Chinese factories face surprising labor shortage

In this photo taken Thursday, Aug. 27, 2009, factory representatives put up boards marked with hiring details wait for job seekers at a street labor market in Xintang township near Guangzhou, in South China's Guangdong province. The labor crunch is another sign that the Chinese economy -- the world's third largest -- is bouncing back from the global downturn, invigorated by government stimulus spending and a flood of cheap bank loans.

In this photo taken Thursday, Aug. 27, 2009, factory bosses Yang Zongfu, front left, and Yan Gang, right, take their seats while waiting for workers at a street labor market in Xintang township near Guangzhou, in South China's Guangdong province.

In this photo taken Thursday, Aug. 27, 2009, employees work in a blue jeans factory in Xintang township near Guangzhou, in South China's Guangdong province.

By WILLIAM FOREMAN

XINTANG, China — During the first half of this year, Yang Zongfu's blue jean factory had few customers. Now, as his business picks up, he can't find enough workers.
Clutching a chalkboard with a long list of job openings, Yang joined about 30 other factory owners who have been spending their mornings at a street employment fair in the southern town of Xintang, the jean-manufacturing hub of China.
"I've been out here for two days and haven't found anyone," said Yang, as the scorching late morning sun beamed down on his sweaty, bald head.
The dearth of workers is a surprising turn in an economy where millions were laid off just months ago, and the government worried the jobless would riot. Back then, it was the workers roaming the streets looking for jobs.
The labor crunch is another sign that the Chinese economy — the world's third largest — is bouncing back from the global downturn, invigorated by government stimulus spending and a flood of cheap bank loans.
But experts say the shortage is also the result of a wariness among migrant workers — whom the government discouraged from traveling to cities when jobs were scarce — of returning before they are sure the economy has fully recovered.
China's economy has certainly begun to heat up, contributing to the increased demand for labor. The nation's economic growth hit 7.9 percent in the second quarter, up from 6.1 percent the previous quarter, the government said. Exports, retail sales and factory output also improved in July, according to official statistics.
In Xintang, Yang said his business started improving in August when domestic buyers started placing orders. His factory — which has received few overseas orders — is now ramping back up to its pre-slowdown headcount of 100 from around 60 earlier this year, he said.
His chalkboard help-wanted sign advertises for one worker who can sew belt loops and another who can stitch pockets. He also needed a fabric-stretcher, a pants-hemmer and a zipper-stitcher. Other factory bosses along the street displayed signs made out of red poster board or scraps of brown cardboard looking for textile workers.
Some economists and industry executives, however, said that the recovery is still anemic and may prove short-lived — signals that may discourage people from leaving the farms to return to the factories.

Andy Xie, an independent economist based in Shanghai, said that while factory orders are rising, they are still sharply lower compared to pre-downturn figures.
"What I see is that the retailers in the U.S. and elsewhere, in response to the rising cost of money last year, ran their inventories down to zero, so Chinese factories had no orders in October, November and December last year," Xie said.
"That was not a normal situation," he added. "Now with the credit costs pretty low again, you have restocking going on."
Although business has picked up, the orders are small in quantity, said Danny Lau Tat-pong, chairman of the Hong Kong Small and Medium Enterprises Association, whose members run many of the factories in the Pearl River Delta.
Many workers are savvy enough to understand these business trends and are cautious about who they work for because they might get axed again.

For many who returned home once they were laid off, forking out the cash for a job search in a faraway province can be a big investment. Many don't want to risk it now if the prospects aren't solid.
In Xintang, migrant laborer Rui Deji scanned the help-wanted signs in the job fair as he clutched his lunch — a head of cabbage in a red plastic bag. The 20-something migrant with spiky hair, brown slacks and sandals said he has spent the past six years in textile factories in Xintang.
Rui said he has been unemployed for a month and would be willing to work for the average wage of 2,000 yuan ($293) a month. But he doubted that any of the factories at the fair would pay him that much for long.
"The problem is that business is unstable," Rui said. "You can't be sure the work will last for long. And you also need to worry about whether the boss will pay you on time or even at all. That's why so many migrants aren't leaving their villages to come back here to work."
When the global downturn hit China last year, 30 million migrants lost their jobs, many of them in the Pearl River Delta, called the "world's factory floor" because its China's export manufacturing base.

Xintang (pronounced SHIN-tahng) is about an hour's drive from downtown Guangzhou, the provincial capital at the center of delta.
Fears that those angry unemployed workers would roam the streets of industrial zones committing crimes or foment unrest in their home villages in the countryside caused Beijing to put in place policies to head off trouble.

Villages started job training programs and offered micro-loans to help migrants start small businesses at home.
Officials from Guangzhou asked local government to tell migrants not to head to the Pearl River Delta, said Zhang Baoying, director of the Guangzhou Human Resource Market Service Center.
"We held meetings and advised the local employment authorities that the employment situation was going to worsen in Guangzhou," Zhang said.

"As a result, many of the workers, after learning about the situation through local officials, did not come back."
Now, officials are trying to turn the tap of migrant labor back on, traveling to far-flung provinces to recruit workers, said Wang Ouxiang, deputy secretary of the human resources and social security bureau in the city of Wenzhou, a city on the east coast that is also a key manufacturing center. Wenzhou factories have more than 10,000 openings, he said.
Last week, Wenzhou held a job fair offering 2,000 positions, Wang said. "Only 700 workers showed up," he said, "even though we advertised the event on television a week before."
Wang said that China's 4 trillion yuan ($586 billion) stimulus plan has helped create work closer to home for migrants in the interior provinces. "If it's easy to work from your hometown, why not?" he said.

Dalai Lama promotes democracy in Taiwan

By Robin Kwong in Hsaio Lin
The Dalai Lama on Monday urged Taiwan to preserve its democracy even as closer cross-Strait economic ties mean it “should have a very close, unique link with China”.
The Tibetan spiritual leader, whom Beijing accuses of being a separatist, spoke on a rare visit to the island that the Chinese communist party regards as a renegade province.
In an apparent act of protest over the Dalai Lama’s visit, Su Ning, deputy governor of the People’s Bank of China, said on Monday he would not attend a conference in Taipei originally scheduled for Tuesday.
Mr Su will instead arrive next week and the conference has been delayed until then. Mr Su did not give a reason for the abrupt rescheduling, a spokesman for the organiser, the Taipei Foundation of Finance said.
While the Dalai Lama has insisted his trip was for purely humanitarian and religious purposes following a deadly typhoon that killed an estimated 600 people in Taiwan earlier this month, Beijing said the visit “is bound to have a negative influence on the relations between the mainland and Taiwan”.
The Dalai Lama’s five-day visit to pray for victims of typhoon Morakot, which was at the invitation of local officials in the opposition party, comes at an awkward time for Taiwan president Ma Ying-jeou.

Mr Ma, who was elected on a platform of mending fences with China, risked incurring Beijing’s wrath by allowing the visit. His government has however, come under heavy criticism recently for not doing enough to help typhoon victims.
Mr Ma last December stopped a visit by the Dalai Lama, saying the timing was not right. On Monday, the two visited separate nearby villages in southern Taiwan but did not meet.
The Dalai Lama on Monday travelled to the remote Hsiao Lin village, where several hundred people were buried in a massive mudslide triggered by torrential rains in the wake of the typhoon.

After holding a short prayer service on a rise overlooking the devastated village, the Dalai Lama said the scene reminded him of “Buddha’s message of impermanence. It is indeed very very sad”.
He declined to comment on China’s opposition to his visit, but said Taiwan’s most important accomplishment was that “you achieved democracy. That you must preserve”.
While several dozen pro-China demonstrators staged a protest at the Dalai Lama’s arrival on Sunday evening, villagers at Hsiao Lin, many wearing t-shirts printed with an image of their village before the disaster, welcomed him.
Hsueh Shu-chun, who said her whole family had perished in the mudslide except for herself and her husband, said: “Praying for the victims brings relief not only to them but to survivors like me.”

China’s long march to stock exchange stability

By Tom Mitchell
There is a rich vein to mine when searching for patterns and precedents that might help explain gyrations in western markets. Those searching for plausible parallels for this year’s bounce have travelled back as far as the Panic of 1907.
History, alas, is not much help when it comes to making sense of market movements in one of the world’s most ancient civilisations.

China’s stock exchange – launched by communist rulers as a grudging experiment in the early 1990s – is a mere teenager, and often acts like one.

It is a confused creature, prone to hormonal highs and lows, and occasionally frustrated by parental (read government) supervision that is too permissive one month, too strict the next.
China had a stock market before “liberation”, as the Chinese Communist party likes to call its triumph in 1949, but don’t look to that chaotic era for comparisons to explain the 20 per cent fall in Shanghai’s Composite index in the fortnight to August 19, after more than doubling over the previous nine months.
In a perhaps apocryphal comment, Zhu Rongji, the acerbic former Chinese premier, supposedly groused that in the good old days – roaring Shanghai circa the 1920s and 1930s – investors who lost everything would jump off rooftops, but now they protest outside government offices.
The party’s fear of investors at the gates is instructive. For China’s rulers, a plunging stock market is about as welcome as soaring inflation or unemployment.

