China bugs and burgles Britain

A restricted report by the security service MI5 describes how China has attacked UK companies in a concerted hacking campaign
By David Leppard
THE security service MI5 has accused China of bugging and burgling UK business executives and setting up “honeytraps” in a bid to blackmail them into betraying sensitive commercial secrets.
A leaked MI5 document says that undercover intelligence officers from the People’s Liberation Army and the Ministry of Public Security have also approached UK businessmen at trade fairs and exhibitions with the offer of “gifts” and “lavish hospitality”.
The gifts — cameras and memory sticks — have been found to contain electronic Trojan bugs which provide the Chinese with remote access to users’ computers.
MI5 says the Chinese government “represents one of the most significant espionage threats to the UK” because of its use of these methods, as well as widespread electronic hacking.
Written by MI5’s Centre for the Protection of National Infrastructure, the 14-page “restricted” report describes how China has attacked UK defence, energy, communications and manufacturing companies in a concerted hacking campaign.
It claims China has also gone much further, targeting the computer networks and email accounts of public relations companies and international law firms.

“Any UK company might be at risk if it holds information which would benefit the Chinese,” the report says.
The explicit nature of the MI5 warning is likely to strain diplomatic ties between London and Beijing.

Relations between the two countries were damaged last month after China’s decision to execute a mentally ill British man for alleged drug trafficking.
Earlier this month the United States demanded that China investigate a sophisticated hacking attack on Google and a further 30 American companies from Chinese soil.
China has occasionally attempted sexual entrapment to target senior British political figures. Two years ago an aide to Gordon Brown had his BlackBerry phone stolen after being picked up by a Chinese woman who had approached him in a Shanghai hotel disco.
The report says the practice has now extended to commercial espionage.

It says Chinese agents are trying to cultivate “long-term relationships” with the employees of key British companies: “An undercover intelligence officer may try to develop a friendship or business relationship, often using lavish hospitality and flattery.
“Chinese intelligence services have also been known to exploit vulnerabilities such as sexual relationships and illegal activities to pressurise individuals to co-operate with them.”
The warning to British businessmen adds: “Hotel rooms in major Chinese cities, such as Beijing and Shanghai, which are frequented by foreigners, are likely to be bugged... hotel rooms have been searched while the occupants are out of the room.”
It warns that British executives are being targeted in China and in other countries.

“During conferences or visits to Chinese companies you may be given gifts such as USB devices or cameras. There have been cases where these ‘gifts’ have contained Trojan devices and other types of malware.”
China has repeatedly denied spying on Britain and the West. Its London embassy did not comment.
In 2007 Jonathan Evans, the director-general of MI5, had written privately to 300 chief executives of banks and other businesses warning them that their IT systems were under attack from “Chinese state organisations”.
There have been unconfirmed reports that China has tried to hack into computers belonging to the Foreign Office, nine other Whitehall departments and parliament.
Last year a report by Whitehall’s joint intelligence committee said China may be capable of shutting down critical services such as power, food and water supplies.

But the latest document is the most comprehensive and explicit warning to be issued by the UK authorities on the new threat.

Entitled The Threat from Chinese Espionage, it was circulated to hundreds of City and business leaders last year.
The growing threat from China has led Evans to complain that his agency is being forced to divert manpower and resources away from the fight against Al-Qaeda.

His lobbying helped to prompt the Cabinet Office to set up the Office of Cyber Security, which will be launched in March.

New study fails to bridge Japan, China history divide

TOKYO (AFP) — Japanese and Chinese scholars published the results of a three-year joint study Sunday which showed they could not resolve differences on controversial modern events including the 1937 Nanjing Massacre.
In a government-backed project aimed at soothing strained ties, 10 historians from each country have reviewed the history of China-Japan relations over 2,000 years.
The 549-page report showed both sides agreed that the 1937-1945 Sino-Japanese War was an "act of aggression" waged by Japan.
But it noted differing views on the number of Chinese killed by the imperial Japanese army after it seized Nanjing, then China's capital and known as Nanking.
The Chinese said more than 300,000 were massacred when Japanese troops embarked on an orgy of destruction, pillage, rape and murder.
The Japanese side pointed to "various estimates" such as 20,000 and 40,000 and up to 200,000.
The study was launched in 2006, when then prime minister Shinzo Abe and Chinese President Hu Jintao tried to mend ties that worsened under Abe's predecessor Junichiro Koizumi whose visits to a Tokyo war shrine angered China.
The Japanese government has apologised for atrocities during its occupation of China without putting an estimate on the number of victims in Nanjing.
The report did not disclose the outcome of discussions on post-World War II history at the request of the Chinese side.
Japanese media attributed the exclusion to China's caution on sensitive events including the bloody military crackdown on pro-democracy protests at Tiananmen Square in 1989.
The study was led by Shinichi Kitaoka, a professor at the University of Tokyo, and Bu Ping, director of the Institute of Modern History of the Chinese Academy of Social Sciences.
Kitaoka and Bu said last month that the report would wrap up the first phase of the joint study and they hoped to launch a "second phase" in the future.
Japanese Foreign Minister Katsuya Okada told reporters on Friday that the study might expose "differences in views, especially in modern and contemporary history".
"But I think common understanding can gradually be nurtured through repeated meetings."

How should Europe respond to China's strident rise?

By Charles Grant
Until very recently, many western politicians, bankers and business people were broadly optimistic about the rise of China.

They assumed that as China became more developed it would become more western. As it integrated into the global economy it would play a constructive role in multilateral institutions, help western governments sort out key foreign policy challenges and permit a more open society.

China's leaders seemed to understand that the economic development of their country required friendly relations with the US and other major powers.
The EU's leaders shared this optimism.

But over the past year China's behaviour has changed. Hard-line and nationalist elements in the leadership appear to have sidelined those with liberal and internationalist instincts.

This shift is spurring the EU's governments and institutions to reappraise their China strategies.
China's foreign policy has become more assertive.

Its vocal claims to the Indian state of Arunachal Pradesh have upset India's leaders. It has become less helpful to the West on the Iranian nuclear problem.

It threatens the commercial interests of EU countries whose leaders meet the Dalai Lama in an official setting.

Western governments have suffered increasingly powerful cyber-attacks that have been traced to mainland China.

And at the Copenhagen climate change conference, China worked hard behind the scenes to scupper the kind of deal that many western countries (and poor nations) wanted.
China's political system has become more repressive.

Internet censorship is tighter (prompting Google to say that it may leave China).

In December Liu Xiaobo was sentenced to 11 years in prison for organising a pro-democracy petition.

Moves to introduce greater democracy into local government and the Communist Party have faltered.

China's economic policies have become more nationalist.

Many foreign investors in China complain about being excluded from key markets and suffering from all sorts of discrimination.

China's intervention to prevent its currency rising, designed to boost exports, is fuelling protectionist pressure in many continents.
Three factors may explain this increasingly hard line:

★ China has come through the global recession better than any other large country, growing by 9 per cent in 2009. Its leaders view the western economic model as discredited.

They are cocky about their success, and given that the West seems weaker they think they can assert China's interests more forcefully.

★ Yet China's leaders feel insecure. The recent unrest in Tibet and Xinjiang caught them by surprise. Rapid economic growth and urbanisation are creating huge social tensions. Endemic corruption makes local party bureaucrats unpopular.

The booming housing market – fuelled by the government selling land to property speculators – means that many young middle class people cannot afford to buy flats. Few Chinese people want western-style democracy, but the leaders know their legitimacy rests on thin foundations.

Hence their reluctance to allow a more open society.

★ The current leadership, led by Hu Jintao and Wen Xiabao, is due to hand over to the 'fifth generation' of leaders in 2012. There is much manoeuvring for position.

Some key figures seem to be pushing a nationalist line in order to boost their support among party cadres.

In China, as in most countries, nationalist policies can be popular.

American attitudes to China are palpably hardening. At some point this year the US may declare China to be a 'currency manipulator' and then apply protectionist measures.

And even in the EU – which finds it so hard to get tough with anyone – governments are rethinking their China policies.

What line should the EU adopt?

First, European leaders need to remind themselves of the obvious point that if they stand together they will have more clout.

As an ultra-realist power, China respects strength.

Too often, European states – and especially Britain, France and Germany – have sought to cultivate their own special relationships with Beijing, viewing each other as competitors.

The Europeans need to agree on a single set of messages for China, so that it cannot play a game of divide and rule.

And sometimes the Europeans should work with the Americans, who agree with them on issues like market access and human rights, in order to increase their leverage.

Second, the Europeans should be more willing to criticise China for reneging on commitments it has signed up to.

China is in breach of some World Trade Organisation (WTO) rules and the EU should be prepared to take China before WTO disciplinary panels more often.

It should also scold China for failing to ratify the International Convention on Civil and Political Rights.

And rather than merely lecturing the Chinese government on human rights, the Europeans should point out that it often breaches its own constitution and laws when acting against Chinese citizens.

The Europeans have learned that when they treat China deferentially they achieve very little.

Third, the Europeans should continue to engage China.

But they should abandon the fiction of a 'strategic partnership', which cannot be meaningful when the values of the two sides are so different.

The number of summits, 'executive to executive' meetings and 'high-level mechanisms' between the EU and China should be cut.

