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Uncertainty Surrounds Newspaper Staff Shuffles

Posted: 18 Jul 2012 11:36 PM PDT

Senior staff at two major newspapers have been transferred or suspended this week, prompting widespread but unconfirmed speculation about political motivations. From Louise Ho at the South China Morning Post:

Lu Yan, publisher of the Oriental Morning Post, was transferred to head another division of the -based Wenxin United Press Group that owns the paper, and deputy editor-in-chief Sun Jian was suspended, according to two sources at the newspaper who declined to be named.

On Monday, 's New Express announced that its chief editor, Lu Fumin, had been removed from his post to head the political section of a sister newspaper, while its national and international coverage was slashed and its op-ed page eliminated.

A separate veteran Shanghai-based journalist said that municipal party secretary was unhappy with the newspaper's stories. "Yu has criticised some of the newspaper's reports in recent months, so the paper had to do something about it," he said.

[…] Shanghai party boss Yu has been widely regarded as a front runner to enter the party's top echelons at its national congress in the autumn.

Tania Branigan's report at The Guardian brought together a range of perspectives on the shakeups:

"I think these can probably be read as the surfacing of tensions playing out on a daily basis across the country's media. These are probably more egregious examples of the tightening of everyday control ahead of the [where the new leadership will be unveiled]," said of Hong Kong University's China Media Project.

He stressed that the moves should not be seen as part of a co-ordinated crackdown and could be related to local as much as national issues.

[…] , an independent commentator and former journalist, said he thought it was probably not a press freedom issue, adding: "It might be just be an internal issue among Chinese officials."

At China Media Project, Bandurski stressed the uncertainty surrounding the moves. Two of the articles widely cited as triggers the personnel changes, he pointed out, are still freely available online.

In the most general sense, the two actions — though not in any way related or coordinated — can be read as stemming from an all-round tightening of press controls in China ahead of the crucial 18th Party Congress later this year. That simple reading, however, tells us very little about the specific mechanisms that are at work in these cases.

So what is really going on? The bottom line, we don't know. As the Hong Kong paper The Sun summed the cases up in an editorial this morning:

Inside the mainland propaganda system, there is a way to die that can be called "death by uncertain causes". This is when the propaganda department settles a score once autumn has passed [as they saying goes]. If the bosses of a paper are not regularly and dutifully talking [the Party's] politics, they will be pulled down mysteriously. The New Express and Oriental Morning Post are both examples of this.

Right now, the reasons being given for these "deaths by uncertain causes" are themselves mysterious to media insiders.

Whatever the explanation, warned Madeline Earp at the Committee to Protect , the moves threaten to further chill China's already wintry media climate:

Personnel changes can be an effective way to neuter a publication that pushes the boundaries in its coverage, according to CPJ research. So although we don't know exactly why these two papers are under fire, and local journalists are unlikely to talk about it on the record, it's safe to assume that the censors have decided it is better to be safe than sorry in advance of the sensitive political hand-off coming later in the year.

Our concern is that with sensitive periods occurring so frequently in China, and with crackdown the new normal for so many activists and journalists, there's no knowing if or when the censors will loosen their grip. Meanwhile, fellow journalists in Guangzhou and Shanghai will likely be more circumspect for a while, lest the same fate befall them.

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Photo: Zheng Xuewu, Newspapers, by Tricia Wang

Posted: 18 Jul 2012 11:40 PM PDT

Patrick Chovanec: Am I a China Bear?

Posted: 18 Jul 2012 10:31 PM PDT

economics professor Patrick Chovanec introduces a series of posts examining current "conventional wisdom" on China's economy with an explanation of his own perspective.

There are two schools of thought on the Chinese economy right now. The first says "It's always darkest just before the dawn." The second says "It's always darkest just before it goes pitch black." It's clear that China's economy is slowing. But what happens next is far from clear, and the subject of much debate.

[…] Several important story lines have emerged, and what I'm seeing really worries me.

Indeed I am worried — not thrilled, not vindicated — because contrary to stereotypes, I do not consider myself a "bear" on China. In that respect, I would like to make a few points. Because over the next few days I'm going to be saying some very negative, critical, and even scary things about China's economy, these points are quite important.

