| Will China Blast Past America In Space? Posted: 26 Jun 2012 11:41 PM PDT In this month's Foreign Policy, John Hickman contemplates a Chinese annexation of the moon You might be asking: Why on God's green Earth would Beijing want to colonize the moon? The crazy thing is that, if one analyzes China's interests and the relevant international law, the Chinese moon scenario seems not only plausible but smart. China is what international relations scholars call a "revisionist power," seeking opportunities to assert its enhanced relative position in international affairs. Establishing territorial sovereignty on the moon would be an especially powerful statement about China's arrival as a great power. […] Would a Chinese moon claim even be legal? At the moment, no, but international law would provide only the flimsiest of barriers. Although the 1967 space treaty asserts common ownership of the entire universe beyond Earth's atmosphere, it also permits signatory states to withdraw from its terms with only a year's notice. And there's no law governing whether you can fly a rocket to the moon and land a ship there.
This spaceship has already sailed, according to Beijing's deeply unofficial ambassador to Twitter: @AdamMinter The moon has been an inseparable part of China since 1972. We offer this proof: chineseposters.net/posters/e13-45… GET OFF OUR MOON! — The Relevant Organs (@relevantorgans) June 21, 2012
PLA Second Artillery colonel Shao Yongling, on the other hand, put the article down to "sour grapes" growing amid the abandoned ruins of America's own lunar exploration. ("One expects her to deny China's desire to control the moon," writes Foreign Policy's Isaac Stone Fish, "but she never does.") The different trajectories of the Chinese and American space programmes were also the topic of NPR's Talk of the Nation, with guests Jonathan McDowell and Joan Johnson-Freese. Johnson-Freese points out that China is still catching up with the US and USSR of the 1960s. But with its own fully-fledged space station planned for the 2020s and the International Space Station scheduled to retire during the same period, the balance may shift dramatically over the next twenty years. [IRA] FLATOW: How is this going to sit with – let's say you look at Congress 10 years now. If the Chinese have a space station, the U.S. no longer is orbiting in the space station, it's not invited to go to a Chinese space station, let's say, or is not allowed to have anything to do with the Chinese space program, are we going to see, do you suspect, some reversal in Congress saying where the heck are we, why were we left out of these things? JOHNSON-FREESE: I think you're exactly right. I think there will be a loud cry of how did this happen. But you already see members of Congress try to use the Chinese space program as an impetus to get more money for the U.S. space effort, but it's very difficult to do manned spaceflight in a democracy because while we all like spaceflight, we like watching it, when it comes to funding from government funds, it simply doesn't get the priority that things like jobs and roads and education and defense gets. In China, they have an authoritarian government that can keep funding it to whatever level they choose, as long as they choose to do it, and they will do that as long as they get successful results from it.
The three also discuss the "major opportunities" lost because of the US Congress's barriers to co-operation with China. Asian-American astronaut Leroy Chiao also argued last year that this policy should be discarded, and that China should be invited aboard the International Space Station.
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Post tags: space exploration, space program, space station, the moon, United States
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| Ma Jun: “A Huge Step Forward” in Rio? Posted: 26 Jun 2012 11:38 PM PDT The final document that emerged from the Rio+20 Earth Summit prompted vocal disappointment from many quarters, with Jonathan Watts going as far as to compare the conference with a 1930s League of Nations assembly. From Watts and Liz Ford at The Guardian: […] [C]ivil society groups and scientists were scathing about the outcome. Greenpeace International Executive Director Kumi Naidoo called the summit a failure of epic proportions. "We didn't get the Future We Want in Rio, because we do not have the leaders we need. The leaders of the most powerful countries supported business as usual, shamefully putting private profit before people and the planet." Rio+20 was intended as a follow up on the 1992 Earth Summit, which put in place landmark conventions on climate change and biodiversity, as well as commitments on poverty eradication and social justice. Since then, however, global emissions have risen by 48%, 300m hectares of forest have been cleared and the population has increased by 1.6bn people. Despite a reduction in poverty, one in six people are malnourished.