Future summits should focus on a small number of issues on which China and the EU have mutual interests but conflicting views: the preservation of an open global trading system, China's mercantilist currency policy and climate change.

If China ignores European views on these issues, the EU is less likely to keep its markets open and more likely to discourage some of the technology transfers that China wants (China's leaders say the Europeans currently transfer more useful technology than the Americans).
China's leaders may have miscalculated by underestimating the impact of their harder line on Washington and European capitals.

Undoubtedly, some of them stand by the premise of the 'peaceful rise' slogan – that China's economic development requires a degree of modesty in foreign policy and good relations with the West.

When the most senior leaders see the negative impact of their tougher approach, they may choose to change course.

But if they maintain the hard line for a prolonged period, protectionism will flourish and some powerful countries will start working together to contain China.

Those outcomes would be bad for China.

China's strident tone raises concerns among Western governments

By John Pomfret
China's indignant reaction to the announcement of U.S. plans to sell weapons to Taiwan appears to be in keeping with a new triumphalist attitude from Beijing that is worrying governments and analysts across the globe.
From the Copenhagen climate change conference to Internet freedom to China's border with India, China observers have noticed a tough tone emanating from its government, its representatives and influential analysts from its state-funded think tanks.
Calling in U.S. Ambassador Jon Huntsman on Saturday, Chinese Vice Foreign Minister He Yafei said the United States would be responsible for "serious repercussions" if it did not reverse the decision to sell Taiwan $6.4 billion worth of helicopters, Patriot Advanced Capability-3 missiles, minesweepers and communications gear.

The reaction came even though China has known for months about the planned deal, U.S. officials said.
"There has been a change in China's attitude," said Kenneth G. Lieberthal, a former senior National Security Council official who is currently at the Brookings Institution.

"The Chinese find with startling speed that people have come to view them as a major global player. And that has fed a sense of confidence."
Lieberthal said another factor in China's new tone is a sense that after two centuries of exploitation by the West, China is resuming its role as one of the great nations of the world.
This new posture has befuddled Western officials and analysts: Is it just China's tone that is changing or are its policies changing as well?
In a case in point, one senior U.S. official termed as unusual China's behavior at the December climate conference, during which China publicly reprimanded White House envoy Todd Stern, dispatched a Foreign Ministry functionary to an event for state leaders and fought strenuously against fixed targets for emission cuts in the developed world.
Another issue is Internet freedom and cybersecurity, highlighted by Google's recent threat to leave China unless the country stops its Web censorship.

At China's request, that topic was left off the table at this year's World Economic Forum in Davos, Switzerland, Josef Ackermann, chief executive of Deutsche Bank and co-chairman of the event, told Bloomberg News.

The forum ends Sunday.

China dismisses concerns
Analysts say a combination of hubris and insecurity appears to be driving China's mood.

On one hand, Beijing thinks that the relative ease with which it skated over the global financial crisis underscores the superiority of its system and that China is not only rising but has arrived on the global stage -- much faster than anyone could have predicted.

On the other, recent uprisings in the western regions of Tibet and Xinjiang have fed Chinese leaders' insecurity about their one-party state.

As such, any perceived threat to their power is met with a backlash.
A spokesman for the Chinese Embassy in Washington said China's tone had not changed.
"China's positions on issues like arms sales to Taiwan and Tibet have been consistent and clear," Wang Baodong said, "as these issues bear on sovereignty and territorial integrity, which are closely related to Chinese core national interests."
The unease over China's new tone is shared by Europeans as well.

"How Should Europe Respond to China's Strident Rise?" is the title of a new paper from the Center for European Reform.

Just two years earlier, its author, institute director Charles Grant, had predicted that China and the European Union would shape the new world order.
"There is a real rethink going on about China in Europe," Grant said in an interview from Davos. "I don't think governments know what to do, but they know that their policies aren't working."
U.S. officials first began noticing the new Chinese attitude last year. Anecdotes range from the political to the personal.
At the World Economic Forum last year, Premier Wen Jiabao lambasted the United States for its economic mismanagement.

A few weeks later, China's central bank questioned whether the dollar could continue to play its role as the international reserve currency.
And in another vignette, confirmed by several sources, a senior U.S. official involved in the economy hosted his Chinese counterpart, who then made a series of disparaging remarks about the bureau that the American ran.

Later that night, the two were to dine at the American's house. The Chinese representatives called ahead, asking what was for dinner. They were informed that it was fish.

"The director doesn't eat fish," one of them told his American interlocutor. "He wants steak. He says fish makes you weak."

The menu was changed.

Tone with Europe, India
With Europe and India, China's strident tone has been even more apparent.

In autumn 2008, China canceled a summit with the European Union after French President Nicolas Sarkozy met with the exiled Tibetan leader, the Dalai Lama.

Before that, it had denounced German Chancellor Angela Merkel over her contacts with the Tibetan spiritual leader.

And in recent weeks, it has engaged in a heated exchange with British officials over its moves to block a broader agreement at the climate conference.
At the Chinese Embassy, Wang differed on the climate issue.

"China is strongly behind the idea of meeting the issue of climate change," he said, "but at the same time we think that there are some people who want to confuse the situation, and we feel the need to try to let the rest of the world know our position clearly."
China also suspended ties with Denmark after its prime minister met the Dalai Lama and resumed them only after the Danish government issued a statement in December saying it would oppose Tibetan independence and consider Beijing's reaction before inviting him again.
"The Europeans have competed to be China's favored friend," Grant said, "but then they get put in the doghouse one by one."
China's newfound toughness also played out in a renewed dispute with India over Beijing's claims to the Indian state of Arunachal Pradesh, which borders Tibet.

Last summer, China blocked the Asian Development Bank from making a $60 million loan for infrastructure improvements in the state. India then moved to fund the projects itself, prompting China to send more troops to the border.
David Finkelstein, a former U.S. Army officer at the Defense Intelligence Agency who now runs the China program at the Center for Naval Analyses, said the new tone underscores a shift in China.

"On the external front," he said, "we will likely see a China that is more willing than in the past to proactively shape the external environment and international order rather than passively react to it."
An example would be events that unfolded in December when 22 Chinese Muslims showed up in Cambodia and requested political asylum. China wanted to hold seven of them on suspicion of participating in anti-Chinese riots in the Xinjiang region in July.
Under intense pressure from Beijing, Cambodia sent the group home, despite protests from the United States. Two days after the group was repatriated, China signed 14 deals with Cambodia worth about $1 billion.

What the future holds
Whether this new bluster from Beijing presages tougher policies and actions in areas of direct concern to the United States is a key question, Lieberthal said.

What China does after the United States sells Taiwan the weapons may provide some clues.
Even before the United States announced its plans Friday, at least six senior Chinese officials, including officers from the People's Liberation Army, had warned Washington against the sale.
Once the deal was announced, China's Defense Ministry said it was suspending a portion of the recently resumed military relations with the United States.

China also announced that it would sanction the U.S. companies involved in the sale.
What happens next will be crucial.

China quietly sanctioned several U.S. companies for participating in such weapons sales in the past.

However, it would mark a major change if China makes the list public and includes, for example, Boeing, which sells billions of dollars worth of airplanes to China each year.
He, the vice foreign minister, warned that the sales would also affect China's cooperation with the United States on regional issues.

Does that mean China will continue to block Western efforts to tighten sanctions on Iran?

Bonnie S. Glaser, a China security analyst at the Center for Strategic and International Studies, said the answer will probably come soon.
France takes over the presidency of the U.N. Security Council on Monday and is expected to push for a rapid move in that direction.

How China and Taiwan square off militarily

A handout photograph released on January 30, 2010 shows M60A3 tanks during an exercise in Taiwan on November 7, 2009.

(Reuters) -- The military balance between China and Taiwan has rapidly shifted in China's favour, but a U.S. proposal on Friday to sell advanced arms to the island that Beijing claims as its own would shore up its self-defence.

Despite improved political ties following the election in Taiwan of a more pro-China president last year, China has yet to renounce the use of force to recover the self-ruled island it considers its sovereign territory. The mainland holds a strong lead over long-time political rival Taiwan despite the U.S. arms proposal.
Following is a brief comparison between China's and Taiwan's military forces:

ARMY China Taiwan
Personnel 2.3 million* 277,765
- China's 2.3 million-strong armed forces are far bigger than the world's second-largest military, that of the United States, whose forces number about 1.5 million. The People's Liberation Army (PLA) was born out of the Red Army, a five-million-strong peasant army, which swept the Communists to power in 1949.
Soviet expertise helped organise it into a mass army geared towards wars of attrition during the 1950s, when it fought in the 1950-1953 Korean War alongside North Korea. The PLA is morphing into a modern force capable of fighting short, high-intensity conflicts against high-tech adversaries.
- With U.S. military aid, Taiwan transformed its army from the defeated remnants of the Nationalist forces that fled to the island in 1949 into a modern, disciplined military that has recently downsized in favour of improved technology.
Its primary role is protecting Taiwan and countering any sea or air assault from China. The army has been slimmed down in recent years as Taiwan tries to shift away from a conscript-heavy force to a more professional fighting unit.

