Monday, Tuesday…

An open thread to start the week…let’s keep this one going, cause there’s still plenty of room to comment…


Dinner in Beijing?

[Note: This is Richard (remember me?) I’m moving this post up as a reminder, and also for those who may have not seen it earlier. We have at least seven people who’ve said they’ll be going. Hopefully I’ll have the location for you within 24 hours. If interested, please let me know so we can get a big enough table.]

A few readers have asked whether I thought it might be a good idea for fellow bloggers and readers in Beijing to get together for dinner, perhaps on Sunday night, August 28. I think it would be great, and if you are interested please send me an email or drop a comment here. It will be intriguing to actually see the faces behind the names.

With only three days to go before the trip, I should hibernate for a bit and focus on finishing my freelance work and getting organized. After this week’s record number of posts, I have got to tone it down dramatically. Unfortunately, I’m becoming compulsive about blogging and it’s easier to get off of heroin than is to stop posting. I’m going to try. Excuse me while I go into withdrawal.


Oil Wars

Lisa: You will definitely want to read this post from guest-blogger Martyn…

Update from Richard: This superb post by Marytn so far has garnered no fewer than five trackbacks, including one from that law professor in Tennessee – can’t think of his name at the moment. Outstanding work for a newbie blogger!!

The chaos created by sudden fuel shortages in Guangdong Province continues. Even yesterday, I noticed several petrol stations guarded by armed PLA troops. The signs outside warned that fuel was only available for public and government vehicles. The official reason for the shortages proffered by the central government, laughably, concerned last week’s typhoon that hit the province. Additional speculation for the shortages blamed market distortions due to price controls, alas this was only partly correct. Finally, the Hong Kong media got it right yesterday, the real reasons for the shortages have been common knowledge in Guangzhou for several weeks:

There are strong reasons to believe [Sinopec and PetroChina] have deliberately halted supplies to create seeming chaos…they want to pressure the NDRC [“National Development and Reform Commission” – the government body responsible for setting retail prices for refined oil products] for an immediate increase in oil product prices, thus cutting their considerable losses on refinery production stemming from the rising price of imported crude…the energy companies want to eventually force the NDRC to completely free oil product pricing so that they can completely dominate the market…[and] to take the opportunity to acquire the few petrol stations that they don’t already run.

Still, how is it possible for two majority state-owned companies to go to war with their own government? Had any reporters bothered to visit Guangzhou and simply asked the first taxi driver they saw, they too, would have been told the following story in excruciating detail:

China’s bureaucratic system makes it possible for the two giants to dare to challenge the NDRC’s authority because, administratively, Sinopec and PetroChina are under the supervision of the State-owned Assets Supervision and Administration Commission, not the NDRC. And, in the bureaucratic hierarchy, the duo are vice ministry or ministry-level units whose top executives are appointed by the State Council or cabinet. Given the rampant turf protection and regionalism on the mainland today, it is not uncommon for government units with competing interests to run into conflicts.

That’s the ‘how’ of it, as to the ‘why’, we need only to glance at the balance sheets of the mainland’s oil refiners. Together they lost 4.19 billion yuan in the first half of this year. Compare that to a profit of 16.38 billion yuan for the same period last year (figures from the China Petroleum and Chemical Industry Association). No wonder there are few happy bunnies among the executives at Sinopec and PetroChina. Their crude oil refining companies have been sacrificed for the greater good of society, i.e. to bear the losses incurred in providing cheap subsidized oil. Technically, China’s domestic crude and refined oil prices are linked to the international benchmarks but, in reality, domestic price increases have only been applied to crude, domestic refined oil prices have not closely followed those of the international market and have therefore fallen way behind in the last couple of years as international prices have sky-rocketed. Indeed, US$70 per barrel is fully expected within the next week or two.

