Elite Chinese Politics and Political Economy

According to the rumor mills in Beijing, it seems that current PBOC assistant to the governor Hu Xiaolian will become the head of SAFE. I was pretty wrong in a previous posting, where I did not even consider Hu as an alternative. Frankly, I simply could not find her CV because the PBOC website, UNLIKE MOST OTHER GOVERNMENT UNITS, does not publish the CVs of senior PBOC officials. Nonetheless, this move was somewhat surprising. At a time when foreign exchange is such an important issue for the regime, it is rather surprising that they actually promoted someone from a lower level instead of rotating someone at the same level. If I am correct, the assistant to the governor is a Si (departmental) level position, not a vice-ministerial position, as the vice-governor post would be, and the head of SAFE is a vice-minister. Granted, most assistants to the governors go on to do great things. The leadership probably chose Hu Xiaolian because of her years of experience at SAFE and, as I point out in a previous post, all major decisions must go through the Politiburo Standing Committee anyway.

But also, she had the right advisor in graduate school! Hu is clearly on a fast-track upward. In the past year alone, Hu went from being the vice head of SAFE to being vice-head of SAFE and the Central Huijin Company taking charge of CCB and BOC. Within a few months, she was rotated to the PBOC to serve as assistant to the governor. Now, she finds herself a vice-minister in charge of SAFE. Like Wu Xiaoling, current vice governor of PBOC and former director of SAFE, Hu Xiaolian graduated from the PBOC graduate school in my old neighborhood, Wu Daokou (just next to the Beijing Foreign Language Institute in Haidian). The founder and president of the school is none other than Liu Hongru, arguably the creator of the modern financial system in China. He pushed for the Big Four state banks to split off from the PBOC in the early 80s and was the single most important force behind the creation of China's stock market. In the 80s, he founded the PBOC Graduate School which trained a cohort of financial experts who are now taking the rein all over the financial sector. In the recent round of shuffle, another one of his students, Tang Kui, just became the head of the PBOC Research Department. His other students include Xia Bin (current head of the finance institute at DRC), and Wei Benhua (vice head of SAFE). With Wu Xiaolin likely to get a promotion some time soon and Hu Xiaolian on a fast-track upward, Liu, though now 75, is likely to have a continual influence in financial development in China in the coming decades.


UPDATE 3-EXCLUSIVE-China to name central banker as forex boss.

By Kevin Yao and Shen Yan
597 words
25 March 2005
04:25 am
Reuters News
English

(c) 2005 Reuters Limited

BEIJING, March 25 (Reuters) - Central banker Hu Xiaolian will be named China's top foreign exchange regulator, taking over the running of the country's massive currency reserves and steering planned forex reforms, a government source said on Friday. Hu, one of three assistant governors of the People's Bank of China, will replace Guo Shuqing, who was confirmed on Friday as the new chairman of scandal-hit China Construction Bank. "A formal appointment is expected to be announced next week," said an official at a key government agency who declined to be identified. Hu is widely regarded as a top expert on currency management because of her experience at the forex regulator, the State Administration of Foreign Exchange (SAFE). The 46-year-old served as vice chief of the regulator from 2001 until August last year, when she went to the central bank. Although the central bank is in charge of China's currency policy and the cabinet has the ultimate say, SAFE is instrumental in pushing reforms to make the yuan more flexible and eventually fully convertible, analysts said. Investors and governments worldwide, especially in China's neighbouring countries, are keenly interested in when and how the yuan will be moved away from its current peg to the U.S. dollar. A stronger yuan would make Chinese exports more expensive in overseas markets. A Chinese economist close to the central bank said Hu was widely seen as a rising star in the financial industry. "She had won praise at SAFE and the cental bank governor Zhou Xiaochuan has confidence in her," the economist said. Analysts said the reshuffle was unlikely to affect Beijing's step-by-step currency reforms, even though Guo, the top forex regulator since 2001, had been a central figure in yuan policy. GUO MOVES Guo took up the chairmanship of China Construction Bank , the country's top property lender, on Friday, replacing former chairman Zhang Enzhao, who resigned after a storm of corruption allegations last week, state media said. Zhang resigned for "personal reasons" amid allegations he had taken kickbacks. A Beijing-based company has accused him in a civil suit in a U.S. court of taking a $1 million bribe from a U.S. company seeking to sell software to the bank. This latest scandal to hit China's top banks has cast a shadow over China Construction Bank's efforts to sign up foreign strategic investors ahead of an overseas listing tipped to raise anything from $5 billion to $10 billion. The bank is still hoping to list this year, the official Xinhua news agency said. "The appointment of Guo Shuqing as chairman of China Construction Bank will have a profound effect on the bank's reform and internationalisation," the agency reported. Beijing is scrambling to shore up a creaky financial industry that is saddled with more than $200 billion in bad loans and will face intensifying competition once the market is opened wider to foreign players at the end of 2006. A spokesman at the cental bank declined to comment on the reshuffle. Hu's August appointment as an assistant central bank governor was was one of a series of promotions of younger, well-trained officials that analysts said would help the central bank embrace more market-based policies for managing the economy. China's foreign exchange reserves jumped by more than $200 billion last year to hit $610 billion. They are the world's second-largest, after Japan's.