AIR FORCE China Taiwan
Fighter aircraft: more than 2,000 about 400
- China used to rely on somewhat substandard copies of Soviet-made aircraft, but these days has developed a more formidable design capacity. Its most advanced aircraft, and for Taiwan the potentially most threatening, are Russian Su-30 and Su-27 fighters.
- The backbone of Taiwan's air force is made up of U.S.-made F-16s, around 60 French-built Mirage 2000s and about 130 Ching-kuo Indigenous Defence Fighters, though the defence ministry will not give exact numbers. Taiwan has asked the United States for an additional 66 F-16s.
Training is the air force's strong suit, but experts say that a well-planned early Chinese missile strike could take out most Taiwan air base runways and render the island's aircraft, hidden in fortified or mountain bunkers, trapped on the ground.

NAVY ** China Taiwan
Destroyers 26 9
Frigates 47 22
Submarines 63 4
- Once limited to just protecting China's coast, the Chinese navy has developed in leaps and bounds. Last year, Chinese warships began conducting anti-piracy missions in the sea around Somalia. China has a large and expanding submarine fleet, and has been looking at building an aircraft carrier.
- Taiwan's navy includes four submarines, two of which date from World War Two, and a small fleet of destroyers and frigates. The Defence Ministry will likewise not give exact figures.

MISSILES
- Aside from the estimated 1,400 missiles that China is thought to have aimed at Taiwan, the Chinese navy is equipped with powerful Russian "Sunburn" anti-ship missiles, a weapon much feared by U.S. military strategists.
China also has nuclear weapons.
- Taiwan has older-model Patriots to intercept any missiles fired at the island and domestically made Hsiung Feng surface-to-surface missiles. These could be be aimed at ships or used to target nearby Chinese cities such as Shanghai.

On Friday, Washington proposed to Congress a $6.4 billion sale of Patriot "Advanced Capability-3" missiles, Black Hawk utility transport helicopters and other items.
Although they do not tip the balance of power, the new weaponry would make Beijing "think twice" about any attack, a Taiwan defence official said.
Patriots, regarded as some of the best equipment in its class, are designed to hit missiles in mid-air. Friday's proposed sale would sell 114 more of them to Taiwan.
Taiwan is believed to have abandoned a covert nuclear weapons programme in the 1980s after U.S. pressure.

Notes:
* Does not include about one million Chinese reserves and about 800,000 paramilitary People's Armed Police.
** Warship numbers mostly analyst estimates.

Sources: Reuters, International Institute for Strategic Studies, globalsecurity.org, Taiwan's Ministry of National Defence.

China sees sexual frustration causing social problems

By Ben Blanchard

BEIJING -- Sexual frustration amongst migrant workers in China's booming southern province of Guangdong is leading to a host of social problems and must be tackled, state media on Saturday cited a local official as saying.
Guangdong, China's export powerhouse, is home to about 30 million migrant workers, the most in the country.

Many leave wives, husbands or children in their native villages to seek the higher wages factories pay compared with agricultural work.
The China Daily quoted Zhang Feng, head of Guangdong's provincial commission of population and family planning, as saying these migrant workers suffered from "severe sexual repression."
"Sexually transmitted diseases are spreading faster among migrant workers, whose sex lives have long been neglected," Zhang said.
Many migrant workers turn to sex workers during long periods of separation from their spouses, he said.
"Unsafe sex by migrant workers will lead to a rise in venereal diseases and other social problems," Zhang said.
The newspaper cited a recent survey on migrant workers' sexual habits as showing that up to 36 percent of married men had experienced severe sexual repression.
The problem was not limited to men.
"Many young women who have migrated from rural areas, where sex education is nonexistent, experience a culture shock in bustling cities. They may follow in their friends' footsteps by adopting a more open attitude toward sex," the China Daily said.
"Some women reportedly take modeling jobs, and others end up married but accepting their husbands' second wives or mistresses. Other women may even go as far as participating in the online sex industry, such as chatting to men online while nude."
Zhang said he was asking Guangdong's provincial assembly to tackle the problem by thoroughly investigating it.
"Again this year, I am asking for the government to do the research. Migrant workers will develop less interest in work if they cannot satisfy their sex needs," Zhang said.

China’s Zeal for ‘Avatar’ Crowds Out ‘Confucius’

A child stands in front of a giant poster for director James Cameron’s sci-fi epic “Avatar” at a theater in Beijing. China’s government is urging theater operators to make sure that at least two-thirds of the films they show are domestically made after the latest Hollywood blockbuster “Avatar” wowed audiences and became the highest-grossing film in the country’s history.

Chinese spectators chat in front of a giant poster for China’s homegrown, state-backed biopic “Confucius” at a theater in Beijing.

By SHARON LaFRANIERE
BEIJING — A Hollywood vision of the future is testing the Chinese government’s preference for a piece of the country’s past.
Confronted with a clamor of ticket-buyers for “Avatar” and sparse audiences for the domestic film “Confucius,” Chinese authorities appeared to have backpedaled this week on a decision to pull “Avatar” from the nation’s 2-D movie screens in favor of “Confucius.”
Zhang Hongsen, the vice director of the film bureau of the State Administration of Radio, Film and Television, said last week that Avatar would be limited to 3-D and Imax screens after “Confucius” opened on Jan. 22 on 2-D screens, according to the news agency Xinhua.

But 2-D showings of “Avatar” have continued at some theaters outside Beijing this week, theater employees and officials said.
In Shanghai, an official with the biggest local cinema chain told fans not to worry that they would miss “Avatar” because of state-imposed restrictions.

Wu Hehu, a senior manager for the chain, Shanghai United Circuit, told a Shanghai daily newspaper that its theaters would continue to show “Avatar” on both 3-D and 2-D screens.
China tries to nurture its domestic film industry by severely restricting the number of foreign movies allowed into theaters and the lengths of their runs.

But the decision to limit “Avatar,” the highest-grossing film of all time, has stirred up criticism of the state’s interference with market preferences.
“I thought it was a bad move and also a bit stupid,” said Stephen Teo, an associate professor of broadcast and cinema studies at Nanyang Technological University in Singapore.

If authorities were worried about “Avatar” competing with “Confucius,” he said, they should have delayed the opening of “Confucius” until “Avatar” crowds thinned.
Mr. Zhang, of the state film bureau, the industry’s regulatory agency, said last week that the decision to pull “Avatar” from 2-D screens was purely commercial.

He said that “Confucius” was available only in the standard 2-D format and that “Avatar” had not performed as well in theaters with 2-D screens as it had in theaters with 3-D or Imax screens.
“So to take the 2-D version off the screen is quite normal,” he said, according to China Daily, a state-controlled newspaper.
But “Avatar” is outperforming “Confucius” so decisively — racking up an estimated 2.5 times as much revenue every day — that pulling it from screens seems commercial folly, Mr. Teo said.

In its first three weeks in China, “Avatar” topped $100 million in revenue, or about $4.7 million a day.

“Confucius” averaged just $1.8 million a day in its first three days, Xinhua reported.
Part of the problem could be that although it is building theaters rapidly, China still has only a fraction of the number in the United States.

Moreover, perhaps one-third of its estimated 4,700 cinema screens are too antiquated to show foreign films, according to one industry worker.
China allows 20 foreign films a year to be shown on local screens, splitting revenue among producers, theaters and local distributors.

Chinese distributors purchase the local rights to show other foreign films without sharing profits with the producers, industry sources say.
Those few foreign films compete with a growing number of domestic films — more than 400 in 2008, including those co-produced with foreign companies. Over all, box-office revenue is soaring.
But China’s main studios are all state-owned and some producers complain that the government cannot decide whether movies should serve as market-driven entertainment or nationalistic propaganda.
Critics say “Confucius” belongs in the latter category.

The movie, produced by Beijing Dadi Century Ltd., focuses on the later life of the philosopher, whose teachings are garnering renewed interest in China.

The cast, led by the Hong Kong actor Chow Yun-fat and the Chinese actress Zhou Xun, was billed as star-studded. It opened on 2,500 screens in China, a record number.
According to Xinhua, Mr. Chow, who plays Confucius, predicted the film would challenge “Avatar,” produced by 20th Century Fox.

But 13,039 Internet users gave “Confucius” ratings that averaged 4.4 on a scale of 1 to 10 on douban.com, a popular Chinese entertainment Web site. About 95,280 users gave “Avatar” a rating that averaged 9.1.
Meanwhile, Xinhua reported on Thursday that every showing of “Avatar” at a 459-seat Imax theater in Beijing was sold out.

In Hunan Province, officials even renamed mountain peaks in a national park, saying they were prototypes for the “Hallelujah” mountains in “Avatar.”
Chinese media criticized the move, saying starstruck officials had forgotten their cultural roots. But the officials said the “Avatar” connection would increase tourism to the park.

China Leading Race to Make Clean Energy

Components of wind turbines at a factory in Tianjin, China. Shifting to sustainable energy could leave the West dependent on China, much as the developed world now depends on the Mideast.

As China takes the lead on wind turbines, above, and solar panels, President Obama is calling for American industry to step up.

By KEITH BRADSHER

TIANJIN, China — China vaulted past competitors in Denmark, Germany, Spain and the United States last year to become the world’s largest maker of wind turbines, and is poised to expand even further this year.
China has also leapfrogged the West in the last two years to emerge as the world’s largest manufacturer of solar panels. And the country is pushing equally hard to build nuclear reactors and the most efficient types of coal power plants.
These efforts to dominate the global manufacture of renewable energy technologies raise the prospect that the West may someday trade its dependence on oil from the Mideast for a reliance on solar panels, wind turbines and other gear manufactured in China.
“Most of the energy equipment will carry a brass plate, ‘Made in China,’ ” said K. K. Chan, the chief executive of Nature Elements Capital, a private equity fund in Beijing that focuses on renewable energy.
President Obama, in his State of the Union speech last week, sounded an alarm that the United States was falling behind other countries, especially China, on energy.