(the unlinkable) South China Morning Post columnist Eric Ng further explains:

Refiners’ profitability remains at the mercy of macroeconomic policies of central government planners. With inflation control and closing the income gap between rural and urban China high on the state leaders’ agenda, the soaring diesel bill of the increasingly mechanised farming community has more political value than the red ink of oil refiners’ income statements.

It is hard to blame the government planners for dragging their feet on rising fuel prices, as complaints from 60 per cent of the population living in rural areas are louder than the outcry of the two domestic oil giants.

Now that the small independent refiners have shut their plants or cut production to avoid further losses, the two oil giants are asked to pick up the slack by despatching more fuel to supply-short areas. And they have to serve rising overseas demand too, as refined oil exports surged 45.5 per cent in the first seven months of this year, in contrast to a 20.9 per cent fall in imports.

It will be a tough balancing act for the government to weigh the ills of fuel smuggling, shortages and hoarding against popular discontent spawned by high fuel prices.

A couple of months ago several taxi drivers warned me about “trouble brewing” between the oil refiners and the government. “How come you’re so clued-up about the machinations of the big oil refiners?” I asked.

“Because any rise in the petrol prices might mean that I can’t pay the rent for my family’s apartment,” he replied.

Good answer, I thought.

One particularly colourful taxi driver raged at the hypocrisy of the “powers that be” in China: “The so-called principles of the big oil companies change as often as the weather,” he complained. “If international crude prices crashed down to US$10 a barrel they’d slip on their red hats and become hard-nosed socialists all praising the planned socialist economy and how domestic oil prices must be maintained artificially high ‘for national stability’. Now however, after making a killing for years, they complain about that same planned economy that feathered their nests for years isn’t to their taste. If the government suddenly let the oil refiners raise prices how many people would suffer? The government must get its economic house in order before allowing the oil companies a free reign.”

UPDATE: UPDATE: Always on the ball, Simonworld noted this
excellent point earlier:

“…as Sinopec and PetroChina have listed many of
their business operations in overseas securities
markets, they are increasingly able to cite
“shareholder interests” as an excuse to defy
government orders.

Maybe market economics can triumph over Communism
after all? The writer is implying that Sinopec and
PetroChina are using shareholder interests as a fig
leaf to ignore orders. What if, perhaps, they actually
believe in creating shareholder value and subverting
Government orders is a means to that end?


“9/11, 9/11, 9/11, 9/11, 9/11”

From the AP:

President Bush compared the fight against terrorism to both world wars and other great conflicts of the 20th century as he tried to reassure an increasingly skeptical public on Monday to support U.S. military involvement in Iraq.

With the anti-war movement finding new momentum behind grieving mother Cindy Sheehan, Bush acknowledged the fighting in Iraq is difficult and dangerous. But he told the Veterans of Foreign Wars national convention the fight is necessary to keep terrorists out of the United States.

As he did in last year’s election campaign and more recently as war opposition has risen, Bush reminded his listeners of the terrorist attacks of Sept. 11, 2001 — reciting the date five times in a 30-minute speech.


The Rich Get Richer…

I’m heading into my work week and don’t have all that much time to post (how did Richard do this again??). But here’s a piece that caught both my and Martyn’s eye, and here are our thoughts…

Following last week’s WHO-sponsored report into the failure of China’s healthcare system, this week sees yet another damning report, commissioned by the Labor and Social Services Ministry, made public. This time, the subject matter is the mainland’s rapidly widening income gap, and it warns that, if the government finds no effective solutions to end the worsening disparity of income, then China’s increasingly unequal society will almost certainly trigger social instability:

Chinese scholars have warned that rising income disparities — especially between the nation’s booming cities and vast, impoverished countryside — will likely undermine social stability by the end of the decade, the official China Daily newspaper reported Monday.

Annual urban incomes that are due to surpass 10,000 yuan ($1,200) on average are growing twice as fast as those in the countryside, the China Daily said, citing a report commissioned by the Labor and Social Services Ministry.

Rural incomes linger at around 3,000 yuan ($370) per year.

The income gap between rich and poor in the countryside is also widening, along with that between laid-off factory workers and the new urban upper class, the report said.

