The Price Of Corruption

By Gady Epstein
BEIJING - Recently I had the rare pleasure of interviewing a coal mine boss, one of Chinese society's favorite villains, about China's real Public Enemy No. 1, corruption.

Lian Zuqian is on the losing end of a state takeover of private coal mines in Shanxi Province, which I wrote about this week, and I took the opportunity to ask him about running a mine in a notoriously corrupt industry.
"The inspection teams who went to check the coal mines, they asked for money. If you didn't give them money, they would close down the mine," Lian says.

"How much you paid depended on the title. The bureau chief and the office director and the staff all have different prices."
The organized nature of such rent-seeking, complete with a price schedule, is hardly surprising. Some Chinese reporters take payoffs not to report on deadly coal mine accidents, and the rule there is that the bigger the news outlet, the bigger the pay-out.

Lian asked me if I too was a corrupt journalist. One of his relatives chimed in that in Shanxi, journalists "go to a coal mine by taxi and come back by Mercedes Benz."
"Shanxi is the most corrupt place in China," Lian says.
On that distinction, Shanxi has no shortage of competition.

Corruption is so pervasive in China that it does not tear at the fabric of governance--it is the fabric.

In Chongqing in southwestern China, Party Secretary Bo Xilai has carried out a police action on such a huge scale that it sounds like a Hollywood movie: Top law enforcement officials and potentially thousands of police officers allegedly worked in concert with the mafia, or formed a core element of the mafia that controlled the jurisdiction of 32 million people.
In Shanghai three years ago, in a rare takedown of a sitting Politburo member, Party Secretary Chen Liangyu and several other officials were arrested and later sentenced to long prison terms on corruption charges.

The arrest last year on stock manipulation charges of one of China's richest men, Gome founder Huang Guangyu, has led this year to the detentions and expulsions from the party of several high-ranking current and former Guangdong Province officials, including a senior anti-corruption cadre.
In any of these cases, the question is not whether investigators will find corrupt officials, it is how far up or down or sideways in the bureaucracy will they go in making arrests.

The party knows from the top on down that corruption is a chronic and thorough affliction of the one-party state, and has long assigned many authorities to the task of curing it.
But many of the highest-profile crackdowns, including former General Secretary Jiang Zemin's against the Beijing party secretary in 1995, Chen Xitong, and current General Secretary Hu Jintao's against Chen in Jiang's power base of Shanghai, are viewed less as cleanup efforts than as factional maneuvers to undermine enemies and consolidate power.
The Chongqing crackdown was one of the most publicized in years.

Many were shocked the local party chief was able to take on such entrenched corruption. People assumed, perhaps correctly, that Bo had some ulterior motive for moving on the Chongqing mafia: Maybe he was trying to impress Beijing so that he could move up in the party hierarchy; maybe he was uprooting a faction that rivaled or threatened his own.

The notion that a leader in government simply would see wrong and try to right it, Robert F. Kennedy-style, exists in Camelot, not China.
Whatever Bo's motives were, the deeper problem is that Chongqing was no anomaly.

There are other cities and towns in China where it is hard to distinguish between the mafia and the government, where illegal gambling houses operate with impunity and loan sharks enforce their debts with machetes. And where factory and mine owners pay protection money to stay in business.
Lian estimated that corruption accounted for 20% of his operating costs in the coal mine business, and that figure is likely higher, he said, for the owners of illegal mines.

The ultimate cost of corruption is in those mines that cut corners on safety and get away with it until the next deadly accident.

The official count is that 50,000 miners died in Chinese coal mines this decade, and the real number is probably much higher (keep in mind the journalists paid for their silence).
The state consolidation of the coal industry in Shanxi is ostensibly an effort to improve safety. The government has taken on a class of entrepreneur, the coal boss, that is widely hated for profiting so much from a business that kills so many.
But who made the evil coal boss possible? Who allowed and even rewarded the operation of unsafe mines?

Those who hate the coal boss need to take a hard look at the system that created him.

Dalai Lama says China overpoliticizing his travels

Tibetan spiritual leader Dalai Lama has arrived in Tokyo for a week-long stay

By ERIC TALMADGE

TOKYO — The Dalai Lama, Tibet's spiritual leader, said Saturday that China was overpoliticizing his travels and claimed his decisions on where to go were spiritual in nature, not political.
The Dalai Lama, on a visit to Tokyo, said he believed the Chinese government saw him as a "troublemaker" and had read too much political meaning into his frequent travels abroad.
"The Chinese government considers me a troublemaker, so it is my duty to create more trouble," he quipped.

"The Chinese government politicizes too much wherever I go. Where I go is not political."
Despite strong criticism from China, the Buddhist leader, who lives in exile in India, recently visited Taiwan, which Beijing considers part of its territory.
Beijing has also strongly opposed his planned visit next month to India's northeastern state of Arunachal Pradesh, which is at the heart of a long-running border dispute with China.

He is scheduled to visit the Tawang Buddhist monastery in the state on Nov. 8.
"I am surprised the Chinese government is negative about my visit," he said. "If it creates some problems, that is sad."
Beijing opposes most activities of the Dalai Lama, whom it accuses of advocating independence from Chinese rule for his native Tibet.
Last month he visited Taiwan, his third trip there, to bless the survivors of Typhoon Morakot, which left nearly 700 people dead after it hit the island on Aug 8. He visited disaster areas in southern Taiwan, comforted survivors and held a prayer meeting for typhoon victims attended by 15,000 people, according to his official Web site.
The Dalai Lama did not shy away from criticizing China at his news conference Saturday, saying it lacks freedom and transparency, and is not trusted by its neighbors.
He encouraged people to visit Tibet and decide whether Tibetans under Chinese government rule are happy and thriving.
"Go see for yourself," he said. "If we are wrong, we will quit all of our activities."
Tibetans attacked Chinese migrants and shops in the regional capital, Lhasa, and torched parts of the city's commercial district in anti-government riots in March 2008.
Chinese officials say 22 people died, but Tibetans say many times that number were killed.
The violence in Lhasa and protests in Tibetan communities across western China were the most sustained unrest in the region since the late 1980s.

In China, Objections To Google’s Book Scans

By SHARON LaFRANIERE
BEIJING — A long-running dispute over Google’s efforts to digitize books has spread this month to China, where authors have banded together to demand that their works be protected from what they call unauthorized copying.
Two Chinese writers’ groups claim that Google has scanned Chinese works into an electronic database in violation of international copyright standards.

The organizations are urging China’s authors to step forward and defend their rights.
“Google has seriously violated the copyrights of Chinese authors. That is an undeniable fact,” Chen Qirong, a spokesman for the China Writers’ Association, said by telephone. The group says it represents nearly 9,000 writers.
Google has sent a representative to Beijing to meet on Monday with officials of the China Written Works Copyright Society, which manages Chinese copyrights. The company insists it has fully complied with copyright protections.
Google’s ambitions to digitize millions of books, in most cases without first seeking permission from publishers or authors, has been contentious in the United States and elsewhere for more than four years.
But most Chinese authors learned of Google’s efforts only this month, after writers’ groups were notified of a potential class-action settlement between Google and American authors and publishers.

Some Chinese authors discovered that Google had obtained their works from libraries in the United States and scanned them into its database.
The settlement would allow Google to create a vast library and bookstore where the full text of the digitized books would be available in the United States. For now, the books appear only in the company’s Book Search service, which allows people to read short snippets of copyrighted texts or, if the company has obtained permission, longer excerpts.
“We take the view, backed up by international copyright law, that no copyright is violated in this process since the amount of text displayed is so small and it’s purely for information,” said Courtney Hohne, a Google spokeswoman, in an phone interview from Singapore.

“In fact, it’s comparable to a quotation from a book in a review or our Web search results, both of which are perfectly legal.”
Ms. Hohne said it was virtually impossible for Google to discover who holds the rights to all of the millions of books on library shelves. Waiting for copyright holders to surface would doom any effort to create a comprehensive electronic index, she said.

If a copyright holder does object, Google removes the snippets or even all reference to the book from the search engine, she said.
The Chinese groups see it differently. “It is as if you have something nice in your living room and Google takes it and puts it in its living room,” said Zhang Hongbo, deputy director general of the Chinese copyright society. “We are definitely opposed to using our works without our permission.”
The class-action settlement, if approved, would create a registry of copyright holders and allow them to share in revenue generated through online book purchases or subscriptions to the database.
Mr. Zhang said Chinese authors didn’t like the proposed settlement either. “We think that reconciliation is extremely unfair,” he said. “We don’t accept it.”
The settlement is currently being rewritten, in part because of opposition from the Justice Department.
Marybeth Peters, the top copyright official in the United States, told Congress in September that the settlement could put “diplomatic stress” on the government because it would affect foreign authors whose rights were protected by international treaties. The governments of France and Germany oppose the deal.
A few Chinese authors have suggested that Google has not only scanned in their works, it has published selections of them online without obtaining permission. No such cases could be immediately confirmed, and at least a few authors appeared to be mistaken about whether their books could be viewed.
Ms. Hohne said more than 50 Chinese publishers had allowed parts of 60,000 books to be read online at books.google.cn.