1) I don't hate China. I'm not "rooting" for China to "crash and burn." I realize that at least a few of my Chinese readers, when they hear me harshly criticize policy or make dire warnings, might conclude that — as an American — I've caught an acute case of China-envy and would love nothing better than to see China taken down a notch. In fact, I am so critical not because I want the worst to happen, or believe it must happen, but because I hope and believe the worst can be avoided, if clear-sighted, courageous choices are made. [… N]o matter what you think about China's current form of government, or the implications of its rising global influence, the complex challenges and opportunities posed by a strong and prosperous China are infinitely preferable to the terrible dangers and uncertainties the world would face if China were to "collapse" or just lose its way in confusion.

Chovanec tweets on Chinese economics and other news as @prchovanec.

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The Olympics: Just Games?

Posted: 18 Jul 2012 10:22 PM PDT

For the Chinese, the have always been something more than just games: the longstanding medal-oriented ideology has linked sports achievements to national glory. As the 2012 London loom, although the national team is smaller than in 2008, general attention towards the games is still quite high. From Neil Connor at AFP:

China has announced a far smaller team for the London Olympics than the one that topped the gold medal table at home four years ago, but expectations are high of another dominant performance.

"The Chinese athletes must get fully prepared and ready to face the challenges. We have to fight for each gold," Sports Minister Liu Peng said at the announcement ceremony.

Some have chafed at the medal-oriented policy, however. From Yueran Zhang at Tea Leaf Nation:

Those achievements may be provoking something else. @善泰澄兰阮一飞's comment was representative: "It's so hypocritical to mention 'patriotism' every time before the Olympics. I would prefer fewer gold medals. It's snobby to award champions with millions of money. It is them, rather than 'patriotism,' that flourishes from taxpayer money."

[…] And then there's the money. Netizens increasingly question a medal-oriented system which spends astronomical amount of taxpayer money to support potential medal winners, arguing that money could be invested in social welfare. "The medal-first policy should have been abandoned long ago, "@河南樵夫 argues. "It wastes national wealth, makes people suffer and goes against the spirit of Olympics. Gold medals, no matter how many, can not promote healthy conditions for Chinese people."

The gulf between the conditions of China's Olympians and the rest of its people is illustrated by the athletes' fiercely controlled diet. From Yang Wang at Caixin:

This year, the General Administration of Sports prohibited all of the country's sports teams from eating pork, beef or lamb, except for the meat provided from known safe sources at the athletes' training bases.

China's has had countless serious issues with food in recent years. In the sports sector, where doping is of particular concern, it's no wonder the sports authority keeps a very close eye on what the members of its national teams put in their mouths.

Before the 2008 Olympics in Beijing, the Chinese swimmer Ouyang Kunpeng received a lifetime ban. He was believed to have eaten barbecue at a roadside stall and thus had a serious level of clenbuterol in his blood. Farmers in China illegally add clenbuterol to pig and sheep feed to keep the animals lean. In the sporting world, the chemical is a performance-enhancing drug.

Record-setting hurdler , meanwhile, has again landed in controversy. After he quit the Diamond League London Grand Prix last week claiming a back injury, both official media and online forums are hotly debating Liu's Olympic prospects. Some linked this to his previous drop-out in 2008, and shouted out their disappointment. From Lilian Lin at Reuters:

Mr. Liu had suffered from problems with his intercostal muscles, which run between the ribs and help with breathing, but had recovered before flying to London for Diamond League competition, China's state-broadcaster reported on Saturday, citing the hurdlers coaches. The injury appears to have been re-aggravated by a combination of intense competition at the meet and London's cold weather, said.

Such reports didn't keep social media users from indulging, once again, in Liu-related conspiracy theories. "Is this a trick to confuse his competitors or a strategy to reserve his energy for the Olympics?" asked one Sina Weibo user, one of many to raise the possibility of an ulterior motive.

Others were less charitable. "If you are not in condition to compete, why don't you give the Olympic opportunity to other, younger athletes? " wrote a user posting under the name of Beyond_Americano. "Ever since I first heard about Liu Xiang, it's always been something, whether a foot or leg or, now, his back," wrote another. "No one else is putting pressure on you. The glory is yours. It's you who are putting too much pressure on yourself. So disappointing."

Read more about the Olympics via CDT.

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As China Talks of Change, Fear Rises on Risks

Posted: 18 Jul 2012 09:56 PM PDT

Some "princeling" descendants of China's founding fathers have been meeting to discuss political reform. They are constrained, however, by lack of consensus, webs of overlapping interests, uncertainty ahead of this year's and the cautionary example of Bo Xilai's fall. From Michael Wines at The New York Times:

The private gatherings are a telling indicator of how even some in the elite are worried about the course the Communist Party is charting for China's future. And to advocates of political change, they offer hope that influential party members support the idea that tomorrow's China should give citizens more power to choose their leaders and seek redress for grievances, two longtime complaints about the current system.