Beijing-based "political economist" Laurence Brahm came out with a surprisingly criticial editorial at the SCMP. It details audits and inspections carried out by the CBRC and the NAO, which discovered hundreds of billions in illegal loans. It also details asset stripping carried out by the AMCs. In truth, is anyone surprised by the asset stripping? The AMCs were given an impossible mandate to begin with--they had to buy NPLs at face value and recover as much as 20%. Even when I interviewed AMC officials in 2001, they showed an incredible amount of cynicism about what they were suppose to do. One AMC official pointedly told me that he was there to make as much money as possible and would get out before AMC had to tackle the really bad assets, which is worth essentially zero. Because AMCs bought bad assets at face values, banks also saw the AMC as a perfect way to get rid of their NPLs. This is especially the case since Zhu and now Wen forced unrealisitic NPL reduction quotas on them. Officials at the banks and AMC shuffle papers to fulfill unrealistic quotas, while everyone tries to get a piece of the action by either making illegal loans or selling state assets at below-market prices.


Tuesday, March 22, 2005

LAURENCE BRAHM
Solution now part of the problem

China's financial institutions are rotten, spread with cancerous problems of illegal lending and embezzlement of state and depositor funds. The problem runs from the state-owned top commercial banks right down to local credit unions and even postal deposit bureaus. Exacerbating the problem are the four state asset-management companies. Set up in the late 1990s to clear the state commercial banks' books, they have become an integral part of the feeding frenzy, as corruption sets in there, too.

The sheer size of the problem in China's financial institutions is shocking, and is eating at the very root of the nation's financial and social stability, threatening to derail a decade of economic reforms.

Last year, the China Banking Regulatory Commission despatched 16,700 teams to investigate just how much the situation had really deteriorated from 2003. Shockingly, they uncovered 584 billion yuan in illegal funding by banks and financial institutions, compared to the 407.2 billion discovered the previous year. Altogether, 2,202 financial institutions were implicated in the commission's investigations, involving 4,294 officials and staff. Yet only two banks with foreign investment were found to have problems.

Among the four asset-management companies established to dispose of non-performing loans in the key state commercial banks, the State Audit Office recently confirmed that 38 cases of embezzlement and fraud had been discovered, totalling 6.7 billion yuan.

The commission says that irregularities were found in the management and disposal of non-performing loans, which involved asset stripping, illegal asset disposals, insider trading and bogus auctions and tenders.

Auditor-General Li Jinhua revealed that these companies had colluded with the banks in what amounts to massive asset stripping. The banks were pressured a year ago by Premier Wen Jiabao to reduce their non-performing loans. They did this through a charade of excessive new lending and collusion with the asset-management companies to strip out bad loans and financial burdens. This massive cover-up to evade responsibility for the bad loans racked up through corruption and self-interest has, arguably, only made matters worse.

In turn, the asset-management companies engaged in what the authorities have identified as "bleeding state assets" by fraudulently selling them at bargain prices. This, of course, stimulated last year's gold rush of foreign investment banks to Beijing to purchase discounted assets and repackage them. What a year ago was "flavour of the month" for investment banks and fund managers is now a national scandal.