With 700,000 accounts being opened by new investors every week this summer, it would not be hard to organise a protest rally or two.
Fears of social instability aside, longer-term policy priorities also underlie the Chinese government’s desire to see the slide arrested.
As Jing Ulrich, chairman of China equities and commodities at JPMorgan, writes in a research note, market stability is important for goals including the first Shanghai listings of offshore Chinese companies (so-called “red chips”).
There is also a raft of initial public offerings to keep afloat. After a 10-month drought, China opened the floodgates this summer. Shanghai is top of this year’s issuance table, with $9.2bn in new offerings according to Dealogic.
As a result, league table-conscious bankers at brand-name western banks have had to surrender pride of place to China International Capital Corp, the mainland investment house and world’s leading bookrunner in 2009.
Market-management tools at the Chinese government’s disposal include liquidity adjustments by the central bank, more mutual fund launches and, when Beijing really needs a sledgehammer, a reduction in stamp duty.
They have been used before. In July 2005, a four-year 55 per cent slide was arrested just as the Shanghai Composite was poised to breach the psychologically important 1,000-point barrier.
Even by China’s standards, the resulting bounce was ridiculous. The index breached 6,000 in October 2007, then fell 72 per cent in just over a year.
These booms and busts have borne little rational relation to China’s underlying economic performance in the past decade. And with overseas participation restricted to carefully controlled quotas, the Shanghai stock market remains an overwhelmingly domestic affair.

All of which begs the question – why should anyone else care about the Shanghai market’s increasingly violent ups and downs?
Yet care we do. Its shock daily falls this month have been reflexively cited for sympathetic movements in markets across the globe.
The argument for caring assumes that the Chinese investing public has, against all previous evidence, developed a mature insight into the workings of the broader macroeconomy.
After first-half bank lending exceeded the official full-year target, and then fell 77 per cent month on month in July, investors have supposedly taken fright at the implications for future economic growth.
Such a scenario would indeed be worth the rest of the world worrying about, especially with regard to the potential impact on global commodity prices.
Assuming that China’s juvenile market is growing up, and has reacted rationally to what has become a less rosy economic outlook, it could bode well for investors betting that this month’s fall heralds a correction rather than a crash.
Before this month’s market fall began in earnest, Vincent Chan and Peggy Chan at Credit Suisse noted that a retreat was overdue with China stocks trading at 22.5 times forward earnings compared with their long-term average of 17.64 times.
Fraser Howie at CLSA says: “All the market had in August is a reminder that the Chinese economy is not as strong as people think. It’s just a bit of a wake-up call.”

China's 'unluckiest generation' reflects on cost of revolution

By Calum MacLeod
VICTORY FARM, China — As many Americans this year recall defining events of 1969 — the moon landing and Woodstock— many in China are looking back at a radically different experience.
Four decades ago, Chairman Mao Zedong dispatched at least 17 million teenagers from China's urban areas "up to the mountains and down to the villages" to "learn from the peasants." They were forced to swap school for backbreaking labor in desperate conditions. Many spent a decade before they could return home.

Some never got home.
Thousands are going back to the scene of their broken dreams, to the villages and state-run farms where they came of age. Known as China's "unluckiest generation," they are exploring their bittersweet memories.
In large groups, and individually, these people are celebrating the 40th anniversary of their defining experience. Some have prospered since then — including the man likely to be China's next leader, Vice President Xi Jinping— but others have never recovered from the loss of education and opportunities.
"This generation was forced to leave the cities, but when they returned, many had no jobs, no money for housing," says Wang Zeri, 64, during a recent weekend visit to Victory Farm with a busload of others from his generation.

'Nothing but wasteland'
A concrete road has replaced the muddy paths they walked on as cold, homesick teenagers. A water park, a pagoda and high-rise buildings stand where once there were one-story mud houses. And lush fields of rice, corn and beans stretch to the distant hills.
"There was nothing but wasteland and wetland here, so we lived in tents for the first two years," says Wang, who was a group leader at Victory Farm near the Russian border and now is a retired official in Beijing.

"Several people died trying to flee. Others were killed when felling trees or breaking rocks." He says there were many suicides.
His generation, though, shares a "spirit of working for the collective, not the individual," he says. "Being sent to the villages steeled our will. We can overcome any challenge."
Zhang Dengguo, 59, cried as he was reunited with one of the old farmers who had taught the teens decades ago.

"We had just left our parents, and he took care of us. I gave my youth to this black earth," says Zhang, who works for the Beijing metro.
Days in the field began and ended with reading quotations from Mao. Military terms permeated life on Victory Farm, such as calling the group of teens the Eighteenth Company. New arrivals were dressed in soldier green.
"That's what attracted me, as I was too short to join the army," says Wang Fang, 57. "Many young people cried and were worried by the wilderness. But I felt independent, away from home for the first time."
Jia Guorong couldn't take it. Four months after being sent here in August 1969, the program's peak year, he fled.
"The conditions were too tough, and I missed my parents. It was minus-40 outside. And even in dormitories of 40 to 50 people, it was very cold," says Jia, 56.

After four months at home, Jia says, his mother made him return to Victory Farm because of fear of reprisals.

No time for love
Wang Xiangzhen, 56, tried to avoid one of the former group leaders who also was visiting Victory Farm. She says Liu Shujiang had publicly criticized her for always trying to wash up and maintain her appearance.
"My leader said that was 'capitalist thinking,' " she recalls. That stigma hurt her chances for an early release.
Others remember Liu for sparking their favorite love story.
"Most of us hardly dared to speak to girls," says Wang Xiping, who was 15 when he arrived here in 1969. One Beijing student did and offered to teach a young woman how to drive. She ended up crashing into a gully.
When Liu found out about the crash, he summoned all 180 teens in the group and criticized the couple for "their petit bourgeois sentiment — falling in love," Wang Xiping recalls.

"The couple weren't even in love then, but afterward they met secretly and later got married."
Liu, 69, says he doesn't recall either incident but remembers using "political education" to stop the teens from missing home. " 'The country needs you to develop the Great Northern Wilderness,' I told them," he says. "There was no time to think about love or beauty."

For many, the greater struggle came when they could finally leave the farms in the late 1970s after Mao's death and China started to embrace capitalism.
Some prospered in the new economy as businessmen. Others faced layoffs as factories were allowed to go bankrupt for the first time or better-educated workers took their jobs.
"We had lost our chance at education. At first, I agreed we truly were the 'unluckiest generation,' " says Wang Xiping. "But later I felt proud of what we had done. Our labor laid the foundation for China's wealth today."

Tough times for China’s telecoms

By Kathrin Hille in Beijing
When China Mobile, the world’s largest telecom operator by subscribers, reported its slowest interim profit growth in 12 years last week, investors were underwhelmed – especially as management warned that margins would remain under pressure.
Part of the former monopolist’s troubles is the intensified competition that has come with the government-ordered industry restructuring last year, which made China Telecom and China Unicom rivals.
But that does not mean China Mobile’s two smaller rivals, set to report on Thursday and on Friday, will present a drastically different picture.

Although they have brighter prospects for gaining market share, China Mobile’s drop in average revenue per user and the downtrend in earnings growth is a taste of what is in store for all three.
“The main growth momentum in China’s telecom sector will have to come from signing up new subscribers in rural areas from now on,” says Charice Wang, an analyst at Ovum, the research company.

“Since these subscribers tend to spend much less than urban residents in general and business users in particular, this will continue to drive average revenues per user down.”
That comes just as the three are expected to invest $58.5bn until the end of 2011 to build their 3G networks – their main chance to get things back in balance by making high-end users spend more by using more data and other value-added applications.
First, the three operators are trying to lure and keep such high-end customers by offering a broader range of attractive handsets – China Mobile has said it plans to launch more than 100 3G handsets, and it is also launching the OPhone, a series of handsets using Google’s Android source code.
China Unicom is in talks with Apple over exclusive rights to sell the iPhone in China. And China Telecom is planning to offer the Palm to its subscribers.
In addition, China Telecom is trying to exploit its advantage of being the sole provider with fixed-line and mobile services.

“They are focusing on bundling and convergency services and offering a lot of new tele-conferencing and videoconferencing services,” says Ms Wang.
“As they are the smallest of the three, his attempt to create a niche market is a smart strategy.”
China Unicom is best-positioned for 3G as it has been awarded a licence for WCDMA, the standard with the best handset offerings. But analysts say the company needs to improve its marketing.
However, all these efforts at increasing revenues may not be enough, telecom experts warn. “We are looking at huge investments and little returns,” says Yu Wei, head of IBM’s telecommunications practice in Greater China, which does consulting work for all three operators.

“They have an immediate pressure to reduce operating expenses.”
Each of the operators have 15,000-30,000 stores countrywide – vastly more than their peers in many other markets. While China Mobile has 1,600 outlets in Guangdong Province, a US operator would have just 10 in New York, a comparable area, says Mr Yu.
Another area with cost-cutting potential is the management of the carriers’ mobile networks. “They have got to learn how to achieve a better balance between utilisation and coverage,” Mr Yu says.

Apple to launch iPhone in China

By Justine Lau in Hong Kong and Joseph Menn in San,Francisco
Apple's iPhone is set to make its debut in China by the end of this year after the US company reached agreement with China Unicom, the country's second largest mobile operator.
China Unicom yesterday said it would start selling the 3G iPhone in the fourth quarter after signing a non-exclusive three-year contract with Apple.
The company said it would not use Apple's traditional revenue-sharing model and would instead pay the group on a wholesale basis.
China Unicom said it hoped the introduction of the iPhone would boost falling profitability.
The company said yesterday that first-half net profit fell 42.1 per cent to Rmb6.62bn ($969m) amid heated competition, while revenues dropped 4.3 per cent to Rmb74.51bn.
Chang Xiaobing, chairman and chief executive, said he expected iPhones to lure more high-end users who spend more on data services.
"IPhones will help us to change the structure of our customer base and improve [average revenue per user]," said Mr Chang.
The news, which ended months of speculation about a partnership between the two companies, will open up a vast new market for Apple, which has sold an estimated 26m iPhones.
The move will put China Unicom and Apple in direct competition with China Mobile, which is set to launch a range of smartphones based on Google's Android operating system.
The world's largest mobile telecoms operator by subscribers will launch smartphones made by Dell, the US computer manufacturer, China's Lenovo and Taiwan's HTC.
China Telecom, meanwhile, is in talks with Research In Motion, maker of the Blackberry, and Palm to offer devices.
"I fear marketing expenses of the whole industry will rise because of this," said Marvin Lo, analyst at Daiwa Securities.
Analysts doubted how much of a boost the iPhone would provide to China Unicom as grey-market iPhones not tied to any operator are widely available.
Analysts estimate 1m-2m iPhones are in use in China, which has nearly 700m mobile users.
Sandy Shen, analyst at Gartner, a research firm, said that, while grey-market imports had proved popular among some wealthy customers, many users have complained about the inconvenience of inputting Chinese characters into their phones, a grave disadvantage on mainland China were text messaging is hugely popular.
If the iPhone does prove a hit in China, analysts said, it could revive the Apple brand in the country. Apple's Mac computers are rarely seen on the mainland.

