The Sinocism China Newsletter For 09.28.12

"Sinocism is the Presidential Daily Brief for China hands"- Evan Osnos, New Yorker Correspondent and National Book Award Winner

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In Military conflict ‘looms’ between China and Japan, the Telegraph’s Malcolm Moore reports on tough talk about Japan from a prominent Chinese foreign policy scholar :

“There is a danger of China and Japan having a military conflict,” said Yan Xuetong, one of China’s most influential foreign policy strategists, and a noted hawk.

“One country must make a concession. But I do not see Japan making concessions. I do not see either side making concessions. Both sides want to solve the situation peacefully, but neither side can provide the right approach,” he added.

He warned that unless one side backs down, there could be a repeat of the Falklands Conflict in Asia.

We should not assume that Yan speaks with real authority, but his thinking is likely shared by many in the Chinese government. This territorial dispute with Japan is very different than the recent Huangyan Island/Scarborough Shoal one with the Philippines and as much as we may wish for a diplomatic solution the odds of a worse outcome are increasing.

US Secretary of State Clinton has called for cool heads in the China-Japan island dispute (Reuters), a Ministry of Defense spokesman confirmed naval patrols near Diaoyu Islands (Xinhua), China slammed the Japanese PM’s obstinacy regarding his wrong position on Diaoyu Islands (Xinhua), the unsettled domestic politics in both countries risk prolonging the worst tensions since 2005 (Bloomberg) and a China official says the spat with Japan has derailed free trade talks (Reuters).

Jia Qinglin met with a Japanese delegation led by a retired politician and called on Japanese people to help put ties back on track (Xinhua). CCTV showed the meeting as the number two story on its Evening News broadcast, with a narration lambasting Japan.

The Global Times reminds us of the resources at stake in the Diaoyu Islands fish are Chinese:

Declining fishery resources close to shore and rising costs have prompted fishermen to sail to the resource-rich waters, despite facing potentially higher risks caused by the overlapping claims made by China and Japan.

Before 1996, the waters close to shore were abundant with fishery resources. However, overfishing and environmental degradation have left the area almost barren. Even the most experienced fishermen may come home empty-handed.

The fish left there are so small that some fishermen have to overlap two fishing nets, only leaving spaces for sand to sift through. The fish they net could only be produced into feed, which is hardly enough for them to make a profit.

Isaac Stone Fish has an interesting post at Foreign Policy examining China’s abysmal record of keeping its territory:

With the amount of attention the island’s are getting and China’s changed place in the world, it’s extremely unlikely Beijing  will yield on the Diaoyus, or to its claims in the South China Sea. Perhaps the memory of past failures will lead to more resolute defense of the current disputes. But it’s worth remembering that despite the bluster, China certainly has given up “sacred territory” in the past.

China’s Shanghai stock market was not concerned Thursday by either the tensions with Japan or that Chinese industrial profits fell 6.2% in fifth consecutive drop (Bloomberg). Shares jumped the most in three weeks on market support prospects (Bloomberg) and rumors of support from a meeting of the stock regulator (Reuters). The government wants the market to go up, and absence massive liquidity injections it will keep trying things on the margin, like considering cutting related duties on share trading (Caijing), something that popped the market in the past.

Shorts should be careful, as sentiment seems almost uniformly bearish and in addition to possible stimulus measures we may see very positive statements from Xi Jinping as soon as the 18th Party Congress concludes, possibly in the next two weeks. Traders all know you do not “fight the Fed”. They might also want to not “buck Beijing”.

China is on vacation for a week starting this weekend. I will be posting sporadically. There may be some political news, as rumors are going around of a Politburo meeting today, then the final Plenum of the 17th Party Congress, then the 18th Party Congress right after the holiday (People’s Daily has already launched a special site for the 18th Party Congress). So within two weeks+ we may officially have a new leader of China and an announcement of progress in the Bo Xilai case. 

Today’s links:


Interview: China’s growth to slow down but still to benefit world economy: Financial Times commentator – Xinhua – Martin Wolf// He expects the Chinese government’s role as a central organizer of production to diminish gradually, while its role in other aspects, like a provider of regulation, public services and public consumption in health care, welfare and education, would strengthen.”I’m not advocating a complete liberalization of economy or the financial sector. I don’t think capital control should be abolished, either. What I’m saying is that the Chinese government needs to have a reformed role, not a smaller but a different one,” he said.