“I do not accept a future where the jobs and industries of tomorrow take root beyond our borders — and I know you don’t either,” he told Congress.
The United States and other countries are offering incentives to develop their own renewable energy industries, and Mr. Obama called for redoubling American efforts.

Yet many Western and Chinese executives expect China to prevail in the energy-technology race.
Multinational corporations are responding to the rapid growth of China’s market by building big, state-of-the-art factories in China.

Vestas of Denmark has just erected the world’s biggest wind turbine manufacturing complex here in northeastern China, and transferred the technology to build the latest electronic controls and generators.
“You have to move fast with the market,” said Jens Tommerup, the president of Vestas China. “Nobody has ever seen such fast development in a wind market.”
Renewable energy industries here are adding jobs rapidly, reaching 1.12 million in 2008 and climbing by 100,000 a year, according to the government-backed Chinese Renewable Energy Industries Association.
Yet renewable energy may be doing more for China’s economy than for the environment.

Total power generation in China is on track to pass the United States in 2012 — and most of the added capacity will still be from coal.
China intends for wind, solar and biomass energy to represent 8 percent of its electricity generation capacity by 2020. That compares with less than 4 percent now in China and the United States. Coal will still represent two-thirds of China’s capacity in 2020, and nuclear and hydropower most of the rest.
As China seeks to dominate energy-equipment exports, it has the advantage of being the world’s largest market for power equipment.

The government spends heavily to upgrade the electricity grid, committing $45 billion in 2009 alone. State-owned banks provide generous financing.
China’s top leaders are intensely focused on energy policy: on Wednesday, the government announced the creation of a National Energy Commission composed of cabinet ministers as a “superministry” led by Prime Minister Wen Jiabao himself.
Regulators have set mandates for power generation companies to use more renewable energy. Generous subsidies for consumers to install their own solar panels or solar water heaters have produced flurries of activity on rooftops across China.
China’s biggest advantage may be its domestic demand for electricity, rising 15 percent a year. To meet demand in the coming decade, according to statistics from the International Energy Agency, China will need to add nearly nine times as much electricity generation capacity as the United States will.
So while Americans are used to thinking of themselves as having the world’s largest market in many industries, China’s market for power equipment dwarfs that of the United States, even though the American market is more mature. That means Chinese producers enjoy enormous efficiencies from large-scale production.
In the United States, power companies frequently face a choice between buying renewable energy equipment or continuing to operate fossil-fuel-fired power plants that have already been built and paid for.

In China, power companies have to buy lots of new equipment anyway, and alternative energy, particularly wind and nuclear, is increasingly priced competitively.
Interest rates as low as 2 percent for bank loans — the result of a savings rate of 40 percent and a government policy of steering loans to renewable energy — have also made a big difference.
As in many other industries, China’s low labor costs are an advantage in energy.

Although Chinese wages have risen sharply in the last five years, Vestas still pays assembly line workers here only $4,100 a year.
China’s commitment to renewable energy is expensive.

Although costs are falling steeply through mass production, wind energy is still 20 to 40 percent more expensive than coal-fired power.

Solar power is still at least twice as expensive as coal.
The Chinese government charges a renewable energy fee to all electricity users. The fee increases residential electricity bills by 0.25 percent to 0.4 percent.

For industrial users of electricity, the fee doubled in November to roughly 0.8 percent of the electricity bill.
The fee revenue goes to companies that operate the electricity grid, to make up the cost difference between renewable energy and coal-fired power.
Renewable energy fees are not yet high enough to affect China’s competitiveness even in energy-intensive industries, said the chairman of a Chinese industrial company, who asked not to be identified because of the political sensitivity of electricity rates in China.
Grid operators are unhappy.

They are reimbursed for the extra cost of buying renewable energy instead of coal-fired power, but not for the formidable cost of building power lines to wind turbines and other renewable energy producers, many of them in remote, windswept areas.

Transmission losses are high for sending power over long distances to cities, and nearly a third of China’s wind turbines are not yet connected to the national grid.
Most of these turbines were built only in the last year, however, and grid construction has not caught up.

Under legislation passed by the Chinese legislature on Dec. 26, a grid operator that does not connect a renewable energy operation to the grid must pay that operation twice the value of the electricity that cannot be distributed.
With prices tumbling, China’s wind and solar industries are increasingly looking to sell equipment abroad — and facing complaints by Western companies that they have unfair advantages.

When a Chinese company reached a deal in November to supply turbines for a big wind farm in Texas, there were calls in Congress to halt federal spending on imported equipment.
“Every country, including the United States and in Europe, wants a low cost of renewable energy,” said Ma Lingjuan, deputy managing director of China’s renewable energy association. “Now China has reached that level, but it gets criticized by the rest of the world.”

Fossil find in China boosts dinosaur-bird link

The bird-like dinosaur lived nearly 20 million years before the first known bird Archaeopteryx.

By David Perlman

A dinosaur fossil discovered in northwestern China has provided fresh evidence that although its tribe resembled birds millions of years ago, it must have evolved separately -- helping confirm that modern birds are indeed living dinosaurs.
It lived a full 160 million years ago in the Jurassic period, long before the feathered Archaeopteryx, the first true flying bird, appeared in the fossil record, scientists said.
The newfound dinosaur is a member of a group that some scientists had believed evolved into modern-day birds.

However, because this fossil is so old, it gives weight to the dominant view that modern birds, not the newly discovered birdlike creatures in China, were the ones that evolved from dinosaurs.
Like a bird, the dinosaur had three toes on each leg, a birdlike keel-shaped chest and a long beak. The 10-foot-long dinosaur, named Haplocheirus sollers or "simple, skillful hand," had short forearms with massive claws.
Details of the dinosaur's skeleton were reported Friday in the journal Science by Jonah N. Choiniere, a member of a George Washington University team that has worked with Chinese researchers in the fossil beds of China's autonomous Xinjiang region since 2005.
It belongs to the group of dinosaurs known as Alvarezsaurs that were first discovered in South America, but this new fossil is 63 million years older than the earliest known member of the South American tribe and nearly 20 million years older than Archaeopteryx, Choiniere and his colleagues reported.
"Although it certainly couldn't fly, the members of this group were originally thought to be birds," Choiniere said.

"And although they're closely related to birds, they clearly weren't birds at all."
When in the past many fossil-hunters believed that the Alvarezsaur dinosaurs were in fact birds -- and some still believe it -- they argued that because those so-called birds had appeared in the fossil record at the same time as dinosaurs, the birds could not have been descended from them.
But Kevin Padian, a noted paleontologist and dinosaur expert at UC Berkeley, said the new specimen is important because it shows definitely that Choiniere's dinosaur and its relatives had evolved quite separately from the ancestors of birds.
"This is another salvo that blows apart the claims of the 'birds are not dinosaur' crew," Padian said.
Choinere's colleagues on the four-year series of expeditions include James M. Clark, professor of biology and paleontology at the university, and Xu Xing, a veteran dinosaur fossil hunter at the Chinese Academy of Sciences in Beijing.

Google Takes Aim at Beijing Censorship

CEO Schmidt Hopes to 'Apply Some Pressure,' as Business Leaders Voice Concerns About Growing China-U.S. Tension
By REBECCA BLUMENSTEIN And STEPHEN FIDLER
Google CEO Eric Schmidt speaks at the World Economic Forum in Davos on Friday.

DAVOS, Switzerland—Google Inc. Chief Executive Eric Schmidt defended his company's recent threat to pull out of China in some of his most extensive comments on the controversial move.

"We like what China is doing in terms of growth... we just don't like censorship," Mr. Schmidt said, speaking at the World Economic Forum's annual summit here.

"We hope that will change and we can apply some pressure to make things better for the Chinese people."
Mr. Schmidt's comments brought into the open a debate that bubbled up in private conversations at Davos all week—concerns about growing tensions in the relationship between the U.S. and China.
Since Google's move earlier this month, the governments of both countries have been deadlocked in a war of words.

The U.S. has threatened to file a formal complaint against China to press it to investigate Google's allegations that it had suffered a sweeping cyber attack that originated in China.

But the U.S. hasn't yet followed through on the threat.

China has hit back though its state media, which have dismissed the allegations as part of an "ideology war."
Some China observers think that relations have sunk to their worst level in years, complicated by the Google issue, continued disagreements over China's role in the Copenhagen climate talks and tensions over trade and economic issues like China's currency.
Many in the business community are also concerned about increasing cyber security threats. The attacks on the Google network also raise a bigger question: the security of the "cloud"—where governments, companies and individuals store an increasing amount of data on Google's and others' remote databases.
Those concerns have been heightened by Google's move to go public with its objections after it investigated the breach of its network.

