Thursday, October 27, 2005

Well, at long last, CCB shares are trading in HK, but its price is not enjoying the usual post-IPO euphoria. Preliminary results show that it rose only 1.1% higher than IPO price, which is luke-warm at best. At least it didn't drop. Well, the market has voted, and it's not looking great. The slight increase suggests that the underwriters, the strategic investors and major mainland banks are all doing their best to buy shares from small investors who are trying to cash in. It does not suggest that smaller investors want to hold CCB shares for long-term investment. If this continues, it will put a huge damper on the BOC IPO scheduled for next spring.

China bank makes HK stock debut
A member of staff at a branch of China Construction Bank in Hong Kong
Investors are keen to tap into China's economic potential
Trading in shares of China Construction Bank has started slightly higher than the Chinese lender's $8bn (£4.5bn) initial public offering (IPO).

The stocks debuted at the Hong Kong market at HK$2.375 ($0.306), a meagre 1.1% higher than the IPO price of HK$2.35 ($0.303).

On Wednesday, the bank's shares dropped 1% on the unofficial "grey" market.

China Construction's share listing is the world's biggest this year, and the largest ever by a Chinese company.

Overseas investors have been keen to tap into China's economic potential.

'Lacklustre sentiment'

Traders said earlier that concern about bird flu in the region had also dented sentiment on Hong Kong's Hang Seng stock market.

It'll be a pleasant surprise if China Construction Bank's shares can end higher than its IPO price on its debut
Francis Lun, general manager of Fulbright Securities

"Given the current lacklustre sentiment, it'll be a pleasant surprise if China Construction Bank's shares can end higher than its IPO price on its debut," said Francis Lun, general manager of Fulbright Securities.

As China's third biggest bank, China Construction holds assets worth $521m and has a 13% share of total deposits in the country.

Despite some worries over the exposure of Chinese banks to bad debt, accumulated after years of state-controlled lending, interest in China Construction's IPO has been strong.

Shares made available to smaller investors earlier this month were 42 times oversubscribed.

"China Construction Bank may lose one or two percent when it first opens, but as one of the biggest banks in China it will do well in the long term," said Alfred Chan, of Cheer Pearl Investment.

China Construction's IPO is expected to be followed next year by Bank of China, followed by Industrial and Commercial Bank of China in 2007.

It is a very good result for a firm that does an IPO if its shares stay at the IPO price on opening day. This means that the shares have not been mispriced and all the value of those shares has ended with the issuing company and not in the pockets of speculators who take advantage of poorly priced shares.

Hats off to whoever priced out this IPO. For once, the job was done right.
At one time communities would seek counsel from the elders on matters of import. More experience usually translated into lessons learned. Having survived my share of crises, I am still around to share a thought or two. The main lesson is to never stop learning. Reading is good as is seeking other points of view and new ideas like visiting your blog. Finding what is ultimately important leads one to appreciate actuality, efficiency and mindfulness. Helping others to see some of the forest through the trees is another. synergy
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Wednesday, October 26, 2005

A friend of mine met with Xie Ping recently, and Xie Ping revealed that the
money Huijin raised from the IPO will not go to the MOF or to the social security fund. Huijin will keep it in the overseas branches of CCB in foreign currency, not in RMB. This latter part makes sense, since the money was sterilized already when it entered China as trade surplus money. They don't want to sterilize it again by converting it back to RMB. The question is what will they do with all this money?

I am sure there are powerful forces in China calling for the repatriation of this "profit," with the MOF being the leading contender. Wen himself might even favor the repatriation of such a large amount of money, which would really help bolster the social security fund. On the other hand, Huang Ju, who is in charge of the financial sector, likely supports the current policy of keeping the money abroad. There are technical reasons to do this, but there are compelling reasons either way. Clearly, Zhou Xiaochuan is siding with, if not actively encouraging, Huang Ju to do this. But I think this is a dangerous game to play for Zhou, since Wen is still the Premier of China, who can stall his promotion prospect at the 17th Party Congress.

By having Huijin retain this money, the PBOC will have a large treasure trove with which to build an empire. With this money, Huijin will take over the relending function of the PBOC, at least with respect to financial institutions. Instead of using PBOC money to bail out distressed financial firms, the PBOC will simply have Huijin use its hoard of money to do it. In this process, the PBOC through Huijin will gain control over the entire financial sector (given that most financial institutions are distressed....). That's what I call reform!

It all depends on who Zhou is relying on for his promotion prospects. Given his factional allegiances, I doubt he put much hope in Wen Jiabao in the first place. He may even hope that Wen is rolled before then anyway.
Agreed, but Wen can still veto him if he really angers Wen. Also, the chance of Wen being removed at the 17th PC is slim, unless there is a major policy failure.