“Income disparity in China is in the yellow light area now,” the paper said, citing a report by the team of scholars, headed by Su Hainan, president of the ministry’s Income Research Institute.

“We are going to hit the red light scenario after 2010 if there are no effective solutions in the next few years,” it said. The team uses blue, green, yellow and red light indicators to track income disparity trends, with red being most serious.

In 2003, President Hu Jintao, in an abrupt change of tack from the previous president Jiang Zemin, came to power claiming to be man of the people, representing the poor and the dispossessed, China’s “have-nots” if you like. The President trumpeted the eradication of poverty as one of his government’s top priorities. However, despite a series of government measures to raise the income of the poor, the nation’s income gap has continued to expand at a frightening clip:

The wealth gap is most serious in rural China, where average farmers earn 3.39 times as much as those listed as the lowest earners. That disparity was just 2.45 in 1992, the report said. The government said earlier this year that income gaps were expected to continue widening over the next decade.

China’s richest 10 percent had disposable incomes 11.8 times greater than those of the poorest 10 percent, according to the earlier report. Disposable income is salary minus government levies and taxes. China’s wealthiest 10 percent held 45 percent of the country’s wealth while the poorest 10 percent held just 1.4 percent by the end of the first quarter of 2005, the earlier report said.

Neither report speculated on what form social instability could take, but China has been hit by a series of violent protests by farmers angry over environmental degradation and land seizures. Conflicts over scarcities of water and other basic resources are also spreading and experts warn China has only a few years left to prevent a worsening AIDS crisis from turning into a full-blown national epidemic.

We’d bet good money that Hu/Wen backed the release of these reports, providing as they do further ammunition for the need for greater “social harmony.” These are public acknowledgments of very real problems in today’s China, and a sign of just how severe China’s current leadership considers these problems to be.


No, Please, No…

From the AP:

Communist mainland China will soon have its own version of “The Apprentice” — Donald Trump’s reality TV tribute to capitalism.

Trump will be the executive producer of the Chinese show, which will be hosted by Beijing property mogul Pan Shiyi, the South China Morning Post newspaper reported Sunday.

The newspaper said China’s version would closely follow the U.S. original, in which contestants compete for a job with Trump. Details of the deal are under negotiation.


What’s Going Down

By guest-blogger Other Lisa, cross-posted on the paper tiger

With 60% of Americans now dissapproving of the Bush Administration’s war in Iraq, prominent U.S. Republican senator Chuck Hagel has joined the chorus of criticism, saying that Iraq is looking more and more like Vietnam. Hagel, a decorated Vietnam veteran, also stated that far from making us safer, the conflict has helped further destablize the Middle East:

“We should start figuring out how we get out of there,” Hagel said on “This Week” on ABC. “But with this understanding, we cannot leave a vacuum that further destabilizes the Middle East. I think our involvement there has destabilized the Middle East. And the longer we stay there, I think the further destabilization will occur.”

Hagel said “stay the course” is not a policy. “By any standard, when you analyze 2 1/2 years in Iraq … we’re not winning,” he said.

Hagel’s statements come on the heels of an announcement by the Army’s top general that the Army is making plans for a “worse-case scenario,” in which US troop strength would be maintained at its present levels, over 160,000 soldiers, for the next four years. Hagel, once a partisan of greatly increasing troop strength in Iraq, now believes that we are past the point where more troops can bring any greater stability to Iraq:

“We’re past that stage now because now we are locked into a bogged-down problem not unsimilar… to where we were in Vietnam,” Hagel said. “The longer we stay, the more problems we’re going to have.”

Moreover, he described the Army contingency plan as “complete folly.”

“I don’t know where he’s going to get these troops,” Hagel said. “There won’t be any National Guard left … no Army Reserve left … there is no way America is going to have 100,000 troops in Iraq, nor should it, in four years.”