But the problem is that even as the tiny band of political reformers is attracting more influential adherents, it is splintered into factions that cannot agree on what "reform" would be, much less how to achieve it. The fundamental shifts that are crucial to their demands — a legal system beyond Communist Party control as well as elections with real rules and real choices among candidates — are seen even among the most radical as distant dreams, at best part of a second phase of reform.

[…] An overriding worry is that unless change is carefully planned and executed, China risks another Cultural Revolution-style upheaval that could set it back decades.

[…] "Neither the rulers nor the ruled are happy with the current situation," said Mr. Zhang, the historian. "The prevailing belief is that change is coming soon, but the question is how. Change is either going to come from the top leadership, or from the grass-roots level."

Read more about princelings and political reform in China via CDT, particularly John Garnaut's China's Princelings Break Their Silence from October last year (pointed out on Twitter by Adam Minter).

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Lei Jun: “China’s Steve Jobs”

Posted: 18 Jul 2012 04:41 PM PDT

(雷军), founder and major shareholder of Xiaomi Tech (小米科技) [zh], has just joined the ranks of Chinese . Now worth an estimated $4 billion, the company was founded in 2010, and released the Xiaomi Phone - a major Chinese contendor to the iPhone – in 2011. The phone's success in the mainland has led some to label "China's Apple success story", and to see Lei Jun as a Chinese version of Apple co-founder Steve Jobs. Forbes' Ryan Mac reports on similarities between the two tech gurus:

Lei Jun has much in common with the late Apple icon he reveres. As my colleague Simon Montlake points out in our Forbes Magazine story, Lei, just like a young Steve Jobs, is the head of growing technology company, Xiaomi. Lei also favors the simple stylings of Jobs, preferring the black shirt and jeans combo that was once standard attire for the former CEO (though he was known for his black turtleneck).

And like Jobs, Lei is now a billionaire.

[...]At 43, Lei is exactly the same age that Jobs was when he reached the $1 billion mark in 1998, less than two years after rejoining Apple from NeXT. Lei is also extremely confident that Xiaomi, which was founded in 2010, can elbow its way to the top of a crowded Chinese mobile market.

A longer article in Forbes further details Xiaomi's story and Lei's past, highlighting Lei's encouragement of comparisons between himself and Apple's late retired-CEO, and suggestions that his reputation might one-day outgrow those comparisons:

Ladies and gentlemen, meet Lei Lei Jun, the jeans-and-black-shirt-wearing billionaire founder of Xiaomi, China's hottest smartphone company. And, if you believe Lei, the next .

[...]"I was annoyed in the beginning, very annoyed. But I don't mind anymore," he says of the comparisons. Associates say he gets a kick out of being dubbed Lei-bu-si, a pun on Qiao-bu-si, Jobs' Chinese name.

Rather remarkably, Lei risks the wrath of Apple fans everywhere by asserting that he can succeed in China in ways that Jobs never could have matched.

Also see suggestions for the next generation of Xiaomi phone, and a report on the possible launch of a Xiaomi phone in Taiwan later this year, from Tech In Asia.

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China’s Premier Promises Job Creation Efforts

Posted: 18 Jul 2012 04:17 PM PDT

As China's economic growth dropped to a three-year low of 7.6%, Premier Wen Jiabao promised on Tuesday to launch new plans to prop up the job market. From Joe McDonald at the Associated Press:

Premier Wen Jiabao said Tuesday China's employment situation "will become more complex and severe" and promised to generate jobs, according to a Cabinet statement, adding to suggestions Beijing might launch new stimulus efforts.

[…] China's slowdown is due in part to government controls imposed last year to cool an overheated economy and inflation. But growth has decelerated faster than planned, raising the threat of job losses and possible unrest, after global demand for exports plunged last year.

[…] Tuesday's statement said Wen promised to find jobs for university graduates — a key issue for the ruling party, because many graduates come from professional and entrepreneurial families that have benefited most from economic reform and are a key pillar of support for the party.

Read more about China's economic stimulus plans via CDT.

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The Chinese Media Reciprocity Act

Posted: 18 Jul 2012 01:47 PM PDT

In September of last year, California Congressman Dana Rohrabacher (R) introduced H.R. 2899 – the Chinese Media Reciprocity Act of 2011, now being debated in the U.S. House of Representatives. If the bill were to be passed, it would amend the Immigration and Nationality Act of 1965, allowing the U.S. government to revoke and limit visas issued to working for China's state media to match the number of visas issued to U.S. government-employed reporters in China. A press release from Rohrabacher's office reports his pitch of the bill:

"There is a very alarming disparity between the number of Chinese state media workers whom we grant visas to and the number of visas the Chinese grant to their American counterparts," said Rohrabacher.