Typically, publishers have agreed to allow Google to show about 20 percent of the book and link to sites where readers can buy it, she said.

China Transfer Policy Caused Riots

By Stuart Biggs
Rebiya Kadeer, president of World Uyghur Congress, speaks during a press conference in Tokyo, 30 Oct 2009

Rebiya Kadeer, the exiled Uighur activist, said violence in Xinjiang in China that left 192 people dead in July may have stemmed from the forced movement of Uighur women to mainland China to work in factories and hotels.

Kadeer, the head of the Washington-based World Uighur Congress, said China has transferred as many as 300,000 women to work in areas outside Xinjiang under a government program to assimilate ethnic minorities.
“Beautiful girls are sent to work in hotels and bars. Others are sent to factories where they have no freedom and no contact with their families,” Kadeer said at a press conference in Tokyo today.

“The media talks of providing economic opportunity but the reality is these women are miserable.”
China’s government accuses Kadeer of orchestrating the clashes between ethnic Uighurs and Han Chinese in Urumqi, capital of China’s westernmost Xinjiang province. Kadeer has repeatedly denied the claim and says the government is suppressing human rights and religious freedom in Xinjiang.
“I’m not an enemy of the Chinese people, I’m not even an enemy of the Chinese government,” she said.

“I’m only asking one thing from the government, to give the Uighurs a chance to live their lives in peace.”

Prison Time
Muslim Uighurs, who make up less than half of Xinjiang’s population of 20 million, complain of discrimination by the Han, China’s dominant ethnic group, and unfair division of the region’s resources. The Han make up more than 90 percent of China’s 1.3 billion people.
The landlocked region, about three times the size of France, has China’s second-highest oil and natural gas reserves and was its biggest cotton producer.
Kadeer, a mother of 11 children, was once ranked as China’s 34th-richest person with a fortune of $25 million, according to the Shanghai-based Hurun Report, and was on China’s top political body for people who aren’t members of the Communist Party.
She spent six years in prison after criticizing the government for its policies in Xinjiang.

Under pressure from the Bush administration, China released Kadeer in 2005 and she moved to Washington, to head an organization of exiled Uighurs.

Discrimination
“They say the economic development has happened, but the benefits have gone to the Republic of China,” she said.

“We can’t write books or poetry ourselves. Our children can’t study, our people can’t get jobs.”
Kadeer is visiting Japan for the third time, giving speeches at universities and non-profit groups to coincide with the publication of her biography in Japanese.

An earlier visit after the Xinjiang riots in July prompted criticism of Japan’s government by China.
Taiwan’s government banned Kadeer from visiting in September citing what the government said were security concerns.
The Dalai Lama, the exiled religious leader of Tibet, which borders Xinjiang, is also in Japan this week. He visits the country about twice a year to give speeches to religious groups on Buddhism. He’s scheduled to hold a press conference in Tokyo tomorrow.
Riots broke out in Tibet in March last year leaving as many as 200 people dead, according to the Tibetan government-in-exile. China’s government said 19 people died.
“Some time I want to discuss the issues with him because our fate is the same, but there is no plan to meet him in Japan,” Kadeer said.

“What is happening in East Turkestan is the same as what’s happened in Tibet over the last 60 years,” she said, using the Uighur name for Xinjiang.

US admiral concerned about China military buildup

The aircraft carrier USS George Washington anchors in the Hong Kong water Thursday, Oct. 29, 2009. The aircraft carrier is in a Hong Kong harbor after a week-long joint military exercise with South Korea. USS George Washington Commanding Officer David Lausman said the carrier plans to stay in Hong Kong for several days

By JEREMIAH MARQUEZ

HONG KONG — A U.S. Navy admiral expressed new concern Friday over China's military buildup and urged Beijing to be clearer about its intentions.
With China's military growing at an "unprecedented rate," the U.S. wants to ensure that expansion doesn't destabilize the region, Rear Adm. Kevin Donegan told reporters on a visit to the Chinese territory of Hong Kong.
Donegan referred to China's expanded weaponry.

His remarks echoed the concerns of other U.S. military leaders who have said the growth in China's military spending — up almost 15 percent in the 2009 budget — raises questions about how Beijing plans on deploying its new power.
"When we see a military growing at that rate, we're interested in transparency and the understanding of the uses of that military," said Donegan, commander of the USS George Washington aircraft carrier strike group, a key part of the U.S. Pacific Fleet.
Donegan's comments come as a top Chinese general visits the United States on a mission to strengthen trust between the two militaries and dispel U.S. concerns about the growth of the People's Liberation Army.
Xu Caihou, the PLA's second-highest ranking officer, told President Barack Obama on Wednesday that ties between the two countries' militaries play "an important role in enhancing strategic mutual trust and deepening their pragmatic cooperation," according to Chinese media reports.
China has boosted military spending by more than 10 percent annually for almost two decades, and the official figure of $71 billion this year is thought by many analysts to represent only a portion of total defense spending. It still amounts to only a fraction of U.S. defense spending.
China says much of the increase is used to improve salaries and living conditions for soldiers, but it has also been adding sophisticated new warships, submarines, fighter jets and other weapons systems to its arsenal.

PLA leaders have also said they are considering building an aircraft carrier, but such a development is thought to be years, if not decades, away.
Donegan acknowledged the possibility of a Chinese aircraft carrier, but also said he was concerned with anti-access weapons. This class of weapons includes missiles and submarines that can threaten U.S. forces in the region and prevent them responding in the event of a crisis.
"I am absolutely concerned," Donegan said.
He went on to say, "When a navy is doing that, we just want to make sure it's transparent enough so those in the region understand what they're doing."
At the same time, Donegan described positive exchanges between the two militaries that he said he hoped would continue, including a visit by five Chinese army generals aboard the George Washington during its call in Hong Kong this week.
Ties between the two militaries have been repeatedly roiled by China's objections to U.S. arms sales to Taiwan, claimed by Beijing as its own territory, as well as Chinese efforts to disrupt Navy surveillance missions off its shores.
A series of confrontations involving vessels from the two navies has raised concerns over China's rising determination to defend what it sees as its territorial interests in the South China Sea, where the U.S. has long operated as the major international power.
Donegan said the Navy would continue to operate in international waters — something that could come in defiance of Beijing's claims it has the right to bar surveillance work inside its exclusive economic zone.
"We are going to continue to operate in the South China Sea and international waters and not in territorial seas of another country," he said.
The visit of the George Washington, considered the crown jewel of the U.S. Pacific Fleet, is its first to Hong Kong in its 17-year history.

China's "Henry Ford" drives Geely onto global stage

By Alison Leung and Fang Yan
SHANGHAI (Reuters) - Li Shufu, the founder of China's Zhejiang Geely Holdings, has much in common with Henry Ford, from a childhood on the farm to a scrappy determination to build a car-making behemoth from nothing.
If discussions underway between Geely and Ford Motor Co are successful, he may have another link with the great industrialist -- ownership of Ford's Volvo unit.
Li's Geely, which means auspicious or lucky in Chinese, has captured the imagination of car buffs worldwide with its dark-horse bid for the well-known but money-losing Swedish brand being sold by Ford.
"Li is a man full of ideas," said Chen Qiaoning, an analyst with ABN AMRO TEDA Fund Management.
"Some of those ideas have worked. But the Volvo deal could turn out to be a big disappointment even if it wins the bid, as cross-border auto deals have seldom led to happy marriages in China and elsewhere."
Born in 1963, Li comes from eastern China's Zhejiang province just south of Shanghai, known for churning out some of China's best and brightest entrepreneurs.
A mechanical engineer by training, Li disdains such high-brow activities as golf and lives in a modest apartment in Beijing, said Lawrence Ang, executive director of the publicly traded Geely Automobile.
Now one of China's richest men, Li's trajectory began modestly.

After graduating from high school, he used a small graduation gift to buy a camera and open a photo studio in his village.
He put earnings from that business into an operation salvaging gold from discarded appliances before moving into the a refrigerator parts business in 1984.
Motorcycles were next, as he took over an ailing state-run firm in the mid-1990s and turned it into China's best-known domestic brand.

He later moved into cars, and built his company into China's largest privately held automaker, aiming to sell 250,000 vehicles this year.
Like Henry Ford, who the Economist magazine compared him to, Li's focus is on the mass market with models such as the Free Cruiser and Geely Kingkong, which sell for as little as 40,000 yuan ($5,859). In contrast, Volvo's top of the line XC 90 sells for up to $205,000 in China.

