CHINA – POLITICS

1. British pharmaceutical company GSK accused of bribery

   • GSK accused by the Chinese government of bribery, funneling nearly three billion yuan in kickbacks to doctors and hospitals. While CEO said much of the investigation was targeted at senior Chinese executives, at least 20 people have been detained, including at least two foreign citizens.
   • Xinhua hints more foreign companies might be implicated in a wider effort to crack down on the industry: it is “not be surprising if more pharmaceutical companies and hospitals, domestic or international, are involved in probes in the days to come” Another foreign drug firm AstraZeneca was also probed.
   • GSK saleswoman told state media: company’s corrupt activities in China were nationwide and systemic, not an isolated case of a few bad apples as portrayed by CEO.
   • Globe and Mail highlights the complexity: “While the central government plans to boost healthcare spending, local governments will be under pressure to contain costs as the economy slows, and revenue from land sales falls. Deep-pocketed foreign multinationals, who cannot afford to pull out of China, could make easy pickings…Still, China needs big pharma too. Its population is aging, and moving to urban areas. Its demand for treatment for chronic illnesses will only grow. The government has pumped an estimated US$160-billion into developing a domestic pharmaceutical industry, but it needs foreign firms’ know-how and investment too. For now, both sides need each other.”
   • Reuters: dysfunctional policies and doctors’ low salaries lead to a systemic reliance on bribery that may prove difficult to quash.
   • Council on Foreign Relations explains the bribery dynamics: “heavy-handed measures shrank profit margins for foreign drug makers, and, in conjunction with strong competitive pressures from domestic Chinese drug makers, forced local executives of multinational pharmaceuticals to act more aggressively in marketing their products. […] The problem is that government power has permeated almost every aspect of the approval, manufacture, pricing, and marketing of a pharmaceutical product, and, in absence of transparency, foreign firms find it hard to do business without bending rules and bribing healthcare providers and government officials in China.”

2. Jiang Zemin’s blessings for Xi – still a kingmaker? Or losing his colors?

   • Jiang’s “family-style banquet” with Kissinger on July 3 was publicized on July 23 just as party leaders are set to meet in Beidaihe. Jiang praises Xi as a 「非常能幹、有智慧的國家領導人」and said that 「像中國這樣一個擁有13億人口的大國，需要有一位強有力的領導人」. Report quoted Jiang as saying he had spoken to Xi about his meeting with Kissenger, perhaps a signal he was in close contact with Xi? The news, normally reported by Xinhua News Agency, was instead reported by the Ministry of Foreign Affairs official site.
   • Some believe that this is a sign that Jiang was making an effort to solidify Xi’s power. SCMP Wang Xiangwei: “Jiang still wields considerable influence as a kingmaker…[and] Jiang clearly wants to be seen as fully supportive of Xi, who faces pressure from the party’s left, right and centre…Hardly a coincidence [this] came just days before the government announced its indictment of Bo”.
   • But others (Steve Tsang) think that it was merely a reassertion of power; some others push further (WSJ) to argue that Jiang was trying to protect his own allies in the corruption crackdown.

3. Xi calls for Maoist indoctrination while emphasize broad market reforms

   • This year marks Mao’s 120^th Xi said during a visit to Mao’s residence in Wuhan on 21/7: “”[W]e must turn Chairman Mao’s old residence into a base for patriotism and revolutionary education, in particular to make it play a greater role in the education of the younger generation.”
   • Xi also told local government and business leaders to “spare no effort to seize the chance to deepen reform in important areas. He also called for “greater political courage and wisdom”.
   • Global Times: ‘China must deepen reforms in major areas with “ever more political courage and wisdom” to surmount the institutional barriers that are restraining growth, President Xi Jinping has stressed… “China must break the barriers from entrenched interest groupsto further free up social productivity and invigorate creativity,” Xi urged.’
   • Political affairs analyst Zhang Lifan said the seemingly contradictory stance was to please both reformists and conservative camps as Xi still lacks authority.
   • Xi mentioned rural land reform, but he indicated there would be no departure from the collective land ownership system currently in place.
   • Annual secretive gather of top leaders at Beidaihe at the end of July to draw consensus on the extent of political and economic reforms, and probably also to discuss the fate of Bo Xilai.