"We would welcome any free and independent Chinese reporters if such a thing existed. Every one of these reporters is an agent of the Chinese government and works for a news organization under control of the Communist Party in China. Chinese news agencies operating in the USA are not subject to censorship or purposeful disruption and they are free to broadcast as much communist propaganda as they like on U.S. soil."

"By contrast, our two U.S. correspondents in China are routinely harassed by Chinese police and have been assaulted and detained by Chinese officials seeking to block their work. Voice of America and Radio Free Asia have been regularly jammed by the Communist Chinese for years."

While Rohrabacker's rhetoric effectively evokes thawed Cold War tension during a time of political and economic anxiety, it fails to note an important difference between the media landscapes of China and the U.S. – the role of state-owned media. In the first post of a three-part series on H.R. 2899, China Law and Policy explains this difference, and reports other major problems with this bill:

The Act has many problems.  First, it solely focuses on China, giving it the air of a Chinese Exclusion Act.  China is not the only country which denies visas – a quick review of the worst countries for journalists on Reporters Without Borders' website reveals that Burma, Iran, North Korea, Syria and Eritrea similarly deny foreign journalists visas.  But this Act is exclusively about China.

Second, the rhetoric by the Act's proponents leads one to believe that they are more motivated by a Cold War mentality than a true concern about U.S. journalists' access in China.   Rep. Rohrabacher's testimony in support of the Chinese Media Reciprocity Act is filled with red herrings concerning Confucius Institutes, billboards in Times Square, and the Chinese purchase of AMC movie theaters (in order to flood the US with Chinese propaganda films).  Testimony by John Lenczowski focused more on Russian spies in the US Embassy in Moscow during the Cold War than the actual treatment of U.S. today.

Third, passage of the Act could lead to even worse retaliation by China.  China repeatedly harasses the two VOA reporters in China (see Nick Zahn's testimony, p. 5-6) and it has consistently denied visas to RFA reporters.  Perhaps the most famous incident was when the Chinese government rescinded the RFA reporters' visas only days before they were to accompany President Clinton on his 1998 trip to China.

The Committee to Protect Journalists also voiced similar concern with the proposed policy after initial discussion began in  the House of Representatives last month:

CPJ's many objections to China's media policies, including its approach to foreign media, are well documented. But we don't believe that the best response to press freedom restrictions in China is to implement press freedom restrictions in the U.S. We don't approve of the use of specific visas for journalists in the first place, although we recognize that it is a widespread practice. In an ideal world, we would see as many journalists as possible in all countries, moving as freely as possible across borders.

[...]Media restrictions in China make the country a poor candidate for a mature partnership on economic or security issues, and must be addressed if the two countries are to move forward. The visa imbalance between China and the United States does seem unfair, and should be dealt with frankly and forcefully in the context of those many shortcomings. But the U.S., or any country, should not threaten to drive possibly hundreds of journalists from within its borders for any reason. Such a move might feed some people's sense of justice, but would be short-sighted, counterproductive, and contradict one of the United States' cornerstone liberties. The Subcommittee on Immigration Policy and Enforcement should find a better way to solve this problem.

Part 2 of China Law and Policy's series focuses on how the proposed bill is an ineffective policy mechanism to deal with the broader issue: visa restrictions facing foreign journalists in China, regardless of whether their paycheck comes from the government or the market:

Putting aside the shrill rhetoric surrounding the Chinese Media Reciprocity Act and the fact that it only deals with the harassment of a small segment of U.S. journalists in China (the VOA and RFA reporters), the Act does draw attention to an increasingly problematic issue: the Chinese governments harassment of foreign journalists through the visa process.  It also raises the question: what should the U.S. government be doing about this harassment?

Stay tuned for part 3 of China Law and Policy's series.

For more on journalists in China and the regulations they face, see prior CDT coverage.

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Word of the Week: WTF?!

Posted: 18 Jul 2012 12:00 PM PDT

Editor's Note: The  comes from China Digital Space's Grass-Mud Horse Lexicon, a glossary of terms created by Chinese netizens and frequently encountered in online political discussions. These are the words of China's online "resistance discourse," used to mock and subvert the official language around censorship and political correctness.