The attack targeted as many as 34 different companies or other entities, according to two people familiar with the investigation, which has been under way for weeks. Most of the other companies have not come forward.
Li Keqiang, the vice premier of China, did not address the Google case during a speech at Davos this week. Business executives said that during a private session, Mr. Li emphasized the importance of following China's rules.
The Chinese government has repeatedly defended its handling of the Internet, and has rejected accusations that China is responsible for cyber attacks against foreign entities.
One senior executive at a U.S. technology company said that as more valuable data migrates online, the cloud will become like "Fort Knox" and will need security to match. This was, he said, a public policy issue for governments.
U.S. Rep Barney Frank (D-Mass.) agreed during a panel this week that the issue would demand increasing resources.

"I know we need to deal with cyber security," said Mr. Frank.
Mr. Schmidt maintained Friday that Google wants to continue operating in China. But he said the company didn't want to do so if it had to operate under China's censorship laws.

To operate its Web site, Googe.cn in China, Google had to agree to censor its results.
"We would very much like to stay in China. We would very much like the censorship we oppose to improve in China," Mr. Schmidt replied.
Yet one prominent Chinese executive said that Google's move had likely ended its business prospects in the country, where the company held a 30% market share.

"Their growth will probably be much more outside of China," he said.

Why Google can say no to China

By Scott Moskowitz
SHANGHAI, China -- AMID ALL the breathless talk of China’s rise as an economic juggernaut, one point is often elided -- in most sectors open to foreign investment, China remains a market of massive potential, rather than massive profits.

Most Chinese still desperately want access to the same goods, services and ideas to which people in the West have access, something implicitly promised to them by their government in exchange for political quiescence.

This is Google’s trump card as it enters into closed-door negotiations with the government about the fate of its Chinese operations, having recently threatened to shutter its Chinese-language search engine Google.cn and withdraw from the Chinese marketplace if not allowed to provide uncensored search results.
Google’s announcement that it could potentially do without China’s almost 400 million netizens came as a shock to many here, especially the comparatively wealthy and better educated consumers who make up the 33 percent market share Google has managed to wrest from Baidu, a domestic competitor with close ties to the Chinese government.

“Usually we are told by media that Western companies can’t leave China’s huge market,’’ wrote one devoted Googler, a journalism graduate student, via email.
Many people I spoke with chalked up Google’s defiance to a publicity stunt, and did not believe the Internet giant would actually leave China.

Yet, according to analysts, the Chinese market makes up less than 5 percent of Google’s annual revenue. What, exactly, is keeping it here?
Google’s “strategic loss would be greater than its business loss,’’ conceded an editorial in the Global Times, a normally nationalistic Chinese newspaper.

“Should the world’s most populous nation fail to provide a foothold to the world’s top search engine, it would imply a setback to China.’’
The paper changed its tone, however, after Secretary of State Hillary Clinton entered the dispute with a speech last week about global Internet freedoms.

Now Internet censorship amounted to a “refusal to be victimized by information imperialism,’’ said the paper.
The US government has little economic or moral leverage in China, and too tight an embrace of Google will only harm the company’s cause.

Like many of America’s most famous brands, Google commands a level of adulation here that far exceeds peoples’ mixed feelings about the US government.
Google’s move may amount to a savvy business gambit, but of a different, perhaps more daring nature, than many Chinese imagine.

The prospect of a completely open Chinese market, where Google could compete on an even playing field with Baidu, is potentially worth so much that Google may be willing to risk its existing market share.

Even moderate success could incite other Western corporations that have previously backed down from challenging the Chinese government. If this occurs, the Communist Party could find itself on the ropes.
While it is early to be optimistic, Google’s challenge offers a glimmer of hope to all those seemingly rebuffed prognosticators who once asserted that capitalism would surely bring political openness to China.

If the Communist Party is unable to provide its influential consumer class with the bounty it desires, then it will lose the support of this class, and those who aspire to join it.
If beloved Western brands like KFC, Coke and Nike suddenly pulled out of China, they would lose a lot of money, but likely survive; it’s not certain the Communist Party could rebound from such a blow.

China has its own domestic brands of sneakers, fast food restaurants and search engines of course, but most Chinese still consider these wan imitations of what the West has to offer.
Google’s presence in China represents the government’s symbolic ability -- if not actual willingness -- to provide its citizens with access to the global bounty of information.

Google’s disappearance would especially anger the nation’s most intelligent and adept youth, its rising generation of intellectuals and power brokers.

But as a rebuke to notions of the Party as paternalistic provider, Google’s exit will be felt by even those who rarely use the search engine.
“Reform and Opening-up’’ is the name given to the period of time since Deng Xiaoping first initiated economic liberalizations in the late 1970s. Trotted out in every official statement about China’s economic progress, the phrase links rising standards of living to increased openness and participation in international systems.
No brand is more synonymous with globalization and openness than Google.

If Google departs China, it will represent a stunning failure on the part of the government to win an invitation for its people to that all-important global party.

No one likes being shut out of a good party, and the Chinese will not be happy if they are forced to stay away.

Battling the Information Barbarians

China often views the ideas of foreigners, from missionaries in the 17th century to 21st-century Internet entrepreneurs, as subversive imports. The tumultuous history behind the clash with Google.
By IAN BURUMA
In 1661, Adam Schall, a Jesuit missionary from Germany and astronomer at the Chinese imperial court, fell victim to jealous mandarins, and was sentenced to death for teaching false astronomy and a superstitious faith.

He was only just saved from being strangled, when a sudden thunderstorm convinced his judges that nature had spoken against their verdict.

Father Schall died soon after. But the defensiveness of the mandarins, who saw his foreign ideas as a threat to their status, would be a recurring theme in Chinese relations with the outside world.
So, is it true after all, what they say about clashing civilizations?

It is tempting to see the official Chinese response to Hillary Clinton's speech on Internet freedom in that light.

Spurred by Google's announcement that it might pull out of the Chinese market in protest over censorship, Mrs. Clinton talked about Internet freedom in terms of universal human rights.

Her speech was promptly denounced in a Communist Party newspaper as "information imperialism."

Foreign Ministry spokesman Ma Zhaoxu claimed that China's regulation of the Internet (banning references to Tiananmen, Tibet, Taiwanese independence and so on) was in keeping with "national conditions and cultural traditions."
The claim of universality is indeed an important facet of American culture, rooted in the American Revolution and Protestant ethics.

It is considered proper for a U.S. secretary of state to give voice to the ideal of universal human rights.

Just so, a Chinese official sees it as his duty to assert the uniqueness, or even superiority, of Chinese culture. This was true of Confucian scholar-officials in the imperial past. It is still true today.
Thought control, in terms of imposing an official orthodoxy, is a very old tradition.

The official glue that has long been applied to hold Chinese society together is a kind of state dogma, loosely known as Confucianism, which is moral as well as political, stressing obedience to authority. This is what officials like to call Chinese culture.
One can take a more cynical view, of course, and see culture as a mere fig leaf meant to hide the machinations of political power.

The latest Chinese salvo against the U.S., blaming the Americans for instigating rebellion in Iran through the Internet, reveals that the current spat has a hard (and opportunistic) political core. And the assumption that Google, as a Chinese editorial put it, is a "political pawn" of the U.S. government, is a clear case of projection.
In any case, instilling the belief that obedience to authority is not just a way to keep order, but an essential part of being Chinese, is highly convenient for those who wield authority, whether they be fathers of a family or rulers of the state.

That is why in their efforts to promote democracy after World War I, Chinese intellectuals denounced Confucianism, with its rigid social hierarchy, as an outmoded orthodoxy which had to be eradicated.
It was, as we know, not so much eradicated as replaced by a Communist orthodoxy after 1949. And when this orthodoxy began to lose its grip on the Chinese public after the death of Chairman Mao in 1976, Chinese officials struggled to find a new set of beliefs to justify their monopoly on power.

The ideological hybrid that followed Maoism was "Socialism with Chinese Characteristics," a mixture of state capitalism with political authoritarianism.

Later, Confucianism actually made a comeback of sorts. But the most common ideology since the early 1990s is a defensive nationalism, disseminated through museums, entertainment and school textbooks.

All Chinese schoolchildren are indoctrinated with the idea that China was humiliated for centuries by foreign powers, and that support of the Communist state is the only way for China to regain its greatness and never be humiliated again.
This is why foreign criticism of Chinese politics, or Chinese infringements of human rights, is denounced by government officials as an attack on Chinese culture, as an attempt to "denigrate China."

And Chinese who agree with these foreign criticisms are treated not just as dissidents but as traitors.

The term "information imperialism" is clearly designed to evoke memories of the Opium Wars and other historical humiliations. Chinese are meant to feel that foreigners who talk about human rights are doing so only to bash China.
This is not always entirely irrational.

If Chinese chauvinism is defensive, American chauvinism can be offensive.

The notion that the U.S. has the God-given right to impose its views about liberty and rights on other countries, sometimes backed by armed force, has provoked precisely the same reaction in many places as Napoleon's wars for Liberty, Fraternity and Equality once did.

No matter how fine the ideals, people resent it when they are pushed down their throats. Besides, the Chinese are not alone in mixing politics with morality.

The history of Christian missions in Asia, or indeed Africa, cannot be neatly separated from imperialism; they were indeed often part of the same enterprise.

Even scientific ideas, such as astronomy or medicine, which might be considered to be neutral, came with values that were anything but.

The earliest missionaries in China, such as the great Italian Jesuit Matteo Ricci (1552-1610), introduced science as part of their aim to spread the Christian faith.
In fact, there is an interesting parallel between those early Christian missions and our contemporary efforts to spread universal human rights, especially in regard to China.