Harsh Words for Fed From Beijing, Seoul – – good luck. who will trust the RMB when your leader disappears, all your data are questioned and the possibility of regional skirmishes seems to be increasing?// Chinese and South Korean central-bank officials criticized the U.S. Federal Reserve’s latest easing efforts and advocated reducing Asia’s dependence on the U.S. dollar. The comments Thursday, at a joint seminar in Beijing by the two central banks, are the clearest indication yet of a rising backlash in Asia against U.S. monetary policy, suggesting it could speed up the search for alternatives to the dollar as the main global currency.

As Cotton Surged, China Trader Amassed $510 Million Bet–HedgeWorld – A landmark U.S. fine for excessive speculation in the benchmark cotton futures market has revealed a startling new dimension to last year’s blistering winter price rally: the biggest bull was a Chinese trader with a $510 million punt. A little-known Shanghai firm called Sheenson Investments Ltd. and its founder Weidong Ge, a former trader at China’s vast state-owned agriculture trading company COFCO, have agreed to return $1 million in ill-gotten gains and pay a $500,000 civil penalty for exceeding federal limits on speculative bets in soybean oil and cotton futures, the U.S. Commodity Futures Trading Commission said on Tuesday..Shanghai Chaos Investment, one of his funds named by the CFTC, declined to comment.

Chinese Slowdown Idles U.S. Coal Mines – – Slowing growth in China is taking a brutal toll on Appalachian coal mines and coal towns. Appalachia has one of the world’s richest deposits of high-grade coal used to make steel. Thanks to Chinese demand, the price for premium metallurgical coal, whose low-ash and low-sulfur content makes it ideal for steelmaking, hit a record $330 a metric ton in early 2011.

China’s Baosteel suspends production at loss-making plant | Reuters – suspended production at a loss-making plant in Shanghai, in a sign of the intense pressure on the sector as steel prices trade near three-year lows. The steelmaker is one of the first major Chinese mills to publicly announce it is suspending production

China’s Rebalancing Act by Yu Yongding – Project Syndicate – the IMF underestimates China’s progress in rebalancing. In my view, China’s rebalancing is more genuine – and more fundamental – than the Fund recognizes, and the prediction of an eventual rebound in China’s external surplus/GDP ratio will most likely turn out to be wrong.

MNCs and VIEs | China Accounting Blog | Paul Gillis– Amazon’s financial statements make mention of VIEs, but do not include the required disclosures of financial information about the VIE that would allow readers to understand the significance of VIE operations. These disclosures were presumably omitted because they were considered immaterial.  Investors and the SEC should be pressing MNCs that are doing business in China about their use of VIEs. Where companies use VIEs, the decision about disclosure should be based on what investors think is material. I expect most investors want more information in this area.

Nike hits China roadblock, shares fall | Reuters – “The (Chinese) consumer is becoming more discerning and sophisticated. At the same time the economy seems to be slowing, creating short-time challenges for retailers,” Charlie Denson, president for the Nike brand, said on a conference call with analysts… Nike, which already had some excess inventory there, is finding it difficult to tackle intense competition and frequent promotional sales by local brands, while distributors and retailers are wary of the economy.

PBOC Adviser Says Easing Restrained by Concerns on Homes – Bloomberg – That concern is “a big restraint,” Chen Yulu, president of Beijing’s Renmin University, said yesterday to reporters after speaking at a forum in the city

Japanese Car Plants in China: Who’s Feeling the Heat? – China Real Time Report – WSJ – All Japanese cars made in China are produced at joint-venture factories owned on a 50-50 basis with Chinese partners. When the plant doors close, Chinese executives who run those joint ventures will immediately confront two frightening realities: a dramatic drop in revenue and tens of thousands of idle workers.

China underestimated global slowdown, key to rates: central bank adviser | Reuters– Chen Yulu, a professor at China’s Renmin University and an academic adviser to the monetary policy committee of the People’s Bank of China (PBOC), was speaking to reporters on the sidelines of a conference in the capital on global economic conditions and capital flows. “We have indeed underestimated the severity of the external economic situation,” Chen said, adding that the global economy could remain sluggish for an extended period.

