see the emergence of global Chinese brands?

Mr. Quelch: I think that Chinese companies will add value initially in the B-to-B (business-to-business) sector, not the B-to-C (business-to-consumer) sector. Many people in China are eagerly awaiting the day when the first truly global Chinese brand enters the top-10 ranking of the world's most valuable brands. I think that's probably at least a decade away.

But Chinese companies like Huawei, ZTE—these companies have extremely good technology and know how to invest in technology acquisitions and, increasingly, they are acquiring or hiring non-Chinese to help them become global players. Those are the companies that are likely to be at the forefront of Chinese value-added overseas. Yes, there will be a Lenovo, there'll be a Haier, there'll be a Geely—we'll all, as consumers, be interested in following the fortunes of these B-to-C companies, but I think the B-to-B space is where Chinese companies are really going to excel.

You look at Sany at the moment: it's a very promising long-term competitor to Caterpillar.

WSJ: You say that Chinese companies are increasingly hiring foreigners and becoming diverse. Can you give examples?

Mr. Quelch: If you go to the U.K. website of Huawei, you will find that it's all about Basingstoke. It's not about Huawei as the global brand; it's about Huawei as a company that is in Basingstoke.

This is where the Chinese are going to move faster than the Japanese because a major brake on Japanese global expansion ended up being the shortage of talented Japanese who were interested in, or linguistically able to, operate in international markets.

But the Chinese are much more outgoing, and perhaps because they're coming 30 years later there are many more millions of Chinese who are English-language capable.

My guess is that whereas when a Japanese company made an acquisition the foreign executives immediately hit the equivalent of a glass ceiling, in the case of foreigners in a Chinese company, it's going to be easier for them to move up the ranks.

What will really make a difference in that regard is reciprocity. If and when, for example, Sam Su of Yum Brands becomes the first Chinese CEO of a Fortune 500 company born in China then they will accept a free flow of non-Chinese executive talent throughout their organizations.

WSJ: What was the biggest surprise for you working in China?

Mr. Quelch: The biggest surprise is that there are no weekends in China. I've always been a very hard-working person, but I have been amazed at the degree to which on Saturdays and Sundays I find myself involved in professional activities.

The way I explain it to my friends in the U.S. is that you cannot achieve 10% GDP growth per year by working a 35-hour week – even if you're as smart as the Chinese.

I remember Jack Welch famously held meetings on Saturdays with his people. But I think for many Chinese this is an historic moment of opportunity – a once-in-a-lifetime, maybe a once-in-a-millennium moment in time that no one wants to waste. So many Chinese display a relentless resolution to work hard today for themselves, their families and a better China.

2012-01-29T09:45:00.000-08:00

Have You Heard...

China should punish Philippines over US offer: report

2012-01-29T09:42:00.000-08:00

Source: AFP

BEIJING — China should impose "sanctions" against the Philippines after it offered to allow more US troops on its soil, state media said Sunday, amid growing tensions over disputed waters in the South China Sea.

Manila said Friday it planned to hold more joint exercises and to let more US troops rotate through the Southeast Asian country -- an offer welcomed by the United States as it seeks to expand its military power in Asia.

China has not yet officially responded to the announcement, which was made during the country's week-long holiday for the Lunar New Year. The foreign ministry on Sunday did not immediately respond to AFP requests for comment.

But an editorial in the Global Times, known for its nationalistic stance, said Beijing "must respond" to the move by using its "leverage to cut economic activities" between the Philippines and other Southeast Asian countries.

China also should consider "cooling down" business links with its smaller neighbour, according to the editorial published in the Chinese and English versions of the newspaper.

"It should show China's neighbouring areas that balancing China by siding with the US is not a good choice," it said.

"Well-measured sanctions against the Philippines will make it ponder the choice of losing a friend such as China and being a vain partner with the US."

China and the Philippines, along with Vietnam, have rival claims to parts of the South China Sea, home to some of the world's most important shipping lanes and believed to hold vast deposits of fossil fuels.

Taiwan, Brunei and Malaysia also have claims in the South China Sea.

Manila and Hanoi complained repeatedly last year of what they said were increasingly aggressive acts by China in the decades-long rift.

The alleged acts, which included a Chinese naval ship reportedly firing warning shots at Filipino fishermen, fuelled fears among some nations in the region about China as its military and political strength grows.

The US has been looking to increase its military presence across the Asia Pacific in a strategic shift that has angered China.

US President Barack Obama said in November the United States would deploy up to 2,500 Marines to northern Australia. The following month a US admiral wrote that the US expected to station several combat ships in Singapore.