Editorials

Literally the “Religion of the Lord of Heaven” there are estimated to be some 12 million practicing Catholics currently in China.  Of which some 5 million belong to the official Catholic Patriotic Association, having some 70 Bishops in around 6,000 churches nationwide.

There are many villages throughout China where Catholicism has been deeply rooted, some since the first Missionaries during the Yuan Dynasty, their practices being strongly identified with the Jesuits. Patricia Calvo ventured to one such village near Xiàn in Shaanxi.

All Images © Patricia Calvo 2013

When Jiang Jieshi, otherwise known as Chiang Kai-Shek  set up Chongqing as the capital for his Republic of China, he could not have envisioned the journey that the city would take. 

Achieving the status of a municipality in 1997 as part of the Chinese government’s attempt to speed up economic development in the central and western regions, Chongqing is now one of China’s five ‘National Central Cities’, along with Shanghai, Tianjin, Beijing and Guangzhou. The municipality has a population of 32.8 million although it is actually estimated that the number of actual urban residents stands at about six or seven million.

By all accounts, this economic initiative has been a success. Chongqing plays a central role in the the military, iron and steel industries, with heavy industry accounting for 71.5% of Chonqing’s gross industrial output. It is one of the countries three largest aluminium producers, and is home to Asia’s largest aluminium plant, South West Aluminium. Within these heavy industries, transport equipment takes the lion’s share at 29.3% of gross industrial output. Chongqing is the third largest centre for motor vehicle production, and the country’s largest producer of motorcycles. Car and motorbike manufacturers in Chongqing include Changan Automotive Corp, Lifan Hongda Enterprise and the Ford Motor Company.

The consumer market in Chongqing is also booming, as disposable income increases along with the industry. Total retail sales increased by 18.7% in 2011, standing at RMB 348.8 billion.Logistics has  developed to keep up with ever increasing demand. The imposing and controversial Three Gorges Dam has the potential to provide up to 22,500 MW of electricity. It also increases the shipping capability of the Yangtze river, making shipping from Chongqing to Shanghai quicker, cheaper and safer. Work has also begun on the Shanghai-Wuhan-Chengdu High-Speed Railway, which will connect Chongqing to a 2,078km east-west high-speed railway line.

Chongqing is also leaning towards the electronics and information industries. Foxconn have a manufacturing base there, as do Hewlett-Packard Co. Several new development zones such as the Chongqing New North Zone will hopefully provide an industry hub. Indeed, the Chongqing local government hopes that high technology manufacturing will eventually account for a quarter of all its exports. 

So, Chongqing sees a bright future ahead. It aims to become a major oil hub, processing crude oil from Burma, the Middle East and Africa and transporting it across China. At the same time, the city also promotes green industries: large companies such as Suntech are already important operators, and the city authorities are actively encouraging more green start-ups.Naturally, there are caveats. The last decade in Chongqing’s history has also been marked by corruption scandals, environmental problems and social inequality. However, Chongqing hopes to move past this and become a model of urban development for the rest of China to follow.

All Photographs © Patricia Calvo

An unprecedented opportunity.

China’s biggest social networks can be incredibly fertile ground for successful marketing to China’s growing consumer base. One aspect of social-media usage in China stands out compared with that of other countries: it has a greater influence on purchasing decisions for consumers in China than for those anywhere else in the world. Chinese consumers say they are more likely to consider buying a product if they see it discussed positively on a social-media site, and more likely to actually purchase a product or service if a friend or acquaintance recommends it on a social-media site. This is explained by a cultural twist where: Chinese consumers disproportionately value peer-to-peer recommendations, as the Chinese are more skeptical of formal institutions.

Sina Weibo – the most significant of China’s diverse archipelago of social networking hubs – boasts 368 million active users, predominately in their twenties and early thirties, are higher income earners (more than 8,000 renminbi (about $1,300) a month), are much more likely to live in Tier 1 cities, and who buy 54% of China’s goods and services. Furthermore 140 characters in Chinese is able to express a lot more than in a western language, Weibo has also pioneered the inclusion of video and photographic images in their posts. The facts are clear: Weibo presents a huge opportunity to market to China’s most influential consumer segment.

But how do Western companies succeed at Weibo marketing? Here we look at several case studies of social media success, from well-constructed marketing campaigns to simple re-posts that have echoed through the online masses.

1) The Masterstroke: Dove Chocolate and Valentine’s Day

Dove Chocolate, a subsidiary of American confectionary company Mars, scored a flashy online marketing coup with its viral campaign on Valentine’s Day, 2012.  Dove engaged the savvy marketers at SapientNitro, a Shanghai-based agency, who came up with a way to promote Dove chocolate without any external costs.

To attract users’ attention, SapientNitro used the story of installation artist Ma Jin, who wanted to build a life-size fantasy carriage out of Dove’s distinctive heart-shaped tins. In a concise but heartfelt webcam video, Ma explained his plan to surprise his sweetheart with his home-made gift made from chocolate boxes, and asks fellow users to send him their empty boxes to help him complete his project.

SapientNitro’s idea paid off big time. The simple video engaged users’ emotions, and asked them to engage with the consumer product, but in an elegant twist, didn’t specifically suggest buying anything. With its simplicity, emotional appeal, and heartfelt call for users’ participation, the video was loaded with viral potential. As noted on techinasia.ca, the resulting statistics proved SapientNitro’s social media brilliance: the video was reposted 47,000 times, and attracted 34,000 comments. In the end, sales of Dove’s Valentine’s Day product increased 226%.

2) The Timely Post: Durex Condoms and the Beijing floods

Sometimes companies hire cutting-edge agencies to handle their Weibo marketing. Other times, users give out brand image-building content for free. So it was with one popular Weibo user, who regularly produces humorous content for his 8,000 followers, during the large-scale flooding that Beijing experienced in 2011. The Weibo user demonstrated an unorthodox use of condoms, stretching them over his sneakers to make for an impermeable layer that protected his feet from the floodwaters.

Durex had some quick-thinking Weibo guru, who, two minutes after the user published his original content, re-posted on the condom manufacturer`s weibo account to its 100,000 followers, and interacted with them live as they replied.

Durex’s move, a costless repost that relied only on social media vigilance and timely action, resulted in a further 40,000 reposts and 7,000 comments. As a major natural event that caused more annoyance than destruction, the floods were a perfect example of a hot trending topic where smart marketers can jump in to remind users of a product with a humorous or playful post.

3) The Official Online Campaign: Coca Cola’s Customized Bottles

Coca Cola launched its most recent global advertising campaign earlier this year in Europe, where it sells bottles with names common in each major European country to boost sales. In China, Coke has also altered its labels for the promotion, but put short phrases like “beautiful girl” on the bottles, rather than common names.

Online, however, Coke recently took the customization one step further, and allowed users to order personally customized bottles online through Weibo Wallet, Sina’s nascent social media payment service. To sweeten the deal, Coke charged users only the shipping fees, 20 Yuan, to support its 5-day promotion. Coke also posted pictures of celebrities holding their personalized bottles, and buyers followed suit, posting pictures of themselves holding their personalized bottles to share with their friends and Weibo followers.

Methodical, logical, and successful, Coke’s flashy and expensive approach to Weibo marketing suits the stature of the multinational beverage corporation, and is conducted in harmony with advertising in other forms of media. With the combination of depicting celebrities holding personalized Cokes and enabling consumers to obtain them at a reasonable price, Coke generated significant Weibo buzz in the form of thousands of personalized images that reinforce the popularity of the brand and its status as a drink of choice for young people. Although it invested more in its marketing push, and sold hundreds of thousands of personalized bottles at a loss, Coke will definitely reap the benefit of such a unique online campaign.