Adding fuel to the flames, the proceeds from these fire sales were then falsely reported. Some asset companies even went as far as engaging in the bogus sale of assets which did not belong to them. Others diverted funds from the sales into inflated salaries and bonuses.

These cases draw into sharp focus the inability of the state to control an unravelling situation. While talk of financial reform sounds nice at international conferences, it cannot be implemented in practice. Every branch of every local bank operates as an independent fiefdom, giving loans to projects and enterprises supported by officials who often behave more like mafia members than government employees.

It is, therefore, hardly surprising that central banker Zhou Xiaochuan deftly described China's US$609.9 billion in foreign reserves as "normal". In the end, a large portion may be needed to bail out a system in a cyclical frenzy of embezzlement and waste. The question is: how much of the new prosperity is simply a function of officials raping the national coffers? The fate of China's economic successes lies in the hands of the same officials who should be working to resolve the problems.

Laurence Brahm is a political economist and lawyer based in Beijing.

A new friend from Germany asked me about the budgetary process in China, here are some quick replies, which, hopefully, are somewhat accurate.

The budgetary process is complicated, but not a total mystery. Basically, the MOF puts together the budget after soliciting expenditure requests from the various ministries and provinces. The ministries receive a spending limit while the provinces receive a central transfer limit each year. The MOF makes a budget also based on the expected central revenue collected by the State Administration of Taxation and State Administration of Customs. Estimating tax collection has been made easier since the centralization of the taxation system in 1994. The "irregular" part of the budget compose of earmarked grants ("zhuanxiang") that the MOF gives out to both ministries and local governments. The maglev train received both MOF zhuanxiang grants and supplementary (peitao) loans from the state banks. Most zhuanxiang projects require SDRC (formerly SPC) approval, but I think mililtary zhuanxiang goes through a different process. If local governments want to apply for a zhuanxiang, they would have to first lobby the SDRC. Upon SDRC approval, the MOF would "implement" (luoshi) this project, along with state bank loans.

Someone asked me who the next head of SAFE would be. I don't really know, but I will assign some probability:

It’s really anyone’s guess. The most obvious candidates are current PBOC vice-heads, especially Wu Xiaolin (30%) and Su Ning (20%), and perhaps Li Ruogu (20%). I would give slightly better odds on Wu, who is a favorite of Zhu and who can really use a boost in her resume. The other possibility is to choose one of the vice heads of SAFE. Of those, Wei Benhua(10%) has the most international experience, as he represented China at the IMF for several years. The other possibility is Deng Xianhong(10%), who is part of the Tigaiwei mafia. Essentially, in the late 80s and early 90s, a group of young researchers who worked at the Tigaiwei are now pretty powerful, including Guo himself. The weakness of these two is that they don’t have Ph.Ds, which is increasingly a prerequisite for a top technocrat these days. There is an outside chance that one of the vice-presidents of BOC or CCB will be elevated, but I wouldn’t know who (10%)。

A bit more on picking Guo. It is rather surprising that Guo was picked, since two other leading technocrat at Guo's level played an even more important role in preparing BOC and CCB for the IPO. They are Tang Shuangning (current vice head of CBRC) and Li Ruogu (current vice head of PBOC). Tang Shuangning sat on a top level working group specializing on the IPO issue and presumably knows CCB quite well. Li Ruogu, likewise, has made serious study of the impending IPO for the two banks. Given their expertise, they would have been ideal candidates to shepard CCB through the IPO process. Guo's choice, as I say in the previous posting, stems from both Zhu's influence and the fact that he is internationally well-known.

We heard earlier this week that Zhang Enzhao, the Chairman of China Construction Bank, was stepping down due to alleged corruption. While that has become the norm at CCB, whose former president was also indicted of graft (Wang Qishan), the current choice of bank party secretary (meaning he will also serve as chairman) is unusual. Instead of appointing another banker, the party has decided on Guo Shuqing, a technocrat who has never worked a single day in a commercial bank. Clearly, the State Council wants to establish some degree of credibility at the CCB before the planned IPO. If that is the regime's purpose, Guo will likely be a trouble-shooter who cleans house and steers CCB through the IPO process before moving on to another post. I believe that appointing Guo, a well respected technocrat who runs China's foreign exchange policy, will provide the stability needed to weather the IPO. Nonetheless, there are several interesting points about this appointment.