The Guardian noted the more prominent roles that BRICS nations played in this year's conference, highlighting Brazil's. In an interview with chinadialogue's Xu Nan, Ma Jun of the Institute of Public and Environmental Affairs suggested grounds for optimism in this new, less Western-centric process: Xu Nan: How do you rate the declaration text the Rio+20 conference has produced? Ma Jun: Generally, the NGOs here aren't happy with it. And if you just look at the text, there doesn't seem to be much progress – much of it is confirming or admitting what's already happened, rather than moving forward. But I have a different take. The outcome of the Rio conference 20 years ago was led by the western developed nations – it reflected their concern for the environment. But 20 years later, things are different. The developing nations are very deeply involved, and some are very big players in sustainable development. So this text is more of a global consensus. A discussion involving both northern and southern hemispheres is bound to be more difficult, and the text is bound to be the result of compromise – but that doesn't mean it's a bad outcome. After all, it includes many good principles for dealing with the problems. Taking China as an example, 20 years ago it accepted the declaration under western guidance. Now, it only accepts what it can genuinely agree with. And that is a huge step forward.
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Post tags: Brazil, BRICS, environmental policy, greenpeace, international relations, IPE, jonathan watts, Ma Jun
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| Photo: PLA soldiers in Beijing, by Jan Zdzarski Jr Posted: 26 Jun 2012 10:41 PM PDT |
| Gaokao May Now Be Holding China Back Posted: 26 Jun 2012 10:21 PM PDT Gaokao, the annual nationwide college entrance exam in China, might be holding the world's fastest developing country back, because the education system built around the memorization-heavy gaokao encourages neither creativity nor entrepreneurship. From Helen Gao at The Atlantic: In many ways, the gaokao is symbolic of China's rise, with millions of Chinese striving and competing to pull up themselves and their nation. But it's also symptomatic of how far China still has to go, as the country tries to shift its economy from exports to domestic consumption, from assembling products to designing them. China's gaokao-style education system has been great at imparting math and engineering, as well as the rigorous work ethic that has been so integral to China's rise so far. But if the country wants to keep growing, its state economists know they need to encourage entrepreneurship and creativity, neither of which is tested for on this life-determining exam.
The author compares the education system in China with that of the U.S, saying that American high schools emphasize more on developing critical thinking skills, whereas Chinese students are trained to memorize all the key points in the textbook to crack multiple choice questions in exams. Some students have realized the limits of the system and rebelled in their own way. The author invokes Han Han's experience as an example — the maverick young writer dropped out of high school as he felt that the system "left too little room for his more disruptive style of thinking". From The Atlantic: In one essay, he [Han Han] mocked Chinese education, comparing it to "standing in the shower wearing a padded coat." In other words, he sees it as an exercise absurdly ill-suited to achieving its goals. [...] Why play soccer or take part in the student council, after all, if it leaves less time for cracking chemistry problems? You live and die by your numbers, starting with your gaokao score, a value system that is reinforced by employers and families alike.
Read more about gaokao via China Digital Times.
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| Riots in Guangdong Escalate, Overwhelm Shaxi Posted: 26 Jun 2012 08:56 PM PDT First posted on CDT Chinese. via Molihua.org:  Protester overturning a car in Shaxi, Guangdong. Chaos is mounting in the ongoing labor riot that began on Monday in the town of Shaxi in Zhongshan City, Guangdong Province. On Tuesday, thousands of migrant workers swarmed into Shaxi from Guangzhou, Foshan, Jiangmen and other neighboring cities, overwhelming the local police force. Rioters are wrecking every motor vehicle they see, stopping moving cars in order to batter them. Police cars, privately owned cars and bus stops have all been destroyed. A number of shops have been broken into as well. The Zhongshan Fuhua Station was set on fire and burned for close to 24 hours. The Shaxi town hall has also been ruined. At first the rioters allowed ambulances in to bring food and water to armed police and others. After 5 p.m. no cars were allowed in and protesters began overturning cars. At least five ambulances have been torn apart. It is reported that several protesters have died and over 100 have been injured, mostly workers. More than 100 people hve been arrested. The Sichuan Public Security Head has dispatched a group of six to Zhongshan to help manage the situation. The latest news is that armed police from Guangzhou, Zhuhai and Foshan have been sent to Shaxi to clear the streets on the morning of June 27. The People's Liberation Army is also at the ready to "suppress the rebellion" at any time.