A Question of Interactivity

Outside of campaigns and special events, brands fare best on Weibo when they integrate customer service into their social media platform. Retail and household products brands from Burberry to IKEA have made this important move, responding to customer’s inquiries and problems directly. This helps reinforce the image of a foreign brand that is both responsible when it comes to its products, and engaged in local Chinese consumers. Combined with regular commenting and posting, this strategy helps to cultivate an image of a company as a lively and responsive organization.

Above all, the key feature of these three very different examples of marketing on Weibo is the ability to create and develop a conversation. Companies that are able to synchronize their online marketing with the conversational nature of social media succeed on Weibo, while those that aren’t able to provide conversation-provoking content are left behind.

In the case of Coke’s campaign, the conversation was about the product itself, the excitement of having a personalized version of such a ubiquitous mass-produced article. For Dove and for Durex, the conversations were already going on, but both companies managed to spin trending topics (Valentine’s Day and the 2011 floods) in the direction of their products. And while Coke’s campaign was certainly a success, brands with far more limited advertising budgets can still make a huge impact on Weibo by harnessing the creativity of China’s new net-savvy young agencies.

Fake designer handbags, expertly copied Old Master paintings, and even fake real-life versions of Paris and other European cities: China is undoubtedly home to some of the world’s most skilled and prolific plagiarists. Much ink (and many pixels) has been spent in Western magazines and blogs to analyze China’s culture of copying: is it a deep-seated cultural preference, a product of lacklustre intellectual property laws, or has it sprung up for some other reason?

Either way, it’s easy for commentators to overlook the innovation occurring in the Chinese business world today, especially in the nation’s internet and tech start-ups, many of which are based in Beijing. As China’s economy matures, and the demand of its vast population for locally produced goods grows, expect to see more new ideas from the nation’s entrepreneurs to arise. Ideas that will serve local demand but could ultimately prove disruptive on the global stage.

In this editorial, China Brain will introduce three disruptive innovators with world-class visions. Operating in the worlds of social media, cell phones, and e-commerce, these three leaders represent the cutting edge of Chinese entrepreneurialism that is ready to compete with the world. They are three people we expect to become household names inside and outside of China in the near future.

Bo Yang – Douban

In many ways Bo Yang, commonly known by his Weibo moniker Ah Bei, is a hero amongst Chinese youth. He is the inventor and founder of Douban, a site which combines all the functions of a social media platform, IMDB, a MySpace-style music sample source, a gig and event guide, a radio station, an RSS feed, and a comprehensive discussion forum. Its vast arc of content has attracted more than 62 million registered users, and its enormous popularity, especially with China's intellectually and alternatively minded, is unparalleled in the world.

It is principally a site for the sharing of thoughts and interests, but unlike Twitter does not restrict its users to 140 characters to express themselves. Douban allows for lengthy discussions on the poetic works of Borges, the post-modernism of contemporary Japanese anime, the politics of modern art and many other specialist and esoteric topics. Its reputation for these kinds of discussions, however, has brought it into some censorship confrontations with the government. After a series of touchy discussions, a ban on that most sensitive of topics, Tiananmen 1989, has now been thoroughly enforced.

The site is also good business, for more than just Bo Yang. The books, films and music talked about are all linked to external shopping websites. For example, Douban is now the top affiliate of Amazon China, Dangdang and a handful of other book retailers. Douban users spend a total of RMB200million on books every year.

Lei Jun – XiaoMi

Lei Jun, is the 43 year old founder and current CEO of XiaoMi, a company which produces fashionable and reliable alternatives to iPhones and Samsung Galaxies, at lower prices. The company began as an internet start-up back in 2010 and has grown exponentially since the release of its first Android-based smart phone in September 2011. In the first half of this year alone, XiaoMi have sold 7.03million handsets, worth a total of US$2.16billion, and are on target to more than double 2012's total sales and profits.

Also the Chairman of Kingsoft software company, with a stake of US$300million, Lei Jun is a self-styled Chinese Steve Jobs, even down to the black shirt and jeans he regularly dons for press conferences and launch parties He has drawn some criticism from the Western media for this behaviour with some viewing his success based on a shameless like-for-like imitation of the world’s most successful innovator. More of this criticism may be flooding the media again soon as XiaoMi are set to release their first tablet device later this month, rumoured to be priced at just RMB999 (US$163).

But the company's model of high-power, high-tech phones at affordable prices is certainly a popular one. The company has already spread to Taiwan and is now targeting the technology-saturated Hong Kong market. Other potential markets are those of South East Asia, India and perhaps certain African countries. In these emerging markets, low cost, high-tech smart phones and tablets have the potential to 'leapfrog' the need for personal computers. In fact, this process has already occurred in many places within China.

By offering quality products at a lower price point, Lei Jun is already a towering success story within Mainland China. Both his and XiaoMi's reputation, despite the criticism of, in the New York Times' words, “aping” Apple's success, may soon reach the global stage. His is a name to look out for.

Alan Guo – LightInTheBox

The third entry on our list is perhaps the most startlingly innovative e-commerce founder based in China. In an interview with Silicon Valley blog PandoDaily, Guo described his business LightInTheBox as “cell-based, flash manufacturing.” Basically, Guo and his colleagues are harnessing China’s inexpensive and adaptive manufacturers to the global consumer market – and they’re doing so directly, cutting out the middle man- the traditional retailers.

High-end garments such as wedding gowns are one area where LightInTheBox has a particular edge. The company can deliver an individually tailored product in less than a month for less than 250$ U.S. The key innovation is on the factory floor: rather than producing the same design for weeks, workers are divided into smaller teams equipped with computer screens that tell them which design they are meant to be working on, allowing factories to maintain a portfolio of wedding dresses for LightInTheBox and to produce models in particular measurements on the fly.

By tweaking the traditional Henry Ford-developed factory model, Guo is helping to adapt large-scale manufacturing processes for the individualized consumption of e-consumers. A veteran of Google and Microsoft’s Asian arms, Guo has spent most of his adult years in the U.S., and holds a PhD from Stanford. Bringing his experience of working in top-notch U.S. tech companies has granted him an edge in developing an idea that could only have been born in China. 

Buying personally tailored products on the internet isn’t new, but reorganizing garment manufacturing, especially in the world’s clothing production powerhouse is. Apparel will be the leading driver of growth in e-commerce over the next several years, according to a study published last year by digital media market analysis firm eMarketer. LightInTheBox appears well-positioned for future growth with both a successful strategy to attract consumers and a unique manufacturing process that is specific to China.

The burgeoning prospects of these three entrepreneurs show that the future is bright for those individuals with new ideas and an ability to provide what the new consumer class in China wants. Successful Chinese companies and start-ups are no longer just copycats. There is genuine innovation emerging, and much of it merits exposure to the markets outside of China. There is a new generation graduating from China's elite universities as we speak. This is a generation thoroughly saturated in technology, in the logic of the free market and with truly international outlooks. China Brain's further prediction, then, is that there is a whole generation of innovative business leaders waiting to fill the shoes of Bo Yang, Lei Jun, Alan Guo, and others. What will that generation promise China and the world?

In January, an anonymous individual contacted U.K. pharmaceutical company GlaxoSmithKline’s senior executives to notify them of systemic abuses in the company’s Chinese operations. In mid-June, Chinese authorities officially accused Glaxo of bribing doctors to sell more of the company’s medicine. The company responded by launching an internal review, along with a promise to fully cooperate with the authorities. A month later, Chinese authorities had apprehended ten individuals in connection with the scandal, and GlaxoSmithKline International president Abbas Hossain admitted that “certain senior executives of GSK China [...] appear to have acted outside our processes and controls which breaches Chinese law.”