1. It is rather sad that the central government would need to appoint someone with no banking experience to assure potential investors. Instead of Guo, they also could have assigned someone with more banking experience, like Wu Xiaolin, or better yet, someone in the commercial banking sector. Apparently, the leadership does not trust any banker 100% as it trusts Guo.

2. Relatedly, the choice of Guo is rather strange, since again, he has no banking experience and also it would be a step down for Guo from his current post of foreign exchange czar. Though nominally a step down, becoming CCB's helmsman through the first IPO of a major state bank can add an important zhengji (administrative merit) to Guo's resume. Building up points is more difficult at the State Administration of Foreign Exchange since everyone knows that any major policy needs to be approved by the State Council, and he has been stuck with the thankless task of preventing hot money from flowing into China, which only earns him the ire of local officials in the coastal provinces. If he successfully shepards CCB through the IPO, he will go down in PRC economic history books.

3. The final question is who maneuvered him into this choice position at this opportune time. As I speculated before, I think Zhu Rongji has an active hand in this, although I am sure Wen Jiabao is playing right along. First, Zhang Enzhao had been a long-time banker in Shanghai where he no doubt cultivated deep ties with senior Shanghainese officials, including both Wu Bangguo and Huang Ju. By removing him, it weakens Huang Ju's hold over the financial sector and might be part of the on-going struggle between Hu-Wen and Jiang's faction. Even if we ignored the broader political context, Guo has always been one of Zhu's favorites, which resulted in his rapid rise through the State Commission for Restructuring the Economy bureaucracy in the 90s and eventually into the PBOC. By giving Guo this assignment, Zhu positions Guo to become a minister by the 17th PC (perhaps Zhou's replacement at the PBOC once Zhou gets a promotion into the State Council) and perhaps a vice premier by the 18th PC.

Should investors be happy? In the short-term, Guo's appointment virtually guarantees that the IPO will go forward and that red-tape will be cleared. In the long-run, however, it is worrisome that a career government official, instead of a career banker, is needed to assure investors. Should investors invest in a company whose stability and profitability depend on government intervention?

Beijing Taps Regulator as Head
Of China Construction Bank

By ANDREW BROWNE IN HONG KONG and J.R. WU IN SHANGHAI
Staff Reporters of THE WALL STREET JOURNAL
March 18, 2005

Seeking to limit the damage to its second-largest lender ahead of an overseas listing, China named its top foreign-exchange regulator to become that bank's powerful Communist Party chief after the departure of its chairman under a corruption cloud.

A notice on the Web site of China Construction Bank said Guo Shuqing, now charged with looking after China's $610 billion in foreign-exchange reserves, would take the party job, putting him in charge.

There was no word on whether Mr. Guo would assume the position of chairman vacated by Zhang Enzhao, whose abrupt departure was announced Wednesday. But in China's bureaucratic hierarchy, which includes state enterprises, the top Communist Party official outranks all others. In big state banks, the chairman and party secretary are the same person.


Mr. Guo, director of the State Administration of Foreign Exchange, is also a vice governor of the People's Bank of China, the central bank. By putting one of the country's most senior financial regulators in control of the bank, Beijing is giving a clear signal it intends to tighten controls and improve management. At the same time, China clearly wants to send a reassuring message to foreign investors ahead of China Construction Bank's planned stock-market listing this year in Shanghai and Hong Kong aimed at raising up to $10 billion.

Officially, Mr. Zhang resigned for "personal reasons," though the official Chinese media Thursday suggested for the first time that he may be in trouble. The Economic Daily said management changes at China Construction Bank should serve as a warning to officials of state banks not to abuse their powers. The "problems" exposed in the bank's management should alert state banks against any abuses, the report said, quoting an official at the China Banking Regulatory Commission. In the report, the official didn't elaborate.

Industry executives familiar with the situation say Mr. Zhang is being held in a Beijing guesthouse while authorities investigate an alleged graft scandal.