Taiwan's DPP's top China policy advisor says that Wen is under attack by Zeng in the 5th plenum. How credible do you think this piece of news is (does it have any relevance to your main argument)?
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Wednesday, October 19, 2005

Dear Readers, I think I might have to issue a correction on the previous post on Huijin buying so-called "put option" from foreign strategic investors of CCB and BOC. According to a knowledgeable insider, "There is no guarantee mechanism relating to the share price of these companies, rather it is relating to the initial (YE 2004) book value based on which the purchase took place. It is not a put option. Rather it is a (fairly common) provision that if the stated 2004 book value is revised down, the purchasers will be compensated with more shares and if it is revised up they will give up shares. This is basically a guarantee of the integrity of the financial statements at the time of sale, not something open ended." I find such a provision reasonable within a certain time frame. I am still awaiting words about the effective duration of this provision. I still think three years is a bit too long, but if it is common practice, then I stand corrected.

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Tuesday, October 18, 2005

Apparently, Huijin Company, the government investment vehicle that now runs half the financial sector in China, offered to buy put contracts issued by Bank of America and Tamesek of Singapore. Basically, Huijin will buy back CCB and BOC shares if the two banks fail to go IPO in three years or if the share prices of the two banks fall below IPO prices in three years.

While I find the first kind of put contract reasonable, since exogenous shocks have delayed IPOs before, I think the 3-year buy-back agreement will create even more distortion. As major foreign investors are supposed to inject human capital to improve the performance of the banks, they should bear some responsibility for the performance of the banks. This Huijin buy-back offer would just encourage foreign investors to be lazy and to wait for a Huijin buyback. Moreover, Huijin now has the incentive to bailout the two banks with its own resources or to lobby the State Council for more resources for bailouts because it wants to avoid the embarrassing prospect of having to buy-back shares. Knowing that, both the domestic and foreign managers in the banks would have extra incentives to blackmail Huijin with reckless lending. Basically saying, “if you don’t bail us out, you will have to buy back shares from foreign investors, which is both costly and embarrassing.” Also, what about the hundreds of thousands of small Hong Kong investors who bought shares? Will they get compensated if the share prices of these banks plummet?

China to buy back foreign investors' CCB, BoC stakes if IPOs fail - report

09.20.2005, 12:23 AM

SHANGHAI (AFX) - China Huijin Investment will buy back foreign shareholdings in Bank of China and China Construction Bank if these two major state banks do not go public successfully three years after the foreign buy-ins, the Takungpao reported, citing Xie Ping, Huijin's general manager.

Takungpao, a Beijing-backed newspaper based in Hong Kong, said Huijin will also compensate foreign investors if the share price after three years is lower than the price they paid to buy in.

'For example, the entry price of foreign investors is based on the bank's equity per share on Dec 31 last year, and if share price after three years is lower than that, Huijin will pay for their losses, ' Xie said.

'Of course, the possibility this kind of situation will happen is tiny, and will only occur when there are huge amounts of non-performing assets,' he added.

Xie told the newspaper that foreign institutions sought preconditions to their investments, including appointments as the major underwriters for the banks' IPO, although such demands cannot always be met.

Meanwhile, Huijin said it cannot undertake to keep the bank's non-performing ratios below a certain level in the next several years.

Bank of China has tied up with a group led by Royal Bank of Scotland and Singapore's state investment arm Temasek Holdings.

Bank of America Corp has completed the acquisition of a nine pct stake in state-owned China Construction Bank for 2.5 bln usd.

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Friday, October 14, 2005

Someone asked me the random question of "if USA forbids China from buying treasury bonds, would China lose the ability to maintain the current (relatively) fixed exchange rate?" This actually got me on an interesting intellectual exercise. The answer of course is no, but the effect of such a policy would not be trivial.

On the exchange rate issue, forbidding China from buying bonds would not force the RMB to revaluate, but might help to ease the trade deficit. Chinese trade surplus essentially translates into a large foreign exchange reserve for China. What makes the "low" RMB exchange rate is not purchasing of US bond, which is just another form of keeping US currency in the reserve. China can well keep cash, bond, or stock; they just imply different risk levels and rates of return for the foreign exchange reserve. The fixed exchange rate is kept by a process called sterilization. It is sterilization that makes the fixed exchange rate possible. Basically, with rising trade surplus, China is getting lots of US dollars into the economy. To maintain the fixed exchange rate, the PBOC has to give 8 RMB to every new dollar that enters China, or the price of the RMB will start to go up (increase of dollars relative to RMB in the economy). But this means that billions of RMB is being pumped into the economy, causing inflation. In fact, this did happen a bit in 2003-2004. Fortunately, the PBOC has been "sterilizing" this new supply of RMB by issuing PBOC bonds, which soaks up the new supply of RMB in the economy.

But, your friend is sort of right. If the US forbids China from buying US treasuries, a large part of the demand for US treasuries would be eliminated, which means the US would have to drastically increase interest rates on the treasuries, which will increase general interest rates (usually treasury rates is closely tied to general mortgage rates..etc.) So, this would slow down the flow of hot money into China as global investors invest in high-yield US treasuries. This would also slow down US consumer purchasing drastically since they have to pay much higher interest on their debt. Although their purchasing power would increase from the rise of the US dollar, given that this is a debtor country, consumer demand would slow down, which would likely decrease the trade deficit between the US and China.

