Tuesday, July 31, 2007

An interesting news item, all of the standing committee members from the previous party congress made a press appearance recently, visiting an exhibit at the Military Museum. Well, at first glance, it seems like the old guards are endorsing the new leadership. However, why did they decide to visit the military museum (as oppose to some kind of exhibition on technology, for example) AND accompanied by current members of the Central Military Commission. Doesn't it also suggest that current members of the military have to pay homage to retired members of the Standing Committee? Although the full gang was there, the article clearly focused its attention on "Comrade Jiang Zemin." I think the appearance is Jiang's attempt to exert some influence in the run-up to the 17th Party Congress. He was accompanied by the other members probably as a result of some political compromise to make the event less like Jiang's triumphant return to politics. Notice, besides Jiang, none of them looked too happy to be there. Zhu Rongji looked positively distressed! On the positive side, all of them looked fairly healthy.


2007年08月01日02:48 来源:新华社

7月31日晚,江泽民同志在北京参观新中国成立以来国防和军队建设成就展。李鹏、朱镕基、李瑞环、尉健行、李岚清等一同参观。 新华社记者姚大伟摄






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Monday, July 30, 2007

Guys, ready for for a good scare? The article below provides more details on the murky elite politics in Beijing. Among the rumors being circulated, the reporter states that "It will be little surprise if Mr Zhang is made a member of the Politburo Standing Committee and an executive vice-premier in October." He is referring to Zhang Dejiang, the party secretary of Guangdong, who also attended the Kim Il-Sung University in North Korea. Mm, let's see, is he the most obvious candidate for running important segments of the economy? I really hope they don't make such a decision, but well Huang Ju was made executive vice-premier, so who knows. Mr. Paulsen, while you are in Beijing, you may want to check up on the truthfulness of this little rumor.

FT News, Education
Murky power struggle grows more intense China Briefing
Wang Xiangwei
981 words
30 July 2007
South China Morning Post
(c) 2007 South China Morning Post Publishers Limited, Hong Kong. All rights reserved.

Over the past week, Beijing has been baked by searing heat and shrouded in a heavy blanket of smog, reducing visibility and irritating millions of people.

The smog-filled skyline, if it persists, does not augur well for the elaborate celebrations planned for Tiananmen Square on August 8 to mark the one-year countdown to the Beijing Olympics.

The smoggy and muggy weather could also serve as a metaphor for the intensity and uncertainty of the behind-the-scenes power struggle being waged among the capital city's political circles.

In the mainland's pervasively secretive politics, nothing is more closely guarded than the leadership reshuffle to be discussed and approved at the Communist Party Congress, in this case the 17th congress scheduled for October. With the state media muzzled and public debate prohibited, overseas analysts have little choice but to resort to reading tea leaves, sifting through incessant waves of speculation and official statements.

An example is the mainland leadership's decision last Thursday to strip former Shanghai party secretary Chen Liangyu of his party membership and all his official posts, and to turn him over to prosecutors following a 10-month corruption investigation.

The announcement has put to rest speculation that President Hu Jintao was unable to have Chen swiftly prosecuted because of opposition from former president Jiang Zemin , the head of the so-called Shanghai Gang, of which Chen is a prominent member.

But it has created a new wave of speculation about a possible power struggle between Mr Hu and Mr Jiang.

According to the announcement, Chen's alleged crimes - which included taking bribes, keeping mistresses and abusing power to help his associates and family members - started nearly 20 years ago, when he was the head of Shanghai's Huangpu district.

The unspoken implication cannot be clearer: Chen had long been protected by his mentor, Mr Jiang, who became the mayor of Shanghai in 1985. Otherwise, the announcement could have simply focused on Chen's recent crimes, including the biggest - misappropriating over 3 billion yuan from Shanghai's pension fund.

By taking a dig at Mr Jiang, however, the announcement has also provided evidence that the anti-corruption campaign against Chen was politically motivated, and pokes fun, however unwittingly, at the party's claim that toppling Chen was a sign of its determination to root out corruption.

From reading these tea leaves, at least, one can infer that Mr Hu has clearly won this round and strengthened his influence in the party. But the die is far from cast.

As the congress draws nearer, the overseas media are filled with speculation on the candidates for the nine-member Politburo Standing Committee and the 20 or so members of the Politburo itself.

Partly reflecting their own wishes, the overseas analysts are betting that the odds favour Mr Hu's allies and supporters. But the optimism might be misplaced.

Contrary to widespread speculation that Mr Hu has dominated the reshuffle game, and that key appointments have already been largely decided, the word in Beijing's corridors of power is that the jockeying is intensifying to such a degree that consensus cannot be reached on key appointments, and the congress could be delayed from the first half of October to the latter half.

The rumours that Mr Jiang has little influence over the impending reshuffle are also incorrect. Many of his supporters still have a good shot at top leadership positions.

One is Zhang Dejiang , the party secretary for Guangdong province.

Soon after Mr Zhang was appointed to his current position in 2002, a concerted campaign to discredit him began in the Hong Kong media, purportedly started by Guangdong officials.