Images from Weibo: 
AFP also reports on the incident: Police stepped in to break up fighting between the workers largely from Sichuan province and the locals in Shaxi township in Guangdong province Monday night, the Information Centre For Human Rights and Democracy said.
At least 30 people were injured and two police cars were smashed during the rioting that erupted as police descended onto the scene, the centre said. Guangdong, located next to Hong Kong and known as the "world's factory floor," has employed tens of millions of migrant workers in recent decades, a pool of cheap labour that has driven China's export-oriented economy. "The riots started yesterday (Monday) noon, but escalated late last night, several thousands people were protesting," Liu Tianjin, a Shaxi factory worker told AFP by phone. "There were lots of riot police outside last night, and there are still many outside now. I can tell you more than 30 people were injured."
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| Riot in Guangdong Village Over Sale of Land Posted: 26 Jun 2012 07:22 PM PDT Caijing reports: On June 26 before dawn, hundreds of riot police clashed with the villagers in Zuotan, part of the city of Foshan in Guangdong Province. Police cars were smashed and flipped over. Many villagers were hospitalized for injuries, including an 81-year-old veteran of the Korean War who was beaten unconscious. Demanding to speak with the village secretary in person about the cheap sale of land [the villagers currently live on and cultivate], thousands of residents surrounded the village Party headquarters, gathering in the afternoon and staying through the early hours of the next morning. At 2 a.m., several hundred riot police arrived and began beating unarmed villagers in an attempt to escort the village secretary away. Residents defended themselves with bricks. The riot police eventually pulled out. Factors in the conflict: - Corruption among village officials in Zuotan and the futility of citizens' appeals to the government lead the villagers to spontaneously organize the protest.
- Zuotan officials secretly arranged for the sale of land in three neighborhoods to developers. The officials thought they could claim every inch of land, never once considering that anyone could read the announcement of these arrangements on government websites. The news enraged the villagers, spurring them to protest.
Some netizens speculate that the village secretary is a "naked official" whose family lives in Australia. Sina Weibo has already blocked "Zuotan" (左滩) from search results and deleted posts showing photos from the conflict. Photos from the scene via Weibo:  Overturned police car labelled a "thief's car" by protesters.  The visible part of the banner directly above says "Give me back my land." The banner fifth from the bottom reads "Collusion between the government and business is inhumane and destroys families." 
 "Unite to kick out corrupt officials and profiteers; fight to the death for your homes." Via CDT Chinese.
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| Tale of the Dragon Lady Posted: 26 Jun 2012 06:46 PM PDT Paul French, author of Midnight in Peking, writes for Foreign Policy on perception of women in Chinese politics: Sadly, "dragon ladies" are an all-too-familiar trope in Chinese history: A successful man achieves power, wealth, and the love of many before being brought low by an excessive ambition encouraged by his wife, a beautiful woman obsessed with money and power. There has been a consistent demonization of women in traditional Chinese history. Blamed for the collapse of the three earliest dynasties, women were regularly described as tyrants and nymphomaniacs who destroy thrones and cause war. Even today, the Communist Party prefers the narrative of a dragon lady to the reality of a massive internal rupture in the halls of government.
Paul French traces female figures in politics through Cixi the Dowager, Chiang Kai-shek's wife Soong Mei-Ling, Mao's wife Jiang Qing, and up to today's Gu Kailai: When the Bo scandal broke, enemies needed to be found fast — Bo was a senior party member and thus could not be portrayed as a complete traitor. A sinister manipulator had to be found, and Gu fit the historical narrative perfectly. Ultimately, dragon ladies are sideshows, part of the sleight of hand to deflect from the real action. Demonizing Cixi allowed the state to avoid picking at the rot that ran through the Qing court; focusing on Madame Chiang's legs and looted wealth distracted from the failures of the war against Japan; the obsession with Madame Mao's power plays misdirected the blame due her husband, the real architect of the chaos. [...] What's for sure is that while too many of us have been obsessing over whether Dragon Lady Madame Gu killed Heywood using cyanide or not, we should be paying more attention to the Communist Party's unprecedented internal fight. History is written by the victors, and in China's case, that's a group of buttoned-up old men both scornful to and deathly afraid of their women.