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Thursday, October 13, 2005

See the stoy below; it shows just how un-institutionalized Chinese politics still is. The State Council has supposedly consolidated budgeting for all government units. But the story below clear indicates that the 2nd Division of the Chief of Staff still keeps a sizable pot of extrabudgetary funds through Poly. The MOF now has clear guidelines against this. The reason why the State Council still can't touch Poly is that Deng's son-in-law, He Ping, is in charge of Poly. I think an audit on Poly should be really interest, but it won't happen.

China's Military Mounts Global Assault on $1 Billion Art Market Oct. 13 (Bloomberg) -- The soft voice of Chinese relic hunter Gisele Croes rises, drowning out the rainstorm that pelts the smoked windows of her black limousine.

``Drive inside,'' the 63-year-old Belgian art broker and appraiser orders as her chauffeur accelerates past the green cranes along Hong Kong's Chai Wan docklands and into the concrete warehouse of Michelle International Transport Co.

Slowly, she lowers the window and calculates what may be waiting inside the high-rise storage facility.

``The People's Liberation Army is very rich, very powerful and all-knowing,'' Croes says. ``You must keep looking over your shoulder. This is an exceedingly jealous business and I find pieces that others can't find, I know people they don't know.''

The world's largest standing army is spending hundreds of millions of dollars to bring back Chinese art treasures such as those now in the homes of collectors including Ronald Lauder, chairman of Estee Lauder International Inc.; Tsui Tsin-tong, honorary chairman of Hong Kong manufacturing and property company CNT Group Ltd.; Jack Wadsworth, advisory director of Morgan Stanley and Leon Black, founder and president of Apollo Advisors LP.

``Art collectors worldwide should be concerned about the PLA's acquisition strategy,'' explains Albert Louie, the 45-year-old chief representative of the risk-crisis management consulting firm Albert William Associates Ltd. in Beijing.

``The PLA's ambition is to control culture as it does the military and it doesn't do things according to the accepted rules,'' adds Louie, a former director of China operations for the global security company Kroll Inc. ``Acquiring art is not a money issue for the PLA.

$711 Billion

The PLA has so far targeted only Chinese art and analysts say the army's strategy over the next five years is to dip further into China's foreign-currency reserves -- some $711 billion, the second biggest after Japan -- and growing -- to buy and barrack celebrated Western masterpieces, often at prices above their auction-market value.

Climbing out of the car, the petite Croes grips her tan handbag decorated with a large linen daisy and fixes her eyes down the long, damp passageway that leads to a double set of bulky and electronically locked metal doors.

The contact man suggested a late afternoon visit, alone, without a camera. ``I left the bodyguard behind to watch the hotel room,'' Croes says of her security guard back at the Conrad. ``Important things are happening here, so I must show my face.''

``The Chinese art market is a $1 billion-a-year trade and it can be dangerous and frightening'' she says, studying the stevedores who cook their pungent lunches of rice noodles and spicy vegetables along the corridor. The aroma is familiar.

Propaganda Job

In 1965, Croes abandoned her post as a radio host for Chairman Mao Zedong's Ministry of Propaganda to immerse herself in the clandestine business of Chinese art, vying for multimillion-dollar relics against a coterie of PLA generals and corporate mandarins. Still, ``the PLA is the market powerbroker, and I've beaten them to the Xian Bodhisattva,'' Croes whispers, moments before Michelle International Managing Director Thomas Yuen uncovers the 1,400-year- old, child-sized, carved stone artifact.

``I've spent eight years waiting to see this?'' Croes says of the standing figure that represents a disciple of Buddha and was plundered from China's ancient capital of Xian, site of the country's celebrated terra cotta warrior tombs.

Bruised Bodhisattva

Touching the smooth statue, Croes suggests it was ripped from a temple wall and smuggled to Taiwan sometime during the Cultural Revolution between 1966 and 1976, where its new owner used a removable steel rod to rig the severed head to its torso and then haphazardly affixed the bruised Bodhisattva to a marble plinth.

``It's real, but not near the $500,000 asking price,'' Croes says. ``I don't see the PLA paying any more than $200,000.''

At that price, it's perhaps a deal for a country that's facing an acute art shortage. The Chinese government plans to construct 1,000 new museums by 2015, including 32 in Beijing in time for the 2008 Summer Olympics and 100 in Shanghai before the opening of the 2010 Shanghai World Fair, according to reports in China's government-controlled media.

Croes says the PLA is leading the charge to fill them.

Shopping List

At the top of its shopping list are the untold numbers of Imperial Chinese bronzes that over the centuries have been lost to the West. Those pieces include the $15 million dragon held since 1908 by the reclusive Stoclet banking family in Brussels and the bronze ``spirit tree'' funerary candelabra that Black paid at least $2.5 million for at a 1998 Chinese art auction in New York.