Dalai Lama Consoling Taiwan Storm Victims May Hurt China Ties

By Chinmei Sung
Aug. 30 (Bloomberg) -- The Dalai Lama arrives in Taiwan tonight to console survivors of the island’s deadliest storm in half a century, a five-day stay that may endanger efforts by President Ma Ying-jeou to widen ties with mainland China.
Ma agreed to the visit, organized by opposition politicians, as his popularity declined after the government’s slow response this month to the devastation caused by Typhoon Morakot.
China views the Dalai Lama, a rallying figure for Tibetan independence supporters, as a divisive force and has reacted angrily toward countries that host him. Relations across the Taiwan Strait have thawed under Ma, leading to agreements on investment and travel.
“Ma doesn’t really have a choice but to let the Dalai Lama come as this is his chance to win support from constituents in the south, worst hit by the typhoon,” said Yang Tai-shuenn, a political scientist at Chinese Culture University in Taipei.

“Of course China won’t like it. But Ma can try to amend relations by further relaxing restrictions on cross-strait investments and other economic agendas.”
Morakot pummeled Taiwan Aug. 6-9, dumping the most rain ever recorded in any 48-hour span, according to the Central Weather Bureau.

The storm killed at least 543 people, causing floods and landslides, burying villages and destroying roads and bridges throughout the south.

Too Little, Too Late
Survivors say rescue efforts were too slow after the government initially rejected offers of assistance from countries including the U.S. and Israel.

A TVBS opinion poll on Aug. 12 showed 47 percent disapproved of Ma’s rescue efforts, while 51 percent disapproved of Premier Liu Chao-shiuan. In southern Taiwan, Ma’s disapproval rate rose to 51 percent, the survey showed.
Letting the Dalai Lama visit is a “calculated decision” by Ma “to secure more votes from the south” in December’s local elections, said Andrew Yang, secretary-general of Taiwan’s Chinese Council for Advanced Policy Studies in Taipei. Ma’s ruling Kuomintang party “may suffer a defeat if he doesn’t allow the visit,” Yang added
The Nobel Peace Prize winner has visited Taiwan at least twice, in 1997 and 2001, the Foreign Ministry in Taipei said.
Ma, who in December ruled out a visit by the Tibetan leader, saying the timing wasn’t appropriate, has no plans to meet him, according to Presidential Office spokesman Wang Yu-chi. “We have made no arrangement” for such a meeting, Wang said by telephone yesterday.

Prayer & Comfort
The main purpose of the Dalai Lama’s visit is to offer prayers and provide comfort to people affected by the typhoon, Tenzin Takhla, a spokesman, said on Aug. 27 from Dharamshala, northern India, where the Tibetan government-in-exile is based.
Ties with China won’t be harmed by the visit, Wang said the same day.
China “resolutely opposes” such a visit, its official Xinhua news agency reported after Wang spoke.
“Under the pretext of religion, he has all along been engaged in separatist activities,” Xinhua reported that day, citing a spokesman for the Taiwan Affairs Office it didn’t name. “The Dalai Lama is not a pure religious figure.”
The Dalai Lama fled Tibet after a failed rebellion against Chinese forces in 1959. He accuses the government in Beijing of committing “cultural genocide” there and says mass migration of ethnic Han Chinese has made Tibetans a minority in their own land.

Economic Diplomacy
Ma wants closer ties with China, the island’s biggest trading partner, to revive an economy that slid into a recession in the fourth quarter of last year. Gross domestic product contracted 7.54 percent in the second quarter of 2009, after declining a revised 10.13 percent three months earlier, the government said this month.
Taiwan and China have been ruled separately since Chiang Kai-shek’s Kuomintang, or Nationalists, fled to the island after being defeated by Mao Zedong’s Communists in 1949. China regards Taiwan as part of its territory and has threatened to use force to reclaim it.
Ma abandoned his predecessor’s pro-independence stance after taking over the presidency in May 2008. Direct flights, shipping and postal services across the Taiwan Strait resumed in December, ending a six-decade ban. In June, Taiwan opened 100 industries and projects to Chinese investments.
“Whatever Ma does, he has to make sure he isn’t endorsing Tibet’s political agenda,” Yang said.

China's domestic growth opens new business vistas

People play cards in front of an electronic board showing stock information at a brokerage house in Hefei, Anhui province August 25, 2009.

By Alan Wheatley

BEIJING (Reuters) - The need to reduce the economic imbalances that were a root cause of the global financial crisis points to an inescapable conclusion: China must replace export growth with domestic demand.
Hardly a day goes by now without China Inc. striking a deal to buy assets overseas, usually in the resources sector. That trend will probably continue.
But the imperative of achieving better-balanced world growth suggests that many Chinese companies will not find better prospects than in their 1.3 billion-strong home market.
The new business opportunities opening up in the world's third-largest economy, for foreign as well as local firms, will be the overarching theme of next week's Reuters China Investment Summit.
Reuters reporters in Shanghai, Hong Kong and Taipei, in addition to Beijing, will quiz a score of executives from real estate developers such as SOHO China ; private-equity firms including Sequoia Capital and Permira; and banks such as J.P. Morgan and Standard Chartered.
The government has clearly scored an initial success in its quest to recalibrate the economy toward home-grown demand.
Of the 7.1 percent growth in gross domestic product in the first half of the year, 6.2 percentage points came from investment and 3.8 percentage points from consumption; with external demand collapsing, net exports reduced GDP growth by 2.9 percentage points, according to government data.
Investment boomed thanks to a 4 trillion yuan ($585 billion) stimulus package, centered on infrastructure, complemented by record lending by China's mainly state-owned banks.
Wensheng Peng, chief China economist at Barclays Capital, brushed aside concerns that Beijing's pump-priming was paying for white elephants; China's rail network was still woefully underdeveloped and many of its airports overcrowded, he said.
"There is still a lot of room to boost infrastructure spending in the next 3-5 years at least," Peng said.

"The greater concern is related to consumption because the government has much less influence. You cannot control what people buy."

GO WEST AND PROSPER
Here, too, though, the evidence suggests the government's overwhelming response to the crisis has buoyed consumer confidence.
Home prices and transactions have rebounded sharply and car sales leapt 70 percent in July from a year earlier.
The car market is a good example of the immense potential still to be tapped in China.
Car ownership was below 40 per 1,000 people in 2007, compared with 400-815 in advanced economies, Macquarie analysts Leah Jiang and Shirley Zhao said in a recent note.
Underscoring the scope for catch-up, car ownership in eastern China is three times that of the poorer interior.
"We believe there will be an emerging demand for small cars outside the major cities, which will be an important driver for auto sales over the next few years," Jiang and Zhao said.
Western China, which exports relatively little because it is far from the sea, in fact reported much stronger growth in overall retail sales and fixed asset investment in the first half of the year than central and eastern China.
Whether these trends can be sustained is likely to be a major theme of the summit, which runs from August 31 through September 2.
"As the Chinese government seeks to boost domestic demand to sustain China's growth, developing Western China is becoming a priority again this year due to its high growth potential and huge market," said Ting Lu, Merrill Lynch's China economist.

LENOVO LOOKS TO HOME
One firm falling back on China to make up for slumping mature markets is Lenovo, the country's biggest personal computer maker and the world's No. 4.
Its chief financial officer will be a guest at the summit.
Lenovo accounted for nearly half of all computers sold under a rural subsidy programme in China in the first six months of this year, helping to boost its China sales by 14 percent in the second quarter. By contrast, growth in many developed countries was negative, the firm said on August 6.
"The biggest challenge now for most Chinese companies is how can they increase their scale to a level where they are able to compete internationally," said Ellen Tseng, an analyst at Nomura Securities in Taipei.
"Lenovo, for example, tried to expand outside of its traditional markets but faced a lot of difficulty there because, when compared to its peers, it still doesn't have the critical mass to do so," she said.

China cuts capacity

The Financial Times
While many nations are straining every sinew to give industry a leg-up, China is doing the opposite.

Satisfied that economic recovery has been seeded, if not yet flourishing, the State Council is turning its attention to slack in the system. This week it asked authorities to “resolutely” curb “overcapacity and redundant construction”.
As ever, planners have a range of tools at their disposal.

At the blunt end are forced mergers: messy, but often effective. At the other, are restrictions on licences, lending and land supply. Such softer measures will likely dominate in newly bloated areas, such as windpower and silicon.
It is in the heavy sectors of steel and cement, dominated by state-owned enterprises, that Beijing faces a bigger challenge.

