China’s Bribery Culture Poses Risks for Multinationals

By David Voreacos 

U.S. prosecutors and regulators are examining whether JPMorgan Chase & Co. violated the Foreign Corrupt Practices Act by hiring children and other relatives of well-connected politicians in hopes of steering business to the firm in the Asia Pacific region, including China, according to a person familiar with the matter.

To the risks of doing business in China -- an authoritarian government, sprawling market, worsening pollution -- add another one: running afoul of local and U.S. anti-corruption laws.
Multinational companies are working to navigate bribery risks in China, where possible corruption by JPMorgan Chase & Co., GlaxoSmithKline Plc and Avon Products Inc. have sparked probes by the U.S. or Chinese authorities.
U.S. prosecutors and regulators are examining whether JPMorgan, the biggest U.S. bank, violated the Foreign Corrupt Practices Act by hiring children and other relatives of well-connected politicians in hopes of steering business to the firm in the Asia Pacific region, including China, according to a person familiar with the matter.
Chinese authorities detained four employees of Glaxo, the U.K.’s largest drugmaker, and are probing whether the company steered as much as 3 billion yuan ($490 million), using travel agencies to ease bribes to doctors and others to boost sales.
Avon, the world’s largest door-to-door cosmetics seller, has spent more than $300 million helping the U.S. investigate whether its employees bribed officials in China and other countries. 

In an Oct. 31 filing, Avon said possible fines could hurt earnings.
China, the world’s second-largest economy, fares poorly in surveys by Transparency International, the Berlin-based anti-corruption organization. 

Last year, it placed 80th out of 176 countries ranked for the perception of public sector corruption. 

A survey released Oct. 16 found Chinese companies were the least transparent and most prone to corruption of 100 multinationals examined in 16 nations, including India, Russia and Brazil.

China, the world’s second-largest economy, fares poorly in surveys by Transparency International, the Berlin-based anti-corruption organization.

‘Petty Corruption’
“China is an environment where petty corruption is common and tolerated,” said Daniel C.K. Chow, a law professor at Ohio State University. As a result, Chinese authorities are “making examples of certain multinational companies, like GSK,” said Chow, a former legal counsel at Procter & Gamble (China) Ltd.
Chinese President Xi Jinping has said widespread government corruption poses a threat to Communist Party rule. 

Xi took on rival Bo Xilai, the Chongqing politician who is serving a life sentence in prison for bribery and abuse of power. 

Chinese authorities also enforce anti-bribery laws against companies.

Biggest Risk
Still, the “most serious” risk to multinational companies, Chow said, comes from U.S. enforcement of the FCPA.
Since the FCPA was passed in 1977, 42 defendants faced actions involving conduct in China, second only to Nigeria with 55, according to Danforth Newcomb, an attorney at Shearman & Sterling LLP. 

The firm, which represents clients in FCPA matters, tracks cases on its website.
The law, enforced by the U.S. Justice Department and Securities and Exchange Commission, bans payment of money or anything of value to foreign officials to obtain or retain business or gain an improper advantage. The FCPA also affects companies with shares traded in the U.S. by barring off-the-books accounting and internal controls violations that might conceal bribes.
Companies can be prosecuted criminally or civilly, and people can go to jail, like ex-Morgan Stanley & Co. real estate executive Garth R. Peterson. 

He got nine months in prison for evading the bank’s internal accounting controls. 

He transferred a multimillion-dollar interest in a Shanghai building to himself and a Chinese public official. 

The Justice Department declined to charge Morgan Stanley, praising its conduct.

Bribed Doctors
Pfizer Inc., the world’s biggest drugmaker, paid $60.2 million last year to settle claims that it bribed doctors and other health-care professionals in China and seven other countries. 

International Business Machines Corp. paid $11 million in 2011 to resolve an SEC case involving China and South Korea.
The SEC said IBM-China employees created slush funds at local travel agencies that paid for overseas trips by Chinese government officials. 

They also created slush funds at business partners to pay cash and buy cameras and laptop computers for officials, according to the SEC.
Hollywood is not immune. 

The SEC sent letters to studios seeking information about dealings with Chinese officials and possible inappropriate payments, according to people with knowledge of the matter.
The pharmaceutical and medical device sectors are a problem because China’s doctors and other medical professionals are typically employed by the government and some are “relatively underpaid,” said Susan Munro of Steptoe & Johnson LLP, who works in China.

Supplemented Incomes
“Some have supplemented their incomes in contravention of the rules, and sometimes caused authorities to look the other way,” Munro said.
By barring improper payments to employees in the government and state-owned enterprises, the FCPA affects how companies deal with many officials in China.
“The most significant overall risk in China is the fact that the government still permeates so much of what we would otherwise consider to be the private sector,” said Timothy Dickinson, an FCPA attorney at Paul Hastings LLP.
“State-owned enterprises are everywhere,” he said. 

“Once you have a state-owned enterprise involved, then you have a government official as defined by the FCPA.”
Companies often hire third-party intermediaries to make introductions, offer language and cultural interpretations and facilitate relationships. 

Third parties may also act as sales agents, consultants, distributors or joint venture partners, and they pose a high risk of passing bribes, according to Wendy Wysong, a Clifford Chance attorney who practices in Hong Kong.

Personal Bonds
Suppliers may have relationships built on personal bonds, which may create an expectation of gifts given in gratitude, according to attorney George J. Terwilliger III of Morgan Lewis & Bockius LLP.
“What we may consider a corrupt intent is often more born of a culture where there’s an expectation of valuing a personal relationship through gift giving, sometimes expensive gift giving,” Terwilliger said.
Bribery cases can hinge on payments made by intermediaries to government officials and whether companies knew of them. 

The corruption may often take the form of travel by third parties that may be masked by phony receipts or fraudulent books, according to Shearman & Sterling’s Newcomb.

Liability Triggers
“The key issue that triggers liability is whether the company had knowledge that the money would be used for bribes on its behalf in connection with the sale of the company’s goods or services,” Wysong said.
A company’s knowledge, under the law, is defined as not only whether it actually knew, but also whether it should have known and deliberately ignored the risks.
As a result, companies spend millions of dollars on compliance programs to educate Chinese employees on bribery risks. 

They also closely examine the backgrounds of intermediaries, a process that doesn’t always expose whether they may be corrupt, according to lawyers who advise companies.
“Foreign corruption often starts with a guy who doesn’t know the local market,” Newcomb said. 

“You send some poor dumb American out to market anything and he doesn’t know anything about the language or culture. If he picks an intermediary who’s a crook, he’s at the intermediary’s mercy.”
Companies also may have contracts with a Chinese governmental authority and be directed to a local subcontractor who is related to the official overseeing the contract, according to attorney Martin Weinstein of Willkie Farr & Gallagher LLP.

Monitoring Subcontractors
“You have to look underneath the cover of consultants and subcontractors to see if they are actually doing the things they say they’re doing,” Weinstein said. 

“The risk is that companies win a contract and find themselves in business with a subcontractor or consultant selected by the government, where the services and the money paid don’t match up.”
Companies typically demand written certifications from intermediaries stating that they will not engage in bribery.
“In some cases, they do it anyway,” said attorney Joel Cohen of Gibson Dunn & Crutcher LLP. 

“It suggests that even high levels of due diligence cannot prevent all bad behavior, even if you have a really strong program and do the right things.”
A cottage industry of law firms and consultants competes to advise companies on how to identify FCPA risks, analyze company books, review use of third parties, and train employees to comply with the statute. The education must reach sales and operations employees, said Michael Murphy, co-lead of the China financial advisory practice at AlixPartners LLP, a consulting firm.

Compliance Programs
“The way to combat the problem is to really spend a lot of time and energy on compliance programs,” Murphy said. 