Black and Lauder didn't return calls seeking comment on their activities in the Chinese art market. Tsui and Morgan Stanley's Wadsworth declined an opportunity to comment.

``Their bronzes and other artworks are hugely important to the PLA,'' Croes explains over dinner after the warehouse rendezvous. ``Possession of great bronze statues is the traditional Chinese symbol of ultimate power. This is why the PLA wants to acquire great art from all over the world. It enhances their power at home and abroad.''

`The Empress'

In the trade, Croes is known as ``The Empress.''

Colin Sheaf, the 53-year-old deputy chairman of Bonhams auction house in London and the company's Chinese art specialist, says that Croes's market domain can stretch from 5000 B.C. to the present and that her realm is a boom industry.

In May, for instance, the Chinese art auction gaveled by Christie's International in Hong Kong raised more than $90 million, a record for Oriental art. Last year, Sotheby's Holdings Inc. sold a crucifixion scene painted by Lin Fengmian for $130,000, eight times the asking price. And earlier this year at Christie's in New York, Poly paid $8 million for an Imperial bronze jar. Croes only smiles when asked about her role in the sales.

She says her market is also long on cloak-and-dagger. ``I've been accused of being everything from a smuggler to an agent for the Chinese secret police,'' Croes says. ``The mystery of my reputation is only painful when it's a lie.''

``Gisele is remarkable at finding treasure,'' Sheaf says. ``She's part of the world's most elite group of dealers, handling a quality of Chinese merchandise that auction houses can only dream about.''

Army Connection

The PLA art-recovery operation is directed by officers attached to the Zong Chan Second Division, an elite unit within the PLA joint chiefs of staff charged with handling global military intelligence matters. The corporate hub of the venture is Poly Culture & Arts Co., a subsidiary of China Poly Group Corp. and Poly Technologies Inc., the business divisions of the PLA.

``Poly is the PLA's commercial arm, though the government in 1999 created a bureaucratic separation between them,'' explains Paul Godwin, a 70-year-old PLA analyst and former professor of Chinese military studies at the U.S. National War College in Annapolis, Maryland. ``It was the PLA that started out buying and selling art and other items for their own personal wealth and to seed shell companies for their operations in the West. Now it's done through Poly.''

Poly Hierarchy

The Poly hierarchy is organized like all Chinese state- controlled companies. At the ceremonial top is Chairman of the Board Shan Yihe, a protean ideologist whose duty is to ensure workers adhere to Communist Party scripture.

Poly's day-to-day activities and its art purchases are managed by Major General He Ping, the former head of Zong Chan Second Division and now described in the annual report as the firm's vice- chairman and a member of the Poly board.

Along with He, Western intelligence sources, who can't be named for security reasons, say the other seven directors -- Chen Hongsheng, Wang Xiaochao, Zhang Liansheng, Wang Xu, Ye Jiang Lieng and Ye Sheng Ning -- are senior officers plucked from the PLA intelligence unit for extraordinary duty and remain active decision- makers within military ranks.

``The PLA is conducting an economic invasion of the global art market,'' says a Western intelligence official, who asked to remain anonymous because his job involves monitoring the Chinese military's business activities. ``General He uses every resource at his command to find artworks, including foreign agents and Chinese students studying abroad.''

The Mission

The general and the other directors declined to comment.

``General He in 1997 established a global information network to track down and buy items of interest to us,'' says former PLA Major Li Nan, director president of Poly Culture & Arts. ``We are wealthy after 20 years of market reforms.'' China's gross domestic product is $1.65 trillion after two decades of an annual growth rate of 9.5 percent.

Sitting amid the priceless Imperial bronzes and ancient rice- paper paintings that decorate Poly's VIP room, the 49-year-old Li says ``the current mission is simple: repatriate China's heritage.''

And sell artillery products. Poly's 2004 annual report features photos of cannons and tanks alongside pictures of the firm's assets in real estate, telecommunications and artworks that represent only a portion of its 1,000-piece collection. Croes says Poly's vaults contain art worth at least $100 million -- a remarkable amount for a collection underwritten by a government in less than 10 years' time.

`Retrieve Action'

The report describes the mission as a ``retrieve action'' designed to reclaim treasures ``robbed away from China by western powers.''

James Mulvenon, deputy director of the Defense Group at the Center for Intelligence Research and Analysis and author of ``Soldiers of Fortune: The Rise and Fall of the Chinese Military- Business Complex 1978-1998,'' says Poly's use of arms sales to fund the operation is probable.

``The PLA clearly uses arms-sales money to fund legitimate enterprises and legitimate enterprises to cover arms sales,'' the 34-year-old Chinese military forecaster at the independent research institute in Washington explains. ``What's unclear is the full extent to which the arms sales subsidize the art purchases.''

According to Mulvenon, the PLA's commercial arm in North America, PTK International, between 1987 and 1994 sold $200 million in light semi-automatic weapons to gun dealers in the U.S.