© Wendy Qian for China Digital Times (CDT), 2012. | Permalink | No comment | Add to del.icio.us
Post tags: Bo Xilai, gu kailai, Jiang Qing, Soong Mei-ling, women in politics, women leaders
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| Eight Questions: James Fallows, ‘China Airborne’ Posted: 26 Jun 2012 01:44 PM PDT China Real Time blog interviews James Fallows about his new book China Airborne and about the aviation industry in China:
You highlight the dramatic improvement of China's airlines as one area of particular success. Are there specific lessons of the airline experience that could be applied elsewhere?
I argue that the experience of China's very fast-growing airlines is a microcosm of China's high-end commercial aspirations generally. They're state-owned enterprises becoming increasingly exposed to commercial competition; they have been shrewd and surprisingly non-defensive in opening themselves to outside improvement and international standard-setting; and they're buoyed by the overall continued growth of the economy. But they also have to pay their way, in what is worldwide a difficult industry. So they show ways in which "Chinese characteristics" are unusual, and also how they fit global patterns. As I think is evident in my book, I am impressed by and respectful of the international figures — largely but not exclusively American — who have decided to devote major portions of their working lives to improving the safety, reliability, and efficiency of the Chinese air-travel system. When I asked them about the lessons they would draw, their conclusions were never startling but seemed worth underscoring. They said that they were able to make more of these "governance" breakthroughs because they never presented it in a belittling or publicly embarrassing fashion for their Chinese counterparts; because they quite evidently enjoyed China and their Chinese counterparts; and — an interesting specific point — because they were always careful to say that they were conveying 'international' rather than strictly 'American' practices and techniques. No doubt it helped that, unlike some other arenas of foreign-Chinese interaction, this was no sort of zero-sum situation. That is, when foreigners were helping the Chinese make their air operations safer, neither side was posing a "competitive threat" to the other
Last month in Wired, Fallows wrote an essay which explained why the success of China's aviation industry will determine the future course of the country's economy as a whole: Even in China there are only so many dams to be built, high-speed railroad lines to be laid, brand-new cities to be populated. China has proven that you can move people en masse from rural poverty to urban factory life in a single generation, by embracing the role of outsourcing workhouse of the world. But Chinese economists fear that this may turn into a low-wage trap that will keep the country from creating the kind of large professional, high-end entrepreneurial, and upper-middle classes that the US has long enjoyed. Thus the Chinese determination, spelled out in its 12th Five-Year Plan to "move up the value chain." Can it succeed? Will the next Apples, Facebooks, and Googles arise in China? How much do the current Pfizers, GEs, and Boeings have to fear? The answer will be found in apex industries, those clusters of businesses whose vitality signals the presence of surrounding networks of high-value skills, technologies, and operational competencies. Wildlife biologists look for healthy populations of amphibians—newts, frogs—to indicate the broader health of a wetland environment. Similarly, economic analysts can look to the status of pharmaceutical industries (which reflect a strong research culture), university complexes (whose ability to draw and hold the world's talent reflects the attractiveness of a society), and venture capital and info-tech industries (which depend on openness) to judge overall economic vitality. And in China they should be looking at aerospace.
Read more by and about James Fallows via CDT, including a preview of China Airborne.