“They have to have teeth to them, they have to have follow-up, and they have to have commitments from the boards of companies.”
The U.S. Commerce Department counsels companies operating in China regarding issues affecting their business, including the FCPA, and can help them conduct due diligence on partners and agents, said John Cobau, chief counsel for international commerce.
The department is encouraging the Chinese government to enforce a 2011 amendment to its criminal law that made it a crime to bribe officials in international public organizations and governments outside of China.

Anti-Bribery Convention
In October, officials from the Commerce, Justice and State departments went to China to encourage the country’s officials to implement the amendment, and to join an anti-bribery convention agreed to by 34 members of the Organisation for Economic Cooperation and Development and six other countries, according to Cobau.
“While we were encouraged by China’s willingness to engage in a dialogue about the amendment, we are still looking for them to take strong actions to publicize and enforce the amendment,” Cobau said.

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China Central TV: champion of the people with a blurred picture

Financial Times

©AFP/AP

The China Central Television (CCTV) complex (main photo) and Chinese journalist Chen Yongzhou, confessing on state television (inset)

At the end of October, a young journalist in handcuffs, green prison jacket and a freshly shaved head appeared on China Central Television, the state-owned national broadcaster, and confessed to taking bribes in exchange for writing negative articles about a large Chinese company.

Just days earlier, the newspaper that employed Chen Yongzhou, 27, had published front-page banner headlines calling for his release, while human rights groups had mobilised to defend him. But after his admission on national television, the issue quickly died away.

Mr Chen’s is the latest in a series of televised public pre-trial confessions that have aired on the CCTV in recent months and have included British and US citizens being paraded before the camera to admit their crimes.

The performances, reminiscent of an earlier age in which political “struggle sessions” and show trials were the norm, have raised concerns inside China about the damage that they cause to the government’s stated goal of improving the rule of law.

But they have also raised an important question about the role of the state broadcaster and the balance it must strike between being a global media organisation, a commercial moneymaking venture and a political mouthpiece for the ruling Communist party.

The question is increasingly important to multinationals such as Apple, KFC, Volkswagen, Starbucks and Samsung, which have all been targeted in the past year by the broadcaster and accused of varying degrees of malfeasance or unfair practices in the Chinese market.

For major global companies, understanding why they have been singled out and on whose orders is crucial to avoiding one of the most dangerous pitfalls that can befall their businesses in the country.

In a recent book entitled Two Billion Eyes: The Story of China Central Television, author Ying Zhu says: “CCTV is full of serious-minded creators who regularly experience bouts of self-doubt, philosophical ambivalence and in some cases clinical depression.”

She also describes: “certain common themes, about ideals distorted or altogether thwarted by commercial and political pressure”.

Founded in 1958 as the country’s first TV station, CCTV did not convert to colour or extend its programming beyond a couple of hours in the evenings until the late 1970s.

Xinwen Lianbo: China’s Top Gun of news

Nowhere is the tension at CCTV between idealism, politics and commercial imperatives more obvious than at 7pm every night on its “Xinwen Lianbo” main news programme, which all regional television stations in China are required to broadcast.

A popular Chinese joke says that if anyone were to rely on this show for their information about the world they would come away with the following impressions:

After the first 10 minutes, which invariably features the activities of senior Communist cadres, they would believe that China’s leaders were all very busy.

The next 10 minutes of the half-hour broadcast would convince them that everyone in China was happy and prosperous, while the final segment would lead them to understand that everybody outside China was living in an abyss of suffering and extreme misery.

The format has barely changed in three decades, and the broadcast remains one of the most important ways for the Chinese government to issue decrees and political messages to the nation.

But in the age of social media, the show has borne the brunt of popular cynicism and ridicule over state control of information.

Ordinary netizens are quick to jump on mistakes or inconsistencies, such as when the show focuses heavily on negative events in western countries but ignores similar stories at home.

In 2011, a report about a new Chinese fighter jet showed the aircraft blowing another one up with a missile but ordinary viewers soon worked out that the footage in the news story was in fact taken from the 1986 Hollywood movie Top Gun and the featured fighter jet was American.

As late as 1978, fewer than 10m Chinese people had access to a TV, but today CCTV boasts more than 1bn potential viewers for its 45 channels that broadcast mostly soap operas, historical dramas and variety shows.

The broadcaster now earns billions of dollars a year in advertising revenue and its direct funding from the state accounts for a relatively minor part of its annual budget.

But it remains a vice-ministerial level government department and is always led by a senior Communist party official who has worked his way up through the party propaganda system.

The boss of the network, Hu Zhanfan, raised eyebrows in 2011, not long before he took the job, when he declared that the “first and foremost social responsibility [of journalists] is to serve well as a mouthpiece tool; this is the most core content of the Marxist view of journalism and it is the most fundamental of principles”.

According to current and former CCTV employees, the constant and pervasive censorship and political orders make it easy for individuals to become jaded.

So when they are presented with the opportunity to make money through unethical or, in some cases outright illegal deals, the temptation is heightened by their sense of disillusionment.

“The corruption inside CCTV is extremely serious,” says Hu Yong, an associate professor at the School of Journalism and Communication at Peking University and a former CCTV employee. “For example, [CCTV employees] will blackmail interviewees by threatening to expose them publicly or they will become public advocates for their interview subjects in exchange for economic benefits.”

Shi Feike, a senior journalist who once had close ties with CCTV, has a more nuanced view.

“The corruption inside CCTV is not necessarily more serious than in any other monopolistic state-owned enterprise in China,” he says. “There are some highly professional and ethical staff working at CCTV and the situation varies depending on the department, the channel and the individual programme.”

CCTV said: “CCTV has strict requirements regarding its employees’ professional ethics, and employs comprehensive disciplinary measures to restrict their activities.

In the wake of serious food and product safety scandals, CCTV has taken on the role of self-appointed public watchdog, with a focus on the transgressions of multinationals operating in China.

In recent weeks, the broadcaster has targeted smartphone maker Samsung for allegedly unfair after-sales policies, while earlier this year it directed similar charges against Apple that prompted the company to apologise to Chinese consumers.

Other companies such as KFC, McDonald's, Volkswagen, and Walmart have all been targeted by similar reports that appear to concentrate less on large Chinese companies, in particular state-owned monopolies that are often derided by consumers for their substandard products and services.

“The reasons for this bias towards reporting [negatively] on foreign companies are complicated; sometimes it is political as in the case of Google, often it is rent-seeking [trying to force large companies to buy advertising or pay bribes] and sometimes it is just the path of least resistance,” says Mr Shi.

“They cannot touch state enterprises because they will be censored so it is much safer to beat up on foreign companies. It will get on air without any trouble [from the censors] and it will gain support from nationalists.”

The negative campaigns do not always have the desired effect.

In late October, CCTV aired a seven-minute segment lambasting Starbucks for overcharging Chinese consumers for its coffee.

With more than 1,000 outlets across China and plans for the country to become its second-largest market after the US by next year, Starbucks wants to avoid a fight with the propaganda apparatus at all costs.

But on this occasion the reports were mostly greeted with derision rather than outrage from the wider public.

“Coffee is not a necessity for life, the price is determined by the market and it is up to Starbucks to charge what it wants,” said one user of China’s Twitter-like Weibo service whose message went viral. “If CCTV really cares about high prices why can’t they pay attention to prices that are actually related to people’s livelihoods?”

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Britain Kowtowing to China

In its rush to lure Chinese investment and tourism, the U.K. overlooks human rights and regulatory concerns.
By Yuan Ren

U.K. Chancellor of the Exchequer George Osborne (second from left) and London Mayor Boris Johnson (second from right) are accompanied by two students on a tour of Peking University.