If you are interested in participating in this project by submitting and/or translating terms, please contact the CDT editors at CDT [at] chinadigitaltimes [dot] net.

他妈的！(tā mā de): WTF?!

Literally "his mother's," is a common swearword. Like "f**k", the phrase has a sexual connotation, though it is less harsh than its English counterpart and has a broader range of uses. Depending on the context, it can be translated as almost any English swearword, though it often appears as WTF.

Lu Xun, the father of modern Chinese literature, once honored the phrase as China's "national swearword."

A very notable use of the phrase appeared in the July 26 2011 edition of Hong Kong's Daily shortly after the Wenzhou train accident. The front page headline read, "Clearing the Tracks, Not Saving Lives; !""

The People's Daily headline on the same day was "The Party's Sympathy Is Even Greater Than the Height of Lofty Mountains."

Several days later, the Southern Metropolis Daily defied the Propaganda Department's ban on critical stories of the train wreck and published an article entitled "What Friggin' Miracle?" It began:

At 8:27 p.m. on July 23, [a collision between two trains] caused the deaths of 40 people. In the face of such a terrible event and its incompetent handling by the Ministry of Railways, we can only express our views by asking—WTF?!

7月23日20时27分，北京至福州的D 301次列车行驶至温州市双屿路段时，与杭州开往福州的D 3115次列车追尾，造成D 301第1至4号、D 3115第15至16号车厢脱轨，事故已致40人遇难。面对如此惨烈的事情以及铁道部的糟糕处理，我们只想用三个字表达看法———他妈的！

The article criticized the Propaganda Department's approach of highlighting various "miracle" stories from the crash. One such "miracle" involved a two-and-a-half-year-old girl named Yiyi, who was the last survivor pulled from the train wreckage 21 hours after the crash. Although both her parents were killed, the state-controlled media gushed over her survival in what many believed to be a cynical attempt to put a positive spin on the tragedy and deflect criticism from the Ministry of Railways. In a press conference, Ministry of Railways spokesperson Wang Yongping was asked how a girl could be found alive while disassembling the train cars, when rescue attempts were already finished:

Wang: This is a miracle. You ask why—

Reporter: This is not a miracle!

[Reporters angrily yelling at once.]

Reporter: What I want to ask is this: Why, after you had already announced that there were no survivors, when you had already begun to disassemble the train—why would there still be a survivor?

Wang: Let me answer that. This happened. We truly did find a girl who was still alive. This is the way things are.

Wang generated more anger than solace at the conference. His trademark statement from that day rose to Chinternet memedom: "Whether you believe it or not, it's up to you, but I do anyway." He was later dismissed from his post.

George Ding opined on the exchange:

In the end, I think I understand what Wang is trying to say. For a toddler to survive the train crash in which her parents died is nothing short of Potter-esque; for a defenseless child to survive the full force of the Chinese government's ineptitude and negligence, is nothing short of miraculous. But if little Yiyi is Harry Potter, then what does that make the government?

The Economic Observer also defied the ban on negative coverage of the crash.

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Woeser: CCTV’s Explanation for Self-Immolations

Posted: 18 Jul 2012 08:37 AM PDT

On her blog, Woeser writes about a documentary produced by about the self-immolations by Tibetans protesting Beijing's policies in Tibet. While the documentary, which presents the official government line on the protests, was ostensibly produced for a domestic audience, Woeser demonstrates that it was in fact clearly intended for an international audience as part of Beijing's efforts. High Peaks Pure Earth translates Woeser's post:

The programme was not broadcast on Chinese internet TV either. But after three days, the Chinese and English versions were available on YouTube, albeit without the CCTV logo on the screen; it was thought that CCTV itself was responsible for uploading it onto YouTube but we all know that in China, this platform is blocked. As for the various Chinese video websites, up to now, the documentary cannot be found.

This clearly shows that this is a programme specially made for foreign audiences, even the Chinese version is mainly directed at "overseas Chinese". The Tibetologist Elliot Sperling commented: "Tibetan self-immolations have turned into a foreign propaganda battle line". In view of the ever increasing cases of self-immolations in Tibet since 2009 that are a resolute act of resistance, the Chinese government has had to offer an explanation to the world that is favourable to itself and keeps its own face, which becomes evident from the name of this fact-distorting documentary: "The Dalai Clique and the Event".