Arms Customers

Today, Poly's biggest arms customers are Thailand, Burma, Iran and Pakistan. The company, Mulvenon says, remains the principal agent for Chinese arms purchases from Russia, including Su-27 combat aircraft, SA-10 surface-to-air missile batteries, Sovremenny- class destroyers and Kilo-class submarines.

``The PLA is a very entrepreneurial army,'' Godwin says.

Louie describes Poly's continuing fiscal relationship with the PLA as ``irresistible,'' and says it's dangerous to underestimate the political influence both groups wield within the ruling Politburo, a result of wealth and family background. General He, for instance, is married to the daughter of former Chinese leader Deng XiaoPing and is also the son of General He Long, a crony of Mao and one of the so-called Marshals of the Revolution.


The network of bloodlines that helps Poly track lost art includes Yannan Wang, the managing director of Beijing's China Guardian Auctions Co. and the daughter of former Prime Minister and Chinese Communist Party General Secretary Zhao Ziyang. Yannan's husband, Wang Zhihau, is a senior executive at Poly. Chen Dongshen, chairman of China Guardian and president of the state-controlled Taikang Life Insurance Co., for years served as Zhao's right-hand man.

``The characters get all mixed up,'' Godwin explains. ``It's a great example of how business works in the Chinese fashion.''

Chinese art appraiser Tuyet Nguyet, publisher of the trade magazine Arts of Asia, says the family and political relationships are significant. From her office in the shadow of the Peninsula Hotel in Kowloon, Nguyet has spent the past 35 years observing China penetrate the global art market.

``Decades ago, the leadership smuggled art out of China and used the hard currency to fund businesses in Hong Kong,'' Nguyet explains. ``Now Poly uses its cash to price everyone else out of the art market.''

Paying the Price

Strolling through the 130 items on display in the two-room museum housed inside Poly's Beijing headquarters, Li says ``you must pay a price to repatriate art.''

Jiang Ying Chun, a 35-year-old archeologist and Poly's chief buyer, defends the practice that has inflated prices and left auction houses scrambling to isolate great Chinese artworks before Poly can purchase them off-market. According to Croes, Poly's market maneuvers have pushed the price of an Imperial bronze worth $800,000 some 10 years ago to more than $3 million today.

``The sellers must be given an incentive to sell to us,'' Jiang says.

Li says his annual acquisition budget is flexible, though he declines to reveal the figure or where the money specifically comes from.

``We don't strictly adhere to the budget anyway,'' Li explains with a laugh. ``The amount we can spend is not fixed in stone, but it's the way of the market for our rivals to exaggerate our position and future goals.''

Government Financing

Louie describes Poly's ability to obtain government financing as ``ultimate,'' and says the company maintains ``tremendous authority to order banks to issue money with no questions asked.''

As for using that money to purchase Western masterpieces, Li adds ``at this time, it would be difficult for us to purchase Western art.'' He declined to elaborate.

Former PLA air-force fighter pilot Bonko Chan says that Poly is in a holding pattern over Western art and that the company's tactic comes as no surprise.

``Poly controls the art scene in China,'' says Chan, the 42- year-old vice president of China Assets Investment Management Ltd. in Shanghai and owner of a 350-piece art collection that includes the works of Marc Chagall and Pablo Picasso, the largest privately held Western art collection on the mainland. ``Right now, it's more heroic for them to go abroad to recover plundered relics,'' Chan says.

General's Role

Li says that General He will remain closely involved in charting Poly's future art acquisition strategy.

``The PLA isn't exactly the group we figured to be going head- to-head with when we started the China Fund,'' rues Tobias Raymond, the 44-year-old director of London-based Access Equity Management Ltd., whose China Fund unit manages client investments in Chinese art.

``The PLA is roiling the market,'' Raymond says.

It's not the first time Chinese generals have taken an interest in art.

In 1949, with China in chaos, the army of Nationalist leader General Chiang Kai-shek fled across the Formosa Strait to its new redoubt in Taiwan. In Chiang's strongboxes, Taiwanese officials say, were precisely 608,985 priceless art objects Mao had anticipated using to fund the People's Republic of China, but were instead headed to the National Palace Museum outside Taipei.

`Golden Voice'

The relics that remained behind gathered dust beneath shop- house counters and on communal kitchen shelves and were of little immediate use to Mao, who directed the regime to terrorize artists into joining the propaganda effort to kowtow praise on his dictatorship.

In 1962, armed with a degree in 17th century European literature, Croes recalls, ``my husband and I found ourselves in Beijing, living in the Peace Hotel with 300 other idealistic Maoists from all over the world.'' She was ``the golden voice of Beijing radio.''

``There were a lot of shady characters,'' adds Marcel Croes, who with his wife spent three years broadcasting propaganda to French listeners abroad and attending state banquets with Mao, Foreign Minister Chou En-lai and other key Chinese officials. ``It was no Maoist paradise,'' he recalls. ``It was a nightmare.''