Last year, London Mayor Boris Johnson heralded the just-completed London 2012 Summer Olympic Games as a triumph for the city and a magnet for tourism and foreign investment.
But this open invitation, apparently, didn’t extend to China.
Two months prior to the Games, the British Ambassador in Beijing, Sebastian Wood, labeled the U.K. “a fortress” to potential Chinese visitors.
This year, the UN World Tourism organization marked Chinese tourists as the single biggest source of income in global tourism: As a group, they spent $102 billion overseas in 2012, more than 30 percent more than visitors from other countries.
But while a single Schengen visa enables tourists to gain entry into most countries in the EU, the U.K. requires a separate visa that costs almost twice as much.
This, Wood argued, deterred wealthy Chinese tourists from visiting the country, and caused the U.K. to lose significant revenue to European neighbors such as France and Germany.
Last month, in an effort to undo the image of this “British fortress” and smooth ruffled feelings over Prime Minister David Cameron’s 2012 meeting with the Dalai Lama, London sent a small delegation on a five-day mission to China.
Among the delegates were London Mayor Boris Johnson and the U.K. Chancellor of the Exchequer George Osborne, whose visit began in Beijing on October 14.
In clear contrast to previous high-level trade visits to China, both men steered clear of political controversy, as Mayor Johnson sidestepped human rights questions while Osborne confirmed that “the prime minister is not planning to meet the Dalai Lama.”
Instead, the visit focused exclusively on trade, with both sides expressing hope that the prime minister may visit China later this year.
A key component of the British visit was easing visa regulations for Chinese visitors.
At Peking University, Osborne announced the launch of a 24-hour “super priority” service that would fast-track visas for Chinese business leaders traveling to the U.K. as well as a separate process that would allow certain Chinese travel agents to apply for U.K. visas using the same application as for the Schengen.
Johnson also mentioned the huge income derived from Britain’s 130,000-strong Chinese student population, noting that “London has more Chinese students than any other city on earth, outside China.”
Reminding the audience that Harry Potter’s girlfriend was also a Chinese student, he added: “Let me make this clear to you and to the whole of China: There is no limit to the number of Chinese who can study in Britain.”
The statement, given recent events, was striking: Last year the U.K. announced a policy to reduce annual net immigration from outside the EU, shortening the length of stay for overseas students.
And while previous visas offered students the right to seek employment in the U.K. for two years, now only those who graduate with job offers can stay.
Why, then, is the U.K. suddenly reversing course with China?

***

China has made significant investments in British industry and infrastructure.
These include shares in London’s water supply as well as a project to expand Heathrow Airport, the latter worth £800 million ($1.28 billion) and expected to create 16,000 jobs.
To further promote trade, the two countries struck a deal allowing direct trading between their respective currencies, based on an 80 billion yuan ($12.7 billion) quota for London-based firms to invest in China.
The U.K. is now the only foreign country to manage China’s tightly controlled currency.
The U.K. has even eased regulations for Chinese banks to set up branches in London, relaxing rules brought in as a result of the financial crisis that required most foreign banks to set up “subsidiaries” that operate under tighter controls of the Prudential Regulatory Authority (PRA).
Such “counterproductive” measures, as one journalist called them in the South Morning China Post, reportedly pushed several Chinese banks to switch operations to Luxembourg.
While many in the banking industry saw the news as undermining the PRA’s independence, others, such as TheCityUK, an independent membership body promoting financial services, “strongly welcomed” the announcements, which it saw as “potentially increasing funding for U.K. infrastructure and investment in other sectors.”
Even more contentious is China’s foray into Britain’s nuclear power industry.
During his visit George Osborne announced that Chinese state-owned companies would take a minority share in the controversial Hinkley Point C nuclear power station in southwest England, the first to be constructed in the U.K in 20 years.
As is the current government’s policy on new nuclear projects, the station will be completely privately funded, led by the French government-owned company EDF Energy.
Osborne also revealed a longer-term plan for the Chinese to become “majority owners” in future power stations built in the U.K., which he said will be paid for with “Chinese money,” to ensure “lower energy bills for families in Britain.”
While some, like Ed Davey, the U.K. Secretary of State for Energy and Climate Change called China’s support “vital” to the country’s energy prospects, others, like Isabel Hilton, Editor of China Dialogue, have questioned whether Britain is just a pawn in China becoming “the world's next big nuclear exporter.”
Questions over safety risks for Britain also point to China’s record on corruption and weak regulatory frameworks. 
John Large, the U.K. government’s advisor on nuclear energy, raised concerns that China is “rooted in a government system without independent [safety] regulators.”
But such anxieties were dismissed by the Chancellor, who emphasized during his visit that the Chinese role in nuclear projects will be “subject to British safety rules leased by the British,” and that China is “a very straightforward and transparent partner.”
But is this realistic?
Last month, the anti-corruption watchdog Transparency International placed China at the bottom of the BRICS club of emerging markets for being the least open and most prone to corruption. 
Of the 11 companies given “0” ratings for transparency, nine were from China, including Huawei Technologies, a private firm that has been entangled in allegations of spying for the Chinese government. Huawei plans to invest $200 million in building a research and development center in the U.K., as announced by George Osborne during his visit to its headquarters in Shenzhen.
Does China’s increasing stake in U.K. businesses and industry presents tangible risks for the U.K.?
While countries like the U.S. have barred Huawei from its telecoms industry over security concerns, the U.K. has continued to allow Huawei to integrate its technology into British telecommunications systems, even though the U.K. Parliament's security watchdog warned in June this year that the company’s alleged links to the Communist Party were “concerning” and questioned whether “Huawei’s intentions are strictly commercial or are more political.”
This latest trip in China, labeled by some as “China mania,” has led some observers of the Sino-British relationship to warn that London was kowtowing to the Chinese by making an unprecedented number of compromises.
Will Hutton, writing in the Guardian, called Osborne and Johnson “wide-eyed and innocent” for making “one-sided economic concessions.”
In spite of these concerns, Johnson and Osborne’s delegation insists that Britain’s economic development takes priority.
But while David Cameron’s last visit to China in 2011 emphasized that “a dialogue covering human rights” was a key part of how “[the China-UK] relationship should work,” the absence of such conversations in the latest trip indicates that the U.K. is giving up its moral high ground for closer economic ties with China, as France and Germany have done.
In contrast to the U.K. media frenzy, the Johnson-Osborne trip elicited less sentiment on the Chinese side, where reporting has been more positive.
According to writer Jonathan Fenby, China’s coverage highlights the U.K. as “just one of many” business opportunities for China and “far from a leading destination for Chinese investment,” lagging behind the likes of Germany, with its $200 billion dollars worth of investment.
While the success of the Sino-British trade relationship hinges on a balance of political tact and strict regulatory checks with strong accountability, the U.K. government’s latest move signals the end to British integrity. 
Jonathan Mirsky, a former East Asia editor of the Times writing in the New York Review of Books, sees the new relationship as a sell-out, on what he calls “precisely the things that have made Britain great: freedom, democracy and above all, speaking truth to power.”

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China Builds World's Largest Temple to Capitalist Materialism

By Bill Frezza

Forget the Great Leap Forward. 

Forget the Cultural Revolution. 

Forget the Little Red Book, and the 100 million souls who perished transforming one of the world’s oldest and most entrepreneurial civilizations into a communist gulag. 

These ghosts of China’s Marxist past are being exorcised in a new kind of revolution—by consumers.
Derided in Communist times, the consumer remained a forgotten figure as China’s ruling elite set out to compress two centuries of economic development into a couple of decades. 

But as the U.S. and European economies sputter, threatening the growth of China’s export model, China’s economy is being belatedly redirected to serve to its own people.

And what better way to mark the transition than the completion of the New Century Global Centre in Chengdu, China, a shopping center/hotel/theater/water park/office complex of such colossal proportions it could swallow three Pentagons. 

With the most usable floor space of any building in the world, at 19 million square feet, this behemoth structure is devoted to the pursuit, the enjoyment, the recreation, and the conspicuous consumption of the mighty Yuan.
If you haven’t heard of the New Century Global Centre, you’re not alone—at least not in the West. 