Up to the present day, CCTV has not broadcast the documentary to audiences within China. We all remember how CCTV, after the protests that erupted across the whole of Tibet in 2008, was quick to make a documentary called "Records of the Lhasa Riots" that was ceremoniously released during prime time and broadcast over and over again; it even became available on DVD. The result of the large-scale marketing campaign is best described by the words of a retired cadre who used to be engaged in ethnic matters: "the rifts between two ethnic groups that could have still been mended have been torn apart, what is done cannot be undone."

So, why did the authorities decide to, this time, only broadcast the documentary to audiences abroad and not to people within China? Is it only to prevent Han Chinese, the majority of all Chinese people, to learn any more about the current situation in Tibet and risk that they start doubting the claims by the authorities that "Today, Tibetans are experiencing development and happiness as never before in history"? This is probably one reason, but the more important reason is that they are afraid of provoking the several millions of Tibetans living in Tibet and with them also the much-feared Uyghurs and Mongolians. This documentary only talks about 13 Tibetan self-immolators, but some of the video recordings and images shown here are revealed to the public for the very first time and display the great courage of the Tibetan self-immolators; on top of that, the various kinds of explanations offered by CCTV are full of ridiculous loopholes.

Read more about recent self-immolations, including the most recent by an 18-year-old monk in Sichuan, and about China's external propaganda efforts, via CDT.

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The Daily Twit – 7/18/12: SEC vs. VIEs, Data Privacy Confusion, and More Talk on Credit Cards

Posted: 18 Jul 2012 07:49 AM PDT

Big story for China investors was the SEC investigation of New Oriental, which has something to do with the education company's VIE structure. Lots of speculation on this. I weighed in with this post: "SEC Investigates New Oriental VIE Structure. Let the Chatter Begin." Also be sure to check out the China Accounting Blog post "SEC v EDU: the end of VIEs?"

If the VIE news wasn't enough to get you excited:

Jack Perkowski: China's Second Half Looks Up — I've been linking to so many doom and gloom folks on China's economy that I feel slightly guilty, so here's what the other side is saying.

Reuters: Visa, MC still face hurdles in China after WTO ruling — In light of the WTO panel decision, what happens now? In reality, probably an appeal and a lengthy negotiation period after that.

Foreign Policy: The Future of Manufacturing Is in America, Not China — What's the future of global manufacturing? Not China, says Vivek Wadhwa. Some good points, but the article seems to rely too much on cost issues. That's not the only reason manufacturing is sited in a given place.

Global Times: A push to protect personal data — The government wants companies to get onboard with better data privacy practices and has even put out some guidelines to that effect. But if they're so concerned about this problem, why no data privacy law, even though us lawyer types have been clamoring for one for at least 8 years?

Reuters: Tough Chinese data privacy laws impede document collection in FCPA investigations — Great article about restrictions on data in China are making life difficult for foreign companies trying to comply with U.S. government investigations. Comes across as slightly paranoid, but it's a good introduction to an important topic.

New York Times: Changing of the Guard: As China Talks of Change, Fear Rises on Risks — Princelings, political reform, the changing of the guard. This article's got it all.

China Daily: First-class medical care for the wealthy — This article on private medical facilities and their wealthy patients pissed me off, and I responded with this: China Health Care and the Income Gap.

Caixin: Wealth Of Nations: The Modern Illusions Of Economic Development — The common terms we use when talking about development leave a lot to be desired, particularly when talking about rich-but-still-poor China.

China Daily Show: China: 'Everything wrong with this place will be fixed in about three years' — For your amusement. As usual, it's funny 'cause it's mostly true.

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In China, Wait Leads to Standoff With Officials

Posted: 18 Jul 2012 06:42 AM PDT

The New York Times reports on the stand-off between locals and a group of visiting officials to Mt. Baekdu who caused severe delays for visitors to the local tourist attraction. CDT earlier translated weibo responses to the incident. From the New York Times report:

The infuriated crowd surrounded the vehicles carrying the government entourage and refused to let them pass, according to scores of microblog posts sent out by those waiting to ascend Changbai Mountain in Province. The three-hour standoff drew police officers and soldiers, some of whom reportedly beat recalcitrant protesters.

According to one witness, thousands of people chanted for a refund of the $20 entry tickets and later demanded that the officials leave their besieged vehicles and apologize. "Fight !" the witness wrote.

The accounts, posted on , a Twitter-like service, were later deleted by the company's in-house censors, but many postings were saved and reposted on overseas Web sites like Ministry of Tofu and China Digital Times whose servers cannot be reached by Chinese censors.