The story stands out for a few reasons. It’s an unsurprising illustration of how vulnerable China’s health system is to corruption. It is also an example of how serious the Xi administration appears to be about enforcing good corporate governance and fighting corruption, and of the risks for multinationals of expanding into China’s domestic market.

According to Chinese authorities, Glaxo is responsible for spending three billion CNY (about $500m USD) over the past three years on bribes to encourage doctors and hospital administrators to sell more Glaxo-made drugs to patients. Often, the incentives were funneled through travel agencies, who would send doctors on international trips and provide them with luxuries. Other times payments were made in cash, and at least one Glaxo employee allegedly entered doctors’ offices “to meet their sexual desires,” according to Xinhua, China’s state news service.

A crooked history

Three factors enabled the Glaxo scandal. Two of these are fairly specific to GlaxoSmithKline. First, the company has a history of greasing physician’s palms in order to raise sales. Despite being one of the world’s largest drug companies, Glaxo’s corporate reputation was sullied well before the most recent scandal. Last year, Glaxo was fined a record $3bn for bad practices in the United States, where the company offered psychiatrists incentives to prescribe the anti-depressant drug Paxil to children, despite the fact that at that time, Paxil was only approved for adult use by America’s Food and Drug Administration.

Second, the company’s profit goals in China were over-ambitious: one of Glaxo’s local Chinese sales representatives claimed that the company had set a goal of increasing sales in China by 30% over two years ­– a goal that may have been impossible to obtain without some backdoor dealings. The company invested in expanding its Chinese sales staff to over 4,000 employees, and saw profits rise an impressive 20% last year. While sales were increasing on paper, however, senior executives in the U.K. had little motivation to inquire too much into the activities of their Chinese employees and even if they had they may have been told that the issue was simply an example of the importance of guanxi, or the Chinese culture of personal connections, gifts, and favours that permeates the nation’s economy and politics. Often the line between business-as-usual and illegal backroom dealing can be ill-defined or seemingly nonexistent, especially between executives in Europe or America and their local Chinese managers.

Glaxo’s eventual fall made a mockery of the company’s own system of internal checks and balances. Mere days before Hossain’s admission of Glaxo’s guilt, the company claimed it had conducted its own investigation and “found no evidence of bribery or corruption of doctors.” The complete reversal shortly afterward was a moment of unprecedented humiliation, even for a company with a record of ignoring the law. That a multinational corporation could be so swiftly brought to its knees by the Chinese government is a stern and intentional warning from the Xi administration to those who would capitalize too readily on the often-chaotic conditions of China’s domestic markets.

China’s broken health system

The final factor in understanding why the Glaxo scandal happened is the vulnerability of China’s health system to bribery. Be it from large pharmaceutical companies or from individuals, the semi-private national health system relies on backdoor enticements and tainted money. Doctors and nurses simply aren’t paid enough, and hospitals are routinely underfunded. As a result, families of sick individuals often have to pay hongbao, or red gift envelopes full of cash, to ensure that their relatives receive adequate care.

Such conditions were ripe for abuse from GlaxoSmithKline’s opportunistic sales teams, who worked through many channels to encourage doctors to prescribe more Glaxo-brand drugs. For a well-trained but poorly paid Chinese doctor, an international trip, or a lump sum of cash were welcome lifestyle enhancements in return for the relatively low effort and risk of prescribing more Glaxo medicine.

A propaganda coup for the government

The decision of the Chinese government to act against Glaxo is likely motivated by a desire to make a strategic example of an international pharma company in China. A subsequent inquiry into other big pharma companies, including Roche and AstraZeneca, has led to the quiet cancellation of medical conferences in China. In particular, AZ was linked to the same Shanghai-based travel agency, and one of their employees taken into custody for questioning. It may be that rather than punishing the whole pack, the government has chosen to make an example of Glaxo as a warning to the others.

Both the state-run domestic press and international media organizations have followed the story of Glaxo’s wrongdoing with avid interest. The narrative has been almost entirely in favour of the Xi administration: a big international company is caught breaking the rules at the expense of China’s population.

Domestically, the new government polishes its image, both as an administration dedicated to improving the health care system, and as a defender of the Chinese people against avaricious foreigners. China’s population is ageing, and consuming growing amounts of Western medicines. The cost of pharmaceuticals seriously limits the access of average Chinese citizens to effective medical care, and breaking up GlaxoSmithKline’s scheme will deter other companies from doing similar things in the future, but will probably have little overall effect on the nation’s deficient health system.

Internationally, the narrative helps define Xi as a leader who is committed to fair, rules-based markets, reflected in a sternly worded Xinhua article that accused Glaxo of “disrupting market order.” It may damage investor confidence in the short term as Glaxo is put through the wringer for its kickback scheme, but it also may advertise the government’s commitment to make business in domestic markets more regulated and predictable.

At best, however, punishing Glaxo is a symbolic move. As some commentators have pointed out, the biggest corporate offenders in China are Chinese companies themselves. The “melamine-milk” scandal of 2008, when a toxic mineral in domestically produced baby milk poisoned hundreds of thousands of small children, stands out in recent memory as an example of China’s gross lack of responsible corporate governance. And while hospital administrators were jailed in a separate recent government inquiry into pharmaceutical kickbacks, the domestic suppliers of drugs involved appeared immune to punishment. But symbolic actions play an important role in China’s government, and hopefully the Xi administration will try to bring more of the domestic economy under the umbrella of consistent regulation.

A warning to multinationals

The Glaxo case illustrates the danger of reckless expansion in the Chinese domestic market. Even firms with better corporate reputations than GlaxoSmithKline should take heed: entering the Chinese market without watertight checks-and-balances and well-defined rules for dealing with guanxi and the local ‘cost of doing business’ may result in distasteful situations. As corruption specialist Peter J. Henning pointed out in the New York Times, the handling of white-collar crime in China is brutal compared to the kid-glove treatment that the U.K.’s Serious Fraud Office or the U.S. Justice Department uses in its investigations. Long periods of detainment or limited movement are routine, as a few of Glaxo’s American and British employees in China are now discovering. Companies who want to reap the rewards of expanding in China’s fertile domestic market would do well to take heed of Glaxo’s costly mistakes.

In comparison with their Western counterparts, China’s former leaders have tended to retain a far more significant influence over politics after their departure from office. With a culture that values the wisdom and experience of the elderly, and a political system in which decisions are made behind closed doors, there has been plenty of room for China’s ex-leaders to flex their political muscles long after their formal retirements.

In post-1978 China, Deng Xiaoping and Jiang Zemin have both exercised their roles as patrons, elder advisors, and kingmakers in Party politics after officially leaving office. Five out of the six new members of the Politburo Standing Committee (PSC), China’s ruling cabinet of ministers, including the President, are considered to be close to former President Jiang Zemin.

Jiang Zemin (President from 1989 to 2003, although subordinate to Deng Xiaoping until 1995) and Hu Jintao (President from 2003 to 2013) continued to lead China along the path of market-driven economic growth that was set by Deng Xiaoping (‘Paramount Leader’ from 1978 to 1995). Besides that, however, Jiang and Hu are political rivals associated with different factions of the Communist Party, and their administrations prioritized considerably different objectives. Conservative on political questions and neoliberal on economic ones, the emphasis of Jiang’s tenure in power was market-oriented economic reform within the strict bounds of the Party’s political leadership. The crowning achievement of Jiang’s administration was China’s entrance into the World Trade Organization in 2001.

The Hu/Wen administration rejected the Washington consensus and tried to focus on narrowing China’s yawning income gap, a goal that ultimately proved impossible for them. Hu also tried to foment intra-party democracy and develop formal decision-making processes for the CPC, an initiative that met with mixed success. Furthermore, despite the Premier’s lofty words, Hu maintained the political status quo of the post-1989 era, in which the Party’s control over society and politics remains unquestioned.