I only recently stumbled on it in an article in the New Republic, whose goggle-eyed reporter marveled at the size of this “Chinese mall you’ve never heard of,” yet missed the bigger irony of a pleasure dome of consumer desire rising up in the middle of a country once renowned for repression, ideological tyranny, and famine.
Google up this latest wonder of the world and you’ll find a raft of short pieces in the tabloid press that all appear to be written from the same news release. 

Yet you will not find a word about it in the New York Times or the Washington Post, nor did NPR give it a moment of airtime. 

It’s as if the collective consciousness of the liberal commentariat agreed to avert its eyes.
Roll over, Chairman Mao, the people you mired in misery have pulled themselves up by their bootstraps and are ice skating on your grave. 

How fitting that they’re doing it in a city where paper money was invented 1,000 years ago.
Of course, this being China, nothing on such a scale can remain untainted by central planning, in this case the now-not-so-Communist Party working hand in glove with China’s nouveau billionaires. 

True to form, the project appears to be replete with enough corruption to make Tammany Hall blush.
But before we tut-tut in condemnation, let’s not forget that while Boss Tweed milked the Brooklyn Bridge for all it was worth, the largest suspension bridge of its time was ultimately completed—in a city that went on to become the capitol of capital. 

So while the Chinese people will likely pay a price for the malinvestment fueling the country’s overheated real estate bubble, they can afford to blow some of the wealth they’ve created in the world’s largest shopping mall.
Like the Brooklyn Bridge, no amount of official corruption can diminish the project’s ultimate value. 

Yet unlike California’s impossible-to-kill bullet train to nowhere or the growing pile of cleantech carcasses piling up in the wake of misguided U.S. industrial policy, the apartment buildings, city centers, and shopping malls now going up in China will still be there to provide economic value even after a wave of defaults, bankruptcies, and mysterious disappearances claim the investors that backed them.
What does this portend for China’s future? 

It’s hard to say. 

Sooner or later the ruling party will pivot, not out of choice but of necessity. 

It’s not the pivot to democracy that will generate the greatest rewards but the pivot away from bureaucratic central planning toward a more open market economy. 

When that ultimately happens, the demands for democracy, civil liberties, and political freedom from China’s growing middle class will become harder to ignore.
Every country in Asia touched by the Mao-fleeing diaspora is testament to the human capital possessed by the Chinese merchants, traders, manufacturers, and investors who kept the flame of economic freedom alive during China’s darkest years. 

As their skills and capital return to the motherland, providing a path forward for a billion liberated socialist serfs determined to lift themselves out of poverty, China will have its chance to build a future of its own choosing. 

With a little luck they may stumble on the same formula that made the land of life, liberty, and the pursuit of happiness so exceptional, even as we trade away our patrimony for socialist promises of security, equality, and “free” healthcare.

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China Is Choking on Its Success

Walking the streets of Beijing, it’s hard not to feel like you are trapped in an airport smoking lounge. The only tourists heading to Beijing in the years ahead will be adventure seekers donning gas masks.

By William Pesek 

Walking through Beijing’s Tiananmen Square last week, a German family of five surrounded me, all wearing large face masks and sunglasses. 

They weren’t robbing me, just asking me to take their photo. 

When I yelled the customary “Say ‘cheese,’” the dad joked: “We are smiling under here.”
Only China’s pollution bubble is no laughing matter, and tourists tell the story. 

Thanks to extreme air pollution, foreign arrivals plunged by roughly 50 percent in the first three-quarters of the year. 

Beijing could see even fewer visitors to the Forbidden City, the Great Wall and the famous square dominated by a painting of Mao Zedong thanks to images of acrid smog that have been beaming around the globe.
The timing doesn’t help. 

Jokes about renaming the city “Grayjing” or “Beige-jing” coincide with the Communist Party’s much-anticipated Third Plenum meeting Nov. 9-12. 

In a more democratic system, that might increase the urgency to act boldly to address a bad-air crisis that’s literally impossible not to see. 

But early signals aren’t encouraging. 

News media leaks have the more than 200 members of the party’s Central Committee crafting a vague blueprint for readjusting China’s economic structure. 

Nowhere are there hints the plan will do what China really needs to do: Ban coal.

China’s Crisis
The conventional wisdom is that China will eventually get serious about the environment, and when it does, the skies will turn blue before we know it. 

This view finds comfort in the experiences of the U.K. and the U.S. and concludes that Beijing’s toxic-air challenge pales in comparison with London’s back in the days of Charles Dickens. 

But what if the comparison is a false one? 

What if China’s crisis is different and harder to reverse?
Neither London in the 1850s or 1950s nor Pennsylvania in the 1940s was at the mercy of a paranoid authoritarian government whose legitimacy relies on 8 percent growth. 

Case studies of the past weren’t as linearly reliant on manufacturing. 

They weren’t dealing with urbanization anywhere near the scale of modern-day China. 

They didn’t rely on huge overseas investment predicated partly on the ability to pollute freely. 

Large numbers of their politicians weren’t becoming multimillionaires from the existing system.
China is entering completely uncharted territory -- navigating the demands of a newly vocal middle class without the democratic and civil institutions that helped Japan and the U.S. clean up environmental damage in the 1970s. 

It’s also doing so with higher levels of corruption.
The party is playing with fire. 

Anger over pollution has replaced land grabs as the primary cause of social unrest. 

The last 12 months have seen a sharp increase in protests against chemical plants and oil refineries. 

Fewer than 1 percent of China’s 500 largest cities meet the World Health Organization’s air-quality standards, while seven are ranked among the 10 most polluted in the world. 

Walking the streets of Beijing, it’s hard not to feel like you are trapped in an airport smoking lounge.
As China chokes on its success, the solution is obvious: Phase out the use of coal immediately. 

Flush with $3.7 trillion of currency reserves, China could finance a transition to natural gas. 

Doing so requires political will of the kind that neither President Xi Jinping nor Premier Li Keqiang has displayed. 

When China does make the transition away from coal, the economy will slow significantly in ways that would damage the state-owned enterprises that dominate the economy and enrich the Communist Party and its cronies.

Embarrassing Year

China’s new leaders are acting in other ways. 

A series of embarrassments this year -- not least of them thousands of dead pigs floating in the Huangpu River near Shanghai and myriad food-contamination scandals -- and the increased frequency of protests leave them little choice. 

In August, China promised to spend the equivalent of the gross domestic product of Singapore, or about $275 billion, to improve air quality.
“Of course, the country continues to be an investment destination and expats will come here in numbers, but it is definitely harder to sell Beijing as a posting,” says Kobus van der Wath, founder of the Beijing Axis, an international advisory firm. 

“Also, the level of dissatisfaction among Chinese is very high at the times when pollution is at its worst.”
But there’s little sign China understands the extent to which bad air is imperiling investment. 

Many of the government’s ideas about cleaning up first-tier cities such as Beijing involve moving coal-burning plants toward Shanxi province and inner Mongolia -- in other words, redistributing pollution to less populated areas. 

Better emissions standards are vital, too. 

In 2012 alone, China added more cars than the total number that plied its roads in 1999.
Once the U.K. and U.S. got serious about reducing carbon emissions, the transition away from coal took a few decades. 

But China doesn’t have decades. 

So Beijing can rail against the foreign media for exaggerating its gray air. 

It can pretend wind turbines, solar farms and other renewables alone will do the trick. 

But China should do the inevitable and curb coal use today. 

Otherwise, the only tourists heading to Beijing in the years ahead will be adventure seekers donning gas masks.