This campaign blamed him for a series of riots in the province, including the infamous incident in Shantou in which police shot dead a number of unarmed protesting farmers.

But as a savvy political operator, Mr Zhang has earned the trust of the mainland leadership by complying with the central government's directives, in contrast to Chen's rash challenges against them.

Mr Zhang is also not as conservative as many analysts believe him to be. In the early days of student demonstrations and before the bloody Tiananmen crackdown in June 1989, Mr Zhang, then a deputy minister of civil affairs, was one of the few senior government officials to publicly express sympathy for the students.

In 1990, he was appointed party chief of Yanbian in Jilin province . This was widely seen as a demotion. But he demonstrated his political resilience by climbing his way up the ranks to become the provincial party chief five years later.

It will be little surprise if Mr Zhang is made a member of the Politburo Standing Committee and an executive vice-premier in October.

If any big surprise comes from the congress, it is most likely to concern the premiership of Wen Jiabao . Last month, Japan's Kyodo news agency quoted unidentified sources as saying that Mr Wen felt that five years of running the country was enough, because of the heavy workload, but he would continue to serve on the Politburo Standing Committee.

Beijing reacted swiftly to the report, when it would normally ignore such rumours.

The Foreign Ministry spokesman quickly denied the report and summoned the Kyodo reporters for a tongue-lashing. This unusual denial could mean the report touched a raw nerve.

Mr Wen has earned a reputation as the "people's premier" for his down-to-earth manner and his affection for the poor and powerless.

However, he faces increasing pressure to find ways to curb the soaring property market and rising inflation, as well as the worsening environmental degradation.

He is also beset by intense rumours over the business activities of his family members, while many conservative party members are wary of his liberal ideas.

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Friday, July 27, 2007

Poor Chen, his case will be made into anti-corruption teaching material....

http://www.sina.com.cn 2007年07月27日04:18 新华网

  新华网北京7月26日电 7月26日,中共中央政治局会议作出决定,给予陈良宇开除党籍、开除公职处分,对其涉嫌犯罪问题移送司法机关依法处理。日前,中央纪委副书记夏赞忠接受记者采访,就查处陈良宇严重违纪案件回答了记者提出的问题。
















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Thursday, July 26, 2007

Well, Chen is finally out of the party, and the likelihood now is that he will be criminally prosecuted....poor Chen. What he is accused of doing is exactly what hundreds of other city officials out there are doing. Granted, since Shanghai is the biggest city, it was done on a larger scale.

Top China boss removed from party
Chen Liangyu on 21 September 2006
Mr Chen was the most senior official to be sacked in a decade
The former Communist Party leader of Shanghai has been expelled from the party, state media reports.

Chen Liangyu was also sacked from all his government positions, according to state television.

He was fired last year after a probe into the alleged misuse of the city's pension fund. Many other senior figures were also accused of involvement.

Analysts say the latest move against Mr Chen could take him one step closer to standing trial on corruption charges.

The party has vowed to crackdown on officials found guilty of corruption, which has become rampant since market reforms opened the economy in the 1980s.

'Illegal loans'

State media said Mr Chen, the former party secretary in Shanghai, had been handed over to judicial authorities and that his case had made a "very negative impact" on the image of the Communist Party.

Mr Chen 60, was fired last September after a government investigation into the alleged misuse of at least one third of Shanghai's 10bn yuan ($1.2bn) pension fund.

Beijing power play

The money was said to have been used to make illegal loans and investments in real estate and other infrastructure deals.

Mr Chen was accused of seeking benefits for companies and relatives, and for protecting corrupt officials.

The case also led to the removal and detention of several other officials, including the city's social security and labour chief.

Mr Chen was the first member of the Politburo, the party's top leadership council, to be dismissed for corruption since 1995.

Following his dismissal last September, he did not turn up at Beijing in March for the annual session of parliament.

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Sunday, July 15, 2007

Wow, this is an interesting story. Pork is an important meat in China, but this is going a bit far. Why not just substitute in chicken? Perhaps because chicken has a distinct taste. Ah, one of the many woes of rising inflation....

*Pork buns stuffed with cardboard*
(Shanghai Daily)
Updated: 2007-07-13 09:22

Beijing authorities yesterday shut down a dim-sum booth that was
discovered stuffing its steamed buns with cardboard in an apparent
attempt to offset the rising cost of pork.
The booth's owner fled and is wanted for questioning.

The raid came after an investigative TV reporter uncovered the dodgy
buns in a kitchen a few days earlier. The kitchen was used to prepare
the dumplings for later sale at the street side booth in Beijing's
Chaoyang District.

A video broadcast on Wednesday night on China Central Television Station
showed an undercover interview conducted with a hidden camera.

The segment opened with a shot of cardboard piled in a heap between rows
of shabby houses.

The camera followed a man, whose face was not shown, into a ramshackle
building where steamers were filled with many fluffy white buns, the
type traditionally stuffed with minced pork.

The shirtless, shorts-clad man, believed to be the owner, apparently
thought the reporter was a wholesale customer for the buns.