Ricci and his colleagues, as Jesuits, believed that the best way to influence the Chinese elite was to adapt to Chinese culture, to wear Chinese clothes, to speak in Confucian terminology, to "go native," as it were.

They were criticized by other Catholic orders, who saw this as a shameless betrayal of Christian principles.

Only the true faith should be preached, with no compromises to heathen views.
A very similar debate is going on today between those who believe that applying Western notions of human rights and democracy to China is counterproductive.

Many a politician, businessman or media tycoon has argued that adapting to special Chinese conditions is surely more effective if one wishes to have any influence in China.

The fact that this argument is usually self-serving does not make it necessarily wrong, but so far it has certainly not been proven right. Chinese human rights have not been noticeably advanced because of foreign compromises with Chinese illiberalism.
The dilemma for the Chinese elites, ever since the early Christian missions, is the question of how to adopt useful Western ideas while keeping out the subversive ones.

Intelligent Chinese knew perfectly well that much of Western knowledge (how to construct effective guns, say) was not only useful but essential as a way to make China strong enough to resist foreign aggression.

But the tricky part for scholar-officials was how to use that knowledge without weakening their own position as guardians of Chinese culture.
To mention just one example, greater knowledge of geography and other civilizations made it harder to maintain that China was the center of the world which should naturally be paid tribute to by barbarian states.

In ancient times, foreign barbarians were ranked with the beasts. By the time Matteo Ricci, in 1602, showed the Chinese a world map (now on view at the Library of Congress), some foreigners were treated with more respect, but the old Sino-centric defensiveness had far from vanished.

If the Middle Kingdom was no longer the perfect model of civilization, its traditional political arrangements became vulnerable to domestic challenge.
One way of dealing with this problem was to separate "practical knowledge" from "essential" culture, or ti-yong in Chinese. Western technology was fine, as long as it didn't interfere with Chinese morals and politics.

In practice, however, this was not feasible.

Political ideas came to China, along with science, economics, and Western religion. And they did help to undermine the old established order.

One of these ideas was Marxism, but once Mao had unified China under his totalitarian regime, he managed for several decades to insulate the Chinese from notions that might undermine his power.
Once China opened up to the world for business again in the late 1970s, under the leadership of Deng Xiaoping, the old problem of information control emerged once again.

Deng and his technocrats wanted to have the benefit of modern economic and technological ideas, but, like the 19th century mandarins, they wished to ban thoughts which Deng called "spiritual pollution."

The kind of pollution he had in mind was partly cultural (sex, drugs and rock 'n' roll), but mainly political (human rights and democracy).
Deng's attempt, which was only partly successful, was made far more difficult by the invention of the Internet, the problems and possibilities of which were left for his successors to deal with.

The Internet, which has boomed over the last few years, cannot be totally policed; there are simply too many ways to dodge the censors.

But China, with its army of cyberspace policemen, has been remarkably effective at Internet control, by mixing intimidation with propaganda.

The intimidation encourages self-censorship, and nationalist propaganda creates suspicion of foreign criticism. It is not hard to find well-educated Chinese who buy the line about "information imperialism."
On the other hand, there are also plenty of Chinese who have applauded Google's defiance of the authorities.

When hackers, operating from China, targeted the Gmail addresses of Chinese human rights activists, Google decided that it would no longer help to police online information.

As the Google CEO Eric Schmidt put it this week at Davos, where he repeated his criticism of Chinese censorship of the Internet: "We hope that will change and we can apply some pressure to make things better for the Chinese people."

Even as government spokesmen criticized the US for interfering in Chinese affairs, hundreds of Chinese Internet users laid flowers at Google offices in Beijing, Shanghai and Guangzhou.

This is why it is too simplistic, and even noxious, to see the conflict over Internet freedom simply as a cultural clash.

Those who would like to enjoy the same freedoms that people in democracies take for granted are Chinese too.
The question, then, for Western companies, as much as for Western governments, is to decide whose side they are on: the Chinese officials who like to define their culture in a paternalistic, authoritarian way, or the large number of Chinese who have their own ideas about freedom. Google has made its choice.

It strikes me as the right choice, for not only will it encourage a healthy debate on freedom of information inside China, but it could serve as a model of behavior for companies operating in authoritarian countries.

Even for enterprises aimed at maximizing profits, it might sometimes pay to burnish their image by being on the side of the angels.

China and US in angry clash over Taiwan arms sale

China has cancelled all military exchanges with the US in a furious response to the proposed $6.4 billion sale of advanced missiles and helicopters to Taiwan by Washington.
By David Eimer in Beijing and Philip Sherwell in New York
Beijing has also imposed sanctions on the companies selling the arms and threatened to review co-operation on other issues.
The US responded defiantly, insisting that the sales would contribute to regional security.
The angry row sharply escalates existing frictions between Beijing and Washington, who are already at odds over trade, internet censorship and climate change.
It is a further blow to President Barack Obama’s hopes of securing Chinese support for tougher measures against Iran over the Islamic regime’s illicit nuclear programme.
The State Department insisted that arms sale contributed to "security and stability" between Taiwan and China.
"Such sales contribute to maintaining security and stability across the Taiwan Strait," said US State Department spokeswoman Laura Tischler.

The US is the leading arms supplier to Taiwan and, under a 1979 Act of Congress, is legally obliged to help Taiwan defend itself.
China earlier warned the US that the sale will have a "serious negative impact" on ties between the two countries.

Beijing regards Taiwan as a renegade province that is still part of its territory.
Announcing its retaliation, Defence Ministry spokesman Huang Xueping said: “We made the decision out of considerations on the severe harm of the US arms sales to Taiwan. The US plan will definitely seriously disturb the relations between the two countries.”
Vice foreign minister He Yafei said the US arms deal with Taiwan would lead to an "aftermath both sides would not prefer" and called on Washington to reverse its "erroneous" decision.
Mr He said China was "strongly indignant" about the package of weapons, which includes 114 Patriot anti-missile missiles, 60 Blackhawk helicopters and two minesweepers, which was submitted to the US Congress for approval on Friday.
"The US plan will definitely undermine China-US relations and bring about a serious negative impact on exchanges and co-operation in major areas between the two countries," said Mr He in a statement.
There have been no signs Beijing will try to use its US dollar assets to pressure Washington, or impose broader trade penalties – both steps that would undercut China's own economic strength.
But China's Defence Ministry said military exchanges would be put on hold and Beijing postponed vice ministerial-level talks on security, arms control and non-proliferation.
The military freeze could prevent a visit to China by US Defence Secretary Robert Gates. Military contacts between the two powers are limited, and were last suspended by China in 2008 over a previous round of U.S. arms sales to Taiwan.
The row is the latest sign of the increasingly fraught relationship between the two superpowers.
Earlier this month, the two powers clashed over internet freedom, following Google's threat to shut down its Chinese operation after the company said it had been the victim of cyber hacking.
President Obama's decision later this year to meet the Dalai Lama, who China regards as a dangerous separatist, has also angered Beijing.

Trade ties remain strained too, with the US continuing to insist that the Chinese currency the Yuan is undervalued.
On Friday, US Secretary of State Hillary Clinton warned China that a nuclear-armed Iran would destabilise the Middle East and so threaten the supply of oil China needs to power its economy.
Taiwan has been ruled by its own government since the Chinese Communist Party took control of mainland China in 1949.

Taipei says it needs the latest US military technology to counter the threat posed by the estimated 1000-1500 missiles aimed at the island by China.
While relations between Taiwan and China have warmed over recent years, with increasingly strong economic links between the two, Beijing continues to demand that Taiwan accept unification with the mainland.
Taiwan's President Ma Ying-jeou told reporters the weapons would give "Taiwan more confidence and a sense of security to go forward in developing cross-Strait relations".
The Obama administration told the US Congress on Friday of the proposed sales.
Pentagon press secretary Geoff Morrell said: "We regret that the Chinese side has curtailed military-to-military and other exchanges. We also regret Chinese action against US firms transferring defensive articles to Taiwan."

US to sell missiles, ships, helicopters to Taiwan: Pentagon

Taiwanese military vehicles

WASHINGTON (AFP) — The Pentagon on Friday unveiled plans to sell more than six billion dollars in arms to Taiwan, including missiles and helicopters, but did not meet Taipei's request for F-16 fighter jets.

Amid speculation Washington was preparing to act on Taiwan's request for weapons, China had warned Washington against more arms sales to the island.
The arms package includes Patriot missiles, Black Hawk helicopters and communications equipment for Taiwan's F-16 fleet but no new fighter aircraft that had been part of Taipei's wish list, according to the Defense Cooperation Security Agency.
Under the proposed sale, Taiwan would receive 114 Patriot missiles -- worth 2.81 billion dollars -- and 60 Black Hawk helicopters -- worth 3.1 billion dollars, as well as Harpoon missiles and mine-hunting ships, the agency said in a statement.
Taiwan's President Ma Ying-jeou, despite warming ties with Beijing, has appealed to the United States for weapons, saying the island must stay on guard in light of the mainland's sharp rise in military spending.
Washington is the leading arms supplier to self-ruled Taiwan, despite switching diplomatic recognition from Taipei to Beijing in 1979.
China and Taiwan split at the end of a civil war in 1949. Beijing still views the island as part of its territory awaiting reunification, by force if necessary.
During his visit to China in November, US President Barack Obama reiterated that the United States believed there was only one China.
The United States is required by law to provide Taiwan with weapons of a defensive nature, under the Taiwan Relations Act.