4. Bo Xilai charged for corruption and power abuse

   • Bo official indicted on 25/7 and his trial is set to open as early as next month. Clearing speculation before Beidaihe?
   • Xinhua: “Bo, as a civil servant, took the advantage of his position to seek profits for others and accepted an “extremely large amount” of money and properties, said the indictment paper. He also embezzled a huge amount of public money and abused his power, seriously harming the interests of the state and people.”
   • Mainland narratives on Bo’s case to serve different ends:
     1. Xinhua 张月生: 公诉薄熙来是对法治的彰扬
     2. Global Times 26/7: 审判薄熙来是依法治国的清晰重申…薄熙来案再次证明中国执政者和全社会打击贪腐的强大决心。这种决心一方面来自执政者的政治自觉，一方面是法治社会越来越不被动摇的惯性选择  Rule of Law
     3. Xinhua 华玉阳：薄熙来案提起公诉更体现了中央“打老虎”的决心…as Xi said his govt would be fighting against both “tigers” and “flies” (lower level cadres)  Anti-corruption drive
     4. Xinhua 王祥：中国的历史经验反复证明，只有维护中央的权威才能保证国家的长治久安。中央对于任何一个地方的政策制定、人事更换，都是从整个国家的角度出发，都是以国家利益为前提的；也许这会涉及到某些地方的利益，但小局要服从大局，唯有这样，才有利于国家的改革发展稳定大局  Anti-localism

• • SCMP: State media has tread a fine line between supporting popular, leftist policies Bo implemented in Chongqing and condemning his personal actions, quoting People’s Daily “The party’s central leadership has separated Bo Xilai’s personal issues from the development of the whole of Chongqing”.
  • Political affairs analyst Zhang Lifan: trial indicated the party leadership had reached a consensus over the handling of his case and had possibly reached an agreement with Bo himself. Others are less certain about to what extent a consensus was reached. Widely expected that Bo will not be given the death penalty.

5. New Rectification Campaign (zhengfeng 整风) of the “Ruling Party”

   • Xinhua: year-long campaign will be a “thorough cleanup” of undesirable work styles such as formalism, bureaucratism, hedonism and extravagance + mass line
   • Xi: CPC members should be “watching from the mirror, grooming oneself, taking a bath and seeking remedies.”
   • South Reviews July 3 issue special topic (propaganda?): anti-graft and anti-corruption campaign…describe as the “breakthrough of intra-party reform”
   • In an attempt to press for more frugality, China imposes a five-year ban on building of government offices. See 《关于党政机关停止新建楼堂馆所和清理办公用房的通知》. But analysts said this isn’t the first time.

6. Disabled protester Ji Zhongxing blew himself up in Beijing airport

   • Desperate protest after 8 years chasing adequate compensation for an alleged beating in 2005 by Dongguan police, leaving Ji paralyzed
   • Causes widespread attention… the detonation video was viewed 2.6 million times online; public opinion condemns the violence but voiced sympathy in light of his desperation and his unwillingness to hurt others; Caixin reporter Luo Jieqi: “siding with a man who commits a terrifying act is normal when you hear so many stories of people so wronged they lack the will to live.”
   • Ji faces at least three years in prison but widespread public sympathy calls prompted a reinvestigation of his case
   • Airport tightens security measures, preventing copycats – which had already started. Activist singer Wu Hongfei detained for online comments, which came as party of the wave of online support, saying that she wanted to blow up a government agency seen as inept. She was charged with spreading “terrorism information”.

7. Civil rights activists detained in a row – prelude to Beidaihe meeting?

   • Weiquan lawyer Xu Zhiyong detained on July 16; An open “protest letter” signed today by more than thousands of Chinese citizens — including well-known journalists, lawyers, academics and businesspeople — called on Chinese authorities for his release
   • Activist Teng Biao and Hu Jia were detained on July 25, but was soon released.

CHINA – DIPLOMACY

1. Vice-president Li Yuanchao visited North Korea on 26/7

• Attend the 60^th anniversary of the end of Korean War. Li said: “作为朝鲜半岛近邻，中方坚持实现半岛无核化，坚持维护半岛和平稳定，坚持通过对话协商解决有关问题。中方愿与有关各方一道，推动重启六方会谈，致力于推进半岛无核化进程，实现半岛和平和东北亚的长治久安”
• Fudan expert said the visit was “because of all the new problems that have impacted the relationship between the two countries,” said Cai Jian, an expert on North Korea at Fudan University in Shanghai”.
• Last visit when a similarly high-ranking official visited Pyongyang was Zhou Yongkang in October 2010.