When the reporter asked why cardboard filler was being used, the
interview subject said it was done to lower costs.

The man and a woman in the house then showed the reporter how the
process worked.

Cardboard was soaked in water, and an industrial-use caustic soda, a
poisonous chemical, was added. The cardboard lost its normal color,
became softer and started to look more like pork.

"Can customers recognize the cardboard?" the reported asked.

The man replied, "Most of them can't, as pork fat is stirred into the
concoction to make the stuffing taste more authentic."

When asked the proportion of the raw materials, the man said the mix was
60 percent cardboard to 40 percent pork fat.

About 10 minutes later, steaming servings of the buns appeared on
screen. The reporter took a bite.

"This baozi filling is kind of tough. Not much taste," the reporter
said. "Do you eat them?"

The man answered, "No."

"Most of my customers are residents in nearby areas," the man said. "It
may save me almost 1,000 yuan (US$132) a day."

It was unclear how long the booth had been serving the cardboard-filled
dumplings. The kitchen was in nearby Taiyanggong Village, far enough
away that customers couldn't discover the true nature of the dumpling

Officials with the Zuojiazhuang Industrial and Commercial Administration
closed down the kitchen yesterday and began questioning its landlord,
according to the Beijing Times report.

Chaoyang District's Industrial and Commercial Administration said it
will inspect the district's 58 dim-sum restaurants to make sure similar
shortcuts aren't being taken.

Pork prices in 36 major cities across the nation continued to rise last
month due to a continuing supply shortage.

it appears the story was a hoax.
The press now reports that the cardboard baozi story was a hoax, but the speculation in HK is that the story uncovering the hoax is in fact the real hoax. Either way, it demostrates just how little faith people both in and out of China have in the safety of Chinese food.
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Saturday, July 14, 2007

The word on the street is that the currency manipulation bill may actually pass after extensive modification. Although it will take some time to work itself through the system and for the Treasury to actually implement it, it will increase pressure on China. Poor Lou Jiwei--he may be in charge of one of the world's largest funds, but essentially, he has to make substantial returns just to break even. And if the pace of revaluation picks up, he has to do even better. The the post-IPO decline in Blackstone shares probably caused him a few sleepless nights. Well, there will be plenty more sleepless nights unless he figures out a foolproof way of breaking even, which now means 8% instead of 7% previously......If only U.S. hedge-fund managers were held by the same standard.....

Senators Target China Currency, Propose Dumping Laws (Update3)

By Mark Drajem
Enlarge Image
Senators L. Graham, C. Grassley, M. Baucus and C. Schumer

June 13 (Bloomberg) -- Four U.S. senators introduced legislation today that would allow American companies to petition for steeper anti-dumping duties to counter the benefit of any undervalued currencies in China or other countries.

Democrats Charles Schumer of New York and Max Baucus of Montana and Republicans Lindsey Graham of South Carolina and Charles Grassley of Iowa also are seeking to change how the U.S. determines whether countries are manipulating their currency by dropping a requirement that the U.S. find evidence the country is trying deliberately to get a trade advantage.

Instead, the U.S. Treasury would look for specific signs that a country's currency is ``fundamentally misaligned,'' and then target the country for action, including a World Trade Organization complaint, if it persists in those actions.

``For too long our currency policy has left American workers and businesses unprotected from foreign governments seeking an unfair financial advantage,'' Baucus said at a press conference. ``There have been a lot of currency bills, but this one is the real deal.''

The Senate Finance Committee will probably vote on it next month and the full Senate in September, Baucus said. The measure will pass both the House and Senate by a veto-proof majority, said Schumer, the third-ranking Democrat in the Senate.

The legislation is the latest attempt by lawmakers to address China's trade surplus with the U.S., which surged to a record $232.5 billion in 2006. The lawmakers say that an undervalued yuan gives China's exports an unfair edge by making its products cheaper. The measure could also apply to Japan or any other nation, the senators said.

China on Their Minds

Schumer and Graham sponsored legislation last year that threatened China with a 27.5 percentage point increase in across-the-board tariffs to punish it for its currency policy. They dropped that approach late last year and pledged to develop legislation that wouldn't run afoul of global trade rules.

The Treasury Department today issued a semi-annual report on currency practices around the world without identifying China out as a currency manipulator. The report said it couldn't determine if China intended to seek a trade advantage by keeping its currency undervalued.

``The inaction of China over the last two years has disappointed us and disappointed us and disappointed us,'' Schumer said. When Treasury decides ``not to label China a currency manipulator, they are in effect tossing the ball to Congress.''

WTO Complaint

Under the legislation, if adopted by Congress and signed into law, Treasury would need to show only that a currency is out of line with its real market value based on government intervention and the accumulation of dollar reserves.

If a country is deemed to be misaligned, the U.S. Trade Representative's office would have one year to file a complaint at the WTO with that nation, and the Treasury Department would have to consult with the Federal Reserve and other central banks to consider ``intervention in currency markets.''

China and the Bush administration have warned against new legislation, without commenting on the particulars of this bill.