SURGING STOCK
Hong Kong-listed Geely Automobile has seen its stock soar more than eight-fold since 2006, including a more than four-fold jump this year alone on high hopes for the Volvo bid, strong sales in the world's largest car market and a major investment by Goldman Sachs.
But Li's apparent early distaste for politics -- a mainstay in China and key to doing business there -- also cost him along the way. His lack of political savvy and government connections almost kept him out of the auto business altogether due to China's complex licensing and permitting requirements.
"He has always wanted to make cars, but the government did not issue him a license until 2000," said Ang.
Since then he has become more practiced at navigating China's political waters, and now serves as a member of the Chinese People's Political Consultative Conference, a largely ceremonial political advisory body.
Li, who has said he sleeps in his company's Hangzhou headquarter most nights, is now pressing forward with the Volvo bid just months after another Chinese company, Tengzhong Heavy Industrial Machinery, inked a deal to buy GM's line of gas-guzzling Hummer vehicles amid the global auto restructuring.
He does so, however, with a modesty that would not have come easily to Henry Ford.
"Volvo is like a mysterious, beautiful woman," he told the Wall Street Journal in April.

"We just look at her from far away, amazed. We don't dare get close to her. We're just a bunch of farm boys."

China blocks 'Berlin Wall' Twitter page

BERLIN (AFP) — China has blocked a website inviting users of microblogging site Twitter to comment on the fall of the Berlin Wall amid a deluge of protests at Beijing's Internet censorship, organisers said Thursday.

The site was meant to be a place for people to share memories of the night the Berlin Wall was yanked down 20 years ago, but quickly morphed into a forum for protest against what users described as "The Great Firewall of China."
Of the roughly 3,300 comments left on the virtual wall, around 1,500 have been in Chinese, said Carsten Hein, coordinator of the "berlintwitterwall.com" project.
The site "has not been freely accessible since Monday evening Beijing time," he added, citing "several current sources."
According to the China Digital Times, one user wrote: "Mr Hu Jintao, please tear down this Great Firewall," in a twist on the famous 1987 Berlin speech by then US President Ronald Reagan who implored his Soviet counterpart Mikhail Gorbachev to "Tear down this wall."
Another said: "My apologies to German people a million times (for taking over this site). But I think if Germans learn about our situation, they would feel sorry for us a million times."
One apparently bemused German user wrote on the site: "The Berlin Wall speaks Chinese!"
The hugely popular Twitter site allows users to post a short message of no more than 140 characters which can then be read by other followers of the service.
China regularly cracks down on online content it deems unhealthy, which includes pornography and violence but also information critical of the government.
In June, the government was forced to backtrack on an order to install Internet filtering software on all computers sold in China after it triggered a huge outcry at home and abroad.
China has at least 338 million Internet users, more than any other country in the world, according to state media.

French luxury preens on website in China

Over the last four years French luxury outlets in China have tripled to around 1,600

PARIS (AFP) — France's creme de la creme luxury firms, hit by a drop in sales on traditional markets, on Thursday launched a China charm offensive, with a 3D website that gives a peek at the best France has to offer.

Launched in Paris and Beijing by the Comite Colbert group of 70 luxury firms, the 250,000-euro website developed over two years (www.cColbert.fr) shows off top-end products as well as the best of the French lifestyle.
The launch came as consultants Bain et Company said luxury goods are expected to slump 16 percent this year on the US market, 10 percent in Japan and eight percent in Europe -- but see a 12 percent hike in China.
"This is the first such internet site," said the Comite Colbert's Elisabeth Ponsolle des Portes. "3D previously was used for video and film but not on a website."
Users can watch a ballet performance, drool over patisseries, check out Paris hot spots and see the latest watches, perfumes and scarves.
"Luxury is not just about money but about culture and education," said the president of the Comite Colbert, Francoise Montenay.
"Products can be more or less expensive and you have to learn to distinguish between a very good product and a less good one."
Underlining the importance of the stakes, a number of leading luxury goods makers attended the launch of the site in Beijing, including Cartier, Hermes, Lanvin, Yves Delorme and Gien.
The website is hosted by China's biggest portal sina.com and will be available for six months.
In 2005, Comite Colbert companies registered 4.5 percent of their turnover in China, Hong Kong and Macau.

That figure has gone up to eight percent on average, for some, up to 25 percent.
Over the last four years French luxury outlets in China have tripled to around 1,600, with 45 new boutiques due to be opened in 2009-2010, including 38 in mainland China.

EU denounces China's execution of two Tibetans

BRUSSELS (AFP) — The European Union on Thursday condemned China's execution of two Tibetans, voicing concerns over how their trials were conducted.
"The European Union condemns the recent executions of two Tibetans, Mr Lobsang Gyaltsen and Mr Loyak," the Swedish EU presidency said in a statement on behalf of the 27-nation bloc.
"The EU respects China's right to bring those responsible for the violence to justice but reaffirms its longstanding opposition to the use of the death penalty under all circumstances," the EU statement said.
"The EU reiterates its concerns about the conditions under which the trials were conducted, especially with regard to whether due process and other safeguards for a fair trial were respected," the EU presidency added.
The European Union has called for death sentences handed down on several other Tibetans to be commuted.
China said Tuesday that the two Tibetans had been executed for their role in deadly ethnic unrest that rocked the Himalayan region last year, the first known use of capital punishment over the violence.
Fierce anti-China protests erupted in Lhasa and spread across Tibet and adjacent areas with Tibetan populations in March last year, embarrassing the government in Beijing as it prepared to host the Olympic Games.
Beijing blamed the Dalai Lama -- the exiled Tibetan spiritual leader seen by authorities as a separatist bent on independence -- for inciting the unrest. He, however, insists he only wants greater regional autonomy for Tibet.
China has said "rioters" were responsible for 21 deaths, while its security forces killed only one "insurgent."

But the exiled Tibetan government has said more than 200 Tibetans were killed in the subsequent crackdown.

Morgan Stanley battles over China derivatives

By Robert Cookson and Sundeep Tucker in Hong Kong
Morgan Stanley has been dragged into a risky Chinese court battle over a hedging contract with a local company in the latest stand-off between foreign investment banks and mainland enterprises over loss-making derivatives deals.
The case comes at a sensitive time for global banks, with Beijing seeking to clamp down on the over-the-counter derivatives markets after a raft of state-owned companies made disastrous bets on currency and commodity movements.
Although the sums involved are small – relating to renminbi-dollar hedges worth just tens of millions of dollars – a legal battle in China could be prolonged and subject Morgan Stanley to financial and reputational risks, lawyers said.
But Morgan Stanley may have calculated that the status of its counterparty – China Haisheng Juice Holdings – as a private company makes a lawsuit less risky than taking on a state-owned Chinese enterprise with the backing of the government and courts.
The investment bank now faces two court battles, one each in England and China, over the same set of contracts.
In London, Morgan Stanley remains in pursuit of the $26m it alleges it is owed after Hai-sheng failed to post collateral relating to the hedges.
At the same time Haisheng is suing the US investment bank in Xi'an, Shaanxi province, where it is based, for allegedly mis-selling the hedging contracts. The China case is proceeding because the English High Court this month dismissed Morgan Stanley’s plea that its dispute with Haisheng only be heard in England.
The little-noticed judgment centred on the nature of the “exclusive jurisdiction” clause in the parties’ financial contract.

The clause, which specified that any litigation should take place in England, applied only to Morgan Stanley International, the judge said, leaving Morgan Stanley Asia Limited – the subsidiary that advised on the hedges – exposed to Chinese legal action.
The High Court ruling has set a precedent that could trigger further showdowns in China between mainland companies and foreign banks, legal experts said.
Lawyers said that the ruling would force many global investment banks to tighten the wording of their derivatives contracts.

“Institutions will not want to end up in a jurisdiction they had not anticipated at the outset,” said Paul Browne, of law firm Simmons & Simmons in Hong Kong.
Morgan Stanley has suffered a number of recent challenges relating to its China business.

Earlier this year, the US SEC started a probe into the bank’s former China property head over possible violations of the US foreign corrupt practices act relating to mainland property deals while one of its former investment bankers was convicted in Hong Kong last month for insider trading while advising Beijing-based Citic Resources.
Court actions in China over derivatives deals are rare, in part because many western institutions choose to re-negotiate contracts or settle out of court.
Court documents show that China Haisheng, which is listed in Hong Kong and domiciled in the Cayman Islands, alleges that Morgan Stanley Asia Limited “made misleading statements and failed to draw the attention of China Haisheng to any of the disadvantages and pitfalls inherent in the transaction”.
Morgan Stanley, which denies the allegations, declined to comment. China Haisheng did not respond to requests to comment.
Sasac, the Chinese government body that supervises more than 150 state-owned enterprises, last month declared its support for legal efforts by some of those companies that want to break loss-making oil derivatives contracts with foreign institutions.

In China, too, a health-care system in disarray

More than 300 million Chinese lack health insurance, and authorities have been trying to fix the system.

Despite recent reforms, 300 million lack insurance -- and gaps in care quality grow

By Steven Mufson
BEIJING -- Shen Baohou, 72, who once worked for a hydropower station in Sichuan province, has a serious heart problem, and he -- and his children -- are paying for it dearly.
Doctors have operated twice on Shen to implant stents at a cost of more than $15,000, about five times China's per capita income.

Under China's health-care system, the government pays 60 percent of his hospital expenses and virtually nothing for the medications and oxygen he has needed since.
"I am retired and have little pension every month. So I cannot afford the treatment fee at all," he said, adding that, luckily, his children could afford to help him out.