Hagel added: “It would bog us down, it would further destabilize the Middle East, it would give Iran more influence, it would hurt Israel, it would put our allies over there in Saudi Arabia and Jordan in a terrible position. It won’t be four years. We need to be out.”

To put a capper on this misbegotten, morally dishonest venture, word out of Iraq today on the new constitution is that the US is conceding to Iraqi Islamists:

Islam will be “the main source” of Iraq’s law and parliament will observe religious principles, negotiators said on Saturday after what some called a major turn in talks on the constitution and a shift in the U.S. position.

If agreed by Monday’s parliamentary deadline, it would appear to be a major concession to Islamist leaders from the Shi’ite Muslim majority and sit uneasily with U.S. insistence on the primacy of democracy and human rights in the new Iraq.

(IF the draft is approved – Sunni representatives have just appealed to the US to help stop this draft from being pushed through parliament by majority Shi’ites and Kurds, warning that it will worsen the crisis in Iraq).

So there you have it. Every justification this administration made for this war has now officially been swept into the dustbin of history. Wasn’t one of the reasons we fought this war to prevent the expansion of radical Islamists? Can a government based on Islam possibly be “dem0cratic” in any real sense?

Of particular concerrn is the status of women, who, at the risk of stating the obvious, have not fared well under Islamic regimes. Sharia law has been used to justify women’s lack of suffrage, unequal right of inheritance, of divorce, to control their freedom of movement, their access to education, as an excuse for physical abuse, even murder, at the hands of their husbands and fathers and brothers. I’m going to quote blogger Digby here, as he puts it better than I can:

Iraqi women have enjoyed secular, western-style equality for more than 40 years. Most females have no memory of living any other way. In order to meet an arbitrary deadline for domestic political reasons, we have capitulated to theocrats on the single most important constitutional issue facing the average Iraqi woman — which means that we have now officially failed more than half of the Iraqis we supposedly came to help. We have “liberated” millions of people from rights they have had all their lives.

This is not to say that an Islamic theocracy is fine in every other way. It will, of course, curb religious freedom entirely. Too bad for the local Jews and Christians — or secularists, of which there were many in Iraq. It will restrict personal freedom in an infinite number of ways. Theocracies require conformity in thought, word and deed.

And all of this must be viewed within the conditions that exist in this poor misbegotten place as we speak. The country is on the verge of civil war. Chaos reigns. Daily life is dangerous and uncomfortable.

It simply cannot be heroic for the richest, most powerful democratic country on earth to claim the mantle of liberator only to create a government that makes more than half the population second class citizens and forces the entire country live in conditions that are less free and more dangerous than before.

It is certainly not acceptable for that country to take any credit for spreading freedom. Creating an Islamic theocracy is anything but noble. It is a moral failure of epic proportions.

As an update, Digby passes us over to James Wolcott:

Reuel Marc Gerecht (American Enterprise Institute, neo-con war hawk), discussing the forthcoming Iraqi constitution on Meet the Press, August 21: “Women’s social rights are not critical to the evolution of democracy. We hope they’re there, I think they will be there, but I think we need to keep this perspective.”

Gosh. Thanks, guys. Good to know that this Administration’s war architects don’t think women’s rights fundamentally contribute to democracy. Funny, I’m somehow not surprised…


Health of the Nation…

From guest blogger Martyn…

The failed Chinese healthcare system finally receives government attention.

When China’s government healthcare system was abandoned to market forces from 1978, it effectively shifted the costs of healthcare onto the patients and their beleaguered families. To this day, one of the biggest financial burdens that can befall a Chinese family is that a relative should fall ill and require costly medical treatment. The greedy, cash-strapped hospitals that hand out expensive but “essential” medicine and advise mums-to-be to have costly Caesarean births, because the government legally restricts the price of natural births to affordable prices, is truly shocking. Also, the return of fatal diseases like tuberculosis, largely eradicated before 1978, is yet another result of the change. If you only read one single China-related article this week, please let it be this one:

China’s authoritarian government is coming under an unusually strong and public attack for the collapse of the country’s universal health care system and the rise of profit-oriented state-owned hospitals.