CHINA – ECONOMY

1. Fear of economic slowdown

• Chinese growth slowed to 7.5% in the 2^nd quarter, and is expected to weaken further over the rest of the year. Actual growth (using the so-called Li Keqiang index – electricity consumption, rail cargo volume, and bank lending numbers) may be worse. Overall 2013 growth may go down to around 7%.
• Economist: Strengthening RMB resulted in export weakness. Still too reliant on investment and an unsustainable surge in credit. Services grow faster than industry. Manufacturing sector contracting. Credit slowed and shadow banking shrank. “China’s prospects for the rest of 2013 depend on whether the new leadership feels obliged to meet its growth target.”
• Provincial government bad debt – a time bomb?
  • Industry have estimated local government debt to be 15%-36% of the country’s output, or as much as $3 trillion. Jiangsu is probably the highest in China. Central government maintains around 14% debt level.
  • National Audit Office declared on Sunday that, acting on orders of the State Council, it will start a nationwide assessment of local government liabilities,
  • NAO published a report last month detailing an increase in borrowings at local governments since 2010, much of which can be attributed to spending on infrastructure and other development projects to drive growth
  • WSJ: In the wake of slowdown, “[o]ne option for the government to prevent a sharper slide is to ratchet up public spending. But high debt means there is a limit to the government’s ability to act.”
  • HKEJ: Rumors said the central government decide to control debt/GDP under 3% (see newspaper cutting)
• China Banking Regulatory Commission tries to minimize the risk of shadow banking
  • One of its recent policies required banks to watch for risks stemming from five areas: small-loan companies, pawn shops, loan guarantee institutions, private lending and illegal fund
• Pei Minxin: “In all likelihood, the most important factor determining Beijing’s response to a slowing economy is the level of confidence and security of its top leaders. Typically, less confident and secure leaders tend to respond with panic whenever the economy shows signs of weakness, as we saw in 2008-2009. More confident and secure leaders are more likely to show a greater tolerance of subpar growth.”
• Likonomics to the rescue?
  • Vows to change the mix of growth while reinstating the importance of pace (steady growth)
  • Mini-stimulus: a series of targeted reforms to reduce the power of the government and give SME more space to operate.
    • (1) Temporarily scraps taxes for smaller companies, (2) slashes red tape for exporters and (3) lines up funds for the construction of railways.
    • “This restraint looks right. …[It] bypasses government, putting cash straight into the pockets of entrepreneurs.”
  • Central bank scrapped the floor on lending rates, freeing banks to issue loans as cheaply as they wished. Observers see the move as largely symbolic. Policy makers stopped short of removing the ceiling on deposit rates

CHINA – SOCIETY

1. Watermelon vendor’s death sparks fury at chengguan (城管)

• A 56-year-old watermelon vendor died during a confrontation with chengguan in Hunan, triggering furious reactions against these urban management officials and causing thousands to take to the street in order to keep the dead body from being taken away by police; local officials detained six chengguan who had been involved.
• A day before the incident China Daily wrote: “Perhaps this is the result of the violent and at times brutal law enforcement methods of chengguan and people’s sympathy with the underprivileged group of vendors…Let us accept the fact that a city cannot be properly managed without chengguan. But we have to decide what kind of chengguan a city needs. It will help if chengguan are more human in how they deal with street vendors. “
• People’s Daily Editorial: 城管暴力执法的根本原因在于城管责任和权力的不匹配。责任过重，权力有限，城市不管不行，管，又没有足够的执法权。权威性不足，手段也有限，这就给暴力留下了空间…问题的最终解决，还是要靠法治

HONG KONG – POLITICS

1. Catholic Church presses for a concrete roadmap of universal suffrage, implying that they might support Occupy Central which they saw as “civil disobedience”

• 天主教香港教區發出這項緊急呼籲，期望特區政府展開正式諮詢，聯同全體市民，羣策羣力，透過誠意交談和有承擔的行動，使香港能建立真正民主、公平和問責的政制，作為維護公義與和平的必要條件。
• 於二零一七年，讓市民以普選(一人一票)直接選出特區行政長官。2. 廢除功能組別，最遲於二零二零年，讓市民以普選(一人一票) 直接選出立法會全體議員。3. 全體區議會議員，由各區市民，以一人一票選出。4. 透過真正民主的機制和程序來提名特區行政長官候選人，以促進市民運用選舉政府首長的權利，並藉此圓滿地落實普選原則

2. Centaline and AM730 owner Sze Wingching 施永青‘s car was ambushed this morning

• Next Media chief Jimmy Lai’s house was attacked weeks ago
• iSunAffairs chief Chen Ping beaten up months ago, after which the magazine was suspended

PUBLICATION HIGHLIGHTS

1. China Quarterly (Volume 214, June 2013): Special Section on Dying for Development

• Yanhua Deng and Guobin Yang, Pollution and Protest in China: Environmental Mobilization in Context
• Jakob A. Klein, Everyday Approaches to Food Safety in Kunming

2. Wen-Hsuan Tsai and Peng-Hsiang Kao, “Secret Codes of Political Propaganda: The Unknown System of Writing Teams”, The China Quarterly, Volume 214, June 2013, pp 394-410

• The authors have collated the names of over 20 writing teams in China which often make use of pseudonyms in the form of a person’s name to propagate the policies or perspectives of a particular unit by publishing feature articles in Party journals.

3. Orville Schell and John Delury, Wealth and Power: China’s Long March to the Twenty-first Century, Random House, 2013

Book description: “Through a series of lively and absorbing portraits of iconic modern Chinese leaders and thinkers, two of today’s foremost specialists on China provide a panoramic narrative of this country’s rise to pre-eminence that is at once analytical and personal. How did a nation, after a long and painful period of dynastic decline, intellectual upheaval, foreign occupation, civil war, and revolution, manage to burst forth onto the world stage with such an impressive run of hyperdevelopment and wealth creation—culminating in the extraordinary dynamism of China today?”