Beijing can take no chances with Mr. Zhang's successor. Mr. Zhang took over after the bank's previous head, Wang Xuebing, was fired in 2002 and jailed in 2003 for corruption charges stemming from his previous career at Bank of China, another big state bank.

The irony is that while China's banks are being pressed to become world-class commercial enterprises, the Communist Party still makes all the important personnel decisions, a legacy of the planned socialist economy when banks acted as cashiers of government, disbursing funds to state-owned enterprises.

"The central [party] decision to assign Comrade Guo Shuqing to work at China Construction Bank shows the high attention paid by the central [party] to the bank's work," the Web statement said. The comment was attributed to bank President Chang Zhenming, who took over as temporary chairman after Mr. Zhang's departure.

Making Mr. Guo the bank's party chief has "very important meaning" for stabilizing the bank and guaranteeing the orderly development of its shareholding reform and other work, the statement said.

The central bank now has an iron grip on both China Construction Bank and Bank of China, which also is seeking an overseas stock-market listing this year. A company under the People's Bank of China owns virtually all the shares in both banks after injecting capital of $45 billion into the state lenders to allow them to unload piles of bad debt.

Both banks are wooing the world's biggest financial institutions as "strategic partners" ahead of their listings. They are hoping to secure investments of hundreds of millions of dollars, as well as valuable management know-how. But industry analysts say the latest scandal could reduce the price potential investors are prepared to pay by heightening their fear of risk. Some also say developments could delay the listings.

Top Chinese officials have publicly expressed irritation and impatience with the pace of overhauls at the country's banks and questioned the competence of top bank executives. Fixing the country's debt-laden banks by putting in place modern risk management and credit controls is vital to the health of the bank-dominated financial system.

Bringing Mr. Guo over from the State Administration of Foreign Exchange could potentially unsettle financial markets at a time when speculation is swirling about a change to the country's system of fixed exchange rates.

Surging capital inflows, some speculative, are making it hard for Chinese authorities to hold inflation in check. Expectations are growing that Beijing will seek to relieve the upward pressure on money supply by making its exchange rate more flexible. Mr. Guo has been quoted as saying in the past few weeks that changes to the foreign-exchange system are on the way, without suggesting any timetable.

Write to Andrew Browne at andrew.browne@wsj.com and J.R. Wu at jr.wu@dowjones.com

So a reporter asked me who approves stock listings in China and whether any particular underwriter has the market cornered (like CICC). Of course, I am only taking a page from what I hear from my friends Matt and Stephen, but below are my attempts to answer these questions:

Unfortuantely, the IPO process in China remains extremely murky. In the case of an SOE IPO, the CSRC and the State Asset Supervision and Administration Commission (SASAC) both conduct "due diligence" in addition to the underwriters. If the SOE is formerly controlled by the local government, it needs approval and support by the local government, which lobbies the CSRC on behalf of the company. If the company that wants to list is controlled by a ministry (like a major bank), then the central ministry will lobby for the IPO and have a say over the underwriter. In a recent case, the planned IPO of the Bank of Communication, for example, will go to China Galaxy, Goldman Sachs, and HSBC. The State Council and the PBOC had a say over who the underwriters would be. In this case CICC will not be involved, even though it is expected to be a major offering.

CICC is by no means the only player, as many western and domestic ibanks lobby the CSRC to get the next IPO deal. Goldman, for example, paid an ungodly sum to start an ibank joint venture in China. Citibank and Deutsche Bank are likewise very aggressive. One should also remember that the domestic ibanks (like Nanfang Securities) are run by people who used to be government officials, so they have an inside track with the CSRC and other agencies. Because the network of personal relationship is so dense and complex, you are unlikely to see a dominant player emerge in the near future. All the lobbying (i.e. wining and dining) will only get you a slice of the action, but not the entire pie. I think CICC had an advantageous position in the mid to late 90s, but I am not sure if it is still the case today. Again, many investment banks have spent a lot of money buying "talent" for themselves. This "talent" comes in the form of well-connected princelings or former cadres in the government.