The public’s access to health care in China has been steadily declining for more than two decades. But the system’s chronic problems are now emerging as a political issue. As a consequence, Beijing is under mounting pressure, and at senior levels, to re-examine its role in the system.

A hard-hitting report issued earlier this month by the Development Research Center, one of the government’s top advisory bodies, concluded that the switch to a user-pays health system has been a failure.

It noted “to our shame” that the WHO ranked the Chinese health system as one of the most unfair in the world. “Most of the medical needs of society cannot be met because of economic reasons,” the report said. “Poor people cannot even enjoy the most basic health care.”

However, credit where credit’s due. Amazingly, the government chose to publish the damning report, co-sponsored by the WHO:

The government ordinarily discourages open criticism of its policies. In this respect, political analysts and health care experts regard publication of the report from the body that advises China’s cabinet, the State Council, as an unusual and surprising step.

It was not immediately clear why Beijing chose to publish the report. But experts in the field suggested that it may indicate a recognition among government officials that the crisis has become so acute as to require an urgent change in policy.

As always, greed, as well as the financial pressures such as the operating costs of cash-strapped hospitals has resulted in these horrific statistics:

Li Ling, an economics professor at Beijing University’s China Center for Economic Research said one measure of medical overservicing revealed in her research was that an average of 50 percent of babies born in Chinese hospitals were delivered by Caesarean section. In some hospitals, that figure was as high as 70 percent.

The main reason for this was that hospitals could only charge a relatively low fee set by the government for live births, but Caesarean sections could be billed at a much higher rate, as surgical procedures. And these procedures allowed hospitals and doctors to manage their time more efficiently than natural births.

“This is a case of the supplier inducing the demand,” Li said. “If a doctor says, ‘I think it is better to have it,’ nobody has the courage to say no.” Before 1978, only 10 percent of births were by Caesarean section.


“Superpowers Need Friends – Does China Have Any?”

I’m moving this up, since it’s still getting a lot of comments…

From guest-blogger Martyn…

Following on from yesterday’s post regarding the possibility of China’s future failure as well as success, today’s must read article by Howard French was well-spotted by Simonworld, in his essential Daily Linklets:

Those who fret most about China’s rise, though, seem to ignore some very basic, and as yet unanswered, questions. No matter how fast its economy grows, can a country make a successful transition to great-power status without real friendships, without associating itself meaningfully with any global ideal, or without bearing a more generous share of humanity’s burdens?

While one can argue that each country in the world has only interests, not true friendships, the Middle Kingdom has, historically, rarely accepted other countries as equals. Friends of the Great Celestial Empire usually didn’t stay friends for very long. Those tribes and nations on the periphery of China proper were subjugated and Sinocized while the barbarians from across the sea were largely ignored and treated with contempt as per the Qing emperor’s letter to Macartney, leader of Britain’s diplomatic and trade mission in 1793: “O King…We possess all things and have no use for your country’s manufactures.”

Moving on to modern China, China’s new-found friends as a result of the hunt for trade and resources will only remain friends for the duration of said trade and resources. It seems that the current mainland population have no allusions to China’s lack of international buddies either. French continues:

Polling done here recently by the China Youth and Children Research Center shows that most Chinese feel theirs is a country without friends – only enemies, real and potential. Sadly, these same surveys show Chinese attach no importance to international friendships. Whether at the individual level, or for the nation as a whole, getting rich quick, it seems, is all that matters.

“We can’t be a country that just does business,” said Wang Xiaodong, a widely followed writer here on China’s place in the world and who conducted the poll. “We must develop relationships besides economic and trade ties with other countries – including stronger military projection. But for the majority of the people, all they want to do is to develop the economy, and for them, anyone who thinks of anything else is foolish.”