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Chinese Doctors Becoming the Targets of Patients’ Anger

By DIDI KIRSTEN TATLOW

Hospital workers protesting attacks on medical staff members outside the No. 1 People’s Hospital in Wenling, Zhejiang Province, where a man stabbed three doctors, killing one. The large sign, left, reads “Give My Dignity Back,” and the small sign, right, reads “Defend Justice.”
China’s hospitals are a battleground — not just for the war on illness but also for the one between physicians and their patients.
If that statement seems extreme, consider these data points from state-run medical organizations:
Medical staff are attacked by patients or their relatives at a rate of once every two weeks per hospital, according to the China Hospital Association, Chinese news agencies reported.
In the last two weeks there have been at least six serious incidents, including in Guangdong Province on Oct. 21, when a Dr. Xiong Xuming was left with a damaged eye and ruptured spleen after being beaten up by a patient’s relatives for refusing to allow them into the intensive care unit, and in Zhejiang Province on Oct. 25, when Dr. Wang Yunjie was stabbed to death by a patient unhappy with his treatment.
Since 2002, attacks have risen by an average of nearly 23 percent a year, the China Hospital Management Society said in a paper published in December in Chinese Community Doctors, a medical journal.
On Thursday, Prime Minister Li Keqiang addressed the issue, in a sign that the Chinese government is seriously concerned by the mounting violence.
Mr. Li was “paying utmost attention” to the situation and had written “important comments” requesting all government departments to take seriously the problem of conflict between doctors and patients, according to a post on the government’s official Tencent Weibo, or microblog, account. 

He had ordered government departments to take measures to “protect medical order,” it said.
The reasons for the problems in China’s health care system are, by now, well known: a widespread lack of trust in doctors and hospital administrators, the high cost of care, long waiting times and short appointments — and corruption, at every level. 

A public that lacks basic knowledge about medical problems and outcomes is also a factor, commentators say.
But why turn to violence? 

One reason is illness can bankrupt a family. 

People who exhaust their savings on care want to see positive results and blame doctors when that’s not possible, commentators say.
While violent incidents in major cities and well-known hospitals receive the greatest attention, the problem is actually more severe in smaller or local hospitals, said Deng Liqiang, the head of the legal department of the Chinese Medical Doctors Association, in an interview with Yanzhao Metropolitan News, based in Shijiazhuang, the capital of Hebei Province.
“It’s not hard to discover that third-tier hospitals and regional medical centers are the disaster ground for medical conflicts,” said Mr. Deng.
Underfunding by the government is a major problem, Mr. Deng said.
“In the late 1980s, the state provided about 60 percent of investment in most public hospitals and then it fell from there,” the newspaper quoted him as saying. 

“After medical reforms, by 2009, they were providing 20 percent, and the remaining 80 percent had to be covered with revenue generated by the hospitals.”
While the government has made few comments on the substance of the problems in the health care system, experts say another complaint of ordinary Chinese — the concentration of good hospitals in big cities and shortage of medical services in local communities — arises because the state is reluctant to decentralize medical care, fearing the rise of poorly trained medical personnel or outright quacks.
After the death of Dr. Wang, the Chinese Medical Doctors Association and three other professional groups issued a statement urging the government to better protect medical staff members.
“Why are doctors being injured without cease?” it asked. 

“In order to save lives, doctors and patients should become friends, not enemies,” it said.
Meanwhile, the central government’s National Health and Family Planning Commission has announced emergency measures: Hospitals should assign one security guard per 20 beds, and guards should account for no less than 3 percent of the total medical staff.

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Across the party wall

Vietnam’s Communist Party is in a bit of a mess, but China’s may have little to teach it

The Economist

IF THE following pressing themes remind you of China, spare a thought for Vietnam: a debate over the constitution; efforts to curb the privileges of state-owned enterprises; fury over official corruption; poorly compensated land-grabs; new restrictions on online dissent; a recognition that further economic reform is not just desirable but essential; and, in politics, evidence of fierce factional struggles among high leaders.
China and Vietnam have two of the few Communist Parties still in power, so it is hardly surprising that they face many of the same problems. 

What might alarm them most, however, is the shortage of obvious solutions. 

Both parties scheduled meetings of their central committees this autumn. 

Both plenums were seen in advance as important in the evolution of national reforms. 

China’s plenum is due next month. 

Vietnam’s has come and gone, producing few apparent signs of new thinking. 

The Communist Party of Vietnam seems in more of a pickle.

High on the Vietnamese communists’ agenda were proposed changes to the country’s constitution. 

The current version, adopted in 1992 and last tweaked in 2001, no longer reflects the more open economy and society that Vietnam has become.

A revised draft was distributed for public reaction early this year. The result was startling: more than 26m comments were received. Many were not ones the party wanted to hear.

Three clauses in particular attracted attention. 

Liberals hoped the constitution might guarantee an independent judiciary. 

At present it promises that the state “shall unceasingly strengthen socialist legality”. 

Some had also hoped for a change to Article Four, which enshrines the role of the Communist Party as “the force leading the state and society” in a one-party system. 

And third, many people argued that Article 19, which declares that “the state economic sector shall play the leading role in the national economy”, is both obsolete and damaging. 

Vietnam is suffering from the effects of a debt crisis brought on partly by the profligacy of its state-owned enterprises. 

Economic growth of around 5% a year is too slow to provide jobs for a young population, and the economy is unlikely to do much better next year.
Cleaning up the state sector, perhaps by privatising the profitable bits (brewers, for example) and trimming the loss-makers (most of the rest), is a prerequisite for returning to faster growth. 

It may also be essential if Vietnam succeeds in joining an American-led free-trade agreement, the Trans-Pacific Partnership.

But dismantling the “state economic sector” is terrifying for many. 

Not only are officials corrupt beneficiaries of business links. The system also helps to justify single-party rule.

After the plenum, committees will continue tinkering with the constitution’s wording. 

But it seems clear that much will be dodged. 

Vietnam will still be saddled with a charter that barely recognises the profound transformation it underwent with doi moi (“renovation”) in 1986, let alone the rapid changes since.
China’s example is not much help here, even though it too has been debating its constitution. 

The crucial difference is that, in China, the party’s critics want it simply to respect the present constitution. That document promises equality, freedoms of speech, assembly and religion, and an independent judiciary, all of which the Communist Party ignores. 

Even the party’s leading role is mentioned only in the preamble rather than in the body of the document. 

So recent months have seen China’s official press rail against “constitutionalism”—ie, the outrageous notion that the constitution should be respected—as the latest way in which the West is seeking to undermine the country by sneaking in dangerously subversive liberal notions.
Article Four would be less of an issue in Vietnam if the party were not held in such disrespect. 

Partly this is a consequence of the economic mismanagement of recent years. 

Partly it reflects disgust with official corruption, seen as pervasive, especially at the very heart of government. This is one reason why, in a vote in the spring in the National Assembly, which shows more gumption than China’s equivalent parliament, nearly one-third of members expressed low confidence in the prime minister, Nguyen Tan Dung. 

Anger at a corrupt government also explains why Doan Van Vuon, a northern fish farmer jailed for five years in April, became a folk hero. 

His crime was to defend his land, with homemade guns and explosives, when officials came to confiscate it. Land-grabs are a common cause of protest in China, too, and reforms to the land-ownership system that fosters the abuses could (or, rather, should) be one of the big decisions announced at its party plenum.

Take me to your leader
In China, too, those who stand up are often lionised through social media. 

In Vietnam, as in China, a crackdown has taken place this year on vocal online dissent, with dozens locked up and new limits to online discourse. 

In Vietnam only “personal information”, and not news articles, may be exchanged online. 

This seems to be a doomed attempt to reclaim the monopoly on sources of mass information that the party enjoyed before the internet arrived. 

Even if the crackdown were enforceable, it would be too late to extinguish the cynicism about party and government that is smouldering in Vietnam, as in China.
That cynicism is fuelled by the perception that party leaders are less interested in the national good than in protecting their own power from attacks by envious rivals. 

In China the downfall of Bo Xilai, an ambitious provincial leader, drew rare, public attention to the bareknuckle fights in elite politics. 

In Vietnam Mr Dung, the prime minister, seems the target of a campaign by more conservative party leaders, such as President Truong Tan Sang. 