``You have a legitimate concern with the size of the deficit,'' Chinese Ambassador Zhou Wenzhong said yesterday. But legislation ``will hurt opportunities for healthy business activities between China and the United States.''

``We believe the best way to engage China is through dialogue and engagement and not necessarily legislation,'' Clay Lowery, the Treasury's top international official, told reporters today in Washington.

Dodd, Shelby Measure

Senate Banking Committee Chairman Christopher Dodd of Connecticut and the panel's top Republican, Richard Shelby of Alabama, yesterday introduced legislation to make it harder for Treasury to avoid naming a country a currency manipulator and to establish new consequences for that designation.

Democrats in the House Ways and Means Committee are set to propose their own bill in the coming weeks.

The yuan has risen 8.3 percent since China ended a strict peg to the dollar in July 2005. U.S. lawmakers say the currency is undervalued as much as 40 percent, and the legislation would require the Treasury Department to determine on its own how far off it is from a fair-market value.

Treasury Report

The Treasury is required under a 1988 law to report twice a year whether countries are pursuing currency policies for ``the purposes of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade.'' This bill would replace that law and establish tougher consequences for violating it.

Under current U.S. regulations, the U.S. uses the actual exchange rate on the date of sale of a product to determine the scope of dumping, which occurs when a country sells goods overseas at less than the price they are sold at home.

Under the measure proposed today, the Commerce Department would adjust its calculation on prices of goods to reflect a realistic exchange rate if a country doesn't adjust its currency value 180 days after it is deemed to be ``fundamentally misaligned'' with the dollar. This would have the effect of raising anti-dumping duties on imports from those countries.

China is the target of the most anti-dumping complaints in the U.S., with 62 separate products targeted as of the end of March, ranging from crawfish meat to glossy paper.

In addition, companies from a country that doesn't adjust its currency could be cut out of U.S. government contracts and export financing, and the U.S. would be obligated to oppose new World Bank and other international loans for that nation.

The legislation gives the administration discretion about whether to consider remedial action and the ability to waive action if the president found that consequences would harm the ``vital economic interest'' of the U.S.

Those exceptions would be very limited, Baucus said.

``This bill will make it very difficult for any Treasury secretary not to find misalignment when it occurs,'' he said.

To contact the reporter on this story: Mark Drajem in Washington at mdrajem@bloomberg.net
Last Updated: June 13, 2007 16:24 ED

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Monday, July 09, 2007

Pretty funny story below.....though I dare say that it's only a matter of time before a real case pops out of the CSRC.

Regulator gets a taste of market speculation
South China Morning Post
Wang Xiangwei
Jul 09, 2007

On Monday two weeks ago, intense speculation raged on the grapevine of
the mainland's stock markets: Fan Fuchun , a vice-chairman of the China
Securities Regulatory Commission, had been detained for corruption.
Thanks to the power of the internet and text messages, speculation ran
so widely and so fast that many commission officials reportedly
received messages from friends as far as the United States inquiring
about Mr Fan's situation.

The speculation died down over the following days after messages
stated that Mr Fan was spotted in the commission's office building. The
regulator also posted a news release on its website the following
Wednesday, including a summary of Mr Fan's remarks on the previous
Friday and a photo of him.

The irony is that the speculation started and spread like wildfire
simply because Mr Fan was unreachable over the weekend after giving a
speech at a seminar in Shanghai the previous Friday. The intensity and
the speed at which the false speculation spread are thought-provoking.

Although Mr Fan was an innocent victim, the fact that experienced
investment bankers and market players are so ready and, some might say,
so eager to accept the speculation says a lot about the public
perception of commission officials, and their power and influence over
the roller-coaster stock markets.

Amid rampant insider dealing and profiting by powerful interest groups
from initial public offerings, there has been mounting public anger at
the regulator's efforts to micromanage and failure to allow market
forces to play a bigger role.

Compared with its overseas counterparts, the commission wields
considerably more power over every aspect of the mainland's stock
markets, from preparing firms for IPOs, the approval process and IPO
pricing, to the regulation of secondary-market trading.

Critics argue that many commission practices are not in line with
international ones, a situation that can give rise to corrupt practices
such as insider trading. For instance, it has a final say over price-
setting of IPOs instead of allowing the firms and their listing
sponsors to make a decision based on investor demand.

The practice has recently earned a stinging rebuke from the World
Bank, which criticised Beijing - in effect the commission - for
deliberately underpricing domestic stock offerings, saying it had
resulted in billions of dollars in lost revenue to state coffers while
lining the pockets of insiders and feeding the stock-market frenzy.

Critics also say the practice of mandating the companies to go through
a three-year period of preparation for listing has created unnecessary
burdens and inflated the companies' costs.
For example, the Bank of Nanjing, one of the first two city commercial
banks recently given approval to issue shares, had to wait more than
four years, and spent much time and money dealing with commission
inquiries over documentation, making it more costly to list on the
domestic markets than overseas.