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Post tags: aerospace industry, airline industry, aviation, book reviews
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| China Urged to Protect Kachin Refugees Posted: 26 Jun 2012 09:45 AM PDT As China's relationship with Myanmar [aka Burma] is being examined by Myanmar's parliament, human rights groups are urging China to safeguard Kachin refugees. The Kachin minority ethnic group has been fighting for more autonomy in Myanmar in a year-long conflict. From The Voice of America: The report says as many as 10,000 Kachin people have fled the conflict for China's southern Yunnan province, where they are in desperate need of humanitarian aid. Human Rights Watch says China has "generally tolerated" refugees from Kachin, but says they lack adequate water, food and other basic supplies. It also said Kachin people are routinely harassed by local authorities and exploited by Chinese employers. The group is urging China to provide temporary protection and allow humanitarian agencies "unhindered access" to the refugees. It also wants Beijing to adhere to international treaties that prohibit forced returns of refugees. At least 60,000 Kachin people have been displaced since June 2011, when fighting broke out between the military and the Kachin Independence Army, ending a 17-year ceasefire.
While China is allowing some refugees to stay until the violence ends, reports say at least 300 refugees have been detained or sent back to Myanmar. The Associated Press adds: The report said that while China has generally let Kachin refugees stay, it had ordered about 300 people in two groups to return to Myanmar about a year ago. In Beijing, Foreign Ministry spokesman Hong Lei said the report of refugees being turned back was inaccurate. He told a news conference that the refugees had entered China to escape the conflict and returned when it had ended. He said they had been provided with humanitarian assistance while in China. The refugees currently depend on limited support provided by local aid organizations, churches and a few small international organizations in southwestern China, according to Human Rights Watch. All of them are short of funding and resources. He said the Chinese government has been reluctant to send aid to the refugees because it didn't want to disturb its friendly relations with Myanmar's military, which still wields much power despite giving way to an elected, nominally civilian government last year.
According to the BBC, China is helping to mediate the conflict between the Burmese government and Kachin rebels: "The Chinese government has generally tolerated Kachin refugees staying in Yunnan, but now needs to meet its international legal obligations to ensure refugees are not returned and that their basic needs are met," Sophie Richardson, China director at Human Rights Watch, said in a statement. "China has no legitimate reason to push them back to Burma or to leave them without food and shelter." HRW based their report on more than 100 interviews with refugees and relief workers, among others.
The state of Kachin is also the location of the controversial Myitsone dam. Although China and Myanmar have strong ties, the Kachin refugees and poppy cultivation seem to be points of contention between the two countries. Reuters reports: A Yunnan province official said in March that authorities had been providing humanitarian help to the displaced and had helped mediate talks between the rebels and Myanmar's government. While China has strong business and trade ties with Myanmar, it has long looked with wariness at its poor and unstable southern neighbor, and has repeatedly called on the country to ensure stability along their vast and remote border. Chinese media on Tuesday cited police minister Meng Jianzhu as saying poppy cultivation in northern Myanmar had bounced back and that drugs were flooding into China from that part of the world, with heroin seizures up 55 percent in 2011 compared with the previous year. Diplomats say the conflict in Kachin state is one of the biggest tests for Myanmar's new civilian government's reform effort.
See also the full Human Rights Watch report Isolated in Kachin. Read more about China's relations with Myanmar, aka Burma, via CDT.
© Melissa M. Chan for China Digital Times (CDT), 2012. | Permalink | No comment | Add to del.icio.us
Post tags: human rights conditions, human rights watch, Myanmar, refugees, Southeast Asia, Yunnan
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| China Hails Space and Sea Exploits Posted: 26 Jun 2012 09:44 AM PDT While China blasts into space and dives into the sea, Chinese President, Hu Jintao, spoke to the astronauts and praised them for their successful docking mission. From Xinhua: Chinese President Hu Jintao came to the Beijing Aerospace Control Center on Tuesday and spoke with astronauts currently implementing the space mission aboard the conjoint Shenzhou-9 spacecraft and Tiangong-1 orbiter. The President was accompanied by senior leaders Jia Qinglin, Li Changchun, Xi Jinping and Li Keqiang. Hu extended his sincere greetings to the three astronauts, Jing Haipeng, Liu Wang and Liu Yang, China's first female astronaut. Hu praised the astronauts for their excellent performance in China's first manual rendezvous and docking mission, which showcased the country's full command of space docking technologies.