So, a new biography of Jiang Zemin, former President and party secretary, was just released simultaneously in the US and in China. It is written by a US investment banker, Robert Lawrence Kuhn, Ph.D.-- in neurology--, who is a long-time "friend of China." While its US sale has been tepid, it is apparently a big hit in China (see article below). An officially sanctioned biography of a living Chinese leader has rarely been published, presumably because some issues are often too sensitive. So why was this biography published just as Jiang stepped down from his last formal post, the chairmanship of the State Military Committee?

According to an expose written by an early collaborator of Kuhn, Chinese biographer Ye Yonglie, a senior propaganda official had first approached Kuhn and Ye about the book. More importantly, the propaganda official had told Ye that Jiang's office was NOT responsible for launching the book and that someone high up in the propaganda apparatus had intiated the book. So who initiated the book? and why?

In a nutshell, I think the most likely culprit is Zeng Qinghong, Jiang's right-hand man and the current vice president of China. Given Hu Jintao's recent aggressiveness in replacing Jiang cronies with his own "Youth League" faction, Zeng is probably afraid that he is next. So how does he protect himself? The head of the Central Propaganda Department for the past few years was Liu Yunshan, a shepard who somehow wormed his way up the bureaucracy. His one qualification for office seems to be his close ties with Jiang Zemin and Zeng Qinghong. It is likely that Zeng had Liu initiate this "Project 001," the codename for the Jiang biography.

Why? For a historical comparison, one can look to the "genius" episode with Lin Biao, Mao's one-time annointed successor who fell from grace in 1972. In 1970, Lin wanted to launch a campaign to praise Mao as a "genius." He did so in order to bolster Mao's position in the party and thereby increase his own status in the party as the annointed successor of Mao. Unfortunately for Lin, Mao became very suspicious of Lin's motivation and ultimately purged him. Zeng was perhaps trying to do the same. By bolstering Jiang's position as "The Man who Changed China," he secures Jiang's legacy in the party and in the country, which hopefully secures his own position in the Politburo. Everyone knows that Zeng is a close protege of Jiang, so removing Zeng from power would be a great offense to "the man who changed China."

Is it likely to work? Yes, for him, but not for more junior members of Jiang's faction. While Hu would hesitate to remove the likes of Zeng or Huang Ju from power at least before the 17th Party Congress, Hu will hollow out Jiang's faction by removing more junior members of his faction who are currently provincial governors and party secretaries. By the time the 17th PC arrives, Jiang's faction will consist of a few retiring Standing Committee members and very few lower level officials. Unless Zeng gets more inventive, Jiang's faction will slowly wither away.


AWSJ(3/9)
American Banker's Jiang Biography A Hit In China
1,165 words
9 March 200506:37 amDow Jones Chinese Financial WireEnglishCopyright (c) 2005, Dow Jones & Company, Inc.