Meanwhile, the regulator appears to have done a poor job in cracking
down on insider dealing and other irregularities, a source of major
irritation among investors. The Legal Daily reported that employees
from the securities regulator, stock exchanges, securities firms and
funds have openly flouted the Securities Law by using inside
information to speculate in stocks.

Since 1998, mainland regulators have adopted a mechanism by which
listed companies that have incurred losses two years in a row, or have
had unusual financial problems, must be put under the special treatment
category known as ST stocks.

The intention was to delist the ST stocks if there was no
improvement. In fact few ST companies have been delisted. Instead,
most have been the darlings of speculators, who use rumours of
restructurings and takeovers to move their share prices.

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Saturday, July 07, 2007

Sure, pollution is bad, but so is heavy handed intervention into the banking sector. The new decree by the PBOC to stop banks from lending to polluting industries not only shows that the era of heavy intervention into the banks is far from over. It also shows that local enforcement is far removed from central regulations, forcing the central government into this desperate tactic. The main beneficiaries: diversified large state owned conglomerates which are flooded with money. They can lend to polluting industries with a premium.

Publication: BBC Monitoring
Provider: BBC Monitoring
Date: July 6, 2007 (11:58)

Chinese banks ordered to suspend loans to non-environmentally friendly projects
Chinese banks ordered to suspend loans to non-environmentally friendly projects

Text of report in English by official Chinese news agency Xinhua (New China News Agency)

["China Tries To Choke off Money Supply To Non-Environmentally Friendly Projects" - Xinhua headline]

Beijing, July 6 (Xinhua) - China's central bank instructed commercial banks on Friday to suspend credit support for to-be-eliminated high-energy and high-resource consuming projects and heavy-polluting projects, demonstrating the country's determination to reach its energy efficiency and pollutant reduction targets.

The central bank also asked commercial banks to provide no credit support for new projects that are discouraged by the government in terms of energy saving and environmental protection, and give no more than essential credit to ongoing projects of this type.

Commercial banks are required to simplify lending procedures to positively support energy-saving and environmentally-friendly enterprises and projects, and offer them preferential lending policies.

The central bank said that banks should channel credit to projects using energy saving and environmental protection technologies and making innovations in these areas.

It called on lending houses to include environmental protection information in a company's credit record.

The central bank also encouraged financial institutions to develop more direct financing products for environmentally-friendly enterprises to help them explore financing channels and cut their financing costs.

The instructions from the central bank aim to pull the financial sector into line with the country's industrial policies and make sure the country's energy efficiency and environmental protection targets are met.

Chinese Premier Wen Jiabao said earlier this year "the current macro-control policy must focus on energy conservation and emission reduction in order to develop the economy while protecting the environment".

The challenge of reducing energy consumption and greenhouse gas emissions is proving arduous, to say the least. China's economy grew 11.1 per cent in the first quarter but power consumption surged 14.9 per cent, suggesting there has been no major change in the country's overall emissions trend.

China has set a target of reducing energy consumption for every 10,000 yuan of GDP by 20 per cent by 2010, while pollutant discharges should drop by 10 per cent.

But energy consumption fell only 1.23 per cent last year, well short of the annual 4 per cent goal.

The Chinese government has vowed to reform the pricing of natural gas, water and other resources, raise taxes levied on the discharge of pollutants, establish a "polluter pays" system and severely punish those who violate environmental protection laws.

China's top legislature began in late June deliberating a draft amendment to the Law on Conserving Energy, which details measures to avoid energy waste in construction projects, the transportation sector and government buildings to improve energy efficiency and cut pollution emissions.

Source: Xinhua news agency, Beijing, in English 1158 gmt 6 Jul 07

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Wednesday, July 04, 2007

Just when you think China is on its way to more transparency, you see reports of the Chinese government pressuring the World Bank to not release figures indicating some 750,000 premature deaths in China due to environmental pollution. First of all, this figure is quite shocking by itself, even in a country with such a large population. Although the unofficial excuse is that government officials are fearful that releasing the regional distribution of premature deaths would trigger social unrests, I don't think farmers in China are in the habit of reading World Bank reports. The more likely reason is that the State Environmental Protection Agency (SEPA) officials who coauthored the paper did not want regional officials to retaliate against SEPA in some fashion. Finally, it is a shame that the World Bank allowed the Chinese government to pressure it into not releasing information to the public, although frankly I am not surprised.

China forces World Bank to cut pollution figures

Agence France-Presse in Beijing Updated on Jul 03, 2007

Research showing that 750,000 people die prematurely in China each year from pollution was cut from a World Bank report following pressure from Beijing, the Financial Times said on Tuesday.

Beijing successfully lobbied for the removal of a third of the report, entitled Cost of Pollution in China, arguing the contents could lead to social unrest, the London-based newspaper said.

China’s State Environment Protection Agency (SEPA) and health ministry asked the World Bank to remove the figures from a draft of the report finished last year that stated about 750,000 people die prematurely each year from pollution.

Advisers to the research team said China also successfully pushed for the removal of a detailed map showing which parts of the country suffered the most deaths.

The World Bank was told that it could not publish this information. It was “too sensitive and could cause social unrest,” the Financial Times quoted one adviser to the study as saying.