上班路遇“闹工潮”_王彩霞_博联社 – 5,000 workers in Beijing owed 9 months back pay? Pictures of them on the streets in Fengtai earlier this week//

龙头房企加速布局养老地产 新华社——经济参考网 – leading real estate firms getting into projects for retirement communities//

土地、住宅限售楼市调控“再从紧”?_财经频道_一财网 – 在中欧国际工商学院第三届中国房地产业高峰论坛上,包括全国人大财经委副主任委员吴晓灵在内的诸多学者都认为,目前已陷入僵局的房地产市场需要做出一些改变了。



China in Focus #9: Snippets of Chinese Political History – All Things Nuclear– While the recent nationalist demonstrations appear orchestrated, my own experience living and working in China over the last twenty-three years suggests the sentiments being manipulated are sincerely held. Youth does not guarantee a progressive political outlook in China, or any other part of the world, including the United States. U.S. interest in China’s political future is understandable, but our benchmarks for assessing the pace and direction of political change in China may need an overhaul.

China’s Leadership Quandry for Luxury – China Real Time Report – WSJ – One Beijing based salesman from a major luxury goods importer who spoke to The Wall Street Journal summed up the problem facing the sector: “Sales are down because no-one knows who to bribe.”

Heywood conviction unsafe, warns top Chinese forensic scientist | – Wang Xuemei casts doubt on theory British businessman was murdered with cyanide by wife of ousted leader Bo Xilai

综治委变身一年考_政经频道_财新网 – “中央社会治安综合治理委员会”更名为“中央社会管理综合治理委员会”一周年,发生了s变化//translated in next item

Stability Agency Rises in Stature – Caixin – Once known as the Central Committee for Comprehensive Management of Public Security, the agency was renamed last year as the Central Committee for Comprehensive Social Management. It has recently assigned more provincial heads to lead local branches and underwent revisions to its scope of responsibilities.

Society Lost – China Media Project – where does Chinese society and its development fit into the overall picture of political change in China?..The chances are perhaps miniscule, but we must ask: Will we be completely surprised by the appearance in the political report of the term “civil society”?

人民日报-“观点多元”也不应“胡言乱语”(人民论坛) – People’s Daily goes after “irresponsible” discussion on microblogs, especially by “public intellectuals”//

China-Bashing in the Campaign Could Backfire – Bloomberg – Bloomberg View goes soft// There are plenty of historical analogies about China’s remarkable rise, some of which lead to more alarming predictions than others. At this critical juncture, the best way to keep the worst from coming true is to cut China some slack.

Chinese Artist Ai Weiwei After Tax Appeal Rejection: I Won’t Pay – China Real Time Report – WSJ– Artist Ai Weiwei said he would refuse to pay the remainder of a $2.4 million fine for tax evasion after a Beijing court rejected his appeal on Thursday, setting the stage for another possible showdown between the media-savvy dissident and Chinese authorities… “We’re not going to pay the fine because we don’t recognize the charge,” he said. “And I think they’re probably too embarrassed to come and ask for it.”



All-Chinese jets to serve on nation’s first carrier — Shanghai Daily – However, domestic military officials and analysts are predicting that Chinese J-15 fighters, which they say are a match for US F-18 Hornet fighters, will be used as many photographs had been published showing the plane on the Liaoning’s deck.

In pictures: East China Sea Fleet conducts attack-and-defence drill – Xinhua | –

China dismisses reports about second aircraft carrier – Xinhua | – China’s Defense Ministry spokesman Yang Yujun on Thursday dismissed foreign media reports saying that China is building a second aircraft carrier in Shanghai and it will be launched late this year.

DM defends China’s South China Sea drones – Xinhua | – A Chinese Defense Ministry spokesman said on Thursday that the country’s use of drones, or unmanned aerial vehicles, over Huangyan Island, the Nansha Islands and their adjacent waters is “justified and legal,” and warned that China opposes any military provocation in the South China Sea.

Taiwan wades in: Water-gunfighting | The Economist – The answer, says George Tsai, a political pundit with Taipei’s Chinese Culture University, is a simple case of international gamesmanship. Taiwan hopes to force Japan’s hand in upcoming negotiations over fishing rights. The president of the unofficial body that represents Japanese interests in Taipei (in the absence of diplomatic ties), Tadashi Imai, arrived on September 25th for a scheduled discussion with Taiwan’s foreign minister, Timothy Yang, over the rights of Taiwanese to fish in waters claimed by Japan.