China, comfortably the world’s biggest producer of both, is also the biggest consumer; cutting too much capacity – as it did in power generation after the Asian crisis a decade ago – risks a scramble once demand recovers.
Capacity surely needs to come out: expected domestic steel consumption this year of about 470m tonnes compares with production of more than 600m tonnes.

But in past purges, the planning commission has struggled to impose its will, thanks to well-connected factory bosses and militant workers.

This time, the campaign is complicated by the recent explosion of credit, which has kept many marginal suppliers alive.

Investment in the cement industry – where less than 70 per cent of capacity was being used last year – soared by two-thirds in the first half.
Still, seeing Beijing attending to its half-empty factories should give other governments pause. Since March 2002, when China’s current data series began, it has averaged 84 per cent utilisation: better than the Eurozone’s 81 per cent and the US’s 78 per cent, both of which had latest readings at least 10 percentage points down on China’s. Their task is just as urgent.

BACKGROUND NEWS
On Wednesday, China’s State Council called on authorities to “resolutely” curb overcapacity as the economy is still in a “critical period,” reports Bloomberg.
Chinese premier Wen Jiabao’s curbs show the government is confident the economy is now strong enough to tackle industrial overcapacity created by record lending this year, said Helen Qiao, an economist at Goldman Sachs in Hong Kong.

“The fact that policy makers decided to make the adjustment now signals they deem investment strength and growth momentum outside of these areas already strong enough to withstand this move,” she said.

Tucked Away in Shanghai, Hidden Lives

By HOWARD W. FRENCH
SHANGHAI — For the last couple of months I have spent the first part of each day either teaching at a Chinese university or writing.
Nearly every afternoon, though, in what has distinctly felt like the start of a new day, I have set off with camera in hand by motorcycle and subway to some of the fast-disappearing old neighborhoods of this city, to knock on the doors of hundreds of ordinary, working-class people.
These encounters with strangers have plunged me deep into a world experienced by few foreigners, and indeed, one might venture, few Chinese — particularly those of the middle class.
Through the time spent in the cramped, dimly lit homes of my subjects — people whose portraits I’ve taken for a long-term photographic project about the city’s oldest neighborhoods — I may have learned as much about Shanghai and about China as I did in five busy years as a correspondent here.
Typically, I enter their world by climbing up a rickety, twisting wooden staircase, ducking to avoid bumping my head in the near-total darkness.

This experience, eerie at first, but now utterly familiar, has come to feel appropriate for a photographic adventure, like the adjustment of one’s eyes, and perspective, upon entry into a darkroom.
My subjects come fresh to the experience, so it has been unexpected and unquestionably strange for each of them, at least initially.

Once they have overcome their surprise at the sight of a very tall, camera-bearing, Chinese-speaking foreigner in the sanctum of their tiny homes, the most common question has been: What could possibly be interesting about a place like this?
The answer is: plenty.
The demographics of this city, said to have the oldest population in a country that has begun to age rapidly, has come to life before my eyes.

I had not expected to find so much evidence of China’s thriving quasi-underground religious culture here.

In house after house, I found people worshiping privately as Christians or Buddhists. Asked how she had come to the church, a woman who had been sent to the countryside as a youth in the Cultural Revolution told me she had been converted by her neighbors.

“Everyone in this building believes in Christ,” she said.
We are ever more accustomed to dazzling images of China, the fast-rising nation that may soon surpass the United States and lead the world, according to one increasingly widespread trope. Those who know a bit about the country will be aware that there are still many hundreds of millions of people in the countryside who have not yet found a spot on China’s economic escalator.
Even in China’s richest city, huge numbers of people eke out a very modest existence.

To be sure, these are very often migrants from provinces like Anhui or Jiangsu, or even further afield.

But more than most Chinese would suspect — particularly the proud, newly affluent generations of Shanghai people who look at my photographs and sniff “wai di ren,” or “outsiders” — a great many of the denizens of the city’s dilapidated but character-rich old quarters are natives.
Much has been written lately about growing social inequality in China. The country’s social divisions, however, are much more complicated than statistics suggest, involving lots of fine-grained, identity-based prejudices.
I think, for example, of the poor and jobless Shanghainese parents in the old garment district who told me of their eagerness to be relocated across the river to Pudong, where the environment would be better, in part they said, because there would be fewer of the “wai di” people, whom they dismissed as having “no culture.”
Others pessimistically dismissed the likelihood that China’s increasing prosperity would continue to lift all boats.

“I’m frightened for my son’s future,” said a migrant from Henan. “China’s biggest problem is the population. There are just too many of us, and the competition for opportunity is murderous.”
Inevitably, the theme of relocation comes up often in encounters like these, given the frantic pace of redevelopment.

Some people are pleased with the take-it-or-leave-it buyout arrangements the government has offered to pave the way for the construction of high-rises; others respond with fatalism.

“If the country needs this land, what can I do?” said one elderly man.
A great many people spoke bitterly and with surprising candor, though, about what they see as a crisis of social justice. Here, I think of the 75-year-old owner of a tiny barbershop whose neighborhood came down before my eyes this summer.
“What they are doing here is simply unfair,” he said, telling me how thugs had been dispatched to beat up residents who refused to quietly make way for the demolition.

“There is no rule of law. The ‘lao bai xing’ have no rights at all.” That old phrase, meaning the nameless masses, never seemed more appropriate.
Others told me the stories of corrupt local officials, whom they said offered higher compensation for relocated people who were willing to pay bribes.

These anecdotes took on special potency in a summer where a nearly completed apartment building fell on its side, killing a worker and setting off lurid rumors of government corruption.
I learned that large numbers of Chinese understand and value democratic ideals and yearn for them to be applied here.

“We may have gotten richer, but our politics have not really evolved since imperial times,” said one elderly man.

“Chinese people want democracy as much as anyone else, and one day we will have it.”

Will China deliver to Africa where Europe failed?

By Peter Foster

I found myself interviewing a senior analyst (who shall have to remain nameless in this context) at the Chinese Academy of Social Sciences and talked turn to China’s policies in Africa.
“China’s policy on Africa is very pragmatic, which is why it is so successful, because it starts by improving people’s lives rather than asking those country’s to hold an election,” he said, “It’s a policy of non-interference in other countries affairs.”
I couldn’t help myself from laughing and -- to his credit when I said words to the effect of ‘come off it’-- he laughed too, unable to hold a straight face against the official line.
The exchange set me thinking about a book I’ve just finished reading called ‘China Safari: on the trail of Beijing’s expansion in Africa’ by two French journalists who put in two years of serious legwork to see for themselves how Chinese expansion in Africa is working on the ground.
It’s an excellent (though at times irritatingly written) read which explores what happens when China invests its billions ‘no strings attached’ in poor African countries, building infrastructure in exchange for the continent’s raw materials -- copper, oil, uranium, lumber, diamonds etc.
What is clear is that things are moving fast.

Chinese bilateral trade with Africa quintupled between 2000 and 2006 and is currently expanding at a rate of 33pc a year compared with 6pc for Europe.
The authors, Serge Michel and Michel Beuret, pose a fundamental question: will China’s engagement with Africa bring anything better to that benighted continent than its cynical exploitation at the hands of its former European colonial masters?
On this they give a mixed verdict.
While arguing that China has already done more for Africa in concrete terms (quite literally) than Europe ever did -- building roads, bridges, dams, hospitals… and of course vanity projects for corrupt African kleptocrats -- they don’t shrink from tackling the fundamentally exploitative nature of the relationship.
There is, for example, an insightful account of an Zambian miner trying to get justice after being beaten by his Chinese master (sorry, boss). He fails (witnesses are either bought off or intimidated into silence) and finds himself sacked and blacklisted from all the other work outlets (which are all Chinese or government run) as a troublemaker.
This was just one episode illustrating how the Chinese in Africa can use their financial muscle to live above the law, protected by African governments who do too well (personally speaking) out of the deals to want to rock the boat.
It is a kind of de facto “extra-territoriality” (the policy that exempted Europeans from Chinese law during the colonial era) that so enraged China when it was signing all those humiliating ‘unequal treaties’.
Then there was the labour union that had negotiated 10 years for a bus-shelter so workers wouldn’t have to wait in the rain, and the Big Man African politicians whose election campaigns are effectively bankrolled by Chinese infrastructure programs.
As I said, this is not a one-sided book.

The authors are for more cynical of Europe’s record in Africa than China’s, but it does expose the fallacy of Chinese ‘non-intervention’ for what it is. On one day they count 29 Xinhua articles in a singe issue of Zambia’s Post newspaper.
Of course, Chinese high-handedness in Africa is already causing a certain amount of policy adjustment since -- ever practical -- the growing anti-Chinese sentiment in Africa is impeding China’s ability to get at the raw materials it needs.
From Zambia to Sudan, from Algeria to the Democratic Republic of Congo China has faced a growing number of riots and protests in the last couple of years.

They may be whipped up by opposition groups and rebels, but the resentment needs to be their in the first place.
From a US/European perspective, cynicism about China’s objectives in the new ‘Great Game’ in Africa is fuelled by the total lack of transparency of Chinese overseas investment.

China, as a non-member of the OECD, does not comply with or provide data to the OECD’s Development Assistance Committee on its aid activities around the world.
The result is an upsurge in both popular and political suspicion, the kind of ‘China fear’ that will damage global relations, making it harder for those who want China to become a responsible player in world affairs to make their case that China must be trusted and brought into the international fold.
In the end, as the authors observe, China has on many levels been a ‘boon’ for Africa, building and investing in places where Europe and the US never bothered.
But what will this mean for Africa in the longer term?

That, they conclude, will be down to Africa’s leaders, to the deals they strike with China and whether they choose to enrich themselves or use China’s massive investment capabilities to build a new future for their continent.
Personally, I find it hard to be optimistic. And nor do I take a race-based view of this.