The World Bank put together the report in co-operation with Chinese government ministries over several years.

Guo Xiaomin, a retired SEPA official who coordinated the Chinese research team, told the newspaper the cuts were made partly because of concerns that the methodology was unreliable.

But he added the information on premature deaths “could cause misunderstanding,” the article said. Mr Guo reportedly also expressed concerns over the size of the report.

We did not announce these figures. We did not want to make this report too thick, he told the Financial Times.

Advisers to the project said the information was taken out reluctantly.

Officials from China’s environment agency and health ministry declined to comment to the Financial Times.

The World Bank reportedly said the findings of the final report were still under discussion, and that they would be made public as a series of papers soon.

When contacted by AFP on Tuesday, the World Bank’s office said it would shortly release a statement on the issue.

Sixteen of the world’s 20 most polluted cities are in China, according to previous World Bank research.

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Wow, it's pretty crazy. Without much warning, we have the first shot of a trade war on our hands. However, I suspect that Premier Wen is secretly cheering the U.S. on, since he would like to see stricter standards as well, but has been hampered by regional lobbies. This will give an incentive to regional government to enforce standards.

The New York Times

July 3, 2007
A Slippery, Writhing Trade Dispute

TAISHAN, China, June 30 — At the Xulong eel factory here, a team of workers
slice eels, lop off their heads and push them through a huge assembly line
that will cook and package them for millions of customers around the world.

The precision round-the-clock operation, aided by a roasting oven that
spans the length of a football field, is one reason China now dominates the
world's seafood trade, and supplies 80 percent of America's imported eel
and 70 percent of its tilapia.

But the Food and Drug Administration says Xulong and other Chinese
companies will be restricted from selling certain types of seafood in the
United States because regulators keep finding Chinese imports contaminated
with carcinogens and excessive antibiotic residues.

Here in the Pearl River Delta area, near Hong Kong, it is not hard to see
why. Rivers, lakes and coastal waterways are so fouled with industrial
chemicals or farm effluents that many seafood exporters are forced to rely
on antibiotic drugs to keep their fish alive.

China's coastal regions, after all, are also home to its biggest factories,
which are famous for churning out electronics, processing chemicals and
dumping mountains of toxic waste.

At the Xulong factory here, officials offered a tour of what they said was
an up-to-date plant that forces workers to disinfect themselves by going
through multiple washing stations. The officials showed off on-site testing
labs and boasted that pure water from a local reservoir made their eel the
best in China.

Even so, the company's eel has been refused entry into the United States on
multiple occasions. Last April, the F.D.A. refused four shipments of
roasted eel from a nearby Xulong factory because they contained residues of
banned antibiotics that could prove harmful to consumers.

In an interview here on Saturday, Xu Liming, vice chairman of the Xulong
Group, defended the quality and safety of his products.

"There are a lot of poor places in China that don't care about food
safety," said Mr. Xu, who help found the company with two brothers in 1983.
"But we're a big company and we've invested a lot in food safety. We're the
only eel producer certified to ship to Europe."

But if Xulong — which is the world's biggest eel producer and claims to
have some of the cleanest operations in China — at times cannot pass muster
with American regulators, how many Chinese seafood companies can?

The question has huge implications for the global seafood trade, and for
the United States, which imports 80 percent of the seafood Americans

The heightened concern has also set the stage for a nasty trade dispute.
After a series of high-profile recalls of Chinese-made goods — from tainted
toothpaste and pet food to toxic toys and defective tires — some members of
Congress are pushing for stronger measures against Chinese imports. And
European Union officials say they are considering their own restrictions.

Experts say a broader crackdown could be a severe blow to China's $35
billion fish- and seafood-farming, or aquaculture, industry, which is
helping meet soaring demand for seafood at a time when supplies of wild
fish stocks are being depleted.

"This is certainly bad for Chinese aquaculture," said Rohana P. Subasinghe,
a fish-farming expert at the United Nations Food and Agriculture
Organization. "A ban on any product to any major region or country has
tremendous repercussions for the country and the industry."

The new F.D.A. restrictions, announced Thursday, effectively ban some of
China's biggest seafood imports, including shrimp, catfish, eel and a type
of carp. The move drew a quick rebuke from China, which on Friday warned
the United States about acting "indiscriminately."

China is already the leading supplier of seafood, garlic and apple juice
concentrate to the United States, and it is gaining market share in
processed vegetables, frozen foods and food ingredients. That is worrying
food-safety experts, who say American regulators are ill equipped to deal
with China's rise as a major food supplier.

"China has gone from literally nowhere to No. 3 in food imports behind
Canada and Mexico," said Michael Doyle, director of the Center for Food
Safety at the University of Georgia. "And if we're going to continue to
import more and more of our food, we're going to have to have a better
inspection program."

In the United States alone, Chinese seafood imports jumped from about $550
million in 2001 to about $1.9 billion last year, about 22 percent of total
seafood imports. But 60 percent of the seafood shipments that were refused
entry by American regulators came from China.