The difference is that in China, factional struggle has produced a clear winner in Xi Jinping, the party leader. Part of Vietnam’s problem is that nobody seems sure who is really in charge.

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China's Economic Slowdown

Chinese leaders are haunted by the fear that their days in power are numbered.

By JOSEF JOFFE

Workers at the Innovation Fulfillment Center at the Foxconn factory complex in Shenzen, 2010. China's cost advantage is already plummeting; average wages have quadrupled since 2000. 

The big question of the 20th century has not disappeared in the 21st: Who is on the right side of history? 

Is it liberal democracy, with power growing from the bottom up, hedged in by free markets, the rule of law, accountability and the separation of powers? 

Or is it despotic centralism in the way of Stalin and Hitler, the most recent, though far less cruel, variant being the Chinese one: state capitalism plus one-party rule?
The demise of communism did not dispatch the big question; it only laid it to rest for a couple of decades. Now the spectacular rise of China and the crises of the democratic economies—bubbles and busts, overspending and astronomical debt—have disinterred what seemed safely buried in a graveyard called "The End of History," when liberal democracy would triumph everywhere. 

Now the dead have risen from their graves, strutting and crowing. 

And many in the West are asking: Isn't top-down capitalism, as practiced in the past by the Asian "dragons" (South Korea, Taiwan, Japan) and currently by China, the better road to riches and global muscle than the muddled, self-stultifying ways of liberal democracy?
What rises comes down and levels out as countries progress from agriculture and crafts to manufacturing and thence to a service and knowledge economy. 

In the process, the countryside empties out and no longer provides a seemingly limitless reservoir of cheap labor. 

As fixed investment rises, its marginal return declines, and each new unit of capital generates less output than the preceding one. 

This is one of the oldest laws of economics: the law of diminishing returns.

The rise-of-the-rest school assumes that tomorrow will be a remake of yesterday—that it is up, up, and away for China. 

Yet history bids us to be wary. 

Rapid growth characterized every "economic miracle" in the past. 

It started with Britain, the U.S. and Germany in the 19th century, and it continued with Japan, Taiwan, Korea and West Germany after World War II. 

But none of them managed to sustain the wondrous pace of the early decades, and all of them eventually slowed down. 

They all declined to a "normal" rate as youthful exuberance gave way to maturity. 

What is "normal"? 

For the U.S., the average of the three decades before the crash of 2008 was well above 3%. 

Germany came down from 3% to less than 2%. 

Japan declined from 4.5% to 1.2%.
The leveling-out effect also applies to industrialized economies that emerged from a catch-up phase in the aftermath of war and destruction, as did Japan and West Germany after World War II. 

In either case, the pattern is the same. 

Think of a sharply rising plane that overshoots as it climbs skyward, then descends and straightens out into the horizontal of a normal flight pattern. 

The trend line, it should be stressed, is never smooth. 

In the shorter run, it is twisted by the ups and downs of the business cycle or by shocks from beyond the economy, such as civil strife or war.
Only hindsight reveals what has endured. 

In the middle of the "Surging Seventies," Japanese growth flip-flopped from 8% to below zero in the space of two years. 

South Korea, another wunderkind of the 1970s, gyrated between 12% and -1.5%. 

As the Cultural Revolution burned through China in the same decade, growth plunged from a historical onetime high of 19% to below zero. 

Recent Chinese history perfectly illustrates the role of "exogenous" shocks, whose ravages are far worse than those wrought by a cyclical downturn. 

Next to war, domestic turmoil is the most brutal brake on growth. 

In the first two years of the Cultural Revolution, growth shrank by eight, then by seven, percentage points. 

After the Tiananmen Square massacre of 1989, double-digit growth dropped to a measly 2.5% for two years in a row.
The Cultural Revolution and Tiananmen hint at a curse that may return to haunt China down the line: the stronger the state's grip, the more vulnerable the economy to political shocks. 

That is why the Chinese authorities obsessively look at every civic disturbance through the prism of Tiananmen, though that revolt occurred a generation ago. 

"Chinese leaders are haunted by the fear that their days in power are numbered," writes the China scholar Susan Shirk. 

"They watched with foreboding as communist governments in the Soviet Union and Eastern Europe collapsed almost overnight beginning in 1989, the same year in which massive pro-democracy protests in Beijing's Tiananmen Square and more than 100 other cities nearly toppled communist rule in China."
Today, the world is mesmerized by awesome growth in China. 

But why should China defy the verdict of economic history from here to eternity? 

No other country has escaped from this history since the Industrial Revolution unleashed the West's spectacular expansion in the middle of the 19th century.
What explains the infatuation with China? 

Western intellectuals of all shades have had a soft spot for strongmen. 

Just think of Jean-Paul Sartre's adulation of Stalin or the German professoriate's early defection to Hitler. The French Nobelist André Gide saw the "promise of salvation for mankind" embodied in Stalin's Russia.
And no wonder: These tyrants promised not only earthly redemption but also economic rebirth; they were the hands-on engineers, while thinkers dream and debate, craving power but too timorous to go for it. 

Too bad that the price was untold human suffering, but as Bertolt Brecht, the poet laureate of German communism, famously lectured, "First the grub, then the morals."
Today's declinists succumb to a similar temptation. 

They survey the crises of Western capitalism and look at China's 30-year miracle. 

Then they conclude once more that state supremacy, especially when flanked by markets and profits, can do better than liberal democracy. 

Power does breed growth initially, but in the longer run, it falters, as the pockmarked history of the 20th century reveals. 

The supreme leader does well in whipping his people into frenzied industrialization, achieving in years what took the democracies decades or centuries.
Under Hitler, the Flying Hamburger train covered the distance between Berlin and Hamburg in 138 minutes; in postwar democratic Germany, it took the railroad 66 years to match that record. 

The reasons are simple. 

The Nazis didn't have to worry about local resistance and environmental-impact statements. 

A German-designed maglev train now whizzes back and forth between Shanghai and the city's Pudong International Airport; at home, it was derailed by a cantankerous democracy rallying against the noise and the subsidies.
Top-down economics succeeds at first but fails later, as the Soviet model shows. 

Or it doesn't even reach the takeoff point, as a long list of imitators, from Gamal Abdel Nasser's Egypt to Fidel Castro's Cuba, demonstrates. 

Nor are 21st-century populist caudillos doing better, as Argentina, Ecuador and Venezuela illustrate.
Authoritarian or "guided" modernization plants the seeds of its own demise. 

The system moves mountains in its youth but eventually hardens into a mountain range itself—stony, impenetrable and immovable. 

It empowers vested interests that, like privileged players throughout history, first ignore and then resist change because it poses a mortal threat to their status and income.
This sort of "rent seeking" is visible in every such society. 

As the social scientist Francis Fukuyama explains, reflecting on the French ancien régime: "In such a society, the elites spend all of their time trying to capture public office in order to secure a rent for themselves"—that is, more riches than a free market would grant. 

In the French case, the "rent" was a "legal claim to a specific revenue stream that could be appropriated for private use." 

In other words, the game of the mighty is to convert public power into personal profit—damn markets and competition.

The French example easily extends to 20th-century East Asia, where the game was played by both state and society, be it openly or by underhanded give-and-take. 

Raising the banner of national advantage, the state favors industries and organized interests; in turn, these seek more power in order to gain monopolies, subsidies, tax breaks and protection so as to increase their "rents"—wealth and status above and beyond what a competitive system would deliver.
The larger the state, the richer the rents. 

If the state rather than the market determines economic outcomes, politics beats profitability as an allocator of resources. 

Licenses, building permits, capital, import barriers and anticompetitive regulations go to the state's own or to favored players, breeding corruption and inefficiency. 

Nor is such a system easily repaired. 

The state depends on its clients, just as its clients depend on their mighty benefactor. This widening web of collusion breeds either stagnation or revolt.