Treasure Hunting

Croes says her swing from politics to art resulted from government restrictions that prohibited non-Chinese Maoists from circulating outside an 11-square-kilometer (4.25-square-mile) grid centered on Tiananmen Square. Buying a bicycle, Croes peddled the neighborhood, developing contacts and buying treasures for peanuts.

``The Communists paid us $200 a month, a fortune in China,'' Croes says. ``I spent all my money on antiques, paying less than a penny for paintings, calligraphy, furniture and sculpture that would fetch God knows how much today. My fascination with Chinese art re-oriented my entire outlook on life.''

Croes suspects Mao arrived at the same conclusion in 1963, when he sowed the seeds of the Cultural Revolution to come in a speech that condemned art as ``poisonous weeds.'' Three years later, Mao appointed his wife, Jiang Qing, the Gang of Four police chief in charge of stamping out culture, unleashing the Red Guards to use China's artistic heritage for kindling. ``Mao's fear of art's impact on China in no small part helped generate the Cultural Revolution,'' Croes says. ``We had gone to China for youthful political reasons. We left for artistic reasons.''

Cultural Revolution

Croes returned to Brussels and, atop a table set up on the cobblestones of an outdoor market, displayed her wares.

Outside the gates of the Forbidden City, the Cultural Revolution was in full swing.

Originally built in the 19th century by Empress Dowager Cixi for her chief eunuch, the Bamboo Garden Hotel in Xiaoshi Hutong is decorated with rock gardens. Yet during the Cultural Revolution, this quiet courtyard inn tucked in the shadow of the Forbidden City was the home of Kang Sheng, the ruthless boss of Mao's praetorian guard, Unit 8341, and command center for the wholesale looting of China's artistic heritage.

According to the Chinese writer and historian Jung Chang, co- author of
``Mao: The Unknown Story,'' Kang ordered Unit 8341 members to pose as Red Guards and plunder China's art treasures for his own collection or to be sold abroad to fill the regime's hard- currency coffers.

`Multibillions of Dollars'

``It's impossible to estimate how much Kang looted,'' Nguyet explains. ``We're talking multibillions of dollars.'' Nguyet, who made regular visits to China in the late 1960s, says the asset- stripping was brutal.

``Kang tortured people into surrendering their artworks,'' Nguyet says. ``People were gunned down trying to flee across the barbed-wire land border into Hong Kong with canvasses strapped to their chests and calligraphy wrapped around their legs.''

Yannan Wang says she knew stories of the lost treasure of Kang long before she left her job in 1994 as manager of the Great Wall Sheraton in Beijing to become managing director of China Guardian, the first auction house to be established in China since Mao took power in 1949.

``Kang looted the museums,'' Yannan says. ``After the Cultural Revolution, a lot of what he didn't take was borrowed by officials and never returned. There may very well be more than one treasure trove of art kept safe from the Cultural Revolution. We just don't know.''

Hidden Loot?

Rumors persist that Kang hid some of his booty inside China and that it remains to be found. Nguyet says that the richest collections were housed in Shanghai and that the port city was most likely used as a way station to move them to the West.

``Where the art landed, who knows?'' Nguyet says.

Returning to China after the Cultural Revolution with a grant from the Smithsonian Institution in Washington to study bronzes, Croes started her business plan.

``I vowed to discover China's most major items and do it better than anyone else,'' Croes says.

Croes estimates she has sold more than 2,000 pieces of Chinese art to a select and closely held client list that includes Poly and other major collectors she declines to identify. ``Buying or selling, I don't deal in price ranges,'' Croes says. ``I deal in cash.''

Back in Poly's VIP room, Li hints that his next mission is to acquire the Stoclet dragon, a 9th century B.C. bronze that now sits on a library desk in the family's Brussels home, designed by Viennese architect Josef Hoffmann and completed in 1911.

``We have interest in this dragon,'' Li says. ``The game is on and we are not going to reveal our cards.''

Croes says she isn't worried about the PLA stacking the deck.

``I played in the Stoclet house as a child,'' Croes says, pouring a cup of chrysanthemum tea. ``It's a wonderful thrill to be part of the game.''

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Wednesday, October 12, 2005

Granted, the below article is not too heavy on facts, but I think the basic conclusion is correct. The 5th plenum last weekend was a major set-back for Hu Jintao. As the last posting suggests, everyone had expected the removal or rotation of Chen Liangyu, the party secretary of Shanghai, from Shanghai. Even Shanghai cadres I talked with this past summer expected it. For Hu Jintao to fail to remove Chen when everyone expected it is a great sign of weakness. I still believe that Zeng would have been open to a deal, but Jiang apparently managed to block it, probably due to strong residual influence in the PLA. In China, it remains true that power comes from the barrel of a gun, implicitly or explicitly.

Asia Times Online

Hu brought down to earth

By a Special Correspondent

BEIJING - While most Chinese hearts soared with the launch on Wednesday morning of the spacecraft Shenzhou VI, which took two Chinese "taikonauts" into orbit, China's leader was in no mood to celebrate.