And those figures may not tell the full story. Robert Schubert, director of
research at Food and Water Watch, a nonprofit group, says the F.D.A. is
sampling only a tiny fraction of the food shipments entering American
ports, which means much of the tainted seafood may be making it to stores.

"The F.D.A. needs its budget massively increased, and it needs to respond
with more testing," said Mr. Schubert, co-author of a study on the growth
of American seafood imports.

What has been stopped by inspectors is alarming. In May alone, regulators
tagged "filthy frozen scallops"; catfish, eel and shrimp laced with banned
chemicals; unsafe additives; pesticides; and cancer-causing agents.

European Union officials say they have also noticed a rise this year in the
number of Chinese seafood shipments turning up with banned chemicals,
despite strict procedures, including food-safety test certificates
presented by the Chinese government.

["We are reviewing our measures in light of a number of factors," Philip
Tod, a spokesman for the European Commission said Monday, noting that
European Union member countries have issued nine Chinese seafood alerts so
far this year, up from three in all of 2006. "That is a cause of concern.
We are aware there appears to be a problem with veterinary medicine

This is not the first time Chinese seafood has run into problems. In recent
years, the European Union and Japan have both placed restrictions on
imports of Chinese seafood after detecting banned antibiotics, like
malachite green. And this year, several Southern states in the United
States banned or blocked imports of Chinese catfish after detecting illegal

Part of the problem, experts say, is that breeding ponds in China are
overcrowded to bolster production in the gigantic factory-style fish farms.
And fish excrement and bacteria in the water can devastate large schools of

"When you're raising thousands and thousands of fish together, you have
disease spreading," Mr. Schubert said. "And the operators try to control
that by using drugs and antibiotics."

In addition, a recent study by scientists from the Chinese Academy of
Sciences found that seafood products in 11 coastal cities in the Pearl
River Delta area were heavily contaminated with pesticides, including DDT,
which was banned in China in 1983.

"The only region that reports higher levels of DDTs is Egypt," the report
said. "This indicates that the coastal region of southern China is probably
one of the most DDT-polluted areas in the world."

Another study released in May by local scientists was just as damning,
finding that the coastal waters around Guangdong are being devastated by
large deposits of oil, lead, arsenic, mercury and copper.

So when heavy rains hit the area earlier in June, government scientists
issued a seafood alert because of a huge toxic "red tide," an algal bloom
that was carrying industrial waste to some of the region's biggest
seafood-producing areas.

Consumers were warned not to go swimming and not to eat local seafood.

Given the problems found with Chinese seafood, American regulators say they
had no choice but to impose new restrictions. "There's been a continued
pattern of violation with no sign of abatement," said Dr. David Acheson,
the F.D.A.'s assistant commissioner for food protection.

Many Chinese seafood exporters say they get their supplies from local fish
farmers, who sometimes overuse antibiotics. But the exporters also say the
F.D.A. restrictions are overly harsh and smack of politics.

"This is all about trade protectionism," said Gao Hua, director of quality
at the Meihua Aquatic Processing Factory in Fujian Province. "Some U.S.
states suddenly raised their standards on the content of antibiotics in
seafood in April. Maybe they saw too many imports from China."

Copyright 2007 The New York Times Company

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Sunday, July 01, 2007

Interesting Op-ed from the Observer. I think things will only get worse from here as oil prices increase and even more manufacturing relocate to China and other Asian countries. Also, things will continue in this way as long as savings rate in the US is so dismally low.

State-backed giants who want to buy the world

Government-controlled funds from China and elsewhere are snapping up Western companies, writes
Oliver Morgan. Should we be worried?

Sunday July 1, 2007
The Observer

Protectionism is making a comeback. At least, that is the fear of many influential figures - from senior officials at finance ministries to politicians and independent economists. These experts are, generally speaking, pointing their fingers from West to East, from the US and Europe to China, Russia and the Gulf, and they are being specific about the threat.

A new breed of global investment behemoths, the so-called 'sovereign wealth' funds (SWFs) - effectively state-controlled investment funds bankrolled by huge foreign exchange surpluses or petrodollars - want to buy up, among other things, western companies. This could provoke protectionist calls from populist politicians.

Last week, for example, the German government was reported to be setting up an agency to examine acquisitions by these investment colossi, concerned that they could pose a threat to national security, particularly if they bought a major bank. A day later, the IMF joined calls for greater scrutiny of what it calls 'black boxes' through which increasing financial flows are funnelled.

There are also questions about whether it is desirable for companies in the UK, say, to be owned by foreign governments whose commitment to capitalism and democracy may be shaky. A week ago, a US Treasury official, Clay Lowery, stated baldly that there was a risk that 'the size, investment policies, and/or operating methods of these funds fuel financial protectionism'.

The UK is concerned too - senior officials from the Treasury and the Foreign Office are meeting the head of China's fund to indicate that, while Britain is open for business, it would be nice to know a bit more about the fund's management and intentions.