What can the little dragons tell us about the big one, China? 

The model followed by all of them is virtually the same. 

But some differences are glaring. 

One is sheer size. China will remain a heavyweight in the world economy no matter what. 

Another is demography. 

The little dragons have completed the classic course. 

Along that route, toilers of the land, just as in the West, thronged the cities in search of a better life. 

This "industrial reserve army" held down wages, driving up the profit rate and the capital stock.
And so South Korea, Taiwan and Japan turned into mighty "factories of the world," whose textiles, tools, cars and electronics threatened to overwhelm Western industry, as China's export juggernaut does today. Once it empties out, the countryside can no longer feed the industrial machine with cheap labor.
China still has many millions of people poised to leave rural poverty behind, so don't confuse it with Japan, whose shrinking and aging population won't be replenished soon by immigration or procreation. 

Japan ranks at the bottom of the world fertility table, one notch above Taiwan and one below South Korea. Call it East Asia's "death wish." 

China's "reserve army" still has a long way to go. 

Nor has this very poor country exhausted the classical advantages of state capitalism, such as forced capital accumulation, suppressed consumption and a cavalier disregard for the environment.
But beware the curse of 2015. 

Despite its rural masses yearning to go urban, China's workforce will start to decline while its legion of graying dependents keeps ballooning—the result of an abysmally low fertility rate, better health and rising life expectancy. 

As China gets older, America will become younger thanks to its high rates of birth and immigration. 

An aging society implies not only a smaller workforce but also a changing cultural balance between those who seek safety and stability and those who want to risk and acquire—traits that are the invisible drivers of economic growth.
At any rate, China's cost advantage is plummeting. 

Since 2000, average wages have quadrupled, and the country's once spectacular annual rate of growth no longer registers in the double digits.
Discontent there, as measured by the frequency of "public disturbances," is rising, but it is about local corruption and elite rent seeking, not about cracking the political monopoly of the Communist Party. 

One Tiananmen demonstration does not a revolution make. 

There is no shortcut to the mass-based protests that dispatched the tyrants of Taipei and Seoul.
Nor is there an imminent ballot-box revolution in China's future. 

It took Japan's voters a half century to dismantle the informal one-party state run by the Liberal Democratic Party, and this in a land of free elections. 

The Chinese Communist Party need not fear such a calamity; it is the one and only party in a land of make-believe elections.
And yet.
History does not bode well for authoritarian modernization, whether in the form of "controlled," "guided" or plain state capitalism. 

Either the system freezes up and then turns upon itself, devouring the seeds of spectacular growth and finally producing stagnation. (This is the Japanese "model" that began to falter 20 years before the de facto monopoly of the LDP was broken.) 

Or the country follows the Western route, whereby growth first spawned wealth, then a middle class, then democratization cum welfare state and slowing growth. 

This is the road traveled by Taiwan and South Korea—the oriental version of Westernization.
The irony is that both despotism and democracy, though for very different reasons, are incompatible with dazzling growth over the long haul. 

So far, China has been able to steer past either shoal. 

It has had rising riches without slowdown or revolt—a political miracle without precedent. 

The strategy is to unleash markets and to fetter politics: "make money, not trouble."
Can China continue on this path? 

History's verdict is not encouraging.

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Meet China's Beverly Hillbillies

The absurdity of the Middle Kingdom's Bentley-driving, blinged-out nouveau riche.
BY RACHEL LU

This solid gold, gem-encrusted toilet, which Chinese web users would likely deem very tuhao, was valued at $4.8 million in February 2005 while on display in a Hong Kong jewelry store.

They have been mentioned more than 56 million times on Sina Weibo, China's Twitter. 

Everyone wants to be their friend, but no one likes them. 

They seem to be everywhere, throwing around their newly minted renminbi and well-used UnionPay debit cards; yet they are elusive and shun the media. 

Their love for bling has become the backbone of the global luxury goods industry, yet they are also the subject of disdain, the butt of jokes, the punching bag for that which is offensive to good taste.
They are the tuhao -- tu means dirt or uncouth; hao means splendor -- and they are the Beverly Hillbillies of China. 

Or something like that: A crowdsourced translation call on China's social media yielded "new money," "slumdog millionaire," the "riChinese" and "billionbilly." 

When English falls short, French is on hand to help: Tuhao have the artistic sensibilities of the arriviste, the social grace of the parvenu, and the spending habits of the nouveau riche.
Tuhao once meant rich landowner -- the villainous landed gentry and class enemy of communist China's proletariat -- but the term's modern revival began with a popular joke that made its rounds on Chinese social media in early September. 

A young man asks a Zen master, "I'm wealthy but unhappy. What should I do?" 

The Zen master responds, "Define 'wealthy.'" 

The young man answers, "I have millions in the bank and three apartments in central Beijing. Is that wealthy?" The Zen master silently holds out a hand, inspiring the young man to a realization: "Master, are you telling me that I should be thankful and give back?" 

The Zen master says, "No... Tuhao, can I become your friend?"
This rather lame joke struck a chord with China's middle class, a rapidly expanding group that now numbers over 300 million. 

As a middle-class lifestyle grows increasingly normal, so has disdain for flaunted wealth. 

Many Chinese would now say they consider themselves the antithesis of tuhao -- educated, fashionable, and disdainful of conspicuous consumption. 

After taking office in November 2012, Chinese President Xi Jinping started cracking down on corruption in the Communist Party. 

Chinese officials, some of the most notorious wearers of tuhao goods, cut down on ostentatious purchases, and luxury brands suffered.
At the same time, Chinese live in a society where understanding tuhao is valuable, catering to tuhao taste is lucrative, and making tuhao friends is sensible. 

Multinational corporations, while wary of going against Xi's policies, understand this. 

Fancy a Hermès bag with the Chinese national flag on it? Done. 

Want to spend tens of thousands of dollars on a watch with a Chinese zodiac motif? Why, you have more than 20 to choose from.
Tuhao had their breakout moment on Sept. 20, when Apple introduced a gold version of the new iPhone 5s smartphone. 

Despite initial disbelief that Apple would indulge such tackiness alongside its Zen-like tradition of elegant design, the gilded phone has become insanely popular in China, where it is known -- even in state media headlines --as the "tuhao gold."
The tuhao concept extends beyond gilded gadgets. 

On Sept. 22, members of Hollywood royalty, including Leonardo DiCaprio, Harvey Weinstein, and Nicole Kidman, flocked to the seaside Chinese city of Qingdao for the opening of a cinema complex owned by developer Wang Jianlin, whom Bloomberg calls China's richest man. 

China's Internet users labeled the event an "Extravaganza of tuhao" and a celebration of "Haollywood" [sic] because while Wang's company spent a considerable amount of cash to lure the big names to Qingdao, the event's fusty Chinese flavor reduced its glamour factor. 

A-listers rubbed shoulders with security guards in uniforms styled after those worn by soldiers in China's People's Liberation Army; elderly locals performed Chinese opera. 

The country's middle class, it seems, is conflicted: The nouveau is surely gauche, but the old is still uncouth.
Among stiff competition, the most famous tuhao on the Chinese Internet in early October was a nameless woman in backwater Anhui province. 

Chinese media reported that she gave a Bentley worth approximately RMB 4 million (about $650,000) to her son-in-law as a wedding gift. 

Some allege the reporter fabricated the story, but it has already caused uproar online, where responses range from derision to expressions of real or exaggerated jealousy of the young man's good luck.
Those combinations -- derision and jealousy, dirt and splendor -- go to the root of the conflicts undergirding modern, gilded-age China. 

Wealth alone is proving to be an empty promise, yet it remains essential for many kinds of access and influence. 

Small wonder that while Chinese may resent tuhao and poke fun at their taste, making their acquaintance (or better yet, marrying into their families) remains a convenient and enviable way to move up China's increasingly treacherous social ladder. 