"Without them, I don't think I could have had the operation."
China's health-care system is in disarray, a side effect of the market reforms that have spurred private enterprise and rapid growth since 1980.

Before then, state-owned companies offered cradle-to-grave care, part of a system based on danwei, or work units, that provided health, education, pensions and other benefits.

But as the economy has grown more diverse, an increasing number of Chinese have had to fend for themselves, with only a porous government insurance program to help.
As U.S. lawmakers engage in a tense debate over health-care reform, Chinese authorities, too, are attempting to fix their system.

Over the past five years, the government has tried to provide coverage to more of its 1.4 billion people. But even people covered by a minimal health insurance program are often left with big hospital bills and must pay for most outpatient services and medication.

More than 300 million people do not have any health insurance.
In a country once committed to erasing class differences, the gap in the quality of care has been steadily growing, too. Peking University People's Hospital, for example, has computerized charts, GE scanners, top-flight doctors and a deluxe ward where the wealthy can pay extra for private suites.

But community clinics in most cities or rural areas tend to be understaffed and poorly equipped.
"We go to clinics for colds, but we don't trust the doctors because they are all being paid by the drug companies and so they over-prescribe," said Helen Ye, a Beijing resident who works for a U.S. company.

"So most Chinese people, if they don't feel really sick, do home treatment and try to cure themselves."
China's State Council is eager to improve the situation but can't decide how.

The government currently fixes the prices of all medical services, and doctors are treated -- and paid -- like public officials. But that has contributed to a shortage of doctors as many talented Chinese choose better-paid professions.
Some experts say more private spending and investment would improve the system.

Gordon G. Liu, a professor of economics at Beijing University's Guanghua School of Management, said he would let people with means spend more money on care, which he said would increase the availability of care by giving doctors incentives to work harder and by luring more Chinese into the medical profession.
Even poorer people would benefit because there would be more care overall, Liu said. He also proposed opening the way for foreign investment from companies such as Kaiser Permanente in building hospitals in China.
But other experts say that approach would be unfair to the poor, who might be neglected by doctors seeking rich patients.

They say inequality in China is bad enough these days, as scores of millions of people live on a couple of dollars a day while tens of millions of wealthier Chinese buy luxury cars, Louis Vuitton bags and nifty electronic goods.
The State Council has asked health-care experts to run pilot projects in cities and report back in three years.
Some will free up hospital doctors to work at community or for-profit clinics without losing their jobs. Some will stick more closely to the government-run model, in which doctors' salaries and fees are fixed.
"It's very interesting to see politics in China. Sometimes they are very old-fashioned and sometimes so liberal, even more than in the U.S.," said Liu, who has taught at the University of North Carolina.

"This time it said, 'Since you guys are debating, let's do an experiment and see which way works better.' I tell my colleagues that what you're doing is very consistent with your 'scientific development philosophy' rather than being like a dictator telling us what to do, like in the past."

Out-of-pocket costs
With the end of civil war and the Communist victory in 1949, life expectancy in China increased --- except during Mao Zedong's Great Leap Forward, a disastrous economic plan that resulted in the starvation of millions from 1959 to 1962.

Between 1963 and 1980, life expectancy at birth increased by an average of one year every year, from 50 to 67.
Until the economic reforms, Chinese workers received health care from their work units, which funded the care out of operating income.

The Chinese National Petroleum Corp., for example, once had more than 50 hospitals for its 1.5 million workers. But many state-owned companies suffered financial problems as their workforces aged and retired and as younger, healthier workers increasingly went to work for private enterprises.
In 1994, the State Council overhauled the failing system by putting urban workers in citywide insurance pools, which now include about 200 million people.

Hospitals were severed from industrial enterprises. Instead, employers contributed 6 percent of wages and employees 2 percent to cover hospital, clinic and pharmaceutical costs.
Nonetheless, according to Health Ministry statistics, out-of-pocket expenses dramatically outpaced increases in per capita income and national health expenditures.

According to the World Bank, 71 percent of Chinese had access to state health facilities in 1981; 12 years later, the figure was 21 percent.

In 2005, individuals' out-of-pocket expenses for health care were more than 100 times what they were in 1980.
In 2003, the government gave more money to rural medical cooperatives and offered farmers a subsidy of $12 a year for insurance if they chipped in $3.

The voluntary program covers 25 to 30 percent of hospital costs and little outpatient care, but Liu said 850 million people have enrolled in it. Over the next three years, the government plans to increase its contribution by about half.
In 2007, the government extended coverage to urban workers' families, which had been without public coverage since the 1994 collapse of the work-unit system.

Children, the elderly and the unemployed all qualified for the same $12 government subsidy, but because health costs are higher in cities than in rural areas, they must contribute more than $30 a year. About 120 million people have signed up.
Some cities and provinces provide additional subsidies, and companies and individuals can buy private insurance policies.
But the government's programs for city dwellers are still based on residency, and experts say greater flexibility is needed for China's increasingly mobile population.

A case in point
Zhang Honghong, a 34-year-old editor at a Beijing publishing house, is an example of the system's successes and shortcomings.
In addition to the government program, Zhang is covered by a commercial health insurance policy that her employer bought.

For treatment of a recent bout of pneumonia, she had to pay the first $300 in costs, and insurance covered 90 percent of the next $750.
Zhang wants her aging father to move to Beijing to live with her, but the insurance program in his city won't cover expenses incurred elsewhere. "So, my father dares not to stay in Beijing long," she said.
Zhang has a 3-year-old son, who has had several colds this year. He wasn't sick enough to be hospitalized, which would have been covered by the government plan. Instead, he ran up a $200 bill last month. That brought his medical costs for the year to about $600.
"Thank God I only have one child so I can afford his medical bill," Zhang said.

"I feel it's a little bit expensive for us. But what can we do about it? I bargain everywhere but in the hospital."

iPhones everywhere in China ahead of launch

A young woman arranges 3G mobile phones in Beijing

A man walks past a display of iPhone accessories in a Shanghai shop

A cyclist passes a billboard advertising Apple products in Beijing

SHANGHAI (AFP) — At a Shanghai electronics market, row after row of iPhones -- real and fake -- are on display, as vendors cash in ahead of the official launch this week of Apple's trendy smart phone in China.

"The 'high imitation' iPhones sell much better than the smuggled ones," said one 20-something salesman, sitting behind his small counter piled high with handsets.
His candid words are not good news for mobile operator China Unicom, which on Friday will officially start selling the iPhone in the world's biggest cell phone market, more than two years after the gadget's US launch.
Unicom and Apple announced a multi-year deal in August to offer the touch-pad iPhone here in a bid to turn around weak performance against rivals China Mobile and China Telecom by attracting customers with high-end tastes.
Unicom says it hopes to sell five million handsets in three years, but experts and customers question how realistic that goal is when tech-savvy consumers have been snapping up cheaper fake and smuggled models for months.
Shaun Rein, head of the Shanghai-based China Market Research Group, said two million of China's nearly 720 million mobile phone users are already using authentic iPhones purchased here or abroad, and demand may already be met.
"When the iPhone came out in the United States in 2007, there was a huge demand here, and a lot of people were going to the United States, buying handsets, cracking the code and selling it here," Rein said.
"Almost everyone who wants an iPhone already has one."
On top of that estimate, countless more Chinese are using fake iPhones that are virtually indistinguishable from the real thing, some of which come pre-loaded with the popular QQ instant messaging system as an added bonus.
Hai Bin, a 32-year-old employee at an auction website, said he was doubtful the official handset would make much of a mark in China.
"I've had the iPhone since 2008 -- one of my friends bought it in Hong Kong when he was on a business trip," he said.
"I don't think China Unicom's launch is meaningful -- the prices of stand-alone iPhones they offer are much higher than smuggled ones for a start."
China Unicom, the country's second-largest mobile operator by subscribers, said earlier this month that it would offer eight iPhone subscription packages costing between 126 and 886 yuan (18.5-130 dollars) a month.
But in China, most people use pre-paid mobile packages, in part because subscription contracts require an employer guarantee or government documents such as a residence permit that can be hard to get in major cities, Rein said.
Unicom will also sell stand-alone handsets, but at a high price, with the cheapest at 4,999 yuan, according to Beijing-based high-tech consultancy BDA -- totally out of range for the average Chinese consumer.
A survey on popular web portal sina.com, which had attracted 120,739 respondents by the weekend, said just 2.1 percent were willing to pay that much.
China Unicom received more than 10,000 advance orders for the iPhone during the week-long October 1 holiday, but BDA cautioned that not all orders would be converted into actual sales.
The company, contacted repeatedly for comment on the price issue, did not respond.
Beyond the hefty price tag, the first batch of official iPhones will come without WiFi -- an important selling point both in China and globally.
"If Unicom offered the 'complete version' and the WiFi function was not disabled, people might want to buy them. But with WiFi disabled, there will not be many buyers," Hai said.