Today, each man is associated with a faction – Jiang with the politically conservative, elitist faction that includes most members of the current PSC, and Hu with a more populist group composed of cadres who rose up through the Communist Youth League, including current Premier Li Keqiang. The factions are characteristic of the post-Deng Xiaoping political environment, in which the Party is no longer subject to the will of a supreme leader like Deng or Mao, and is instead subject to the influence of many different elite cadres. Members of each faction are very loosely defined by background – the populist group is filled with cadres from poorer families who often held posts in the inland provinces, while the elitist faction is populated by those who grow up middle-class or wealthy, and who took positions in the coastal provinces. Although he now leads the elitist faction, Xi strove to be the compromise candidate during his rise through party ranks, guarding his opinions on critical issues and striving not to alienate the populists.

In recent National Congresses, there has been a general consensus that each faction should be well represented in the composition of the Politburo Standing Committee. Last November, however, six of the appointed PSC members are identified with Jiang’s elitist faction. The former leader, retired from office for the last nine years, appeared to have returned to the political scene as a kingmaker. Xi was long been considered Jiang’s protégé, and appeared eager to press on with the economic reform that many Party cadres felt stalled under Hu.

To many pundits, the defeat of the populist faction in November came at the expense of future reform. Two of the Party’s best and brightest reform-minded members of the populist faction, Wang Yang and Li Yuanchao, were not elevated to the Standing Committee, despite showing obvious talent and meeting the age requirements. Many observers reported that China seems burdened with a very conservative PSC for the next five years (at which point most PSC positions, save that of Xi and Li Keqiang, will be shuffled).

But then, in January of this year, came what many China watchers interpret as a gesture of deference from Jiang to the new leader, and a decision to step out of the limelight, Jiang’s name appeared at the end of a list of important dignitaries who visited a deceased general in a document of commemoration issued by the CPC. Normally, Jiang’s name would be placed third after that of Xi and Jiang’s successor, Hu. Such signs in China are always deliberate. What is unclear is whether Jiang chose to send such a signal, or if other powers, such as Xi or Hu, forced him to do so. Jiang was widely criticized for not giving up the Presidential powers fully in 2002, when he decided to remain Chairman of the Central Military Commission for an additional two years. Perhaps Hu’s swift and total handover of power to Xi, a reflection of his desire to see best practices institutionalized in the CPC, helped nudge Jiang into a full retirement.

Of course, it is also likely that Jiang himself, already at the ripe old age of 86 years old, had planned to install allies in the new PSC and then retire from politics permanently. Regardless, it seems that we will be unlikely to see Jiang directly influencing policy in Zhongnanhai, the elite Party compound in Beijing, in the years to come, as he did under Hu. For his own part, Hu was sidelined by his rival at the 13^th National Congress, and probably wouldn’t have had much appetite for further political meddling anyhow. So it seems that the tradition of hanging around after the end of one’s Presidential term is over with the most recent power transition.

That is better for Xi as a leader, and for China in general. Jiang’s new, ‘real’ retirement also bodes well for the future of political reform, as of all the recent Party elites, Jiang was most opposed to opening up China’s politics. While we know that Xi shares, in his own fashion, Jiang’s zeal for reforming China’s economy, we have little idea as yet how Xi will approach the political questions. So far, the administration has focused on taming corruption, a very necessary and non-partisan initiative, as part of its goal of bringing the party closer to the people.

But Xi has many years of rule ahead, and most of his fellow members of the PSC will be replaced in five years’ time. China needs some meaningful reform beyond merely punishing corrupt party members if it is truly to develop a more stable and sustainable economy and society. Moreover, while Hu failed in his goal of addressing the income gap, Xi can hardly afford to: China’s Gini coefficient (a measure of income inequality that ranges between 0 for perfect equality and 1 for total inequality) has risen to over 0.6. America’s Gini coefficient, still very high in global comparison, is under 0.5. A Gini coefficient of above 4.0 is often posited as a sign of future social unrest. Perhaps the fact that Jiang is not going to be around to exert his influence will allow the new President to focus on addressing these issues, rather than worrying about political intrigue.

In sports, China has distinguished itself on the global stage, taking advantage of a naturally vast talent pool with a large-scale state-sponsored training program that takes in children as young as five years old, and hones them into world-class Olympic athletes. Individual sports are where China does best in the medal standings, dominating the world in table tennis, shooting, diving, gymnastics, weightlifting, and badminton.



In ball team sports, however, China is not so successful on the international stage. Nowhere is this more obvious than football, the most popular sport both in China and the world at large. Currently, China’s men’s football team is 100th in the global FIFA ranking, having at best achieved 37th place some 17 years ago. The decrepitude of the team’s morale and performance was brought into a harsh light recently, as it lost 1-2 to Uzbekistan on June 6th, then 0-2 to Holland on the 11th, and, in the most heart-wrenching match for China fans, a dismal 1-5 against Thailand.

The Thai match was the catalyst for a new round of scrambling to rectify this persistent crack in China’s pride and national image. The Chinese Football Association (CFA) dutifully published a shame-faced press release, in which it said the Association “accepts this criticism from the masses and its leaders and will work hard to rectify [its problems].” The national team’s Spanish coach, Jose Antonio Camacho, was fired with a severance package of over 50 million yuan. For all of Camacho’s experience as a footballer and manager, including a successful tenure as manager of the Spanish national team, he presided over a rapid decline in the Chinese team’s already poor match performance. The team is now looking for another foreign coach as it continues to try to reverse-engineer football success. Camacho was not the first coach to be fired, either: America’s Fox News refers to the national coaching position as a “poisoned chalice.”

After the humiliating loss to the Thais, football pundits posed the basic and most baffling question about China’s poor performance: why does a football-loving country with the world’s largest talent pool fair so poorly in international competition? China has been trying to rectify the situation by importing help – Camacho is the seventh foreign coach – but so far, that hasn’t been sufficient to address the nation’s football problem. Dumping state money on the sport hasn’t produced the desired results yet, leading most to suggest that there is no easy answer: the problems that dog Chinese football are symptomatic of those that affect the nation at large.

Staying home to study

At the grassroots level, the main obstacle to developing a productive and successful football culture is the effect of the one-child policy, which sharpens Chinese parents’ already agonizing concern for their children’s success. A mere 200,000 children play on organized football teams at least three times per week in China, an astoundingly small number that is kept low by parental emphasis on academic success, which devalues organized sports as merely another distraction. While Chinese families share the school-first attitude with their counterparts in Japan and South Korea, youth football in these countries benefits from a more balanced view of what makes a successful child, a better-developed youth sports infrastructure (particularly outside of government Olympic training centers), and the absence of a one-child policy. In Seoul or Tokyo, a child is far more likely to become a professional player through regular sports associations, while in China, the only acceptable route to success through sport, in the eyes of parents, is provided by direct government sponsorship and support.

Football in the dock

But the most important factor in China’s football failure is the corruption that has infected the CFA. Unlike most countries’ national associations, the CFA wields deep influence over clubs and, illicitly, even the outcomes of football matches. On July 8th, former CFA vice-chairman Nan Yong stood on trial in Liaoning province on seventeen separate counts of bribery, for a total of nearly 1.5 million Yuan. Many other officials from the CFA, in addition to referees and players, have been on trial since last December, leading Caixin Online to comment that Chinese football itself “is in the dock.”

CFA-approved match fixing has become so prevalent that nearly all the referees in China’s Super League knew about it, according to Huang Junje, a referee now on trial for corruption. It has become an unmistakable reality for China’s fans, too, who even nicknamed one prominent referee “the Golden Whistle.” Huang also pointed out a telling difference in the professional culture of football in China, complaining that “in Japan and South Korea, football leagues have nothing to do with associations.”