Returned China Uighurs 'vanished'

China must account for the whereabouts of ethnic Uighurs forcibly repatriated from Cambodia, a US-based rights group has said.
Human Rights Watch (HRW) said such groups had "disappeared into a black hole" on their return to China.
The Uighurs fled to Cambodia after mass ethnic riots in China in July. Beijing has referred to them as criminals.
In December, a group of 20 Uighurs were put on a plane to China despite opposition from the UN and US.
They said the group were likely to face persecution in China.
"Uighur asylum seekers sent back to China by Cambodia have disappeared into a black hole," said Sophie Richardson of HRW.
"There is no information about their whereabouts, no notification of any legal charges against them, and there are no guarantees they are safe from torture and ill-treatment."
HRW said a number of the group had given detailed accounts of past torture and persecution in China and that threats had been made against their families.
The organisation said China has a history of executing or imposing harsh sentences of Uighurs sent back from abroad and that there were unconfirmed reports some members of a group previously returned had been sentenced to death in western Xinjiang province.

'Fair trials'
Ms Richardson said the Chinese government must say where the group are being held and under what status as well as allowing the UN and family members to see them.
"Family members have the right to know what has happened to their loved ones," she said
"The Chinese government must treat all returnees humanely, ensure fair trials, and not persecute individuals for activities and speech that are protected under international law."
There has been no immediate comment from the Chinese foreign ministry.
The Uighurs fled Xinjiang after July's violent ethnic clashes in the provincial capital Urumqi which left at least 97 people dead.
Most of those killed in the unrest were majority Han Chinese, according to officials, and Urumqi's Han population had demanded swift justice.
At least 25 people have been sentenced to death after the riots.
Tensions between the mainly-Muslim Uighurs of Xinjiang and Han have been growing in recent years. Millions of Han have moved to the region in recent decades.
Many Uighurs want more autonomy and rights for their culture and religion than is allowed by Beijing's strict rule.

Google case may deter US firms from China

Gary Locke called on China to be "more transparent, predictable and committed to the rule of law" to reassure firms

By P. Parameswaran

WASHINGTON — The United States said Thursday that Google's problems in China with cyberattacks could deter US companies from investing in the Asian economic powerhouse amid rising trade tensions.
"Recent events, specifically the well-publicized Google incident, have reminded us of the continued challenges faced by foreign and US companies operating in China," US Commerce Secretary Gary Locke told a meeting of the US China Business Council in Washington.
He called on China to continue making strides to be "more transparent, predictable and committed to the rule of law" to reassure American firms.
"If there is backsliding on these issues, it will affect the appetite of US companies to enter the Chinese market and ultimately that will be bad for both the people of China and the United States," Locke said.
Google has threatened to abandon its Chinese search engine, and perhaps end all operations in the country over the recent cyberattacks. It has also said it is no longer willing to bow to Chinese government censors.
But China has said the hacking charges were without foundation.
The White House said last week President Barack Obama was "troubled" by Google's statements it had been attacked by China-based hackers, and demanded official answers.
The Google row, which erupted two weeks ago, has threatened to damage Sino-US ties, which are already dogged by trade and currency issues, US arms sales to Taiwan and climate change.
Some US groups are calling on Washington to challenge at the World Trade Organization China's so-called "Great Firewall" of Web censorship.
Microsoft chief executive Steve Ballmer said meanwhile that the US software giant intends to remain in China and while it is "committed to protecting and advancing free expression throughout the world" it is subject to local laws.
"In many countries throughout the world, Internet and technology companies must comply with laws that impact privacy and freedom of expression, particularly peaceful political expression," Ballmer said in a blog post.
"We have done business in China for more than 20 years and we intend to stay engaged, which means our business must respect the laws of China," he said.
Locke, the first Chinese American commerce secretary, also criticized China's so-called indigenous innovation accreditation system, which he said provided domestic firms that use Chinese intellectual property a leg up in bidding on government procurement projects.
"While this practice may have the laudable goal of nurturing a stronger innovation ecosystem in China, it significantly disadvantages US companies, indeed all foreign companies, interested in bidding for contracts worth an estimated 85 billion dollars annually," he said.
The US commerce chief said the program also appeared "to be at odds" with assurances the Chinese leaders provided to the United States during key bilateral economic and trade talks last year.
"This indigenous innovation issue is one that the Obama administration takes very seriously, " he said, adding that the US authorities would "press this issue" with Beijing.
Locke plans to lead a trade mission, the first cabinet-level trade mission of the Obama administration, to China and Indonesia in May, focusing on promoting US technologies related to clean energy and energy efficiency.
On the perennial issue of copyright piracy with China, he said he would also push his counterparts to take "more aggressive steps" to protect and enforce intellectual property rights.

Schmidt Says Google Aims to Put Pressure on China

By John Fraher and Brian Womack
Google Inc. Chief Executive Officer Eric Schmidt said his company opposes censorship in China and aims to apply pressure to improve the situation for the country’s people.
“We love what China is doing as a country and its growth,” Schmidt said today at the World Economic Forum in Davos, Switzerland.

“We just don’t like the censorship. We hope to apply some negotiation or pressure to make things better for the Chinese people.”
Google said this month that it would stop censoring results and might shut down the Google.cn site and offices in China.

The company made the decision after discovering a “highly sophisticated” attack on its computer system and evidence that human-rights activists were targeted.
Schmidt said today that he doesn’t want to close the Mountain View, California-based company’s operations in China.

Last week, Schmidt said that Google continues to follow Chinese law and provides censored results on its Web site. He said that in a “reasonably short time from now, we will be making some changes there.”
“We’ve made a strong statement that we wish to remain in China,” Schmidt said during a call with analysts.

Government Crackdown?
Chinese authorities censor online content by shutting domestic Web sites and blocking access to ones based overseas, such as those of Facebook Inc. and Twitter Inc.

The government closed more than 100,000 Web sites in December in an “escalation” of its censorship efforts, according to Tian Hou, a Pali Capital Inc. analyst in New York.
This month, U.S. Secretary of State Hillary Clinton called on U.S. technology companies to resist censorship of the Internet.

Perpetrators of cyber attacks such as the ones targeting Google must face consequences, she said.
Chinese Foreign Ministry Spokesman Ma Zhaoxu said last week that Clinton’s words were “against the facts and damage Sino-U.S. relations.” Yet later he said China and the U.S. should “cherish” improved ties.

Google row threatens China web development

By Allison Jackson
BEIJING — The row between Google and China is damaging for the development of the Internet in the country and it would be a major blow to the world's biggest online market if the US firm were to leave, experts say.
Both sides have much to lose if the dispute over cyberattacks which Google said were launched from China and state censorship is not resolved, they say, while warning that finding the acceptable middle ground will not be easy.
"If Google does decide to withdraw from China, it will have a considerable negative impact on China's search engine market," currently dominated by home-grown provider Baidu, said Li Zhi, an analyst at Analysys International.
"Competition is the main driver for any market's healthy development," Li said.
Baidu's share of the search engine market stood at 58.4 percent in the fourth quarter of 2009, ahead of Google at 35.6 percent, according to figures from Analysys.
Ted Dean, managing director of telecom and technology consultancy firm BDA, agreed, saying "in any market, competition is a good thing."
"If you end up with one dominant player in the industry, the victim will be the Chinese consumer and innovation," he told AFP.
It has also said it is no longer willing to bow to Beijing's army of Internet censors -- and will stop filtering search results soon, a move China says would violate its laws.
"They have to come to some sort of compromise," said Francis Cheung, an analyst with Credit Lyonnais Securities Asia in Hong Kong.
"I think the potential for China's Internet is huge and Google can do well as they have a leading-edge technology, are pretty popular and are gaining market share."
But Cheung admitted winning concessions from Beijing would be difficult, especially on the censorship issue.
"I don't think Google wants to leave China but they want to stay on their own terms," he said.
"I don't think Chinese government will negotiate laws, especially with an individual company."
Lu Bowang, managing partner with China IntelliConsulting Corp, agreed, saying one possible outcome is for Google to abandon google.cn but maintain a research institute and its business in Android-powered mobile phones.
"The Chinese government would save face because people would think Google is withdrawing from China for commercial reasons -- that would be a convenient understanding," Lu said.
Whether it stays or goes, Google will find it tough to operate in China, said Shaun Rein, managing director of China Market Research in Shanghai.
If they axe google.cn, "they could still have research and development in China but the government won't make it easy for them and why would the top engineers want to work for them?" Rein said.
"If they stay in China with the search engine, a lot of companies won't want to do digital marketing with them because you can't launch a campaign and expect to get a certain number of hits when Google might threaten to go out again."
Despite the hurdles facing both sides, analysts said it was too early to write off Google in China.
"I think there are enough moving pieces that the end result that there isn't a Chinese-language Google search in China is not pre-ordained," said Dean.
"We are still watching the cards being played."
A spokeswoman for Google declined to comment on its plans for China.