It’s a game of power and money, twin forces which, history relates, corrupts us all equally: Chinese, Africans and Westerners alike.

U.S., Vietnam Seek to Limit China, Keep Power Balance

By Jason Folkmanis
Aug. 28 (Bloomberg) -- The U.S. and Vietnam want to limit Chinese influence in Southeast Asia by maintaining a balance of power with other countries in the region, a former American ambassador in Hanoi said.
“The U.S. and Vietnam have a convergence of strategic interests, among which is to maintain a balance in Southeast Asia,” Raymond Burghardt, the U.S. ambassador to Vietnam from 2001 to 2004, and now director of East-West seminars at the East-West Center in Honolulu, said in a telephone interview.
U.S. interests in its relationship with Vietnam include “shared concern over the rising strength of China,” the Congressional Research Service said, in a report dated July 29.

Deputy U.S. Assistant Secretary of State Scot Marciel told Congress on July 15 that China warned oil companies not to explore in offshore areas that Vietnam considers its territory.
China and Vietnam have a history of conflict dating back thousands of years, with the latest war taking place in 1979. The two countries have jousted recently over Chinese warnings on oil companies drilling in areas that Vietnam claims.
The U.S. last month joined a friendship pact with Southeast Asia and Secretary of State Hillary Clinton told journalists in Thailand that the U.S. “is back” in the region. China acceded to the accord six years earlier.

Seeking Cooperation
“The Vietnamese are never going to want to be in-your-face to the Chinese about it, but in reality they do seek the cooperation of other countries, both their Southeast Asian neighbors as well as big countries like the U.S. and to some extent Japan and India as well, to make sure there’s a sufficient balance of power that ensures that the Chinese can’t do whatever they want,” Burghardt said.
The U.S. and Vietnam have overlapping strategic interests, Mark Manyin, a Washington-based specialist in Asian affairs at the Congressional Research Service, write in the report, entitled “U.S.-Vietnam Relations in 2009: Current Issues and Implications for U.S. Policy.”
Vietnam wants to “repair and deepen its relationship with China, while simultaneously buttressing this by improving relations with the U.S. as a counterweight to Chinese ambition,” he wrote.

American interests include “countering China’s increasing regional influence,” Manyin said.
“On the one hand, maintaining stable, friendly relations with its northern neighbor is critical for Vietnam’s economic development,” Manyin wrote.

“On the other hand, many Vietnamese are wary of China’s increased influence in Southeast Asia,” he said.

Exxon Mobil
China has also told international oil companies including Exxon Mobil Corp. that they will be excluded from the Chinese market should they fulfill contracts to participate in Vietnamese exploration projects in or near disputed waters in the South China Sea, Manyin wrote.
“Starting in the summer of 2007, China told a number of U.S. and foreign oil and gas firms to stop exploration work with Vietnamese partners in the South China Sea or face unspecified consequences in their business dealings with China,” Marciel told the U.S. Congress.
In 2007, BP Plc abandoned planned exploration in an area known as Block 5-2 between the Spratlys and an existing BP-operated gas project in Vietnamese waters, because of competing ownership claims between China and Vietnam, according to the U.S. Energy Information Administration.
“Disagreements over the Spratlys and nearby areas had seemed to calm down and now they’ve heated up again,” said Burghardt. “Part of the reason is that China is trying to expand its influence.”
The Spratly Islands are claimed in whole or part by Vietnam, China, the Philippines, Taiwan, Malaysia and Brunei.

Too early to hail China's stimulus success

China may be on course to hit its annual economic growth target, but the official figures don't tell the full story
By Zhang Hong
It seems likely now that China will reach its annual economic growth target of 8%, dwarfing most of the other countries in the world.

In the second quarter of 2009, its GDP growth spiked to 7.9%, from 6.1% in the first quarter.

If all goes well, the Middle Kingdom will see its economic growth rise to an even higher rate in the remaining two quarters, making it one of the few countries still enjoying a nascent economic growth in spite of the severe impacts of the global financial crisis.
However, looking only at the handsome official figures and rushing to the simple conclusion that China's stimulus economic package has worked successfully would be wrong.

In China, official figures don't always tell the true story.

Furthermore, the economic growth curve might develop into a "W" shape, rather than the more exciting "V" shape. This means China's economy still faces the danger of nose-diving when the stimulus effects fade away.
Ma Jiantang, director of China's national statistics bureau, admitted recently that some official figures might not reflect the country's real situation.

A large number of net users have also questioned the latest official figures on the country's residential average income, released by the bureau, while Ma admitted that the official surveys didn't cover those employed in the private sector. With more than 60% of Chinese residents employed by the private sector, this is a major omission.
China's economy still relies heavily on the recovery of its major export markets in America and Europe.

In the past few months, China's export market has recovered slightly. However, imports have suffered an even larger drop. Sluggish imports reflect the dim economic reality in domestic manufacturing, suggesting the stimulus policies haven't fuelled enough money in that direction.
In the first half of the year, China's banking system pumped out 7.37tn yuan (US$1.08tn) in new loans, an increase of more than 28% year on year.
However, as the import figures indicate, most of the new money doesn't flow to the middle- and small-sized enterprises and fails to create enough new jobs to offset the impact of the financial crisis.

Official figures show China still needs to create at least 12 million new jobs to absorb the jobless army even if the country's GDP hits 8%.

The fast-rising stock and real estate markets suggest a large portion of the new loans have been used in speculative investments, causing another round of asset bubbles in China.

This won't much help China's real economy. When the bubble bursts, the banks will be sitting on a huge amount of bad debt. China risks repeating the same game as America after the dotcom boom and burst.
In spite of the efforts the Chinese government has made to revive domestic consumption, Chinese residents are still unwilling to spend more.

Domestic consumption remains flat, leaving the State-directed investments as the major pillar for the country's GDP.

In the first half of the year, state-directed investments contributed 6.2 percentage points of the 7.1% GDP growth.

For the second half of the year, the situation will not change much as the export market can't recover any time soon. The private sector is still hungry for capital, rather than increasing its investment. Sooner or later, the state coffer won't have enough money to sustain this spending spree and then a slower growth rate will return.
John Ross quoted Keynes' economic theories in his commentary on August 18, writing: "China can use its large state-owned company sector to increase investment and instruct its state-owned banks to lend. That is why its economy is growing."

This is true, but the problem is that the implementation of the polices in China fails to create enough new jobs.

China's current economic growth won't be sustainable, even just in the coming one or two years. The low-efficiency in the bureaucratic system and the rigid governmental control on the economy has stiffled the revival of private investment. Massive liquidity from the banking system flew into speculative asset markets, forcing the central bank to adjust its loose monetary policies before a real economic rebound.
So, I would argue that it's still too early to predict a success of China's stimulus package.

The ample liquidity now active in speculation could very quickly vanish and lead to a new round of nose-diving in the stock and real-estate markets, when the central government fires a clear warning on the emerging inflation.

By then, massive investors will be left with losses and normal residents will see their savings evaporate because of the rising inflation.

How to maintain a balance between economic growth and tame inflation has become a tough challenge for Chinese policymakers.

China's response to Dalai Lama's Taiwan visit

BEIJING (Reuters) - Taiwan's president, trying to salvage his reputation after a deadly typhoon, is treading a delicate path as an upcoming visit by the Dalai Lama threatens to rock warming relations with China.

WHY IS CHINA ANGRY ABOUT THE DALAI LAMA'S PROPOSED VISIT?
A visit to Taiwan by the Dalai Lama brings into sharp focus two of China's most sensitive territorial claims, over Taiwan and Tibet, and thus strikes a raw nerve.
China regards Taiwan as a breakaway province that must eventually be reunified with the mainland, by force if necessary. The island, a former colony of Japan, came under the rule of Nationalist or Kuomintang (KMT) forces when they retreated there in 1949 as the Communists took over the mainland.
Taiwan has been under KMT rule since, except between 2000 and 2008 when the independence-leaning Democratic Progressive Party (DPP) won presidential elections twice in a row.
The Dalai Lama fled Tibet in 1959, following a failed uprising against Chinese rule. Since then, he has campaigned for self-determination for his homeland, seeking the high-level autonomy for Tibet that Chinese law claims to bestow.
Beijing says his demands amount to a campaign for independence.

HOW COULD CHINA RESPOND?
In addition to angry words, China might curtail some meetings between officials.
But the wording of its protest indicates it is likely to avoid directly denouncing President Ma Ying-jeou or the ruling KMT, with whom it is trying to build better relations with an eye to eventual reunification.
China also has to avoid making threats that raise expectations among its own people, especially the more vociferous nationalists, that it might take action to stop the visit.
So far it has reserved its ire for the opposition DPP, which invited the Dalai Lama and generally follows a more anti-China stance.
The DPP's constituency is largely the Taiwanese, especially in Taiwan's south, whose presence on the island dates from before 1949 and therefore have little loyalty to mainland China.

WILL THIS DAMAGE TRADE FLOWS?
Unlikely.
Past behaviour indicates that China is unlikely to take steps that could directly damage trade and investment flows.
China, including Hong Kong, is Taiwan's largest trading partner with trade on both sides totalling about $130 billion in 2008, official data from Taiwan showed.
China, with its 1.3 billion population, is also Taiwan's favourite investment destination with Taiwanese companies investing more than $100 billion there, private estimates showed.
With China's own export-oriented economy fragile, it is unlikely to do anything to damage investments by the many Taiwanese whose capital has fuelled mainland growth for three decades.