President Hu Jintao was conspicuous by his absence from the launch site to watch the liftoff from the heavily guarded Jiuquan Satellite Launch Center in the Gobi Desert. And it is telling that as chairman of the Central Military Commission (CMC), Hu should have missed this important day for China's military.

One of Hu's deputies, Cao Gangchuan, the CMC second vice chairman, was present at the launch, and while Hu did show up at the aerospace office at Beijing, he had a long face before the cameras.

Prime Minister Wen Jiabao led the throng of top cadre well-wishers on behalf of everything - the Chinese Communist Party (CCP) central committee, the state council and the CMC.

However, neither Wen nor any of the affiliates of the two principal officials, propaganda chief Li Changchun, and law-and-order chief Luo Gan, hold military office.

China's aerospace program, although it includes civilian participation, is a special task under the command of the General Armament Department of the CMC.

Hu's absence, and presumably his ill-humor, bear out rumors circulating in the higher reaches of power in China: he suffered a major setback at the 5th plenary session of the central committee of the CCP, which ended after four days of closed-door meetings in Beijing on Tuesday.

Hu, the nominal military chief, is believed to be particularly unhappy with his top brass.

None of the political objectives Hu had aimed for before the session were endorsed by the 354-member central committee in its 11th Five-Year Plan (2006 to 2010).

Hu's list had included speeding up political reforms, a pledge by all local authorities to submit to the macro-controls instituted by central CCP officials, and support from all cadres for the state leadership to attain a more prominent role in international affairs.

Instead, the communique issued at the close of the plenary session concentrated on economic reforms. There was no endorsement at all of macro-control nor the enhancement of China's stance on the international stage.

Political reform did get some space in the final plan. It was cited with the qualification of "proactively and stably" and placed among a list of miscellaneous issues, such as building a spiritual civilization, strengthening defense, maintaining the prosperity and stability of Hong Kong and Macau, and the betterment of relations with Taiwan. These issues were all mentioned only briefly, meaning that while they might not be trivial, they were not a focus of the plenary session. This means, therefore, a slap in the face for Hu rather than a face-saving.

The plenary session also served to negate Hu's desire for "building a harmonious society". When Hu threw the idea out in February, he made no bones that it would be a cornerstone of his philosophies. Indeed, it was to replace the "Three Represent" theories of his predecessor, Jiang Zemin. Now, the notion of "building a harmonious society" has been scaled down to bread-and-butter matters such as medical benefits and food hygiene.

The only mark of Hu that remained intact was his rhetoric, such as "establishing the party for the public and ruling for the general populace". These slogans, as any educated person in China knows, are subject to interpretation, and therefore could mean everything - or nothing.

Throughout the history of the CCP since 1949, plenary sessions have served for the party's central committee to reaffirm its authority over all members and cadres. Well before this session, the major problem between central and local cadres was the issue of macro-control, especially on how to tackle the growing real-estate bubble. The lack of any endorsement of this key policy at the plenary session revealed total disregard by the mainstream of the central committee, which is usually crystallized as the Hu-Wen duo.

With benefit of hindsight, the setback of the Hu-Wen duo was in the cards.

In September, Wen delivered an important message to Shenzhen, saying that the Special Economic Zone adjacent to the financial hub of Hong Kong should develop a special status on the political front. Wen stated unequivocally that Shenzhen was being requested to become a pioneer in political reform. Li Hongzhong, the city's party boss, however, responded to the request by completely ignoring it.

Political observers in Beijing agree that there now appears to be two party centrals in China. On the table, and for the public to see, there is the Hu-Wen combine. Behind the curtains, there is a special "train" in which the "retired" party chief, Jiang, rides, free to roam the country. Only a few top leaders are allowed a special train, and it is a symbol of exclusive personal status.

Hu replaced Jiang as party chief in 2002, state president in 2003, and military chief last year.

Another indication of a schism at the top can be found on the website of the People's Liberation Army Daily, the official organ of the military. Among the list of special topics in the latest archive, half still bear Jiang's name, while Hu is almost invisible. The military paper also devoted little space to promoting the plenary session.

The events at the plenum do not necessarily mean that Hu and Wen will head a lame-duck government. Indeed, most of the central committee members of the current session are not the duo's choice. Whether Hu and Wen will have the upper hand in choosing central committee members for future sessions depends more on the support of retired party elders than serving committee members.

And the loss of face the two have experienced this week may help them gain sympathy from the elders, most of whom are known to support Hu and Wen from behind the scenes.

In this regard, the plenary session may not be as definitive a setback as it would be in a political party in the West.

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Thursday, October 06, 2005

Dear All, sorry for the long absence and the spam. October 1st was a big deadline for a bunch of stuff. Anyway, in the upcoming 5th plenum, the rumormill in Beijing is expecting some great changes. The hottest gossip is the future of Shanghai. Will Chen Liangyu remain the party secretary of Shanghai? Here, if the rumor that Zeng Qinghong is siding with Hu is correct, Chen's days are numbered, and someone else, rumored to be Liu Yandong, will take over. However, I am sure other PSC members like Huang Ju and Jia Qinglin are fighting this.