Huawei continues to receive preferential funding from China’s army

The findings of the report whose study spread over a period of 8 months were basically to determine the magnitude of threat of cyber attacks to USA and its defence establishments from China in wake of a war

A report from the US-China Economic and Security Review Commission has pointed out that Chinese telecom gear manufacturer Huawei Technologies is close to the People’s Liberation Army of China.
“Huawei is a well established supplier of specialized telecommunications equipment, training and related technology to the PLA that has, along with others such as Zhongxing and Datang, received direct funding for R&D on C41SR systems capabilities. All of these firms originated as state research institutes and continue to receive preferential funding and support from the PLA,” says the Commission.
The findings of the report whose study spread over a period of 8 months were basically to determine the magnitude of threat of cyber attacks to USA and its defence establishments from China in wake of a war.
The report claims that the Chinese government is actively supporting hackers and supporting cyber warfare & espionage.

It points out sustained cyber espionage carried out against one unnamed US company. It further cautions that the Chinese espionage operations were actually straining the US capacity to respond.
For Huawei the allegations of its association with the PLA refuse to die-down even as the company repeatedly denies any such association.
Even in India, PSU BSNL decided to award part of its mega GSM contract to Huawei only for the Southern zone amidst fears and apprehensions about the background of the company.

It is alleged that one of the founders of Huawei has served the PLA in the past.

BSNL says that since the Southern zone of India does not shares any geographical borders with China, there is no danger in awarding the contract to Huawei for the region.

Chinese Inspire Car Makers' Designs

By NORIHIKO SHIROUZU
BEIJING -- A decade ago, in search of inspiration for an ultra-luxurious Mercedes-Benz, designer Olivier Boulay studied Japan's chauffeur-car culture.
Now, as he dreams about the future of the automobile, he zips around the streets of Beijing on a $367 electric bike, along with throngs of the city's residents.
"China is the perfect place to think about the future shape of mobility," said Mr. Boulay, the 52-year-old design chief for Daimler AG's Mercedes-Benz unit in China, who moved to Beijing from Tokyo this year.

"It's my job here to push my staff to push the envelope and think about the global automotive future from Beijing."
Mr. Boulay reflects a profound shift taking place in the car industry.

As the Chinese car market expands, global auto makers increasingly are making design decisions in China. The result is that consumer trends in China are being felt in models sold around the world.
Car makers from General Motors Co. to Volkswagen AG to Toyota Motor Corp., are pouring resources into China, which displaced Japan as the world's second-biggest auto market a few years ago and is now poised to surpass the U.S. this year as the world's biggest.
The consequences are on stark display at the Tokyo auto show, which runs through Nov. 4. Regular exhibitors including Mercedes-Benz, GM, and Hyundai Motor Co. from neighboring South Korea all stayed home this year.
After emerging from bankruptcy protection in July, GM located its international headquarters in Shanghai, where it has a flagship joint venture with Shanghai Automotive Industry Corp. And Ford Motor Co. recently decided to move its Asia-Pacific head office to China from Bangkok.
GM already has three global vehicles designed with China-inspired features: the Buick LaCrosse and Regal and the Chevy Cruze.

The LaCrosse emerged from a concept car called the Invicta GM developed by GM's design studios in Shanghai and Warren, Mich.
The LaCrosse's interior is splashed with light and warm colors. The wood grain on the steering wheel and dash blend in almost imperceptibly with the seat leather, a nod to the Chinese, who are used to monotone color schemes.
"We take our Chinese customers' and we take our Chinese partners' input extremely seriously," said Lowell Paddock, vice president of product development for GM's international operations.
In China, global auto makers are pondering not just the next model cycle in four or five years but also the shape of cars 10 to 15 years down the road.
"China is a very important pillar for Daimler and its global strategy," said Ulrich Walker, chairman and chief executive of Daimler Northeast Asia, who is overseeing Mercedes-Benz 's expansion in China.
Through September this year, Mercedes-Benz sold 44,300 vehicles in China, up 52% from a year earlier, according to company figures. During the same period, sales in Japan fell 28% to 21,829 vehicles. (Sales in the U.S. reached 147,800.)
Separately, Daimler on Tuesday posted an 80% drop in third-quarter net profit, but rebounded from two quarters of losses as sales at Mercedes improved. The Stuttgart-based car maker said third-quarter profit was €41 million ($60.9 million). Third-quarter revenue fell 21% to €19.3 billion.
Japan is now the eighth-biggest market for Mercedes-Benz, slipping from sixth place three years ago. China has become the brand's fourth-largest market, compared with 10th in 2006.
China is one of the biggest markets for the top-of-the-line S-Class sedan, whose redesigned model was launched in China earlier this year after significant input from Chinese consumers. Mercedes even flew some of its customers and those of competitors to Germany to see early prototypes.
While China accounts for only about 4% of overall Mercedes sales, customers around the world are seeing features the Chinese like: bigger, limousine-like back seats with more-advanced entertainment and climate-control systems, among other amenities.

In China, many upscale buyers have chauffeurs and drive on their own only on weekends. Such customers also are generally in their 30s and 40s -- much younger than elsewhere. They prefer light-colored interiors, such as tan, not the somber blacks and grays often preferred in other regions.
Mr. Boulay's arrival in Beijing illustrates China's rise. A Frenchman by birth, he had spent 17 years in Japan, where in the late 1990s, as head of the Mercedes design studio in Tokyo, he styled the car maker's ultra-luxurious Maybach sedan.
In Beijing, he wants to soak in the country's new fascination with electric-powered bikes and cars to develop concepts for future Mercedes global products, including a luxury electric vehicle. His advance-design center is one of five that Mercedes operates around the world.
Mr. Boulay is especially fascinated with how ordinary Chinese people embrace e-bikes for daily transportation, and the way the country's governments at all levels are prompting a rapid adaptation of all-electric battery cars and plug-in hybrids.
"You can see how a new generation of consumers in this country is way out in front," said Mr. Boulay.
He believes the shift to electricity opens up new possibilities for designers to be more creative because of the simplicity of fully electric cars, which need neither bulky engines nor transmissions. Some companies such as Japan's Nissan Motor Co. are experimenting with round, cartoon-like electric pod cars with no hoods or trunks.
China's culture of conspicuous consumption and its big luxury market make the country an ideal place to "generate new ideas and new concepts," Mr. Boulay said.
"We want to use China as leverage to push ourselves," he said.

"That's why I am here and why we are setting up an advance design studio -- just like we did years ago in Japan."

Tower of Power

Big fan: A worker prepares for the installation of giant rotor blades atop a wind-turbine tower in China's Gansu province

By Austin Ramzy

In China, one doesn't have to look far to see the country's commitment to renewable energy.

In cities such as Beijing and Shanghai, rooftops are now covered with solar water heaters. On the grasslands of Inner Mongolia, towering white wind turbines are popping up where only cattle, sheep and herders on horseback once roamed.

While coal consumption is expected to climb more than 3% annually for the next two decades, the government has also required that electrical companies add a significant amount of alternative energy to their portfolios.

With the global economy languishing, China — which is not only the world's most populous country, but also the most polluted — offers the promise that its green-energy drive can become a major source of demand for international wind and solar companies.
That expectation was given a boost in September when First Solar, the Arizona-based solar-module manufacturing giant, announced that it had landed a deal to build a solar field bigger than Manhattan near the city of Ordos, Inner Mongolia.

The project will dwarf the largest solar plants to date, and eventually generate enough electricity to power the equivalent of 3 million Chinese homes.

To fulfill the huge demands, First Solar says it's considering building a solar-module manufacturing facility in the city to support the project.

While financial details were not released, news of the deal caused First Solar's stock to jump 11% on the day of the announcement.

"This major commitment to solar power is a direct result of the progressive energy policies being adopted in China to create a sustainable, long-term market for solar and a low-carbon future for China," First Solar CEO Mike Ahearn said in a statement.
China, the world's leading producer of greenhouse gases, is taking an aggressive path to develop alternative sources of energy.

Already the world's leading generator of hydropower — a renewable but sometimes controversial power source because of the impact on river ecosystems — China now aims to be the front runner in wind- and solar-power generation.

In 2007 the government directed that by next year at least 3% of large power companies' generating capacity should come from renewable sources (excluding hydropower); this target jumps to 8% in 2020.

That may not sound like much, but according to a recent study by the China Greentech Initiative, a coalition of Chinese and foreign businesses, NGOs and government organizations, environmental technologies including renewable energy could become a $1 trillion market in China by 2013.

In a recent commentary, Thomas Friedman wrote that China's decision to go green "is the 21st-century equivalent of the Soviet Union's 1957 launch of Sputnik."
The fast-growing country's huge appetite for electricity is behind the push.

While China's total power capacity will nearly double by 2020, the amount that could come from wind and solar is expected to jump more than fivefold, aided by significant government assistance. Beijing announced in March it will subsidize 50% of costs for certain solar-panel projects, and 70% in remote regions.
But as often happens in China, this potential bonanza could prove to be a mirage for foreign companies.

The country's policymakers are nurturing a domestic alternative-energy industry on a massive scale.