Research Center for Chinese Politics & Business–Rule Takers to Rule Makers: The Growing Role of Chinese in Global Governance – The Research Center for Chinese Politics & Business (RCCPB) and the International Centre for Trade and Sustainable Development (ICTSD) are proud to jointly issue a study that analyzes the policy implications of growing Chinese involvement in global governance. Edited by the RCCPB’s Scott Kennedy and the ICTSD’s Shuaihua Cheng, From Rule Takers to Rule Makers presents 12 commentaries on the growing participation of Chinese in several arenas: international trade, finance, climate change, labor, public health, and foreign aid. The short chapters (2,500-3,000) words distill research first presented as working papers in the RCCPB’s Initiative on China and Global Governance.



Facebook Tops 63 Million Users in China Despite Ban, Report Says – Bloomberg – really? very skeptical of this figure//

Gaming the System: A New Breed of Sino-foreign Film Co-productions | China Hearsay – Companies will try just about anything to pry open a market. At the margins, some of their more creative attempts can lead to spectacular opportunities, while others can end in slapdowns from the regulatory authorities. It looks the latter scenario for some foreign film studios and their “co-productions.”



Priceless Tibetan Buddha statue looted by Nazis was carved from meteorite – carved from a meteorite which crashed to the Earth 15,000 years ago, according to new research.



Sinopec in sewage dump controversy – – A subsidiary of the nation’s oil refinery giant Sinopec has been found to have been discharging industrial sewage through flood channels into a nearby river in Guangdong Province, State broadcaster CCTV reported. The China Petroleum & Chemical Zhanjiang Dongxing Company has been circumventing environmental inspections by pumping unprocessed sewage through flood tunnels into the Nanliu River without treating it, according to the report aired Wednesday.



Downturn? Not in first class, say China’s globetrotting shoppers | Reuters – “If you look at your affluent Chinese overseas, they are your tourist, your shopper, your investor all in one,” said Christine Lu, co-founder of Affinity China, a Shanghai-based luxury travel firm. “Even though there is all the talk of a slowdown in China, the luxury sector we are dealing with is a segment that can still afford to travel,” Lu said… 52Safari, a hunting club that caters to wealthy Chinese, is also having a good year. Scott Lupien, the club’s American founder, will run three hunting tour groups this holiday. One couple, heading to the U.S. state of Utah for an elk hunting trip, is paying 250,000 yuan ($39,600).

Affinity China –

52Safari–我爱狩猎俱乐部-狩猎,打猎,打猎网站,国外狩猎,南非狩猎,南非打猎,狩猎团,标本,卢彬,卢彬打猎,卢彬狩猎,猎场 – –

Gifts in China: what to give, what to avoid (infographic) | Illuminant. –

Beijing Subway line 6 to start operation by year-end – China News – SINA English – will parallel to line 1, few hundred meters+ north of it. CBD will not have 3 lines–10,6 and 1.



NO ANCIENT WISDOM,NO FOLLOWERS: The Challenges of Chinese Authoritarian Capitalism: James McGregor: Amazon – James McGregor has spent 25 years in China as a businessman, journalist and author. In this, his latest highly readable book, he offers extensive new research that pulls back the curtain on China’s economic power. He describes the much-vaunted “China Model” as one of authoritarian capitalism, a unique system that, in its own way, is terminating itself. It is proving incompatible with global trade and business governance. It is threatening multinationals, which fear losing their business secrets and technology to China’s mammoth state-owned enterprises. It is fielding those SOEs – China’s “national champions” — into a global order angered by heavily subsidized state capitalism. And it is relying on an outdated investment and export model that’s running out of steam.

Tackling the Many Dangers of China’s State Capitalism – – If the U.S. needs another wake-up call, it will get one this week with the publication of a bracing account of the danger that China’s state capitalism poses to global business—and to China itself. James McGregor’s new book, “No Ancient Wisdom, No Followers: The Challenges of Chinese Authoritarian Capitalism,” dissects the complex policies and state structures that produced China’s novel system

The Rise of China vs. the Logic of Strategy: Edward N. Luttwak: – As the rest of the world worries about what a future might look like under Chinese supremacy, Edward Luttwak worries about China’s own future prospects. Applying the logic of strategy for which he is well known, Luttwak argues that the most populous nation on Earth—and its second largest economy—may be headed for a fall.

The best way to see this daily post is to subscribe by email, especially if you are in China, as Sinocism is blocked by the GFW. You can also follow me on Twitter @niubi or Sina Weibo @billbishop