According to AFP, the conversation between Hu and the astronauts was broadcast on live television: "The smooth completion of the manual docking shows China fully grasps space docking technology," Hu said in a conversation with the astronauts that was broadcast live on state television. Beijing sees its space programme as a symbol of its global stature, growing technical expertise, and the Communist Party's success in turning around the fortunes of the once poverty-stricken nation. Jing Haipeng, who is leading the astronaut team, told the Chinese president that the three were in good condition after 10 days in space. State media said the spacecraft could return to earth on Friday. "Chinese astronauts have our own home in the space. We feel proud of our great country," Jing said, as the three astronauts dressed in blue jumpsuits stood to receive the call from Hu.
Aside from being congratulated by Hu, the astronauts also received greetings from the oceanauts from the Jiaolong submarine, but there have been mixed reactions from netizens. CNN adds: The three men on board the sub — dubbed oceanauts in China — sent greetings to the three astronauts on the Shenzhou-9 spacecraft. But some Chinese internet users, while lauding the achievements, questioned whether these exploits were the wisest use of China's new-found wealth. "Diving into the sea and flying out to space. China now can do them both," said one user of the Twitter-like portal Sina Weibo. "It marks the development of technology and we are proud of it. But can the government care more about its people's well-being too?"
From another Xinhua article, the astronauts also sent congratulatory messages to the oceanauts: Three Chinese astronauts succeeding in China's first manual space docking mission on Sunday congratulated over a new dive record set by the country's manned submersible in its exploration in deep ocean. "We wish China's manned submersible cause greater achievement! May our motherland prosper!" three Chinese astronauts said in a video message sent back to Earth from the Tiangong-1 space lab module.
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Post tags: Hu Jintao, Jiaolong, netizens, space exploration, space program
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| The Daily Twit (@chinahearsay links) – 6/26/12 Posted: 26 Jun 2012 08:05 AM PDT For me, today's big story was the continuing clusterf&#$ that is ChinaCast Education. The sordid tale involves all the things I enjoy talking about: US-listed Chinese companies, VIE corporate structures, multi-jurisdictional litigation, and executives behaving badly. Basically your average tale of China foreign investment woe. You can read my post here. As to the other newsish flotsam and jetsam . . . Reuters: China IPO Pipeline — a list of what's coming down the line. Good for reference. Xinhua: China to revise funds law to protect investors' interests, reduce financial risks — We're still in the early years of fund regulation, and the government has already discovered that a lot of shenanigans are going on, including illegal fundraising and insider trading. The new rules are designed to better protect investors and inject some stability into the system. Lots of other draft rules and regulations floating around at the moment because the government body that vets new laws is meeting this week. For example, the whole issue of expat passport/document control is still being tossed out as a legislative priority. A new set of draft rules was issued today — New proposals for foreign visitors. What worries me is the proposal to start collecting "biological data" on foreigners; I hope that just means fingerprints. While I do not believe that expat immigration control is a genuinely important legislative item, a new draft rule concerning seniors is certainly higher on the list, given the rapidly aging population and changing social patterns in China — China mulls amending law to protect seniors' welfare. Caixin: Regulator Announces Crackdown on Media Bribery — I guess the journo blackmail and threats have gotten out of hand, or perhaps the State Administration of Radio, Film and Television just wanted to remind media outlets who's the boss. Either way, I assume SARFT will find some folks to punish before long. The Diplomat: Is China a Bad Investor? — China has been buying a lot of energy resources from Burma, which is currently experiencing blackouts and other power problems. The Burmese are not happy with their government, but their criticisms are now starting to include China. China Economic Review: Local officials auction luxury fleets to pad finances — We knew that finances were bad for local governments, but this surprised me. It's hard to separate a local official from his Audi, so I guess times really are pretty tough. Bloomberg: China Scraps Trial Of Local Government Bonds, Studies Risks — Speaking of local governments' financial problems, Beijing has decided that debt levels are too high to allow localities to float their own bonds. For the time being, Beijing is going to manage that process itself. New York Times: A Weapon We Can't Control — If you're into cyberwarfare, you may find this article interesting. The article's subtitle, "Stuxnet Will Come Back to Haunt Us," pretty much tells you the the thrust of the argument. Certainly U.S. actions with Stuxnet make it easier for countries like China to continue their own cybersecurity programs, knowing that any U.S. criticism can be countered with a charge of hypocrisy. Xinhua: China to accelerate shale gas industrialization — More indications that China will be doing some big time fracking in the near future. Reuters: Angry Birds sweet-talk copycats in booming China market — Discussion of Rovio's China IP strategy, which can be summarized as "cooperation, not confrontation." They're trying to work with infringers instead of suing them. Good luck.