Profit and political maneuvering are the distorting forces behind China’s football corruption. Investing in clubs is often unprofitable in China, at least on paper, but savvy businessmen know that they can use a team’s success or failure to their companies’ advantage. Deals between business leaders and local officials, especially concerning real estate, can include the win or loss of a football match as an unwritten clause. The graft extends beyond the national level, according to Nan, who admitted that he sold positions on China’s national team in 2002 for 100,000 Yuan apiece. Ironically, 2002 was the only time China has ever qualified for the World Cup finals.

As long as China’s national football teams are used as pawns in China’s political and economic power structure, where backroom deals between politicians and investors are the order of the day, the country’s leagues won’t be producing much of value for China’s national squad, and fans will continue to be disappointed by the poor performance that results from match fixing.

A false cure

            The steady trickle of European soccer stars into China is a predictably failed tactic in the struggle to improve the Super League. Most notably, former Chelsea star striker and captain of the Ivorian national team, Didier Drogba, left Shanghai Shenhua FC early in 2013 after serving just six months out of his two-year contract. Despite the generous terms of his contract (a reported 270,000£ per week), it’s hard not to feel bad for Drogba. At the start of his tenure last summer, Shenhua was languishing near the bottom of the Super League, suffering from conflict at the boardroom level, a mostly-mediocre side, and the detrimental antics of erratic billionaire owner Zhu Jun.

            Despite his awful soccer skills, Zhu is occasionally inclined to join the Shenhua squad on the pitch, as he did during a 2007 game against Liverpool F.C. His megalomaniacal management style, and his determination to use Shenhua as a pawn in his business deals seems to be his team’s undoing. Lately, Zhu’s modus operandi has been to attract foreign talent with promises of vast wages and then find ways of disposing of them while withholding most of their pay. It was no different for Drogba and Nicholas Anelka, another former Chelsea star at Shenhua, who walked out at the same time over unpaid wages and conflict with management.

Poor prospects

Xi Jinping, China’s President, is a “well-known football fan” according to Global times, and is interested in improving the country’s national team. But the ways China has attempted to fix the sport’s graft problem – cracking down on CFA officials who are, at the end of the day, merely caught up in the country’s larger power structure of capital and political power, and engaging foreign celebrity coaches and advisors – clearly won’t address the underlying issues. Is it possible for China to develop a successful, winning football culture without the political underpinnings of separation of powers, business regulation, and consistent rule of law? Depressingly, many fans seem be as pessimistic about the state of football as dissidents are about the pace of political reform. In the public preview of a new documentary in development about the national team, 11 in 1.3 Billion, the filmmaker asks football fans if China could ever win the World Cup. “Not in 50 years!” they shout in response, or “not in this century!”

Meanwhile, Chinese parents continue to prefer that their children spend the half-dozen hours per week during which they could be playing on an organized football team, on extra studying. Pity China’s long-suffering fans, because the combination of low participation among youth and persistent corruption makes a dim outlook for Chinese football.

China appears to have entered a period of economic slowdown, characterized by weakening growth in both the country’s services and manufacturing sectors. Last month, China's semi-official PMI -- a measure of the health of the manufacturing sector -- was 50.1, signalling that that industry as a whole is dangerously close to contracting. The production sub-index was 52, indicating output barely grew in June. At the same time banks were subjected a surprisingly severe credit crunch, as China’s new government, in office since March, seeks to assert itself economically by tightening the nation’s easy credit environment. Although the credit crunch exacerbated an already worsening economic picture, the national administration and central bank believe it will help foster more sustainable growth.

The slowdown is emblematic of the problems China is facing with its current economic model, which is unbalanced in favour of investment over private consumption, a fact that is finally being reflected in GDP growth. China’s target growth rate for this year is around 7.5%, lower than the actual growth rate experienced each year since 1999. Normally, the annual government target is a low-balled figure, a minimum that should be exceeded. In 2012, for example, the target growth rate was also set at 7.5%, but the actual growth rate ended up being 7.8%. This year, however, it remains unclear whether China will even manage to achieve its target, a possibility that has attracted the world’s concern. While America continues to enjoy moderate overall growth, and Europe struggles on through its own financial woes, China is now downshifting dramatically, having provided years of essential support to world growth following the global financial crisis.

Indeed, the very stimulus programs that allowed China to recover so quickly from the global recession also contributed to a reckless credit environment, inviting the government to intervene. Premier Li Keqiang, second-in-command to President Xi Jinping, and the one in charge of implementing government policy, wants to now teach the banking sector a lesson, so that financial restructuring can produce more sustainable long-term growth. In particular, the government has cracked down on shadow banking, or financial activity that is practiced outside of the regulatory environment, both by established banks and by non-bank financial services companies. Such practices can be beneficial by developing innovative new financial products, but the lack of regulation makes the shadow banking sector a breeding ground for reckless lending.

Source: NYT

China’s leaders are concerned that such risky practices are fomenting systemic risk, and that easy credit may lead to an American-style financial crisis. In the past, such lending has helped the government to match and exceed GDP targets by producing unsustainable goods, in particular excessive real estate. Most alarmingly, an increasing number of loans have gone towards paying off preexisting debts..

The shadow banking crackdown created a credit crunch in mid-June, a time when liquidity was low due to companies paying taxes, and customers withdrawing money in advance of the annual Dragon Boat Festival. It was a startling moment for those who follow China’s economy, as the seven-day repurchase rate for securities –a measure of the cost of lending in the interbank market– shot up to an incredible 25%. In more developed financial systems, such an indicator would be symptomatic of a severe system-wide shock, but in China, where liquidity is injected on a more ad hoc basis, it was more of a wake-up call than a panic alarm. The People’s Bank of China (PBOC) eventually relented, and released some liquidity to bring rates back down and revive interbank lending. But the message from Premier Li and the PBOC to China’s banks was clear: be more cautious about lending, or suffer the consequences.

China’s recent credit crunch is representative of Premier Li’s new conservative direction in financial policy, and for the most part, global investors have reacted with hesitant approval. British bank Barclay’s has hailed what they call the “three pillars of Likonomics:” avoiding stimulus, deleveraging, and structural reform. “We think that economists and policymakers have reached a consensus that China should now tolerate slower growth and focus on structural reforms,” wrote Barclay’s on June 3, estimating that with the necessary reform, China’s economy can continue growing at around 6% to 8% for the next decade.

Others are much more pessimistic about China’s longer-term economic picture. Michael Pettis, a professor of finance at Peking University and a Senior Associate at the Carnegie Endowment for Peace, is a well-known China skeptic. Famously, Pettis has forecast a comparatively abysmal average GDP growth rate of 3% for the country in the next decade, far below the 7% range forecast by the Xi/Li government and Barclay’s.

According to Pettis, China has become addicted to investment, which he believes is subject to the law of diminishing returns: the initial slew of investment drove GDP growth with projects of long-term viability, but over time, maintaining or increasing the same high rate of investment has created fewer and fewer sound proposals, so while nominal growth remains high, in reality, recent years of economic expansion have produced less and less real value for China.

On a real-world level, Pettis cites two major problems with China’s economic model. The first is its state-led western expansion, which relies on government infrastructure projects to lure China’s wealthier easterners into the nation’s central and western provinces. When infrastructure expansion slows, as it inevitably must to correct China’s investment addiction, provinces like Tibet, Guizhou and Shaanxi will see an economic contraction as the easterners find little reason to remain there. The second issue is China’s dramatic environmental degradation, which Pettis believes subtracts about 3.5% from China’s stated annual GDP growth, a figure that fails to take into account the health and economic effects of widespread pollution.