The second rumor, that Li Keqiang will be promoted as an alternate member of the Politburo, is less likely. Li's administrative record is very patchy, though he is highly educated. Perhaps it was bad luck, but he was in Henan when the AIDS crisis broke out. Also, he is not known to have done anything that great. Hu also wants to give Li the job of the head of the Central Office, a powerful organization that receives and conveys all party communication. Here, Zeng Qinghong, whose main powerbase is the central party apparatus, might take issue with the appointment. Without Zeng's backing, Li's appointment will be difficult. However, there could be some form of compromise wherein Li receives his promotion to the alternate member of the Politburo, while Wang Gang maintains his job as the head of the central office. Hu should be satisfied with this outcome, since the promotion of Li to the Politburo sets him up for a promotion to the Standing Committee at the 17th PC, making Li the official successor. However, I don't think Hu will get his way at the 17th PC. Besides Li, at least one other young star will get a promotion to the PSC, quite possibly Bo Xilai.


[LatelineNews: 2005-10-5] BEIJING - China's Communist Party gathers behind closed doors this weekend for an annual meeting that will chart a course for the fast-growing economy and may see party chief Hu Jintao further consolidate his power.

The party plenum opening on Saturday will be the first at which Hu holds all top party, military and state posts, following the retirement of his predecessor Jiang Zemin from his last position, the state military chairmanship, in March.

Thus the spotlight at the four-day meeting in the Soviet-era Jingxi Hotel will be on Hu to see whether he takes the opportunity to manouevre key allies into place, push forward a possible successor and cement his grip on power.

The party's 354-member Central Committee will also approve a draft of China's 11th Five-Year Plan, a policy blueprint widely expected to continue with pursuit of the strong growth that has transformed the country into the world's seventh-biggest economy.

A barometer of his consolidation of power will be whether Hu -- the country's fourth generation leader after Mao Zedong, Deng Xiaoping and Jiang -- has the political clout to name a fifth generation successor at the plenum, said sources with ties to the leadership who requested anonymity.

Another test will be whether Hu can seize control of Shanghai, the political stronghold of Jiang, 79, who still wields influence through political allies in China's financial capital and who dominate the party's all-powerful nine-member Politburo Standing Committee.

Mao was in power for 27 years until his death in 1976. Deng called the shots for about 20 years until his death in 1997. After just 13 years, Jiang handed the top party post to Hu in 2002, but clung to the chairmanship of the Central Military Commission until the 4th plenum last year.

Similarly, Hu will come under pressure to hand over power when he turns 70 in 2012, at the end of his second five-year term as party chief. With Jiang's health and influence deteriorating, Hu is anxious, some sources said, to cement his grip on power and chart the next succession.


Li Keqiang, 50, a key Hu ally who has a doctorate in economics from Peking University and cut his teeth in Hu's stronghold, the China Youth League, is front-runner to become China's fifth generation leader, two independent sources said.

Hu is pushing to promote Li to become an alternate member of the Politburo and possibly director of the party General Office, the nerve centre handling classified documents and administrative and logistical affairs, the sources and political analysts said.

Last year, Jiang blocked another Hu ally, Liu Yuandong, a minister responsible for party relations with non-Communists, from replacing Chen Liangyu as Shanghai party boss.

If Hu succeeds in Shanghai this time, Chen would retain his seat in the party's 24-member decision-making Politburo but be given a largely ceremonial position in Beijing, the sources said.

Some sources argue Hu will not make drastic personnel changes because he still needs cooperation from Jiang allies to deal with problems ranging from mounting tensions between rich and poor, officials and the people, and corrupt and honest officials.

"It'll be tantamount to a declaration of war if Hu makes Shanghai his target," one source told Reuters.

One analyst who spoke on condition of anonymity added: "Hu may feel he has more pressing problems to attend to and put off any major personnel changes."

Obsessed with social stability, China's leaders have cracked down on the media and the Internet to eliminate the threat of "colour revolutions" like the popular uprisings which toppled dictatorial regimes in post-Soviet Ukraine and Georgia.

With a record 74,000 protests across China in 2004, up from 58,000 last year, the leadership is struggling to reduce high health, education and housing costs and the number of unemployed.

"It has become clear to the new Chinese leaders that, unless policies are changed, the country will be on the verge of social revolution led by vulnerable groups such as farmers, migrant workers and the urban unemployed," said Cheng Li, an expert on the Chinese leadership at Hamilton College, in a recent report.

"That is the main reason the Hu administration has called for the establishment of a more 'harmonious society'," Li wrote, referring to Hu's attempt to address the inequities that have built up in China.

Regardless of how the political jockeying turns out, China is expected to celebrate the plenum's success with the launch of its second manned space flight the day after it closes.


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