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| CDT Money: The Numbers Game Posted: 26 Jun 2012 05:47 AM PDT Last week's key data release signaled continued weakness for China's manufacturing sector, with HSBC's preliminary purchasing managers index (PMI) shrinking for an eighth straight month in June. Reuters reports that the 48.1 reading – anything below 50 suggests a contraction – is the lowest in seven months and matches a similar streak during the global financial crisis of 2008 and 2009. Input and output prices plunged to their lowest level in two years, writes The New York Times. The most troubling figure, export orders, slipped to its lowest level since March 2009. Even with Beijing having already taken steps in the second quarter to offset slumping exports and boost domestic consumption, including its first interest rate cut since late 2008, The Wall Street Journal reports that analysts believe the government still has more tools left in its policy arsenal: "There should be [another] cut in interest rates and in the bank-reserve ratio in July," said Sheng Hongqing, senior economist at China Everbright Bank. "The export situation is very difficult." Other economists were also anticipating more monetary policy moves ahead. "The government hasn't done enough in terms of policy easing," said Wei Yao, China economist at Société Générale.
A Reuters piece out Monday asserts that no bottom is in sight as China looks increasingly likely to miss its 2012 growth target. But as bearish as recent data appear, could the real situation on the ground actually be worse? In a New York Times piece over the weekend, Keith Bradsher points out that while doubts have persisted for years about the accuracy of Chinese economic data, this is the first time in several decades that a slowdown has coincided with a leadership change at the top of a Communist Party regime that has long-relied on economic growth for its legitimacy and social stability. As a result, local and regional officials with an eye toward promotion may be fudging the numbers: Record-setting mountains of excess coal have accumulated at the country's biggest storage areas because power plants are burning less coal in the face of tumbling electricity demand. But local and provincial government officials have forced plant managers not to report to Beijing the full extent of the slowdown, power sector executives said. Electricity production and consumption have been considered a telltale sign of a wide variety of economic activity. They are widely viewed by foreign investors and even some Chinese officials as the gold standard for measuring what is really happening in the country's economy, because the gathering and reporting of data in China is not considered as reliable as it is in many countries. … "The government officials don't want to see the negative," so they tell power managers to report usage declines as zero change, said a chief executive in the power sector. Another top corporate executive in China with access to electricity grid data from two provinces in east-central China that are centers of heavy industry, Shandong and Jiangsu, said that electricity consumption in both provinces had dropped more than 10 percent in May from a year earlier. Electricity consumption has also fallen in parts of western China. Yet, the economist with ties to the statistical agency said that cities and provinces across the country had reported flat or only slightly rising electricity consumption.
Accusations of financial fraud weren't only reserved for Chinese public officials last week, as one of China's largest property developers came under fire in a scathing research report rife with allegations of accounting irregularities, bribery and insolvency. Short seller Citron Research published a 57-page report on Thursday about Evergrande Real Estate Group, a Hong Kong-listed company whose property assets have grown 23x since 2006. The report calls out "at least 6 accounting shenanigans" used to hide an actual equity value well less than zero. From the report: Over the past 5 years, Evergrande has executed an untoward program of bribes aimed at local government officials in order to build its raw land industry. To finance growing cash flow shortfalls related to these bribes, subsequent land purchases, and related real estate construction activities, Evergrande has employed a complex web of Ponzi-style financing schemes. These schemes are characterized by a reliance upon perpetually growing pre-sales, off-balance sheet partnerships and IRR guarantees to third parties. Evergrande's business model is unsustainable, and is showing signs of severe stress. Management is working hard to cover-up the company's precarious and rapidly deteriorating financial condition. However, with presales and condo prices now falling rapidly, with its income statement and assets materially overstated, and with its off-balance sheet guarantees looming as more and more imminent liabilities, our analysis suggests that the cover-up has entered its final inning.