China is home to more than 100 wind-turbine manufacturers and some 400 solar-panel companies. The country has quickly grown into the world's largest maker of photovoltaic cells. Yet more than 95% of PV cells produced by China in 2008 were exported, indicating the country's output far exceeds domestic demand.

Not surprisingly, foreign companies think they are being blocked from the mainland market.

The European Union Chamber of Commerce in China has complained China has erected alternative-energy trade barriers, focusing specifically on the treatment of wind-turbine makers. In a position paper released in September the group said, "The use of bidding requirements to bar international [wind-turbine] companies from competing is a cause for grave concern for these players who have all invested heavily in the market to live up to stringent local content requirements."
Paulo Fernando Soares, China chief executive for Indian wind-turbine maker Suzlon Energy, says his company has successfully bid for provincial-level projects, but Suzlon and all other foreign firms have been shut out of national-level wind-base projects in Gansu, Hebei and Inner Mongolia.

While the Chinese manufacturers are able to sell turbines cheaper than foreign firms, Soares argues they can't match foreign-made equipment in terms of reliability and overall track record. "The Chinese government has decided that they want to develop wind bases, that they want to promote a local industry and that they want to have local suppliers working in those big wind bases," he says.

"Then the Chinese government says the foreign companies are so much more expensive than the local companies. If the turbine price is the only selection criteria, then fine. If you take into account risks and performance and tariffs and everything, I can tell you in most of the cases, if not all of the cases, the international suppliers are more competitive than the local suppliers."
China's Ministry of Commerce rejected the European chamber's complaints of protectionism, saying the country tries to offer a level playing field for all foreign and domestic businesses.

But because China has not signed the World Trade Organization agreement that limits protectionism for government procurement, foreign governments have little recourse.

China's National Development and Reform Commission said in June that except in cases where the necessary technology is unavailable domestically, funds from the country's $586 billion stimulus package should buy Chinese-made equipment.
Soares points out that Suzlon has built a factory in Tianjin with more than 900 employees to satisfy Chinese requirements for 70% local parts content in turbines.

"They want to promote local industry. But then the question is, What is local?" says Soares. "More than 95% of my employees are Chinese. I'm an investor here, a producer here and pay taxes here. So why is there this difference?"

Adding insult to injury, Chinese firms are proving to be tough competitors in markets outside China's borders.

In Germany, where government subsidies helped stimulate global solar-panel production, an industry association is investigating claims that Chinese panelmakers are dumping their products.

Non-Chinese solar firms complain they are undercut in European and American markets by Chinese companies selling similar products for 30% less than rivals.

The dispute has the potential to increase trade frictions between China and the West. Earlier this year, U.S. customs officials ruled that imported solar panels were subject to a duty of 2.5% (panel imports were previously duty-free).
Shi Zhengrong, founder and CEO of Suntech Power, China's biggest solar-panel maker, says his company doesn't sell panels below cost anywhere in the world. And he points to First Solar's Ordos deal as evidence that foreign firms can succeed on the mainland.

"As long as companies have a competitive renewable-energy technology and product offering," he says, "there will definitely be opportunities in the Chinese market."
Some overseas firms insist that China is simply repeating an economic development strategy that has propelled the country's rapid progress in many other manufacturing sectors.

The country has been able to use the lure of huge potential markets to entice foreign companies to hand over technology and know-how in exchange for lucrative deals, later using that knowledge to produce competitive products cheaper than those of overseas originators.

Foreign companies built the generators for the first stage of the massive Three Gorges hydroelectric dam, but the generator contracts required the foreign makers to transfer technology to Chinese partners, who took the lead in later phases of construction.

A similar pattern appears to be playing out in alternative energy.

Foreign wind-turbine manufacturers held nearly 60% of the Chinese market in 2006. By last year that position was reversed, with Chinese firms taking 74% of new installations, says Jun Ying, chief China representative for the consulting firm New Energy Finance.

In fact, the number of Chinese turbine manufacturers has expanded so rapidly that the government, fearing a glut, warned in October that applications for new factories might not be approved.
Given the number of foreign companies that have set up their own facilities in China, the government is unlikely to let them fail completely, says New Energy Finance's Ying.

"If they have manufacturing capacity in China, they generate GDP, generate tax revenue, generate employment, I do not see a reason why the Chinese government would let them die," he says.

"A parent may like one child more than the other, but at the end of the day I think they will continue to do well and continue to do business in China."

With the rest of the global economy still stagnating, life as China's stepchild may be the best some international firms can hope for.

How China Is Battling Its Pirate Problem

Chinese cargo ship, the De Xin Hai, that has been hijacked by Somali pirates, appears off the east coast of Somalia.

By Austin Ramzy / Beijing
When Somali pirates hijacked a Chinese fishing boat in the Indian Ocean last November, there was little that China could do. The government said it was assessing the situation and hoping for help from authorities in the region.

Last week when pirates overpowered the crew of a Chinese bulk carrier 700 miles off the coast of Somalia, a Foreign Ministry spokesman pledged that China would make "an all-out effort to rescue the sailors and the ship."
What changed in a year?

Since sending three warships to the pirate-infested Gulf of Aden in January, China is increasingly capable of defending its merchant vessels in the region.

And the country is now more willing to display its growing military strength, as was demonstrated in the massive military parade held in Beijing on Oct.1 to celebrate the 60th anniversary of the founding of the People's Republic.
But having a military option this time around doesn't necessarily mean there's an easy solution. On Oct. 22 Foreign Ministry spokesperson Ma Zhaoxu said that a rescue operation was underway.

Since then, the pirates who captured the De Xin Hai have moved the coal carrier to the coast of Somalia near the city of Hobyo, according to the European Union Naval Force Atalanta, which conducts patrols in the region.

Thus far there has been no indication that any of the ship's 25 Chinese crew members have been harmed, says Commander John Harbour, spokesman for the EU effort.

Moving the vessel from the high seas to the Somali coast will make any rescue efforts far more challenging.

""It's extremely difficult to on board a ship once it's sitting alongside the coast," says Harbour. "Undoubtedly [the pirates] have been reinforced. As the Americans have discovered, they can be pretty resourceful individuals. It would be a dangerous operation militarily."
With the ship anchored near a pirate enclave, the most likely outcome of the hijacking now is a negotiated settlement and possibly a ransom paid by the ship's owners, the China Ocean Shipping-owned Qingdao Ocean Shipping. (Estimates of ransom monies received by Somali pirates exceed $100 million.)

But on Chinese web forums there are increasing calls for use of force.

"Pay the ransom and get the hostages out first, to show the humanitarian spirit. Then we should deploy our soldiers to destroy the pirates and take back the ransom," wrote one commenter on a message board at the People's Daily website. "We can't let them take advantage of us Chinese." Some commenters described as a model the successful U.S. intervention in the hijacking of an American cargo ship in April, when Navy snipers shot three hijackers.

"Just do what the Americans did," wrote one.
So far such calls have been limited to anonymous online postings, but they are indicative of the dilemma faced by China's leadership.

The country has undergone a significant military modernization drive, with spending rising by double-digit annual percentage increases for nearly two decades. (The highest estimate of China's military spending for 2009 — $130 billion — is still less than half of the United States' $419 billion defense budget.)

Chinese Navy officials have indicated they hope to build an aircraft carrier in the coming decade, which would give them a far greater ability to project force away from home.
How does China plan to use its growing power?

That's a question frequently asked by U.S. military officials and foreign observers.

Some say the existence of military strength becomes an argument to use it.

"One of the problems you start having is when you have large, relatively capable militaries, there's the temptation to use [force] even though you're not prepared to," says Richard Bitzinger, a senior fellow at the S. Rajaratnam School of International Studies at Nanyang Technological University in Singapore.

"It's a sunk cost. You put so much money into it, then the temptation is there. Why aren't you using it? It starts to take on a life of its own... You might go down the same route America has gone down in last 10 years: Military action is not the last resort, it's the only one."
For now China seems prepared to look for other options. It may be their only choice.

A strike within Somalia's territorial waters would require far more international cooperation than an attack at sea.

While China had two missile frigates in the region, they were more than a two-day sail from where the hijacking took place, says Yin Gang, a researcher at the Chinese Academy of Social Sciences' Institute of West Asian and African Studies.

"I don't see [a military rescue] coming in the foreseeable future, because the Chinese army is far from being able to do that, despite what many people might think of the grandiose National Day parade," Yin says.

"I hope in the future, the Chinese government can be more open in the disclosure of information. That way, the public would be better informed, and there would be less far-fetched speculations."

China Security Market Tough to Crack for Foreign Vendors

By Owen Fletcher

Major security vendors looking to crack China's market have met obstacles localizing their products and securing distribution channels, analysts said Tuesday.
McAfee, Symantec, Trend Micro and other vendors have offered antivirus and other security software in China for years, but their Chinese rivals still dominate the market.

Another problem they have faced is equipping their software to shield against attacks on Chinese programs, such as popular instant messaging client QQ, that the companies have not had to deal with outside of China.
"Foreign vendors are bound to face a localization problem," said Chen Shousong, an analyst at Chinese technology consultancy Analysys International.
One problem for foreign security vendors is that local rivals often undercut their prices, said Chen.