For Pettis, the best prescription for China’s economic ills is to increase household income, thus stimulating the domestic-consumption economy and allowing the investment rate to fall. China’s wages have not increased in line with its productivity over the last 20 years, a problem compounded by the low renminbi, which acts as a tax on imports. By allowing the currency to gain value and workers to earn more money, Pettis believes, China could successfully launch its economy into a new phase without suffering an economic crash.

The Rest of the World

The world’s financial institutions have significantly lowered their GDP growth expectations for China this year, a situation that is looking more and more threatening to slowly recovering America and the struggling E.U.. In this sense, the June credit crunch has been an important wake-up call to policymakers and companies in the West: China’s days of GDP growth over 10%, or even 7.5%, are over.

Whether or not Pettis’ 3% to 4% figure for annual growth is accurate, the fact that China needs to make some potentially painful reforms is indisputable. Premier Li has stressed the overall goal of reducing the state’s role in the Chinese economy, and Chinese policymakers have vowed to take action to boost domestic consumption, moving the country to a more sustainable development path that is less reliant on investment. In most of its reform efforts, the government will have to face down strong vested interests in the Party and in the business world that want to maintain the present environment of easy investment and credit.

If last month’s credit crunch is any indicator, given the choice between suffering the results of a necessary reform, and foregoing reform altogether, the Xi/Li administration seems comfortable with creating a bit of pain and discomfort. The Hu Jintao/Wen Jiabao government of 2002-2012 lacked this boldness, leading some to label those years as a “lost decade of reform.”

China’s new leaders will have to act with both quickly and cautiously as they make up for lost time while balancing the pace of reforms according to the country’s capacity for change. The lesson of the Perestroika-era Soviet Union – that hasty economic and political reform can destroy a nation’s political structure – is an ever-present warning to the Communist Party. But the country cannot afford another decade of hesitancy. And as far as investors are concerned, given the example of last month’s credit crunch, it seems likely that we can expect more economic shocks on the difficult road ahead.

The construction industry in China was valued at US$2.1 trillion in 2012; a staggering figure that hints at the huge scale of construction in China. Despite this, there is the common perception that as a result of corruption, poor and rushed construction and a tendency to cut corners, construction projects in China are dangerous, dirty and full of faults. Incidents such as the collapse of a multi-million dollar bridge in Harbin and the toppling of a newly completed residential building in Shanghai do little to improve perception of Chinese construction quality.  However, these highly publicized incidents aside, developments in the public and private sectors have already begun to change the construction industry, and things are set to change further.

Stumbling blocks

Several factors affect the quality of construction in China. Both the state and private sector face the twin problems of overreliance on migrant labour and corruption. The reliance on cheap, migrant labour means that there is a skill shortage and poor awareness of safety standards. This leads to a large number of workplace accidents, although the exact number is hard to ascertain. 

This is due to the high levels of corruption in the construction industry. Underhand practices include covertly reducing the quality of the building materials and pocketing the profit, or bribing safety inspectors to look the other way. Recent news that unprocessed sand was being used in concrete for several high-profile buildings in Shenzhen, including one which was set to become China’s tallest, is just one example of the tangible effects of corruption on building quality.

There is also a tendency in both sectors to contract work out, which is often then sub-contracted to another company. This chain can be several companies long, reducing efficiency and transparency and encouraging poor practice.For the construction of residential units, land use rights for residential purposes in China only extend to 70 years, meaning that the incentive to construct residential buildings which will last longer than that period of time is effectively gone. This results in a short-sighted attitude towards construction.

The Private Sector leads the way

However, the private sector has been improving as a result of market demands. In an increasingly crowded, competitive market with high demand, private sector companies have to rely on their reputation in order to attract business. Companies such as Soho China and Wanda stake their success on high-end, reliable construction projects that enhance their reputation. Wanda having assest worth over $40 Billion and an annual revenue of $22.2 Billion, operates 55 locations in China and is just starting it`s overseas expansion, with the first of 10 projects, starting in London, with a luxury hotel. Over the past few decades, Soho China has gone from strength to strength, and their current Soho Galaxy project is at the cutting edge of design and architecture not just in China, but worldwide. Companies tend to spend around 5% of their budget on marketing; they cannot afford to have their efforts undermined by poor construction.

The high demand has also increased the price of property and land, especially in major cities. The average price of newly built homes in China’s 70 largest cities increased by 5.3% over the last year, and a package of land in the Beijing suburb of Tongzhou recently sold for a staggering 1 billion RMB. With the high land prices and the subsequent prospect of large returns, developers and construction companies will feel more comfortable in spending money on assuring construction quality.

Market shifts aside, recent legislation which restricts the amount of times a single project can be sub-contracted and forbids companies from shortening the duration of construction unless they can prove that it is necessary will also have a positive impact on construction quality. 

State Owned Companies are trailing.

Although State Owed Companies are similarly driven by profit, they are somewhat shielded from changes in the market, meaning that they are slower than their private counterparts in improving construction quality. State Owned Companies are more liable to corruption and unscrupulous business practices, and therefore the quality of both infrastructure and real estate projects suffers. A notice sent out in 2010 by SASAC requiring companies whose main business is not real estate to withdraw from the real estate market has largely fallen on deaf ears. Indeed China Metallurgical Group set a new record for the highest price paid of a land plot in 2012 with a US$0.9 billion dollar deal.

Although little progress has been made in the real estate market, the rise of social media and public awareness has had a significant impact on state infrastructure projects. Beginning with the Sichuan earthquake in 2008 and finally the Wenchuan railway crash in 2011 a turning point has been reached- attempts at a cover-up were quickly exposed on platforms such as Weibo and several officials and workers have been brought to account over shoddy workmanship in various projects. Although the state sector is experiencing a slower transformation, things are improving.

Private companies are leading the way in terms of quality, with the state sector following. Better buildings will improve China’s tarnished reputation, both domestically and abroad. Furthermore, as Chinese companies start to break ground in foreign markets with projects such as the US$8.3 billion Nigerian Railway Modernization Project, a reputation for quality construction will only help these companies expand. Whether these changes will stand the test of time remains to be seen.

Today marks 100 days since Xi Jinping assumed his full responsibilities as the President of the People's Republic of China. So we review how his new administration preformed in these key initial few months, what was enacted and what was encountered. The world's attention is increasingly turning to China and there is the possibility that the Xi period will mark the creation of, in the words of the European Council on Foreign Relations' Director Mark Leonard, “China 3.0”, the next China. If, as many have forecast, the 21st century is to be China's century, the Xi Jinping premiership will be of critical, foundational importance.     

 Foreign Visits and Visitors

Soon after assuming his position as president of the people's Republic of China, Xi Jinping went on a four-country international tour through Russia, Tanzania, South Africa and Congo-Brazzaville. The visits were about reiterating alliances and signing trade agreements, culminating in the BRICS talks. One big deal to emerge from the tour was the agreement to build a deep-water port on Tanzania's coast, adding one more 'pearl' to China's Indian Ocean string of sea ports.

Since this first week of international visits, it has been premier Li Keqiang who has been charged with most of the duties of foreign visits, most recently to India, with whom old border disputes have resurfaced, and Pakistan, the original 'all-weather' friend. At the same time, leaders of and representatives of the world's nation-states have been queuing up to meet and sign trade agreements with the new leadership. In the last 100 days Beijing's Great Hall of the People has witnessed, amongst other events, John Kerry's call for a “special relationship”, and the Icelandic and Swiss governments' signings of free trade agreements.

At the beginning of this month Xi Jinping resumed his global travels with a tour of the Caribbean, Mexico and North America, which included the recent 'shirt sleeves' meeting with Barack Obama in California. Few solid agreements came out of the two-day meeting, but the leaders of the world's two most powerful economies appeared to get on well—Obama described their meeting as “terrific”—and showed signs that cooperation, rather than competition, is the order of the day. The cooperative atmosphere was somewhat marred, however, by the Edward Snowdon revelations of US secret service hacking activities.