AWSJ(3/9) American Banker's Jiang Biography A Hit In China

(From THE ASIAN WALL STREET JOURNAL) By Matt Pottinger

YANGZHOU, China -- His new book is a blockbuster in China, selling more copies here in a single month than any book since the last installment of 'Harry Potter.' Readers have lined up by the thousands to get his autograph. His name is splashed in newspapers across the country: Robert Lawrence Kuhn.
Robert Lawrence who?
Mr. Kuhn, a 60-year-old American investment banker and managing director at Smith Barney, is the author of 'The Man Who Changed China: The Life and Legacy of Jiang Zemin,' a biography of the former Chinese leader, who stepped down last year after 15 years in power.
'I think I have something important to say to the West, or to Western thinking, about China,' says Mr. Kuhn.
Readers in the West don't seem convinced. Whereas the Chinese publisher, Shanghai Century Publishing Group, says it has printed a million copies, Crown Publishers has printed just 15,000 of the English-language version. U.S. sales have been poor since the title hit the market in January, and some reviewers have panned the 709-page book as a fawning work of hagiography.
'Mr. Kuhn, like a faithful stenographer, has recorded here a perfect example of Chinese propaganda,' Jonathan Mirsky, the former East Asia editor of The Times of London, wrote in Hong Kong's Apple Daily newspaper.
But for most readers in China, the book offers their first glimpse into the life of a man who ran their country for 15 years. Even with 10% of the content censored from the Chinese-language version, the book treats many sensitive events, such as the 1989 Tiananmen Square protests and Mr. Jiang's political promotion, in terms that are unusually candid for China. Tidbits offered by people close to Mr. Jiang, while typically casting him in a positive light, also give a better sense of a man whose most salient feature for many people has been his enormous glasses.
The frenzy around the Chinese edition reflects a strong undercurrent of public curiosity about the secretive men who run the emerging global power. In a country where publishing details about the lives of high officials or their families can land Chinese writers in jail, a biography of a living leader is nonfiction at its most novel.
'We've never seen a biography about a leader who isn't already dead,' says Xie Yihong, 70, one of more than 1,000 customers waiting in line to get his copy signed by Mr. Kuhn in the eastern city of Yangzhou. That the book was written by an American is a plus, Mr. Xie reasons: Americans 'are more impartial.'
An investment banker who co-founded and managed a mergers-and-acquisitions firm called The Geneva Companies before it was sold to Citigroup Inc. in 2001, Mr. Kuhn, who lives in Southern California, says he has made frequent trips to China since the end of the 1980s, often serving as an unpaid adviser to officials trying to overhaul the economy.
Interested in showing Americans a more nuanced portrait of China than he felt mainstream media was providing, he produced a 90-minute documentary with China's state-run television broadcaster that was shown on PBS in 2000. The documentary, 'In Search of China,' balanced narratives about upwardly mobile Chinese with stories of secret churchgoers and unemployed workers. It was well-received in the U.S. by viewers and earned Mr. Kuhn the trust of Chinese officials. In 2000, after seeing a televised interview of President Jiang on the CBS news program '60 Minutes,' Mr. Kuhn says he resolved to write the man's biography. Mr. Jiang was widely viewed at home and abroad as a somewhat colorless figure whose main achievement had been to keep China on the path of economic changes mapped out by the late patriarch Deng Xiaoping beginning in 1979.
There were a few obstacles to surmount: Mr. Kuhn doesn't speak or read Chinese; few people -- much less foreigners -- are given access to Mr. Jiang's friends and family; and though he had written books before, Mr. Kuhn had never attempted a biography.
A respected Chinese biographer named Ye Yonglie says that in 2001, he was invited by a senior propaganda official in Beijing to help Mr. Kuhn with the book. Mr. Ye says he held lengthy discussions with Mr. Kuhn and the official, but he backed out when Mr. Kuhn informed him he would be cited as a researcher but not a co-author.
In Chinese media accounts, 'The implication is that this book is a civilian effort by a foreigner,' Mr. Ye said in a telephone interview. 'But it has Chinese official engineering.'
Mr. Kuhn confirms that he offered to employ Mr. Ye as a researcher and that he was introduced to him by an official with the State Council Information Office, which handles China's overseas propaganda. But Mr. Kuhn dismisses the suggestion that the government had any say over the content of the English-language version of his book.'It's my voice and my project,' Mr. Kuhn says.
Mr. Kuhn also discloses in his book and in interviews that he has done business in China and aspires to do more. He says he has been in discussions since last summer with Citigroup about a potential role with the company's arm that does investment banking in China. Between book signings, he has met with officials to discuss investment-banking opportunities, he says. He acknowledges that public acclaim for the book may help him in business, but he says that was never his goal.
'When I decided to write it, it was a real desire to understand China,' he says. 'I'm independent enough financially, I'm independent enough mentally to do what I think is right.' He says his contract with the Chinese publisher entitles him to 10% of the book's proceeds; he says he plans to give half of the money to Chinese foundations and charities.
When asked, Chinese readers say they were unaware that the domestic version, translated by the publisher, was stripped of much of its most politically sensitive material. Headlines in local newspapers tend to play up the fact Mr. Kuhn is an American -- a big selling point in a country where domestically written books about politics are often viewed by readers as propaganda. At a bookstore in Yangzhou last week, Mr. Jiang's hometown, Chinese reporters trained their TV cameras and notepads to Mr. Kuhn's remarks about the book, and applauded him when he finished. Downstairs, some people waited seven hours to get their books autographed by Mr. Kuhn.
He says his tennis elbow has flared up from signing so many books. But he says he is considering writing another one: an account of Mr. Jiang's successors.