China urges U.S. to halt surveillance near its shores

By Lucy Hornby
BEIJING (Reuters) - China called on the United States to reduce and eventually halt air and sea military surveillance close to its shores after a series of territorial disputes this year.
The request was made during a special session on maritime safety between the two countries' militaries on Wednesday and Thursday, Xinhua news agency said on Thursday, citing China's Defense Ministry.
Five times this year, Chinese vessels have confronted U.S. surveillance ships in Asian waters, the U.S. Defense Department said in May. China said the U.S. vessels had intruded its territory. There has since been a sixth incident.
"China believes the constant U.S. military air and sea surveillance and survey operations in China's exclusive economic zone had led to military confrontations between the two sides," the ministry said.
"The way to resolve China-U.S. maritime incidents is for the U.S. to change its surveillance and survey operations policies against China, decrease and eventually stop such operations."
Susan Stevenson, spokeswoman at the U.S. Embassy in Beijing, confirmed the request.
"Our position has not changed," Stevenson said, citing a U.S. Undersecretary of Defense Michele Flournoy statement during a June visit to China that the U.S. "exercises its freedom of navigation while putting emphasis on taking care to avoid any unwanted incidents."
The United States maintains on principle that waters beyond 12 miles offshore are open to all shipping, while China holds that the U.S. should not trespass within its 200-mile exclusive economic zone.
In March, five Chinese vessels approached the USNS Impeccable in the South China Sea about 75 miles from Hainan Island in March, after hassling that ship, as well as the ocean surveillance ship Victorious in the Yellow Sea, in previous days.
In May, two Chinese fishing vessels confronted the Victorious again.
In June, a Chinese submarine collided with an underground sonar array being towed by the destroyer USS John McCain, near Subic Bay in the Philippines.
The most serious recent confrontation between China and the U.S. was in 2001, when a U.S. naval surveillance aircraft flying about 70 miles off Hainan collided with a Chinese fighter and was forced to land on Hainan Island.

China's Press: Not Free, but More Freewheeling

By RICHARD BERNSTEIN
BEIJING — Modern Weekly is about as hip as it gets in China, and about as successful as it gets in this country’s small universe of independent magazines.

It comes in a glossy, large format with slick graphics, lots of short quotes and pictures and some sophisticated reporting in separate sections — news, business, lifestyle and culture — including a good deal of news, business, lifestyle and culture in countries other than China.
The flagship publication of Shao Zhong, the People’s Republic of China’s first private media entrepreneur, the magazine has a circulation of 700,000, relatively still small given the country’s population of 1.3 billion, but it is nonetheless a trend-setter in this country, where the media in general are still heavily censored and controlled.
“We give our readers an amazing amount of information,” Mr. Shao said during a recent conversation in his Beijing office. “We tell them a lot about what’s going on in the world, and in these areas there’s a lot of space.”
What Mr. Shao, who uses the English name Thomas, meant by a lot of space is political space, room for reporters to roam.

He was responding to the inevitable question from a foreign journalist about what restrictions he has to accept in order to run a successful magazine empire in China. He wouldn’t, he was asked, be doing much reporting on Tibet or on violations of human rights in China, would he?
“I tend to stay away from topics like that,” Mr. Shao said.
Of course he does, and he has to.

It’s the bargain that Chinese journalism has to make to survive in this country, where everybody knows what can and can’t be reported.

When a couple of weeks ago, for example, China’s public security bureau arrested Xu Zhiyong, an activist lawyer and founder of the Open Constitution Initiative, which advocates the rule of law in China, the news was widely reported abroad, but blacked out in China itself. (Although Mr. Xu was released on bail on Sunday, he is still expected to face charges of tax evasion.)
Similarly, there’s very little reporting on the situation in the western region of Xinjiang, scene of last month’s ethnic riots, except for dutiful repetition of the government’s position and denunciations of Rebiya Kadeer, the exiled Uighur leader whom China blames for the disturbances.

Chinese readers are likely to find in their own press more about the private life of Barack Obama than about their own president, Hu Jintao, because reporting is pretty free on Mr. Obama yet tightly regulated on Mr. Hu.
In a recent issue of Mr. Shao’s Modern Weekly, there was a two-page spread on what the magazine called “India’s Secret Submarine,” all by way of reporting on India’s naval development over the past decade or so.

It is out of the question of course that Modern Weekly would carry out an unauthorized examination of China’s naval development, which would be deemed a state secret.
As everybody knows, the press is not free in China.

Yet there’s no question that things are changing, and Modern Weekly illustrates the emergence of a press that, certainly, is at least more freewheeling than ever before in China, and separate from the government.
“Rarely will you find a successful magazine these days that’s completely run by the government,” Mr. Shao said.
Mr. Shao, 48, is tall, lean, and casual. He started out in his native town of Guangzhou in China’s south, where he put in a few years in city government, as a member of the Guangzhou City Development and Planning Commission.
Around 1990, he said, he began, thanks to China’s opening to the outside world, to see a lot of foreign magazines, and he contrasted them unfavorably to those being published in China, which, he said, were “ugly.”
He got some very specific inspiration from a book, “Seventy Years of Time Magazine” that chronicled how Time’s founder, Henry Luce, built his magazine publishing empire, a story that inspired Mr. Shao to strive to be a sort of Chinese Luce — ironic, given Luce’s famous animosity to China’s Communists.
Mr. Shao liked the way Luce’s magazines combined pictures and texts and divided coverage into sections — similar to the sections that Mr. Shao publishes in Modern Weekly.
But in China, anyone who wants to publish a magazine has to find a partner with a publishing license, and that means a state-owned newspaper or magazine, which, essentially furnishes legal cover, making no investment, taking no risk, and doing no work.
“There have been a lot of difficulties,” Mr. Shao said. “I’ve failed in some startups and lost some partners, that sort of thing. You have to collaborate with a license holder, and when you’re successful, they just take you over.”
Mr. Shao’s first partner for his first weekly startup was the Guangdong Daily, which, after a while, took control of that magazine, showing Mr. Shao to the door.
“When that happens, there’s nothing you can do,” he said. “You can’t sue the guy. You just have to start over.”
That’s what Mr. Shao has done, clearly with success. His company, Modern Media Group, now publishes 10 magazines, with 10 different official license partners; it has a staff of 700 employees and offices all around China.

His Beijing office, where I met him, is sleekly modern, like his magazines, and is adorned with large contemporary paintings of the sort being sold for millions of dollars at Sotheby’s these days.
If Mr. Shao feels frustrated by the restrictions still placed on journalists in China, he doesn’t show it.
He seems happy to be able to be private entrepreneur with enough scope to publish magazines that he feels are useful, and perhaps that’s the broader compromise made in China today — you can operate freely in lots of areas, as long as you agree to stay out of the areas that the authorities have fenced off.
“Nobody tells you what to do,” Mr. Shao said. “There are no rules. You have to feel your way around with content and not send up any red flags, so we concentrate on international news and also lifestyle and trends, which have much less to do with government.”
It’s a useful thing to do, Mr. Shao feels as well as a profitable one.
“We put our readers in step with what’s going on in the world,” he said.

Dalai Lama invited to visit Taiwan

Times
Taiwan has invited the Dalai Lama to visit the island in a move that could endanger its fragile relations with China.
Ma Ying-jeou, the President of Taiwan, announced today his government had agreed to allow Tibet's spiritual leader to meet victims of Typhoon Morakat which devastated parts of the island, insisting the invitation was for humanitarian rather than political purposes.
The president, under fire for a slow response to the typhoon, told reporters today: "We have decided to (agree to) the Dalai Lama's visit to pray for the souls of the deceased and seek blessings for the survivors of the typhoon."
The visit could happen as early as next week, a member of the president's office said.
Presidential spokesman Wang Yu-chi said: "The visit is based on humanitarian and religious considerations which should not hurt cross-strait ties."
The Dalai Lama had already accepted an invitation by seven mayors from the pro-independence opposition Democratic Progressive Party (DPP) to visit southern Kaohsiung county, where entire villages were wiped out in mudslides triggered by Morakat.
Last year he told a newspaper in Dharamsala, where his government in exile is based, that he would like to visit Taiwan but Mr Ma, who has been at pains to improve relations with China, said at the time the timing was not right for such a visit.
Although the Chinese government uniformly condemns any country that hosts the Dalai Lama, Beijing is also aware any strong criticism of the visit could play into the hands of Taiwan opponents of President Ma, who has sought to ease tensions with the mainland.
Ties between Taiwan and Beijing have improved greatly since Mr Ma took office in May as leader of the island that Beijing claims as a renegade province, and which it says it will recover by force if necessary.
His more conciliatory tone toward the mainland has helped revive relations that were frozen during the term of his predecessor who constantly toyed with the possibility of formal independence for Taiwan.
A few months ago direct flights between China and Taiwan were revived for the first time in 60 years as Ma made good on his pledge to loose trade and tourism with China.
China's Taiwan Affairs Office declined to comment on the Dalai Lama's proposed visit

Gritty Chinese city seeks to shed 'spitting' image

In this photo taken Thursday, Aug. 20, 2009, workers eat a meal at a construction site near the new TV tower in the southern city of Guangzhou, China. Guangzhou, China's third-wealthiest metropolis wants to win the coveted "Civilized City" award an annual ritual that sparks months of frantic scrubbing and buffing in cities across China.

In this photo taken Thursday, Aug. 24, 2009, two security guards and a man walk past a banner with Chinese words "Be a civilized citizen, build a civilized city" on a street in the southern city of Guangzhou, China.