The sheer numbers of agreement signings, foreign visits and foreign hostings makes it clear that China is now widely seen as one of the biggest political and economic players in the world. The visits have also indicated the mutual importance of, in particular, the Sino-African relationship and given some glimpse of US-Chinese cooperation.

Japan and the Islands

Reflecting this global acknowledgement of its status, China's foreign policy has become more confidant and assertive. In particular, the stand off with Japan over the Diaoyu/Senkaku islands dominated Chinese foreign affairs during the first 100 days. Ever since the September 2012 purchase of the islands by the Japanese government from a private owner, the two countries—and, on a few occasions, Taiwan—have pushed themselves as close to conflict as bluffing will allow.

Prime Minister Shinzo Abe's visit to the Yasukuni Shrine for the deceased soldiers of the Meiji Dynasty, including those of WWII, further ramped up tensions between the two governments. Last month Li Keqiang used his visit to Potsdam as a stage to express China's version of modern East Asian history.

The heated rhetoric between the two governments is unlikely to abate. At the same time, however, it is unlikely to manifest itself as anything more than words. The two countries are highly economically interdependent and neither are as prepared for war as their posturing intends to show.

China is also locked in disputes with most of its South East Asian neighbours over the (resource rich) South China Sea islands. The Chinese government insists that, in accord to the 'Nine Dashed Line', the whole archipelago is PRC territory. It has the economic, political and military might to bully the SE Asian countries out of their claims, and is aided by the reluctance of the U.S and its allies to involve themselves too heavily in the dispute.

Korean peninsula Crisis

Just as Xi Jinping assumed full power in March the also recently anointed leader of neighbouring North Korea, Kim Jong-un, decided to ramp up tensions with Seoul. Being an old ally from international Socialist brethren days, it is hard for a Chinese leader to do anything other than express mild support for North Korea. Xi's chastising of governments who throw “a region and even the whole world into chaos for selfish gains” has, however, been understood as a masked reference to Pyongyang's actions. Thankfully for Xi, the situation on the Korean peninsula has quietened and the North Korean leadership appear to have swung to a new tactic of paying obeisance to, rather than testing, China. North Korea belatedly sent a representative, Choe Ryong-hae, to meet Xi Jinping in May. Xi will be hoping that the Korean peninsula's status quo ante holds.

Alternatively, a changed stance on North Korea, the world's number one rogue state, could radically boost China's position as a respectable member of the global community. Last week a White House spokesman commented that Obama and Xi had found much “alignment” on the North Korea issue. Could this signal the start of the melting of Cold War-era China-North Korean relations?

Crack Down on Corruption

It was in November 2012, when Xi Jinping assumed the position of Party Chair, that he announced his 'anti-graft' policy. Wide spread and endemic corruption in the Party is a widely known issue, particularly after the dramatic fall of Bo Xilai. Xi seized the opportunity to announce that wide spread corruption could “kill the party and ruin the country.” As early as December, a low level official, Li Chuncheng of Sichuan province, was ousted on corruption charges. Most recently, Liu Tienan, a more high profile figure, has been scheduled for trial.

For many businesses the anti-graft policy is, at least in the short term, a downside of Xi's first 100 days. China's most expensive and prestigious alcohol, Maotai, has seen sales drop by 23.8% in the first quarter of this year, whilst luxury Swiss watch companies have seen a similar fall in demand of 24%.

The question analysts are asking is whether this clamp down on corruption is for show, to oust certain rivals—as such campaigns have traditionally been used within the CCP—,or whether it will genuinely reorder the Party and the state. It is far too early to answer all these questions, but what is of interest is that 42% of corruption cases so far this year have been initiated by public complaints. These public tip-offs, however, are limited to the realm of local officials. High level officials will continue to remain sheltered from the public sphere. Local officials have already begun to complain of being unfairly stigmatised for party corruption. The tension between local and national officials will be something to watch over the coming decade. Indeed, the anti-graft campaign can be viewed as a running test of Xi's grip on power at the top of the CCP.

China Dream

Another means through which Xi Jinping is attempting to reconnect party and people is through the new rhetoric of the 'China Dream'. In a way its definition is still in flux. However, the party's vision of the dream does contain one strong current, that of national pride and a Chinese 'renaissance'. The Xi Jinping administration is defining its era as the one in which China will regain its former glory and rightful place as a major world power.

At the same time, the concept is being understood by many as relating to upward social mobility. “What is your China dream?” is a question now frequently asked on TV and radio shows, and is normally responded to in terms of individual or familial wealth, status and well being. 'The China Dream' has become the tag line for China's new aspirational society.

Lushan Earthquake

The Lushan Earthquake of April 20th presented a—unscheduled—set of challenges for Xi Jinping’s fresh premiership. The response to the earthquake, which resulted in 196 fatalities, was minutely scrutinized by both domestic and foreign commentators. The authorities, however, clearly learnt lessons from the disastrous handling of the tragic 2008 Sichuan earthquake. The local government quickly implemented an emergency response plan and thousands of PLA troops were sent to aid relief efforts. Prime Minister Li Keqiang also took the opportunity to bolster party-people relations by paying a goodwill visit and spending a night in a tent with those affected by the disaster.

Despite doubts about donating to the Chinese Red Cross after a series of scandals, domestic and foreign coverage of how China handled the disaster was generally positive in tone, and the Xi Jinping administration successfully managed to avoid the humanitarian disaster and political legitimacy crisis the earthquake could have caused.

Xinjiang

On April 24th, 21 people were reported dead following clashes between the Chinese authorities and the Uyghur ethnic minority in the western province of Xinjiang. Due to restrictions on journalists in the area, the precise events of the incident and the numbers of dead and injured remain unclear. The official account states that the incident occurred following resistance to a police search for illegal weapons in the houses of 'gang members'. Regardless of the circumstances, the conflict is a troubling indication of the unremitting ethnic tensions between Uyghurs and Han Chinese in China's far west.

Xi Jinping's call for stability in the region and the arrests of 19 suspects indicate that the local authorities will be following the tradition of using force to contain dissent. This works in the short term, but tensions remain, and the withdrawal of U.S troops from neighbouring Afghanistan in 2014 may well raise new, destabilising complications for the whole Central Asian region. Xi will undoubtedly be nervously following developments in this volatile border region. But with Xinjiang scheduled to be the wealthy oil and gas capital of China, it is also essential for the Xi leadership to initiate a less reactionary and more productive handling of such incidents.

Economic slowdown

Successfully taming China’s economy may be the greatest challenge for Xi Jinping’s administration, as well as its biggest legacy. Growth in the first quarter of 2013 fell short of government targets, standing at 7.7%. This follows 7.8% growth in 2012; impressive for most countries but paltry for China. Taking into account the weak world economy and slowed global consumption, the government has set the 2013 growth target at 7.5%. These adjustments have fed worries about the future of world’s second biggest economy. However the economic outlook for China is far from bleak. Unemployment has remained at a stable 4.1% and the service sector has now grown to the same size as the industrial sector. There are also signs that China is moving towards a more stable system based on domestic consumption. China's rapid growth is long overdue a check, and many argue that a slow, gradual decline is the best option available.

Even if Xi successfully manoeuvres a soft landing, issues still remain. Decades of rampant growth have led to social inequality, and many are now starting to question whether the degradation of the environment and its effect on human health was worth double-digit growth. At the same time, the legitimacy of the government has been based on an implicit agreement to provide economic expansion. If this deal is broken, severe social and political repercussions could follow. Xi Jinping’s legacy and China's place in the world may be determined by how well he balances these two forces.