While, for instance, the United States and Europe have been friends and allies for hundreds of years, the same cannot be said for China’s post-1949 allies. China’s allies, such as India and Vietnam, eventually found themselves on the receiving end of PLA guns. Now, however, China and Russia, temporarily united in their opposition to the United States, play a 21st century version of The Great Game with the United States in Central Asia. Similarly, China and the United States play another Great Game on a more global stage. This is particularly true in East Asia where current Sino-Russian joint military exercises emphasize the emerging balance of power between China, Russia and North Korea on the one side and the United States, Japan, Taiwan and South Korea on the other. But does this make China a superpower? French and his sources have their doubts:

Today, China is closer than it has ever been to superpower status, but its leadership, having renounced the past, is reduced to empty-sounding slogans, things like “peaceful rise,” and “harmonious society.” Meanwhile, they are ceding the question of universal values to the West, whose own imperfect record suggests some competition couldn’t hurt.

“If things continue like this into the future, with no change, I don’t think China will be able to become a real power,” said Shi Yinghong, a professor of international relations at People’s University, in Beijing. “Its ideological and moral influence in the world will be quite limited. People will think you have never realized any greater values, things which have relevance not only to China, but also outside of China.”


Buicks and Haagen-Dazs

From guest-blogger Other Lisa, cross-posted on her blog, The Paper Tiger

Here’s a little break from geo-politics, democracy or lack thereof and killer flu. In China, Buick is a prestige brand:

Consider Buick, often considered a grandpa’s car in the United States. In China, ”Buick is an expensive car, and has a very big name,” said Yan Lili, 30, a corporate manager in Beijing. ”I’d love to own one.”

The difference in perception is partly because of market conditions. Buicks were among the first foreign cars on Chinese roads, and both the cars and their promotional campaigns impressed Chinese consumers.

Partly, that’s because the bottom end of the consumer market in China extends far lower than it does in the United States. ”Compared to local cars,” Bell (Edward Bell, head of planning with the advertising firm Ogilvy & Mather Beijing) said, Buicks ”are expensive; they’re big; and they’re foreign. And so they’re as much of a status badge as an Audi.”

That’s allowed Buick’s parent, General Motors Corp., to charge its Chinese consumers about $37,000 for a Buick Regal that retails for about $23,000 in the United States. Yet GM’s Chinese buyers get only one-third of the three-year bumper-to-bumper warranty American consumers get.

But Buick is far from the only American brand that’s caught the fancy of the Chinese consumer:

In Beijing, freezers selling Haagen-Dazs ice cream stand proudly in the lobbies of five-star hotels. The price for a pint of Swiss vanilla: $10, compared to around $3 in the United States.

”Part of the reason for such pricing is simply extra costs, such as transportation and duties,” said Eddie Lu, marketing manager with Haagen-Dazs in Shanghai. But more significantly, in China Haagen-Dazs has sidestepped its US image of being a premium supermarket brand to position itself as the deliverer of a uniquely luxurious culinary ”experience”, Lu added.

The strategy is working well because ”there’s a ‘reward yourself’ lifestyle here,” said Lu. ”People don’t mind paying for prestige items, especially if they are foreign.”

And here’s something to consider the next time American politicians start going off on cheap Chinese goods undercutting American products – American companies are greatly overcharging their Chinese customers. Why? Well, because they can:

A recent survey of 1,800 US businesses in China by the American Chamber of Commerce in Beijing found that the profit margins for 42 percent of them were higher than their average worldwide margins.

A little-discussed reason US companies enjoy pricing freedoms in China is that the country’s newly created middle-class lacks product awareness….

…With the state having a vested interest in corporate profitability, local media, which is mostly state-controlled, does hardly any consumer reporting. Since most Chinese consumers can’t read US publications, both because of China’s controls on access to foreign media and natural language barriers, they have no independent perceptions of brands, their image or their history, making it easy for companies to create perceptions through marketing campaigns, Bell said.

Here’s the bottom line, according to Bell: “Many American brands were drowning and looking for a lifeboat — then China came along.”