Evergrande's share price plunged following the report's dissemination, and the company denied the accusations in a brief statement to the Hong Kong Stock Exchange on Thursday while reportedly considering legal action against Citron. A number of global investment houses published on the incident and questioned the validity of the report, with some even reiterating their "buy" rating on the stock, a fact that Evergrande hurried to point out in a stronger statement on Friday titled ""Eight Famous Investment Banks Support Evergrande to Dispel Rumors Spread by A Short Seller." Reuters even reported that Evergrande had explored buying back some of its shares on the open market after the beating they took on Thursday, a move that aimed at further bolstering Still, the damage was arguably done anyway. At a time when Chinese companies are suffering perhaps their greatest crisis of credibility in years, Evergrande joins a list of scandal-ridden companies that includes names such as Sino Forest, ChinaCast Education and SinoTech Energy. The difference is that the others were small and obscure companies while Evergrande ranked 5th in market capitalization among Chinese property names before the report. Sino Forest was a junior county-level cadre to Evergrande's Politburo heavyweight. Sino Forest, ChinaCast and SinoTech were, however, listed in the United States, where Patrick Chovanec writes that regulators may have to forcibly delist every Chinese company unless they can reach an agreement with China on a satisfactory way to deal with fraud investigations going forward. While such a "nuclear option" is unlikely, Chovanec writes that few investors or politicians have seriously considered the possibility: Rather than assisting the SEC in its cross-border probes — as other countries regularly do — the China Securities Regulatory Commission (CSRC) has actively blocked the SEC's information requests, insisting that audit materials on Chinese firms fall under China's ambiguous yet draconian State Secrets Law. This April, when the SEC issued a subpoena to the Chinese arm of Deloitte, demanding the audit records of Longtop Financial (which collapsed last May after Deloitte resigned as its auditor), Deloitte refused, noting that the CSRC directly ordered them not to turn over such papers. The firm argued it could be dissolved and its partners jailed for life if they were to comply. In May, the SEC responded by initiating administrative proceedings to punish Deloitte China for violating its duties under the 2002 Sarbanes-Oxley Act. Penalties could include suspending the firm's authority to perform audits for US-listed companies, which are required under U.S. securities laws. Apparently similar subpoenas have been issued to each of the other "Big Four" global audit firms (E&Y, KMPG, and PWC), and have met with similar replies. There is a further complication. The Sarbanes-Oxley Act established the Public Company Accounting Oversight Board (PCAOB), a five-person body appointed by the SEC. Public accounting firms that wish to perform audits on US-listed companies must register with PCAOB, and PCAOB is required, by law, to conduct inspections of those firms. So far, Chinese authorities have refused PCAOB permission to inspect auditors based in China, including the local arms of "Big Four" global audit firms. Last month, it looked like PCAOB might have worked out a compromise that would let it observe Chinese regulators perform their own inspection, but the SEC action against Deloitte China appears to have derailed that plan. The stage is set for a deadlock with serious, potentially disastrous implications, as my fellow CPA and Peking University counterpart Paul Gillis describes in his blog: The PCAOB faces a December deadline to complete inspections of Chinese accounting firms that are registered with the PCAOB. It seems highly unlikely that they will meet this deadline, since Chinese regulators will not let them come to China. While the PCAOB could extend the deadline, they have already been under political pressure to act … Without resolution, the only meaningful option for the SEC, and the PCAOB, is for the PCAOB to deregister the firms and for the SEC to ban them from practice before the SEC. The consequence of those actions would be that U.S. listed Chinese companies would be without auditors and unable to find them. Having an auditor is a listing requirement of the exchanges, so under exchange rules the companies face delisting. The U.S. listed Chinese companies would be unable to file financial statements as required. That should lead the SEC to eventually deregister the companies with the SEC.
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Post tags: accounting, CCP 5th generation, coal, economic growth, electricity, Evergrande Real Estate, exports, fraud, GDP, hard landing, imports, leadership transition, PMI, sino-forest
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