Who will lead Hong Kong? Tsang will serve as interim governor, but there must be a reason why Hu and Wen "retired" Tung early. In the mean time, I think they will maneuver someone they favor to take over. This person is not necessarily going to be Donald Tsang. In fact, given his close ties with the British government in the past, he might not get the job. Overall, I think the premature retirement of Tung constitutes a blow to the Jiang faction, since Zeng Qinghong is in charge of HK-Macau affairs. Nonetheless, he seemed relatively helpless in saving Tung after Hu dressed him down a few months ago. I attach an excellent article (written by Willy Lam) on Hu's thinking on Hong Kong. Unfortunately, I don't think the next governor will be elected democratically either. Hu's talk of "accountability" really means accountability to Beijing, not the people of Hong Kong.


Change may herald tighter controlCommentary
by Willy Lam for CNN HONG KONG, China (CNN) --
The widely expected departure of Hong Kong Chief Executive Tung Chee Hwa may enable China's special administrative region (SAR) to have a fresh start, after more than seven years of inefficient and unimaginative rule.However, given Beijing's fear of instability following the resignation of the beleaguered Tung, China's control over the SAR will likely be even tighter than before.Beijing and Hong Kong political sources said Tung decided to go after being publicly reprimanded by Hu Jintao late last year, when the Chinese President asked him to be better at "finding out deficiencies" in his administration.

It is understood Tung might cite heath reasons when, as expected, he announces his resignation at the end of the on-going session of Chinese People's Political Consultative Conference (CPPCC), China's highest advisory council.The former shipping magnate is tipped to be made a CPPCC vice-chairman, a usual reward for retired senior Chinese officials.The political sources said given Tung's unpopularity and the rising demand for universal suffrage-elections in Hong Kong -- which Beijing abhors -- the Hu administration was expected to stiffen the requirements for the next chief executive.

According to a cadre close to Beijing's Hong Kong policy establishment, President Hu had laid down five criteria for picking Tung's successor."The Hu leadership has indicated that the next Hong Kong chief executive must be acceptable to Beijing, to Hong Kong and to the international community," he said."He must also have high governance ability -- and there must be political and economic guarantees that he will fulfill his responsibilities well."The cadre said Hu had pointed out at a Communist Party Central Committee session last (northern hemisphere) autumn that all regional officials must significantly "boost their governance ability".

And while former president Jiang Zemin, who handpicked Tung for his job in 1997 -- had tolerated the latter's lackluster performance -- Hu and ally Premier Wen Jiabao are known to be highly dissatisfied with the indecisive 67-year-old Hong Kong leader.The cadre added that as for "political and economic guarantees," Beijing was looking for candidates who had a good record of loyalty to the central authorities or whose families and companies had substantial investments in Hong Kong and mainland China.According to the Basic Law, Hong Kong's mini-constitution, Chief Secretary for Administration Donald Tsang will act as chief executive while a Beijing-appointed electoral college will pick Tung's successor within six months.

Both Tsang, a Harvard-trained career civil servant, and Financial Secretary Henry Tang, a former businessman, are considered front-runners for the SAR's highest post.Given that senior Beijing officials have already refused to allow general elections to pick the chief executive or the majority of members of Hong Kong's legislature, pro-democracy politicians in Hong Kong do not see Tung's early departure as a harbinger for a faster pace of democratization.Chairman of the Hong Kong Democratic Party Lee Wing-tat said if Beijing were adamant about picking a loyal chief executive, "this will go against the principle of 'one country, two systems'," which late patriarch Deng Xiaoping had pledged for Hong Kong.On the economic front, Tung's departure will ignite expectations that his successor may take more aggressive measures to foster new areas of growth.While the local economy expanded by an estimated 8 percent in 2004, Hong Kong is facing increasing competition from coastal Chinese cities from Shanghai to Shenzhen.

Soon after Tung took over the SAR helm on July 1, 1997, the former businessman unveiled bold plans to develop areas ranging from IT and multi-media entertainment to herbal medicine. None of these ideas has taken off.And Hong Kong has badly lagged behind Singapore in restructuring its economy to match the requirements of the high-tech and information age.Much of the SAR's growth last year was due to closer integration with the China economy, including the massive flow of Chinese tourists to the former British colony.