Even if a contretemps was defused, the specter of middle-class citizens fearlessly standing up to their otherwise omnipotent leaders is a scenario that fills Communist Party officials with dread. Xiao Qiang, director of the China Internet Project at the University of California, Berkeley, said the incident reveals the accumulated anger that many ordinary Chinese feel toward their government. "There was no serious injustice here, yet it did not take much for them to stand up and protest," he said. "It's the kind of thing that is very worrying to Chinese leaders because it could happen anywhere, at any time."

See also a list of "sensitive words" banned from Sina weibo search relating to the Mt. Baekdo incident.

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Sensitive Words: Mount Baekdu Fury and More

Posted: 18 Jul 2012 06:16 AM PDT

Police block the road up on July 15.

As of July 17, the following search terms are blocked on (not including the "search for user" function):

Fury on Mount Baekdu: Visitors were barred from ascending the mountain on July 15 while Beijing Party Committee Secretary toured scenic at the top. Stranded tourists blocked the road down the mountain, demanding an apology and a refund. They got their money back, but nothing else.

  • Liu Qi + (刘淇+长白山): is also known as Mount Baekdu.
  • Liu Qi + (刘淇+吉林): Mount Baekdu straddles Province and North Korea.
  • Liu Qi + encircle (刘淇+围堵)
  • Liu Qi + close off a mountain (刘淇+封山)
  • Heaven Lake (天池)

Other:

Note: All Chinese-language words are tested using simplified characters. The same terms in traditional characters occasionally return different results.

CDT Chinese runs a project that crowd-sources filtered keywords on search.  CDT independently tests the keywords before posting them, but some searches later become accessible again. We welcome readers to contribute to this project so that we can include the most up-to-date information. To add words, check out the form at the bottom of CDT Chinese's latest sensitive words post.

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China Health Care and the Income Gap

Posted: 18 Jul 2012 03:26 AM PDT

China is building up its overall health care capabilities, but with the income gap and the opening up of the sector to private investment, we're seeing an acceleration of a multi-tiered system that in some ways reminds me of the U.S. You have money, you get great care. If not, you take your chances. This is not cool at all.

From today's China Daily:

More well-off Chinese are opting for expensive private hospital care, rather than waiting their turn at public hospitals.

Ren Ni, director of an international exhibition company, had her laser eye surgery recently at a private eye clinic of Singapore Medical Group and was totally satisfied with the excellent service.

I am very busy, and cannot afford the long waiting time at public hospitals, Ren says. At a private healthcare agency, I can decide when to receive the treatment to minimize disruption at work.

She says the clinic she went to has first-class facilities, and is furnished like a lavish hotel.

That's nice. It's like a hotel. And these folks are more important than everyone else, so it makes sense that they shouldn't have to wait in line the rest of the poor schmucks out here. Only suckers show up at four o'clock in the morning to get a ticket to see the "good" doctor.

Look, I don't begrudge rich folks the ability to pay more for better care. But at the same time, it's troubling that so many people in this country, particularly outside of the big cities, simply have no access to adequate care at this point. The government is moving forward with reform, but it will take years before the basic access problem is solved.

In the meantime, we've got one group of people here going to hospitals decked out like lavish hotels and another group whose kids die on a regular basis because they can't see a doctor and buy the right kind of medicine. Anyone else troubled by that?

© Stan for China Hearsay, 2012. | Permalink | 6 comments | Add to del.icio.us
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SEC Investigates New Oriental VIE Structure. Let the Chatter Begin.

Posted: 18 Jul 2012 02:09 AM PDT

Chinese education company New Oriental, which is listed in the U.S. on the New York Stock Exchange (NYSE: EDU), included this little bomblet in a July 17 earnings press release:

On July 13, 2012, the Company was informed that the U.S. Securities & Exchange Commission (the "SEC") had issued a formal order of investigation captioned "In the Matter of New Oriental Education & Technology Group Inc."  The Company believes that the investigation concerns whether there is a sufficient basis for the consolidation of Beijing New Oriental Education & Technology (Group) Co., Ltd., a variable interest entity of the Company, and its wholly-owned subsidiaries, into the Company's consolidated financial statements.

Oh my. Grab a cup of coffee and strap in. This will take a few minutes to unpack.

It's been a while since we talked VIEs. If you recall, the VIE structure refers to a corporate structure used by many Chinese companies that list overseas. The pieces of the puzzle include the Chinese domestic operating company (the VIE), an offshore entity that has wholly foreign owned subsidiaries (WFOEs) in China, and legal agreements between the VIE and the WFOE(s).