Products from foreign vendors are usually more advanced, but that can also make them more expensive, and most Chinese individuals and companies are still more concerned about price than about the sophistication of their security software, he said.

Foreign vendors will benefit as Chinese users slowly begin to demand higher-level security software, Chen said.
Symantec, Kaspersky and McAfee were among China's top five vendors of consumer security software in 2008, according to Gartner.

Three of the top five enterprise security software vendors were also foreign, but those figures, based on revenue, overstate the position of the foreign companies, said Matthew Cheung, a Gartner analyst.
Local Chinese security vendors such as Rising, Kingsoft and Jiangmin need to sell many more copies of their lower-priced software to match the revenue of foreign rivals, Cheung said.
Building local distribution channels has been another obstacle for foreign vendors.

Companies like McAfee were late creating ties with China's network operators, through whom local users often pay their subscription fees for antivirus programs, said Cheung.

Vendors including Symantec have partnered with local PC makers to bundle their software with new computers, but many Chinese users prefer downloading antivirus software or directly using an online virus scanning tool, he said.
Foreign vendors have done poorly at distributing their products through online channels in China, said Cheung.

Top Chinese search engine Baidu, for instance, has a Web page dedicated to security software downloads. Symantec and Kaspersky are the only foreign security vendors whose software appears on the page.
The vendors themselves say tackling the Chinese market requires adding protection in their products against a wide range of local malware.

McAfee has hired a team to research exploits in common Chinese applications so protection against them can be added to the company's intrusion prevention product, said Rees Johnson, general manager of McAfee's network defense business unit.

Expanding coverage against local security threats is an important part of McAfee's efforts to grow in China, Johnson said.

China’s Water Needs Create Opportunities

The Qinghe Wastewater Plant in Beijing. China’s water shortage, especially in the northern part of the country, is driving a need for wastewater recycling.

By HILLARY BRENHOUSE
MONTREAL — The staggering economic growth in China has come at a heavy cost, paid in severe contamination of the country’s air, soil and water.

But now the Chinese government is aggressively pursuing more stringent environmental regulation, with a particular focus on water distribution and wastewater treatment.
Recent stimulus spending has opened up the Chinese market to green initiatives. And Canadian companies are responding to the call for advanced water treatment and reuse technology.
“It’s not well known that China has set aside more money for the adoption of clean technologies than any other country on the planet,” said Dallas Kachan, managing director of Cleantech Group in San Francisco, which tracks global investment in clean technologies.
The Chinese economic stimulus package of 4 trillion yuan, or $585 billion, announced a year ago, focused nearly 40 percent of its spending on environmental and energy-efficient projects.
The climate change meeting in Copenhagen in December is likely to prompt policy shifts that further drive the market for clean technologies in China, Mr. Kachan said.

“This is possibly the best time to be doing business in China as a clean-tech company,” he said. “It’s important to get in now and form relationships.”
Since 2006, the clean-technology market in China has “gone from niche to mainstream,” and it is growing at an annual rate of more than 20 percent, according to Tsing Capital, one of the country’s first clean-technology venture capital firms.
Canada has a strong track record for innovation and investment in clean water technology and already has a foot in the Chinese market.

“Canadian companies like Zenon Environmental that are world leaders in ultraviolet technology have benefited a lot of the emerging companies looking to enter China,” said David Henderson, managing director of XPV Capital, a Toronto-based investor in emerging water industry companies.
Alan McMillan is managing director of Omazo Ventures, a technology incubator firm also based in Toronto, and chairman of BX Jishu, a Chinese clean-technology distributor. Omazo, through BX Jishu, distributes in China equipment manufactured by UV Pure Technologies, also of Toronto, that purifies water using ultraviolet light.
This summer, Omazo struck a deal with a Shanghai-based hotel chain to supply 1,000 Chinese hotels with UV Pure’s purification units.

Omazo declined to name the buyer but said that on average, each unit would cost $2,000 and hotels would typically need 2 to 10 units, depending on their size.
Omazo is focused on the commercial property market — and specifically, on bringing clean water to China’s burgeoning hospitality industry.

“That’s our penetration strategy,” Mr. McMillan said. “We see the hotel industry as being one of the first to demand clean water. Hotels have extreme water needs for their pools, restaurants, showers. And the people who stay in them have high expectations.”
The trade service division of the Chinese Ministry of Commerce recently announced a plan to build 10,000 green hotels by the year 2012 — hotels that will need to be outfitted with the latest in water treatment technology.

In 2007, China raised its national standards for drinking water and established an inspection network to monitor water quality.

The Health Ministry added 71 benchmarks to the 35 already required under previous standards. But water sources are still considered unreliable, and boiling water in hotels for drinking continues to be the norm.
UV Pure specializes in systems for institutions like hotels, schools and hospitals.

Conventional ultraviolet systems tend to foul up when treating water in China because of high mineral content, and typically require costly water softeners.

UV Pure’s technology features a self-cleaning mechanism, which according to the manufacturer allows it to operate effectively even in exceptionally hard water.
“There’s no question that opportunities abound for clean-tech companies in China,” said Rick VanSant, UV Pure’s chief executive.

“The Canadian government has done an excellent job in pursuing an improved relationship with China. And Canada has been a relative hotbed for the development of leading environmental technologies, particularly with respect to water disinfection and wastewater treatment technology.”
Trojan Technologies, a company based in London, Ontario, which was acquired five years ago by Danaher, a diversified U.S. engineering company, is another that has sold ultraviolet disinfection technology to China — in its case to hundreds of municipal wastewater treatment plants located mostly along the fast-developing coast.
Sales have been helped by a revision in government regulations on wastewater disinfection — based partly on Trojan’s input — to allow ultraviolet treatment as an alternative to chlorination.
“The new regulation and the Chinese government’s most recent five-year plan, which identifies building infrastructure to collect sewage and treat it as one of its main priorities for first-tier cities, dovetailed to create a market opportunity,” said Marvin DeVries, Trojan’s chief executive. “It was an opportunity that we were, and still are, anxious to participate in.”
The company also supplies, through local Chinese distributors, ultraviolet water treatment systems in industrial markets and products designed to disinfect water in private homes.

At present, its initiatives in China are moving forward much ahead of schedule.

“In no other geography have we found stimulus funding translate into orders and deliveries as quickly as we have in China,” Mr. DeVries said.
“As a Canadian company, we were never under any allusions that the Canadian market would be big enough for us,” he said. “Right from the outset we adopted an export mentality.”

But Trojan’s acquisition by Danaher in 2004 was a crucial factor helping its entry to China and similar markets, he added. Using Danaher’s existing sales organization in the country, Trojan was able to leverage its experience and infrastructure almost immediately.
Zenon Environmental is another instance of Canadian innovation in clean technology being marketed globally by a prominent multinational.

The company, based in Oakville, Ontario, had already begun to distribute its water filtration membranes in China before being acquired by General Electric’s water and process technologies division in 2006, but the acquisition enhanced the Canadian treatment technology’s scale and reach in the market.
The membrane bioreactor technology was used at the Beijing Olympics, where G.E. treated all of the wastewater from the Olympic Village for reuse and irrigation.
In November, G.E. opened an expanded manufacturing and assembling plant in Wuxi, Jiangsu Province, to complement its research and development center in Shanghai.

Also in Wuxi, the Meicun wastewater treatment plant employs the company’s membrane technology to treat water that is discharged into Lake Tai, the country’s third largest lake.

A huge algae outbreak in the lake in 2007 made tap water undrinkable for the 2.3 million residents of Wuxi.

G.E.’s equipment is being used to protect the city’s potable water supply.
China’s water shortage, especially in the northern part of the country, is driving a need for wastewater recycling.

“Right now, only 30 to 40 percent of the wastewater gets treated in China,” said Steve Watzeck, president of engineered systems at G.E. Water.

“But we understand that Beijing aims to reuse 100 percent of its wastewater by 2013. Implementing advanced wastewater reuse technologies is key to China’s continued industrial growth.”
China’s capability in clean water technology is still underdeveloped. But the country’s solar industry is an example of how quickly it can sprint to the fore.

Mr. Kachan of Cleantech Group points out that Suntech Power, the Chinese company that a year ago became the world’s leading maker of crystalline silicon solar modules, did not exist eight years ago.
“Suntech came out of nowhere,” Mr. Kachan said.

“The same thing could very well happen with clean water technology. China has all the raw ingredients of success, from boundless resources, cheap labor, motivation, governmental and policy support to an entrepreneurial sprit that is driven by a desire to be first.”