By WILLIAM FOREMAN

GUANGZHOU, China -- Government-backed neighborhood groups are going door-to-door in south China's gritty business capital with a set of simple requests: Please stop spitting in public, cutting in bus lines and talking loudly in the streets.
It's all part of a campaign in Guangzhou, China's third-wealthiest metropolis, to win the coveted "Civilized City" award -- an annual ritual that sparks months of frantic scrubbing and buffing in cities across China.
Women wearing red armbands patrol the streets and pick up cigarette butts. Volunteer crossing guards with yellow flags and whistles make sure people wait for green lights. Beggars, even those with legs withered by polio, are banished from their usual haunts on pedestrian bridges.
While some citizens remain skeptical of the cleanup drive, it jibes with Chinese leaders' goal of shifting away from the blind pursuit of blistering economic growth at any cost. They want to focus more on creating a spiffier, healthier, more cultured and harmonious society.
Each year, the central government awards the prized designation to one or more cities, and it is a big deal for Guangzhou, once known as Canton, as it tries to shed a reputation for being dirty and crime-ridden.

Next year, this historic port city of 10 million people hosts the Asian Games -- the region's equivalent of the Olympics -- that will draw 25,000 athletes, coaches and journalists from 45 countries.
"We have a saying: If you haven't been robbed, you're not a real Guangzhou person," said Wu Enwei, a 33-year-old businesswoman whose cell phone was snatched from her hand on the sidewalk a few years ago.
"The crime situation has improved, but I still think Beijing and Shanghai are much better," Wu said.
The civility campaign also highlights how the Communist Party still likes to indulge in often heavy-handed Big Brother social engineering, reaching deep into people's lives -- or at least their living rooms -- to try to mold the masses.
Beijing launched a similar campaign before the 2008 Olympics, trying to curb spitting, jumping ahead in line, littering and reckless driving.
In Guangzhou, members of neighborhood committees, government-backed councils that monitor households, are knocking on doors in the evening and handing out a survey and brochures about improving civil behavior.
Getting the public to support such campaigns is harder now in China.

The dramatic changes in society that began with the economic reforms 30 years have given people more freedom in their private lives. Most don't depend on the government to find them a job and an apartment.
Many have also developed a deep cynicism and suspicion about Beijing's edicts and campaigns. They can ignore the propaganda or be unenthusiastic without worrying too much about being branded an anti-revolutionary and sent to prison.
One 20-year-old college student who was serving as a crosswalk guard in downtown Guangzhou said his parents, who work for the government, forced him to volunteer for the duty.

He looked embarrassed and bored as he stood on the curb wearing a yellow sash and carrying a matching flag that said, "Please wait for the green light."
"I don't really understand this 'Civilized City' campaign. It seems so silly," said the student, who only gave his surname, Chen, because he feared he would run afoul of the government and his parents.

"Every year we do this stuff for a few weeks, and when the inspection is over, things go back to normal. People continue jaywalking and littering. It's just a show."
City officials responsible for the campaign declined interview requests from The Associated Press. They also refused to answer a list of questions submitted in writing.
Johnny Lau, a China analyst teaching at Hong Kong Baptist University, said cleaning up Guangzhou will be a challenge, but it's something all Chinese cities need to do to remain competitive.
"As a prosperous city, Guangzhou can no longer focus on its industrial development only. It has to enhance people's living standard to attract more foreign investors," Lau said.
A recent winner of the "Civilized City" award is the prosperous southern port city of Xiamen, once known in the West as Amoy, where the streets are famously clean, skyscrapers gleam on the waterfront, and well-restored colonial buildings add a rare charm.
That is a far cry from Guangzhou, which ranked 12th -- after the Vietnamese capital, Hanoi -- on a list of the world's 20 "Hardest Hardship Posts" for expatriates by BusinessWeek magazine in March.

The city was a "high-risk location" because of pollution and problems with disease and sanitation, said the survey, compiled by ORC Worldwide, a New York-based human resources firm.
Health experts believe that the 2003 deadly outbreak of SARS -- severe acute respiratory syndrome -- originated in the Guangzhou area.

The region has long been regarded by scientists as one of the world's biggest breeding grounds for new flu viruses because the dense human population lives close to pigs and water fowl on farms and in markets.
The city used to be one of Asia's most important.

China's last dynasty, the Qing, in 1757 decided that Guangzhou's port would be the only one open to the West. All the tea, porcelain, silk and other goods the West was hungry to buy had to pass through the city.

Guangzhou also handled the opium imported by foreigners, and the first Opium War was fought in and around the city in 1839-42.
"Guangzhou was the window on China, especially for Europeans. It set the pace for the country," said Valery Garrett, author of the book "Heaven is High, the Emperor Far Away, Merchants and Mandarins in Old Guangzhou."
With the eventual opening of other ports, Guangzhou's importance began fading. But as China began to open up economically in the late 1970s, its entrepreneurial spirit brought prosperity again.
Yet Guangzhou continues to be eclipsed by more glitzy Shanghai and the capital, Beijing. That does not appear to faze down-at-the-heel residents like Ma Li, a 32-year-old real estate agent.

He said those two cities get most of the attention because the Shanghainese are flashy showoffs and Beijingers love to talk and occupy the seat of national power.
"We Cantonese are low-key, practical people who like to be left alone so we can just do our business," he said.

China Lets a Hundred Social Networks Bloom (Sort of)

By PAUL BOUTIN
We Yanks like to think we’re at the forefront of everything. But a study has found that when it comes to social media, Chinese users are ahead of us. That is, when Hu Jintao’s administration isn’t unplugging their favorite sites.
Chinese broadband users above the age of 13 number 286 million, nearly double that of the U.S. broadband population, says a new report from market analysts Netpop Research. In five years, Netpop forecasts, that number will double.
Chinese Internet users tend to be younger.

While 35 percent of American users are under age 35, in China younger users make up 73 percent of the online population.

They’re also more engaged with the social side of the Net: 92 percent of broadband users surveyed told Netpop they contribute regularly to Web 2.0 user-generated content sites, whether by uploading audio or video, posting to a blog, tagging content that was uploaded by someone else, or otherwise participating actively.

Americans also fall behind Chinese users in time spent online. That’s because the average Chinese person has 6.1 hours of spare time in a typical day, compared to 4.2 hours for Americans.

Citizens of both nations spend about half our spare time online.
So why don’t you run into Chinese members all over Facebook and Twitter?

Because they’re on the Facebook lookalike RenRen, which is visited by 23% of Chinese broadband users.

RenRen changed its name from Xiaonei in July. Xiaonei means “on campus.” RenRen is literally “people, people” but translates more accurately as “everybody.”

Much like Facebook before it, RenRen is in transition from its original focus on college students to a wider audience of young adults.

51.com (19%), and Kaixin001 (12%) are the other most popular social sites.

If you’re scratching your head at what you see there, these sites use the Simplified Chinese alphabet. Sites use simplified characters because it’s the official written language in mainland China. Traditional characters are still widely used in Taiwan, Hong Kong, and Macau.

That’s why Facebook and Google have both simplified character versions and traditional character versions of their sites.
American social networks have gotten a toehold in China, but they’re not much threatening the native sites.

MySpace CN and Facebook CN, Simplified Chinese versions of the California-bred originals, trail the top three sites with 10 and 8 percent membership, respectively.

It was a two-way fight between Xiaonei and 51.com for which is the coolest, but Kaixin001 — the name means “happy” — has come up fast to the number three spot after launching in March of last year.

Unlike Xiaonei’s Facebook‐ripoff interface, Kaixin001 has developed its own look and feel. But Kaxin’s goals are the same: pointers to popular games and easy ways to share text, photos and video.
Twitter, amazingly, is barely on anyone’s radar over there. Chinese Twitter-like services are much more popular.

Netpop researcher Grace Han Yao told me, “The speed of the marketplace and lack of local savvy are the prime reasons for low adoption. Twitter clones like Fanfou are created overnight that offer the same functionality as Twitter, but local knowledge gives Fanfou an edge. They add a twist by allowing users to easily integrate popular chat services from MSN, GTalk and the popular Chinese chat service QQ, whereas Twitter users must find third party services for the same functionality.”
But Fanfou has been offline for weeks, joining a list of Twitteresque sites that seem to have been simply shut down by the government soon after access to the real Twitter from China was blocked following the murderous racial riots in Xinjiang province on July 5th.

The government’s actions aren’t consistent. Other popular Twitter-like sites, such as TaoTao and Zuosa, have been untouched.
California-based Xiao Qiang, director of the Berkeley China Internet Project, told Bloomberg during the riots, “It turns out one of the very interesting functions of those sites is the news and opinions are getting circulated very quickly.”

That’s an amazing endorsement of the power of social networks: The leaders of the world’s largest standing army are afraid of Twitter.

China Racing Ahead of U.S. in the Drive to Go Solar

Suntech, China’s biggest solar panel maker, has reduced the price of panels sold in America to build market share.

Chinese companies like Suntech, above, plan to build assembly plants in the United States.

By KEITH BRADSHER

WUXI, China — President Obama wants to make the United States “the world’s leading exporter of renewable energy,” but in his seven months in office, it is China that has stepped on the gas in an effort to become the dominant player in green energy — especially in solar power, and even in the United States.
Chinese companies have already played a leading role in pushing down the price of solar panels by almost half over the last year.

Shi Zhengrong, the chief executive and founder of China’s biggest solar panel manufacturer, Suntech Power Holdings, said in an interview here that Suntech, to build market share, is selling solar panels on the American market for less than the cost of the materials, assembly and shipping.
Backed by lavish government support, the Chinese are preparing to build plants to assemble their products in the United States to bypass protectionist legislation.

As Japanese automakers did decades ago, Chinese solar companies are encouraging their United States executives to join industry trade groups to tamp down anti-Chinese sentiment before it takes root.
The Obama administration is determined to help the American industry. The energy and Treasury departments announced this month that they would give $2.3 billion in tax credits to clean energy equipment manufacturers.