EDU is in a business sector restricted to foreign investment, so the VIE structure allows foreign investors to put their money into the company via the NYSE listing as opposed to directly into the operating entity. As I've written many times before, I consider this to be an obvious end-run around China's foreign investment laws and therefore problematic from a legal perspective.

First question: what is the SEC concerned about here? Answer: I have no idea, and I doubt that many other commentators out there know for sure either.

The obvious candidate is the corporate restructuring that EDU announced on July 11, but there is a problem with that interpretation. The move made by EDU was simple: it was an equity buyback between the current CEO Michael Yu and several shareholders of the VIE that no longer work for the company.

The consolidation had zero effect on the VIE structure itself, nor are there any legal issues I can spot offhand regarding the equity purchase. Therefore, I can see no reason why the SEC would be interested in this restructuring, unless there is something else going on regarding those purchase and sale deals that we don't know about. The equity consolidation, into the hands of the CEO, is not exactly positive from a risk-management point of view, but that is separate from the legal considerations.

Second question: if it isn't the restructuring, what else could it be? Answer: the SEC might finally be questioning the VIE structure.

OK, don't panic. I do not know whether the SEC has decided, after all this time, that the VIE structure is actually not as robust as it might appear to be. But you never know. Here are a few possibilities, including a couple suggested by VIE guru Paul Gillis who posted on this last night on the China Accounting Blog with the provocative title "SEC v EDU: the end of VIEs?":

1. The general legality of the VIE structure under China law — the possibility exists that the PRC government will regulate in this area and declare that some or all of these structures are illegal. It's not at all likely, but it could happen, and this represents a real risk for investors. However, unless SEC and the Ministry of Commerce are working together on this, the PRC regulatory threat seems way too vague a possibility to bother the SEC at this point.

2. Specific enforceability of VIE/WFOE contracts — because the purpose of these agreements is, arguably in the case of companies like EDU, to bypass China foreign investment restrictions, the validity of the agreements can be called into question. But is this enough to get the attention of the SEC? I doubt it. Lawyers here do not even agree on this issue, so it would be exceedingly odd for SEC to jump in the middle of the debate, unless the issue is simply better/more risk disclosure.

3. Specific provisions of the VIE/WFOE contracts — this would vary depending on the agreements, but there are some common problems here. For example, some VIE contracts include pledge agreements, whereby equity of a VIE reverts to an investor under certain circumstances. In my opinion, if that investor is foreign, then the shareholding becomes problematic if the company is in a restricted industry. Another example is a service agreement between the VIE and WFOE, whereby the WFOE provides services to the VIE in exchange for cash; this is the way that revenue is siphoned off from the operating entity to the offshore structure. If the terms are not reasonable (some agreements attempt to siphon off essentially 100% of the revenue, which is a poor choice), the service contract might not be enforceable.

(These next two were pointed out by Paul Gillis)

4. Attorney letters and disclosure — every time one of these companies lists with a VIE, they need a PRC attorney to sign off on the legality of the structure. Some of this language is acceptable, but in some cases, I find it wholly lacking in terms of adequate disclosure of risk.

5. Lack of revenue flow-through — as I mentioned above, revenue is supposed to flow from the VIE to the WFOE, up to the parent. You know, actual value that investors might care about. But in some cases, that revenue gets stuck with the VIE. Could be a legal issue like I described above, or it could be tax avoidance. Every time that money goes from VIE to WFOE under a service agreement, we've got a taxable event (usually 5%, sometimes higher). If the money never gets to the WFOE, what does that tell us about the value of the listed entity? And if the argument is that the revenue will move there at some point in the future, then there's a big ass tax liability hanging out there.

Third question: what does this mean for EDU, whose stock has tanked as a result of the announcement? Answer: the news ain't good, but it's hard to speculate on results until we know what SEC is looking at. As I already mentioned, it's hard to see why SEC would open a formal investigation on account of what appears to be a legal corporate restructuring. Aside from that, EDU is using a structure that is identical to that used by numerous other PRC companies. Why is EDU being singled out?

In other words, I get a feeling that we do not yet have all the facts of this story.

Fourth question: what does this mean for other U.S.-listed Chinese companies using VIE structures? Answer: It depends. If we ultimately find out that the SEC is investigating EDU on account of a general VIE risk (such as one of those I itemized above), then other similarly situated companies need to lawyer up immediately. On the other hand, if SEC has singled out EDU because of something it did or failed to disclose, perhaps something related to its recent restructuring we don't know about, then that might very well end with EDU and not effect other listed firms at all.

Another long post with the inevitable "we don't know anything yet" conclusion.

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