Reactions to the Bentley story "highlight a blatant opportunistic mentality" among our youth, commented a blogger who goes by the name Jumo. 

"If our young people didn't face so much totally unfair and unclear competition in their personal lives and careers, they would not have to bear so much pressure or be so impetuous, anxious, or old before their time." 

Then perhaps they wouldn't need their mother-in-law to buy them a Bentley.

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Transparency: China well behind India in business practice

Transparency International says Chinese companies do poorly in all areas compared with other Brics countries: their financial data are deliberately opaque for the purpose of hiding the proceeds of corruption.
Reuters in Berlin

A Chinese man registers his enterprise in Shanghai's free trade zone.

The anti-corruption watchdog Transparency International has admonished Chinese companies for their opaque business practices while praising Indian firms' relatively high standards, in a survey of emerging market multinationals released on Thursday.
China got the lowest rating of the Brics economies (Brazil, Russia, India, China and South Africa), whose companies made up three quarters of the sample in the survey of 100 of the fastest-growing multinationals in 16 emerging economies.
Marked on how transparently they present measures to combat corruption, how they report on their organisations and how they disclose data such as revenue, expenditure and taxes, three quarters of the companies scored less than five out of 10.
"As emerging market companies expand their influence they should seize the opportunity to play a bigger role stopping corruption internationally," said Huguette Labelle, head of the Berlin-based independent pressure group.
Widespread shortcomings included the failure of about 60% of the companies surveyed to disclose information about their political contributions.
"Results show that companies from China lag behind in every dimension with an overall score of 20%," Transparency said in the report. 

"Considering their growing influence in markets around the world, this poor performance is of concern."
Eight of the 10 worst-performing companies were Chinese, such as state-owned Chery Automobile, which scored zero points, along with Mexico's privately-owned consumer goods group Mabe.
A spokesman for Chery, Wang Wei, said he had never heard of Transparency International and was never contacted by the organisation.
"Chery is not publicly traded, so naturally it is not as transparent as those listed companies," Wang said, noting that the automaker does publish quarterly and annual results to its bond investors.
Mabe did not immediately respond to requests for comment.
"In contrast, Indian firms perform best in the Brics with a result of 54% and several occupy the top positions in the overall index," said Transparency, attributing this to laws in India about how multinationals must report on subsidiaries.
Top of the class overall came India's Tata Communications, which also topped the anti-corruption programmes category with 92%, followed by three more Tata companies.
A Tata Communications representative was not immediately able to comment.
Transparency International said public disclosure of anti-bribery measures "confirms a company's commitment to ethical conduct" and made it easier for the public to monitor them.
Emirates Airline, which is state-owned, came first in the category for organisational transparency, followed by Johnson Electric Holdings of China and Malaysian state energy company Petronas. 

None was immediately available to comment.
This category marked firms on their disclosure of data such as majority and minority holdings, percentages owned by the parent company and the country of incorporation and operation – all of which is often made "deliberately opaque for the purpose of hiding the proceeds of corruption", Transparency said.
Eleven companies scored zero in this category, nine of them incorporated in China.
In the third category, measuring standards of country-by-country reporting of revenues, capital expenditure, income before tax, income tax and community contributions, the Chilean retailing group Falabella scored highest with 50%.
Falabella's chief executive, Sandro Solari, said transparency was "a central element in building trust" and it would continue strengthening its ability to deliver information.
"Key financial data give citizens the possibility to understand the activities of a particular company in their country and to monitor the appropriateness of their payments to governments," Transparency said.
In a sub-index ranking just the BRICS nations, which the watchdog said account for 20% of global economic output and 15% of world trade, the companies from India were followed by South Africa, Russia, Brazil, then China.

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China's scorned mistresses take revenge on 'corrupt lovers'

Chinese government officials are using public money to pay for their love lives.

By Martin Patience

Ms Ji, left, posted photos and videos of her spending time with Mr Fan

Lust, power and corruption can make for an explosive mix. 

An unlikely whistle-blower for President Xi Jinping's much publicised crackdown on official corruption has emerged -- the scorned mistress.
In recent weeks their public accounts have offered a rare glimpse of the extravagant lifestyles of the Communist Party elite, enraging the Chinese public.
The most high-profile case is that of Ji Yingnan -- a mistress who shamed her former lover in the full glare of China's hundreds of millions of microblog users.
Sensationally, the 26-year-old identified him as Fan Yue, a deputy director at the State Administration of Archives.
This summer Ms Ji posted videos and pictures of the couple on the internet. 

There were pictures of the couple enjoying shopping sprees, splashing about in a private swimming pool, and at a party where the official asked his mistress to marry him.
According to Ms Ji's account, she exposed her boyfriend after discovering he was married with a teenage son.
"I had no idea he was such a liar," Ms Ji, the TV presenter, told the Global Times, a Chinese newspaper.
"He always promised to marry me and I always thought he would be my fiance, or even husband."
But what shocked the public were the staggering sums of cash involved. 

According to the mistress, her lover gave her more than a $1,000 (£600) a day in pocket money, a luxury car and promises of an apartment.
She told the Global Times that she initially reported Mr Fan to the authorities, believing he was involved in corruption. 

But she said she never received a reply and then decided to post her allegations online.
The details of her lavish lifestyle raised the obvious question: how could her lover afford all this on a modest government salary?
According to the state-run news agency, Xinhua, Mr Fan was sacked from his job in June and is now being investigated over the corruption allegations. 

The BBC could not reach Mr Fan for comment.

Public domain
One of the main sites that posted the revelations is run by Zhu Ruifeng, an anti-corruption blogger. 

He shot to prominence last year after posting an explosive sex tape starring a government official, Lei Zhengfu, which triggered a corruption investigation, ultimately landing the official in jail.
With the growing power of the internet, details that would have once remained private are now leaking into the public domain.
Sex scandals, of course, happen in all countries. But the difference in China, says Mr Zhu, is that government officials are using public money to pay for their love lives.

"In China nothing is clear," he says, "The public don't know what officials are up to. 

"But mistresses live with government officials, they spend their money, they know about everything that goes on.

"When a mistress stands up, the truth comes out."
A powerful energy official, Liu Tienan, was sacked from his post in May after his former mistress told a journalist that her lover had helped defraud banks of $200 million.
Mistresses have become the ultimate symbol of corruption in China. 

According to a government report in 2007, an astonishing 90% of top officials brought down by corruption scandals had kept a mistress -- and in many cases they had more than one.
Former Railways Minister Liu Zhijun, jailed for corruption earlier this year, reportedly kept 18 mistresses.

An explosive sex tape got Lei Zhengfu, centre, into trouble

'Emperor's complex'
I met a 26-year-old who told she me was once a mistress. 

With her long, black hair and designer clothes, she looked like she had just stepped off a catwalk.
She did not want to be identified, but told me her lover was a top company executive. 

She says that she witnessed corruption.
"Businessmen and officials work together very closely," she said. 

"A government official asked my boyfriend for a favour. But this time, he didn't want money. He wanted my boyfriend to get him a mistress."
Mistresses are nothing new in China. Emperors were renowned for keeping concubines. 

But China's top sexologist, Li Yinghe, believes that many Chinese men believe they are still living in imperial times.
"I think many Chinese men have an emperor's complex," she says. 

"Being an emperor means you can have many women. This is something they are proud of. They see women as trophies of their success."
Little wonder then that the ruling Communist Party is now trying to stop its pillow talk becoming public.
In May, the People's Daily newspaper -- the mouthpiece of the party -- ran an editorial saying that the country cannot count on mistresses to expose corruption.
"Some [mistresses] directly solicit bribes or seek huge illegal profits," it said. 

"To pin anti-corruption hopes on them is to go in for evil attacking evil."
In recent weeks, authorities have also introduced tougher measures to control the internet -- where many of the revelations have emerged. 

It is clear that the party wants to draw a veil over its most intimate secrets.

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