As these fears were pouring out, China announced that its state-run foreign exchange corporation would raise £200bn via a bond issue. Even before this capitalisation, China had been active on the international stage, buying a $3bn stake in private equity group Blackstone earlier this year, making investments in Africa and unveiling offers for US companies such as oil giant Unocal.

Meanwhile, officials in Dubai, which operates a hyperactive global investment fund as part of the Maktoum family-controlled Dubai World group - which bought P&O last year - indicated that it was prepared to collaborate with China on future projects and could get involved in asset swaps.

Gerard Lyons, chief economist at Standard Chartered bank, says: 'It is possible that this could lead us down a protectionist route. We have already seen signs of how some countries respond. The problem is that there are few ground rules for how these funds operate.'Lyons points to reaction in the US Congress to China's approach for Unocal and its demand that Dubai Ports World divest US ports on national security grounds as a condition for US clearance of its bid for P&O. But he also points out that sovereign funds have been around a long time. For example, the Singapore Investment Corporation and Kuwait Investment Office have existed since the Eighties. So what has changed?

The US view seems to be that things are getting serious because they are getting big. Lowery said: 'What is new is the number of sovereign wealth funds and their sheer current and projected sizes.'The numbers are indeed dizzying. According to Morgan Stanley and figures quoted by Lowery, SWFs hold some 2.5 per cent of all the world's financial assets. In 10 years' time, says Morgan Stanley,this could rise to 9 per cent.

The reason is the swelling of foreign currency reserves and the increased appetite for risk since the effects of the financial crises in Russia and Asian countries in the late Nineties have receded into history.

In the past five years, global foreign currency reserves have increased at a massive 20 per cent annually to stand at some $5.6 trillion. Much of the increase is accounted for by Asian countries building up reserves following the 1997-98 crisis. In the meantime, the high oil price has boosted foreign exchange earnings for Russia and the Middle East.

With post-crisis safety in mind, the repository for much of these reserves has been government bonds, particularly US treasuries, of which China alone holds about $ 1trillion. Now, however, the limits of prudence have been reached, and countries in surplus are looking to target higher-risk, higher-return assets - such as western companies.

Such is the weight of money behind these funds that analysts at Morgan Stanley estimate that as SWFs grow toward controlling 9 per cent of global wealth in the next decade, global bond yields will rise some 30 basis points in response. In short, the world could become a riskier place as these major investors switch away from safe old government bonds.

The fear is that risk will mean instability and that moving from holding debt to owning companies will make SWFs much more intrusive. The problem is that as things stand little is known about these bodies - from Dubai World to China's State Foreign Exchange Investment Corporation, to Russia's oil stabilisation funds. This only increases the risks that ownership by such bodies poses. Although China's bond issue gives a $200bn clue it is unclear if this is the extent of its finance, and
similar queries exist over the scope of the other players. Meanwhile, such things as investment principles and management discipline are unknown.

This, believes Lowery, could lead to protectionism. 'There will likely be much public attention to whether SWFs exercise the voting rights of their equity shares and if so how. If SWFs obtain operational control of the companies in which they invest, the fact that they are government entities may invite additional scrutiny.'

Lyons says: 'This is all evidence of a major change in the global economy.' He points to the forecast growth in Asia over the next 13 years - by 2020, a third of global trade could be accounted for by Asia compared with a seventh for the US, with the need to create some 750 million jobs on the continent by then.

His view is that it is vital to ensure a 'level playing field' for trade throughout this period of change, rather than the current higgledy-piggledy relationships. 'The US and Germany do have a more protectionist feel about them today,' he says. But this might be down to concerns over reciprocity: if China is able to buy companies in the US and Germany, and gain access to intellectual property, could it happen the other way around? It certainly looks more difficult.

However, as Lyons argues: 'If China opens up its markets, the Germans might become less protectionist.'

He believes a multinational, multilateral approach is needed to establish ground rules governing the operation of state-controlled funds. The question is, which organisation to use. The IMF (or the World Bank) may not cut it in Beijing.

Vincent Cable, Liberal Democrat Treasury spokesman, says: 'The World Trade Organisation should pick it up. China is a member and should be compliant with any conclusions. And this would be a good example of the importance of having Russia as a member of the organisation.'

The difficulty is that there are reservations over Russia's membership - its conduct on trade and economic issues, particularly over 'resource nationalism', is seen as getting worse, not better. There clearly is a will for reciprocity. While Lowery has made his fears clear, another official said last week that the US welcomed investment and would like to see China channelling its dollar reserves back into the US. Whether the need for a share of investment from the new capitalist bloc overcomes the fear of economic takeover by former communist state-owned monoliths may well determine whether the world enters a new era of protectionism.

What they own

2007 China State Foreign Exchange Corporation: Blackstone Group stake worth $3bn (£1.5bn)

2007 Delta Two, controlled by Qatari Royal family: 25 per cent of Sainsbury's

2006 Dubai Ports World (Part of Dubai World, investment vehicle of Maktoum family): P&O group $6.8bn

2006 Temasek (controlled by Singapore government): acquisition of Shin Corp, Thai
telecommunications group

1988 Kuwait Investment Office: 22 per cent stake in BP

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