Clinton Warns China on Iran Sanctions

By MARK LANDLER
PARIS — Secretary of State Hillary Rodham Clinton warned China on Friday that it would face economic insecurity and diplomatic isolation if it did not sign on to tough new sanctions against Iran for its nuclear program, raising the pressure on Beijing to fall in line with an American-led campaign.
Speaking to students at the École Militaire, the prestigious French war college, Mrs. Clinton said, “China will be under a lot of pressure to recognize the destabilizing effect that a nuclear-armed Iran would have in the gulf” — referring to the Persian Gulf — “from which they receive a significant percentage of their oil supplies.”
With Russia increasingly frustrated by Iran’s recalcitrance, China has emerged as the lone holdout to a new United Nations resolution that would focus sweeping financial and economic sanctions on Iran’s leadership, including a possible ban on sales of technology to its energy sector.
Mrs. Clinton — in a flurry of meetings this week in Europe, including one with the Chinese foreign minister — has tried to build momentum for new measures against Iran.

Britain, France, and Germany back the effort, and Russia, which has often blocked previous efforts, now seems ready to act.
Only China, which imports crude oil from Iran and has large investments in its oil and gas sector, has said it would prefer to continue negotiating with the Iranian government.

With a veto in the United Nations Security Council, it could block a move to impose additional sanctions.
“We understand that right now it seems counterproductive to you to sanction a country from which you get so much of the natural resources your growing economy needs,” Mrs. Clinton said in comments after a speech on European security. “But think about the longer-term implications.”
American officials have been making this argument privately to the Chinese for weeks, as the United States tries to win them over for new sanctions.

But this is the first time Mrs. Clinton has publicly made the link between China’s energy security and the alarm over Iran’s nuclear ambitions.
In case Beijing missed the urgency of her appeal, Mrs. Clinton remarked that a nuclear-armed Iran would risk setting off an arms race in the Persian Gulf, and that it would provoke a military strike from Israel, which she said would regard a nuclear Iran as “existential threat.”
Tensions between China and the United States have flared recently over a range of issues, most notably Internet freedom and Google’s announcement that its systems had been hacked by sources in mainland China.

Unprompted, Mrs. Clinton alluded to another source of friction: President Obama’s plan to meet with the Dalai Lama, whom Beijing condemns as a subversive.
China, she said, should not allow such irritants to derail its otherwise “positive, comprehensive” relationship with the United States.
Mrs. Clinton was in London and Paris this week for meetings on Afghanistan and Yemen, and for her security speech. But jitters about Iran and its nuclear ambitions have shadowed her at every stop.
In London, Mrs. Clinton brought along specialists on sanctions from the Treasury Department to talk to Chinese officials about technical issues, like how the Iranian government transfers funds to banks in Asia to avoid restrictions on its transactions in Western banks.
Mrs. Clinton met Thursday with the Chinese foreign minister, Yang Jiechi, who was attending the Afghanistan conference.

A senior administration official said Mr. Yang listened to the American arguments but reiterated his government’s preference to stay with negotiations.
International patience with Iran has frayed, particularly since Iranian authorities backed out of a deal to ship a significant portion of its lightly enriched uranium out of the country for further enrichment, either in France or Russia. Iran says it needs the more enriched uranium for medical uses.
As part of the effort to broaden and toughen sanctions, the Obama administration is expected to push to add financial institutions to the blacklist of those helping finance Iran’s nuclear program.
The focus of these sanctions, Mrs. Clinton has said, would be on Iran’s leadership, particularly members of the Islamic Revolutionary Guard Corps, many of whom also played a role in cracking down on the enduring protests after Iran’s disputed presidential election in June.
Mrs. Clinton, who met President Nicholas Sarkozy of France earlier in the day, said she applauded his “leadership on this issue.”
The main reason for her stop in Paris — the address on European security — was meant to answer recent Russian proposals to revamp security arrangements on the Continent, including major arms treaties.
The United States, Mrs. Clinton said, opposed negotiating new security treaties, saying that would be time-consuming and cumbersome. Instead, she said she wanted to strengthen existing institutions.
“The United States and Russia will not always agree,” she said. “Our interests will not always overlap. But when we disagree, we will seek constructive ways to discuss and manage our differences.”

India vs. China: Whose Economy Is Better?

Workers install scaffolding at a construction site in Suining, Sichuan province, China, on Jan. 25, 2010

By Michael Schuman / Hong Kong

In the inevitable comparisons that economists and businesspeople make between Asia's two rising giants, China and India, China nearly always comes out on top.
The Chinese economy historically outpaces India's by just about every measure.

China's fast-acting government implements new policies with blinding speed, making India's fractured political system appear sluggish and chaotic.

Beijing's shiny new airport and wide freeways are models of modern development, contrasting sharply with the sagging infrastructure of New Delhi and Mumbai.

And as the global economy emerges from the Great Recession, India once again seems to be playing second fiddle.

Pundits around the world laud China's leadership for its well-devised economic policies during the crisis, which were so effective in restarting economic growth that they helped lift the entire Asian region out of the downturn.
Now, however, India may finally have one up on its high-octane rival.

Though India still can't compete on top-line economic growth — the World Bank projects India's gross domestic product (GDP) will increase 6.4% in 2009, far short of the 8.7% that China announced in mid-January – India's economy looks to be rebounding from the downturn in better shape than China's.

India doesn't appear to be facing the same degree of potential dangers and downside risks as China, which means policymakers in New Delhi might have a much easier task in maintaining the economy's momentum than their Chinese counterparts.

"The way I see it is that the growth in India is much more sustainable" than the growth in China, says Jim Walker, an economist at Hong Kong–based research firm Asianomics.
India's edge is due to the different stimulus programs adopted by the two countries to support growth during the downturn.

China implemented what Walker calls "the biggest stimulus program in global history."

On top of government outlays for new infrastructure and tax breaks, Beijing most significantly counted on massive credit growth to spur the economy.

The amount of new loans made in 2009 nearly doubled from the year before to $1.4 trillion – representing almost 30% of GDP. The stimulus plan worked wonders, holding up growth even as China's exports dropped 16% in 2009.
But now China is facing the consequences of its largesse.

Fears are rising that Beijing's easy-money policies have fueled a potential property-price bubble. According to government data, average real estate prices in Chinese cities jumped 7.8% in December from a year earlier — the fastest increase in 18 months.

The credit boom has also sparked worries about the nation's banking system.

Many economists expect the large surge in credit to lead to a growing number of nonperforming loans (NPLs).

In a November report, UBS economist Wang Tao calculates that if 20% of all new lending in 2009 and 10% of the amount in 2010 goes bad over the next three to five years, the total amount of NPLs from China's stimulus program would reach $400 billion, or roughly 8% of GDP. Though Wang notes that the total is small compared with the level of NPLs that Chinese banks carried in the past, she still calls the sum "staggering."

Policymakers in Beijing are clearly concerned. Since December, they have introduced a series of steps to cool down the housing market and restrict access to credit by, for example, reintroducing taxes on certain property transactions and raising the required level of cash that banks have to keep on hand in an effort to reduce new lending.
India, meanwhile, isn't experiencing nearly the same degree of fallout from its recession-fighting methods.

The government used the same tools as every other to support growth when the financial crisis hit – cutting interest rates, offering tax breaks and increasing fiscal spending – but the scale was smaller than in China.

Goldman Sachs estimates that India's government stimulus will total $36 billion this fiscal year, or only 3% of GDP. By comparison, China's two-year, $585 billion package is roughly twice as large, at about 6% of GDP per year.

Most important, India managed to achieve its substantial growth without putting its banking sector at risk.

In fact, India's banks have remained quite conservative through the downturn, especially compared with Chinese lenders.

Growth of credit, for example, was actually lower in 2009 than in 2008. As a result, economists see continued strength in India's banks.

A January report by economic-research outfit Centennial Asia Advisors noted that based on available data, "there was no sign that domestic banks' nonperforming assets were deteriorating materially."

Nor do analysts harbor the same concerns that India's monetary policies are sending prices of Indian real estate to bubble levels.

"India's growth, though less stellar, does have the reassuring factor that the [risks of] asset price bubbles are less," says Rajat Nag, managing director general of the Asian Development Bank in Manila.
India maintained robust growth without Beijing's hefty stimulus in part because it is less exposed to the international economy.

China's exports represented 35% of GDP compared with only 24% for India in 2008.

Thus India was afforded more protection from the worst effects of the financial crisis in the West, while China's government needed to be much more active to replace lost exports to the U.S.

More significantly, though, India's domestic economy provides greater cushion from external shocks than China's.

Private domestic consumption accounts for 57% of GDP in India compared with only 35% in China. India's confident consumer didn't let the economy down. Passenger car sales in India in December jumped 40% from a year earlier.

"What we see [in India] is a fundamental domestic demand story that doesn't stall in the time of a global downturn," says Asianomics' Walker.
The Indian economy is not immune to risks.

The government has to contend with a yawning budget deficit, and last year's weak monsoon rains will likely undercut agricultural production and soften rural consumer spending. But rapid growth is expected to continue.

The World Bank forecasts India's economy will surge 7.6% in 2010 and 8% in 2011, not far behind the 9% rate it predicts for China for each of those years.

Indian Prime Minister Manmohan Singh, when speaking about his country's more plodding pace of economic policymaking, has said that "slow and steady will win the race."

The Great Recession appears to have proved him right.