Communist China accuses Google of internet censorship

People use laptops at a ceremony to launch Google's free music download service for China in Beijing. Google Inc. faces a new controversy in China after a Web site run by the Communist Party's main newspaper accused the U.S. search giant of trying to keep users away from the site following its reports on a copyright dispute

By Joe Mcdonald

BEIJING — Google Inc. faces a new controversy in China after a website run by the Communist Party's main newspaper accused the U.S. search giant of trying to keep Internet users away following its reports on a copyright dispute.
The online People's Daily book section said the three-day disruption began last Wednesday after it reported on a Chinese group's complaint that Google's plan for an online library of digitized books might violate Chinese authors' copyrights.
Google searches returned a warning that the site might contain software that could harm computers, said Pan Jian, the section's manager.
"We got complaints from readers that they couldn't access our channel via Google," Pan said Tuesday. "We thought it might be related to our reporting on the conflict between Google Library and Chinese authors."
An unidentified People's Daily official quoted on the paper's website said the section was "maliciously blocked by Google."
A Google spokeswoman, Cui Jin, denied the warning was prompted by the site's reporting on the copyright dispute.
"This is absolutely incorrect," Cui said. She said the warning was generated by software that is "an automatic function without any human interference."
Pan said his site's technicians found nothing wrong. He said the Chinese search engine Baidu did not return a similar warning, but Cui said that might be because Baidu does not use the same screening software.
The software was produced by StopBadware.org, an industry group that promotes Internet security, Cui said.

The group's website says it is co-ordinated by Harvard University's Berkman Center for Internet & Society and supported by companies such as Google, PayPal, Mozilla, AOL and Trend Micro.
Google, based in Mountain View, California, has faced other complaints about its operations in China, where the government uses an extensive filtering system to try to block access to material deemed lewd or subversive.
In June, Beijing accused Google of allowing access to pornography. That followed an unexplained outage that temporarily blocked users in China from seeing Google's U.S. site, its China-based site google.cn and its Gmail email service.
Google has struggled to expand in China, where it has less than 30 per cent of the search market, versus more than 60 per cent for local rival Baidu Inc. China has more than 338 million Internet users, a group bigger than the entire U.S. population.
In the copyright dispute, the China Written Works Copyright Society called on Google last week to negotiate compensation for Chinese authors.
Google has reached a tentative agreement to compensate U.S. authors and publishers. It applies only to the United States, but Google said it is encouraging rightsholders abroad to register for the settlement.
Baidu also has faced complaints about its operations.
Last November, it was accused by a state television news program of allowing unlicensed sellers of medical products to pay for better placement in search results without informing users. Baidu launched a review of whether advertisers had required licenses and said it dropped links to some merchants.

China’s Facebook Few — 14,000 and Falling

Customers surf at an Internet cafe in Beijing.

By Loretta Chao

The number of Facebook users in China is dwindling. Or to be more exact: falling off a cliff.

And not by choice, as anyone who has tried to access Facebook in China recently knows.
It’s no secret among people in the Internet business in China that Facebook was interested in the world’s largest Internet user population.

But apparently — according to various parties that met with a delegation of Facebook officials some time in the last few years — they came, they saw, and they left Chinese social networking Web sites like Renren.com (formerly known as Xiaonei), Kaixin001 and 51.com to fight amongst themselves for the market.
Then, to the chagrin of both expatriate and Chinese users (the number of which appeared for a time to be growing), China’s censors blocked Facebook.

Blocks of overseas Web sites such as YouTube.com are a fact of life here, barely acknowledged and never explained by the government. (Many of these sites actually matter very little to Chinese Internet users who have their own favorite Web sites to watch videos on.)
Internet companies in China need licenses to operate, and are required to police themselves, filtering out any illegal content, which ranges from pornographic to politically sensitive material. Web sites based elsewhere may be blocked in their entirety or users can be periodically locked out if they continuously surf onto Web sites that contain certain key words.
Many Facebook users found proxies and other methods of connecting to Facebook, and many others stood by, hoping the Web site would be unblocked quickly (no luck yet).

Meanwhile, according to Inside Facebook, the Web site’s latest statistics showed only 14,000 active users in China as of the beginning of October, down from a million in July.
Facebook aside, Chinese Internet users are becoming increasingly aware of the censorship strategies used by the government here, which benefited from a lower profile before authorities became more aggressive this year.

Many have taken to complaining about China’s Internet censorship, often referred to as the “Great Firewall,” on the Berlin Twitter Wall, a Web site set up to aggregate people’s thoughts on the fall of the Berlin wall 20 years ago. (User comments are added by attaching the “#fotw” tag, which stands for “Fall of the Wall” in their Twitter posts.) Warning: Some comments include profanity.
As of Monday afternoon, the Berlin Twitter Wall was still accessible in Beijing.

Tackling the Roots of China's Overcapacity

By ALAN WHEATLEY
BEIJING — At the start of the decade, perhaps only one family in three in the village of Oufang was growing citrus trees. They earned a good living until five years ago, when nearly all their neighbors piled in and started planting.
The result has been predictable.
“There are too many oranges here. Nobody wants them and we can’t sell them,” said Peng Xiaomin, one of the growers.
Mr. Peng, 27, who has posted an advertisement on a fruit Web site in an effort to sell his oranges, said the villagers were now just scraping by.
“The farmers have planted too many citrus trees,” he said. “Development has just been too fast.”
Oufang, in the southeastern province of Jiangxi, is a microcosm of China’s economy: overcapacity blights an array of sectors, notably in heavy industries that are dominated by state-owned enterprises.
In diverting capital from areas in dire need like health and education, unproductive investment is a drag on Chinese living standards.
If manufacturers dump their excess production abroad, trade strains flare up.
But is the problem serious enough to warrant all the government hand-wringing of late?
Yolanda Fernandez Lommen, an economist with the Asian Development Bank in Beijing, said excess capacity represents an opportunity cost for China, which could put the resources to better use in, say, the stunted services sector.
“Overcapacity is a reminder that the economy is now mature enough for China to start looking into new sources of growth,“ she said. “But when I think of the risks facing the economy, overcapacity is not high on the list.”
For a start, the problem is not new.
Excess capacity is almost hard-wired into China’s economic model of industrialization, based on high levels of public investment.

With a host of factors suppressing spending, surplus savings are channeled to state-owned firms that gorge on cheap capital and subsidized inputs.
For their part, private entrepreneurs have a gold rush mentality, plunging headlong into the hot sectors of the day.
Solar panels and electric bikes come to mind. Grabbing market share by swamping the competition, not by building brands, is the usual approach. Excess capacity is the usual outcome.
“We need to know that overcapacity is a necessary evil of market competition,” Ting Lu, an economist with Bank of America Merrill Lynch, said in a recent note.

“Socialist central planning economies were marked with shortages, while capitalist economies are frequently haunted by overcapacities.”
At the macro level, profitability, sales growth and returns on investment do not suggest a serious overcapacity problem, according to some economists.
The six sectors targeted in the latest government drive to curb blind expansion — steel, cement, flat glass, chemically processed coal, polysilicon and wind turbines — account for just five percent of total fixed asset investment, Mr. Lu noted.
Doomsayers warn that it is only a matter of time before excess capacity leads to a wave of bankruptcies and sour loans.
But Mingchun Sun, Nomura’s chief China economist, sees things differently. Projects in the pipeline from the government’s 4 trillion yuan, or $585 billion, fiscal stimulus as well as a revival of private capital spending could propel growth in fixed asset investment, now running at 33.4 percent, to 38 percent or higher in the first half of 2010.
“By then, investment demand for capital goods, raw materials and energy could be so strong that even upstream sectors with overcapacity now may experience very high capacity utilization, or even shortages,” he said.
Optimists also cite the composition of the pump-priming package as evidence that Beijing is at last getting serious about tackling structural defects in the economy — including the innate tendency to create too much capacity.
The lion’s share of the stimulus has gone to areas where it is needed.

In the first three quarters, investment in infrastructure rose by 52.6 percent from a year earlier; in railroads, by 87.5 percent; in health, social security and social welfare, by 72.9 percent, according to government figures.
True, parallel programs of incentives and tax breaks have increased sales of cars and household appliances, but economists say little of the stimulus money has gone into manufacturing.
“There was concern when the fiscal stimulus was launched that a lot would go into sectors with overcapacity and that we’d get oversupply and deflation. But it hasn’t,” Ms. Fernandez Lommen said.
This is not to say that all is for the best in the best of all possible worlds. Chinese manufacturing is crying out for consolidation — not for the 26.9 percent expansion in capacity recorded in the first three quarters.
China, for example, makes as much steel as the next eight producers combined. The runaway rate of expansion looks like an accident waiting to happen.
“International experience tells us that it is very important to avoid exporting overcapacity — steel, shipbuilding, chemicals, et cetera — to prevent trade frictions that harm the political atmosphere and interrupt supply chains,” said Joerg Wuttke, president of the European Union Chamber of Commerce in China.
A root cause of the problem is that local governments are forced to attract tax-generating investment, even if there is surplus capacity nationwide, because they are starved of revenue from other sources. Unlike the United States and most of Europe, for example, China does not levy local property taxes.
So getting local party chiefs to toe the line on overcapacity will be a tall order for the central government, which has struggled down the ages to impose its will on distant provinces.
“Implementation depends on local authorities, and it will not be easy,” said Ken Peng, Citigroup’s economist in Beijing.