But even in the solar industry, many worry that Western companies may have fragile prospects when competing with Chinese companies that have cheap loans, electricity and labor, paying recent college graduates in engineering $7,000 a year.
“I don’t see Europe or the United States becoming major producers of solar products — they’ll be consumers,” said Thomas M. Zarrella, the chief executive of GT Solar International, a company in Merrimack, N.H., that sells specialized factory equipment to solar panel makers around the world.
Since March, Chinese governments at the national, provincial and even local level have been competing with one another to offer solar companies ever more generous subsidies, including free land, and cash for research and development.

State-owned banks are flooding the industry with loans at considerably lower interest rates than available in Europe or the United States.
Suntech, based here in Wuxi, is on track this year to pass Q-Cells of Germany, to become the world’s second-largest supplier of photovoltaic cells, which would put it behind only First Solar in Tempe, Ariz.
Hot on Suntech’s heels is a growing list of Chinese corporations backed by entrepreneurs, local governments and even the Chinese military, all seeking to capitalize on an industry deemed crucial by China’s top leadership.
Dr. Shi pointed out that other governments, including in the United States, also assist clean energy industries, including with factory construction incentives.
China’s commitment to solar energy is unlikely to make a difference soon to global warming. China’s energy consumption is growing faster than any other country’s, though the United States consumes more today.

Beijing’s aim is to generate 20,000 megawatts of solar energy by 2020 — or less than half the capacity of coal-fired power plants that are built in China each year.
Solar energy remains far more expensive to generate than energy from coal, oil, natural gas or even wind. But in addition to heavy Chinese investment and low Chinese costs, the global economic downturn and a decline in European subsidies to buy panels have lowered prices.
The American economic stimulus plan requires any project receiving money to use steel and other construction materials, including solar panels, from countries that have signed the World Trade Organization’s agreement on free trade in government procurement.

China has not.
In response to this, and to reduce shipping costs, Suntech plans to announce in the next month or two that it will build a solar panel assembly plant in the United States, said Steven Chan, its president for global sales and marketing.
“It’ll be to facilitate sales — ‘buy American’ and things like that,” Mr. Chan said, adding that the factory would have 75 to 150 workers and be located in Phoenix, or somewhere in Texas.
But 90 percent of the workers at the $30 million factory will be blue-collar laborers, welding together panels from solar wafers made in China, Dr. Shi said.
Yingli Solar, another large Chinese manufacturer, said on Thursday that it also had a “preliminary plan” to assemble panels in the United States.
Western rivals, meanwhile, are struggling.

Q-Cells of Germany announced last week that it would lay off 500 of its 2,600 employees because of declining sales. It and two other German companies, Conergy and SolarWorld, are particularly indignant that German subsidies were the main source of demand for solar panels until recently.
“Politicians might ask whether this is still the right way to do this, German taxpayers paying for Asian products,” said Markus Wieser, a Q-Cells spokesman.
But organizing resistance to Chinese exports could be difficult, particularly as Chinese discounting makes green energy more affordable.
Even with Suntech acknowledging that it sells below the marginal cost of producing each additional solar panel — that is, the cost after administrative and development costs are subtracted — any antidumping case, in the United States, for example, would have to show that American companies were losing money as a result.
First Solar — the solar leader, in Tempe — using a different technology from many solar panel manufacturers, is actually profitable, while the new tax credits now becoming available may help other companies.
Even organizing a united American response to Chinese exports could be difficult. Suntech has encouraged executives at its United States operations to take the top posts at the two main American industry groups, partly to make sure that these groups do not rally opposition to imports, Dr. Shi said.
The efforts of Detroit automakers to win protection from Japanese competition in the 1980s were weakened by the presence of Honda in their main trade group; they expelled Honda in 1992.
Some analysts are less pessimistic about the prospects for solar panel manufacturers in the West. Joonki Song, a partner at Photon Consulting in Boston, said that while large Chinese solar panel manufacturers are gaining market share, smaller ones have been struggling.
Mr. Zarrella of GT Solar said that Western providers of factory equipment for solar panel manufacturers would remain competitive, and Dr. Shi said that German equipment providers “have made a lot of money, tons of money.”
The Chinese government is requiring that 80 percent of the equipment for China’s first municipal power plant to use solar energy, to be built in Dunhuang in northwestern China next year, be made in China.
Dr. Shi said his company would try to prevent similar rules in any future projects.
The reason is clear: almost 98 percent of Suntech’s production goes overseas.

Most China transplants come from executed prisoners

Over 65 percent of all transplanted organs in China come from executed prisoners, state media has reported

BEIJING (AFP) — More than 65 percent of all transplanted organs in China come from executed prisoners, a situation that a senior health official has condemned as improper, state media reported Wednesday.

The report in the English-language China Daily, which attributed the figure to health experts, was a rare acknowledgement of the role played by death row prisoners in the country's transplant industry.
Executed inmates "are definitely not a proper source for organ transplants", the paper quoted Vice Minister of Health Huang Jiefu as saying.
In order to curb the country's "long-time dependence" on using organs from executed prisoners, the Red Cross Society of China on Tuesday launched a national organ donation system, the paper said.
The new system will aim to end the widespread illegal trafficking of organs that sees patients with money skip ahead of those on the waiting list who are perhaps more in need, the report said.
China executes more prisoners than any other country in the world, according to London-based Amnesty International but the actual number of those put to death is considered a state secret by the government in Beijing.
Following accusations that organs were being harvested from executed prisoners without consent, China enacted transplant regulations in 2007.
The rules ban organ trafficking as well as "transplant tourism" by high-paying foreign patients, and stipulate that executed prisoners can only donate organs to relatives.
But such regulations have not curbed the long-standing practices, the China Daily said.
"Some just ignore legal procedures regarding organ donations from executed prisoners and make a fat profit," the paper said.
According to official estimates, around 1.5 million Chinese need transplants each year but only 10,000 operations are carried out due to a severe shortage of donors, the state Xinhua news agency said.

Lead Poisoning Haunts Chinese Smelter Communities

FENGXIAN, China (Reuters) - Ask people about lead poisoning in the lush mountains of northwestern China's Shaanxi province, and nearly everyone can recall a case.
Lead poisoning in children living near a lead and zinc smelter in Changqing in Shaanxi and a manganese smelter in southern Hunan province made international headlines this month, after parents protested.
Yet these cases are far from unique. Interviews this weekend showed that lead poisoning is endemic among villages near Chinese smelters.
In Fengxian, where smoke billows from a Dongling Group zinc smelter, two wan and listless toddlers were diagnosed with high levels of lead in their blood earlier this year.

Villagers requested but did not get testing for 30 other children.
"These problems are really common actually. It's just that the Dongling case in Changqing got some attention," said a villager surnamed Tu.

Older villagers developed circulatory problems and some workers at the plant got too sick to work.
"This environmental pollution is not unique to Fengxian. It's all over."
Lead poisoning due to air and water pollution from poorly regulated smelters and mines haunts the valleys of the ore-rich Qiling range, in a poor and remote part of China.
The problem dogs heavy metals bases in Hunan, Henan, Yunnan and Guangdong provinces. Closing polluting plants has pushed the industry to poorer areas where any investment is welcome.
After contaminated drinking water led Hunan province to shut dozens of metals plants in the cities of Zhuzhou and Xiangtan in 2006, the industry moved to the south and west of the province.
One of the new frontiers was Wugang, where authorities detained two manganese smelter executives this month after 1,350 children were found to have excessive levels of lead in their blood. The general manager is still on the run.
The shift to poorer regions echoes the migration of the lead smelting industry to China over the last decade, as stricter environmental laws forced smelters in richer countries to close.
China's output of refined lead rose nearly 20 percent in 2008 to 3.26 million tonnes. Output feeds the Chinese battery industry, the world's largest, which then exports worldwide.

CONTAMINATED
The casualties of China's heavy metals industry only get attention when officials respond to cases too large to ignore.
In late 2005, two of China's largest zinc smelters shut temporarily after cadmium contaminated the Pearl River Delta and the Xiang River, sources of drinking water for millions in Hunan and Guangdong Provinces. Cadmium hurts kidney and lung function.
Elevated cadmium levels also showed up in tests of children near the Dongling Group's lead and zinc smelter in Changqing, Shaanxi Province, this month. Parents attacked the smelter after 800 children tested for high levels of lead in their blood.
Authorities have not tested anyone over 14.
Children are most vulnerable to lead poisoning because they are still developing, but smelter workers also fall sick because they absorb it through their skin.
A person who ingests large amounts of lead may develop anaemia, muscle weakness and brain damage.
"My dad couldn't stand it any more, so he quit working. It got so he could only work 20 days at a time, then he would have to stop," said a young woman surnamed Zhang.
"Dad's tummy would always hurt. When it's bad, he doesn't want to eat and has no energy."
Zhang's husband now works at a different smelter after her family's employer, Shaanxi Nonferrous Metals Holding, halted work at its 50,000 tonne Wenjiangsi lead smelter earlier this month.
Workers at the Wenjiangsi plant said the plant's internal clinic regularly treats workers who get to the point that they cannot work. They resume work when they feel better.
"It's not a problem if you drink a lot of alcohol," said a young man in a blue work uniform.
In Shaanxi, which is dominated by heavy industry, the smelter operators have powerful connections.

Police and plainclothesmen put pressure on any residents who talk to reporters.
Dongling, China's fourth-largest zinc producer, was founded by Li Heiji, one of the richest men in nearby Baoji city and a delegate to China's legislature, while Shaanxi Nonferrous is a state-owned firm with smelters across the province.