China has reached a crucial period in its phenomenal, rapid rise. Many of the ingredients which enabled its remarkable economic growth and emergence from obscurity have changed and it is the administration of Xi Jinping which faces the responsibility of addressing China's new situation. But in these problems lies the potential to transform 'developing' China into one of the world's pre-eminent powers. If Xi Jinping plays his cards right by effectively managing China's intractable and sometimes flammable regional relations, its slowing economy, internal tensions, party cronyism, and whatever other issues get thrown his way, he has the opportunity to create not only the next China, but also the next global order. His first 100 days have been played well. China and the world await Xi's next moves.

This week a Mexican delegation, including the Mexican Minister for Agriculture, met with the China Chamber of Commerce of Foodstuffs and Native Produce to discuss the furthering of China-Mexico agricultural trade and cooperation. The meeting follows on from the November 2011 China-Mexico Agricultural Match Making session and the April 2012 China-Mexico Agricultural Working Group, where a number of pledges of cooperation and memorandums of understanding were signed. This week's meeting hopes to make further steps to transforming these pledges and memorandums into, in the words of Jose Antonio Meade Kuribrena, Mexico's Secretary of Foreign Affairs, “a bilateral relationship sustained on a...strategic and long term vision.” There is potential to open up an enormous agriculture and food trade relationship.

As of 2010, China was the world's top producer of 50 of the UN's Food and Agricultural Organisation's global food categories. At the same time, however, it is fast become a net importer of these and other food and agricultural produce. With the world's largest and still growing population, feeding China is a major challenge. The country contains 20% of the world's population, but only 7% of global arable land. The government have recognised that these sums do not add up and, overturning Maoist policy, that China cannot face the challenge to feed itself alone. Most recently China signed agricultural trade agreements with Australia and New Zealand in April. It also has its eyes on the potential for agricultural trade as part of its numerous free trade agreements with African and Latin American countries.

The profile of China's demand is also changing fast. Demand for meat has soared in direct relation to the rising purchasing power of large sectors of China's 1.3billion strong population. Per capita meat consumption now sits a comfortable 8% above the global average and as of 2008 China leads the world in pork consumption, devouring over half of the world's total. A new layer has recently been added to this demand profile. In the wake of numerous food safety scandals, the members of these more privileged strata of Chinese society are also demanding better guarantees of food quality and safety standards.

Mexico is a country which finds itself in a good position to answer these demands. It is a globally renowned producer of food stuffs, and in particular has a well developed infrastructure for meat production and a large export stock of animal feed grains. Mexican food production also has a decent reputation for food safety regulations, managed by the state-run Tipo Inspeccion Federal system of safety certification. This reputation for safety came about in large part because of the comparatively high safety and quality standards of the US import market, by far Mexico's largest trading partner.

Mexico is already one of the largest exporters of pork to Japan. Since 2005 it has shipped around 50,000 metric tonnes of pig carcasses to Japan annually. The good news for China here is that, not only does Mexico have the capacity to produce large quantities of pork, the most in-demand meat for Chinese, it also has tested and currently operational trans-Pacific transportation infrastructure.

This infrastructure may soon be utilised in shipping pork to China if the currently headlining potential takeover of the world's largest pork producer, Smithfield Foods, by Chinese company Shuanghui gets the go-ahead from Congress. Although it is a deal being struck between an American and a Chinese company, Smithfield's large numbers of farms in Mexico, which produce nearly 52,000 tonnes of pork every year, mean that this deal would have a significant impact on China-Mexico agricultural trade. A Chinese owned and run Smithfield Foods would be a good example of trade functioning within the US-Mexico-China 'triangular relationship' outlined in a recent report by the University of Miami, the University of California, Berkely, and the Centro de Estudios China-Mexico. Shuanghui will be stepping into an infrastructure of production and transportation constructed as a result of US-Mexican trade and the North American Free Trade Agreement. Mexico can benefit from the boosted export market this will create, most importantly in gaining access to new markets and in addressing its massive dependency on US markets.

Another area with potential for cooperation between China and Mexico is that of research in agricultural sciences. It is a field which China is interested in exploring as an answer to feeding its 1.3billion strong population, and it is a field for which Mexico has expertise and renown. At the Agricultural Working Group meeting in 2012, a Memorandum of Understanding on Agricultural Science and Technology Cooperation was signed with the intention of exploring biotechnology, climate change adaptation and animal and plant diseases. This week's meeting may produce further such agreements. The opportunity for Mexico to promote itself as a global leader in global agricultural science, with China as its main customer, is strong.

To date the most successful Mexican company in China has been Bimbo Breads. It deals in already manufactured foodstuffs, rather than raw agricultural produce, where Mexico's largest market is likely to be. But it has seized upon the same opportunities that the agricultural sector is presented with; China's need for food and concern for its safety. Bimbo has utilised its Western brand name to appeal to this desire for greater safety guarantees, and has also adopted a pragmatic approach to what products it sells, frequently producing new 'bread with Chinese characteristics' specifically for its Chinese consumers. Bimbo have set the bar and other Mexican companies would do well to learn from their approach of tailoring their products to the Chinese market.

For much of the last decade China has been seen simply as a threat to Mexican manufacturing through its ability to out price Mexico on many of the goods sought by the American import market. Over the period 2000-2011, for example, the export of Mexican manufactured leather goods to the US shrank by 10.6% whilst China's grew by 35.3%. China's rapid emergence as both a massive producer and a massive consumer, however, has opened up opportunities for Mexico and other producer economies. Mexico, in fact, is placed in the unique and privileged position of having been a major supplier to the quality controlled US market. As a result of decades of this trade, Mexican goods strike an appealing balance between price and quality, something which China has so far not reached. If Mexico seizes this opportunity to promote itself as a well-priced producer of safe goods, a large and growing consumer market in China awaits. Agricultural trade is just one of the sectors through which Mexico can seek a Chinese market.

Sending a man into space has always been a potent demonstration of power requiring advanced technology as well as deep pockets, so when China joined the United States and the Soviet Union in successfully carrying out a manned space mission, many saw it as definitive proof of China’s re-ascension. Since then, China has sent six nationals into space, accomplished its first space walk and released a white paper containing plans to establish its own space station and put a Chinese national on the moon.

However impressive these achievements may be, their importance lies mainly in their symbolic value; the biggest development in the next few years in the Chinese space industry will be in the less glamorous field of commercial satellite technology. Over the last few years alone, this industry has already experienced staggering growth and it shows no signs of stopping.

(Right: A Long-March Series rocket blasts off. Left: The construction site for the new Hainan Satellite Launch Centre)

Growth in satellite technology

China has set itself some ambitious targets. Currently, 20 to 30 satellites are launched a year, most of which are conducted in Europe or Russia, and China is hoping to gain a 15% share of all global launches by the year 2020. In order to achieve this target, construction is in progress on a new launching facility in Hainan, which will join existing centres in Sichuan, Gansu and Shanxi. Additionally, China Aerospace Science and Industry Corporation’s (CASIC) next generation of Long-March-5 rockets build by the will be able to place 25 tonne payloads into near-earth orbit. This is almost 5 tonnes more than the European Ariane rocket’s can carry, giving Chinese technology a competitive edge over its rivals.

The combination of increased launch facilities and more technologically advanced rockets and satellites is sure to draw more business towards China, a prospect which will be music to the ears of the two major aerospace companies in China; CASIC and China Aerospace Science and Technology Corporation (CASC).

It will also be a major boon for many other industries in China. The Beidou navigation system is one example; employing dozens of domestically produced satellites, it is expected to attain complete global coverage by 2020. This will provide China with a comprehensive, domestic mapping system for the first time, and will undoubtedly result in expansion in the GPS navigation system industry. Geospatial industries will also be affected; the greater amount of data available will mean the increase in projects as diverse as resource surveying and disaster detection and prevention. China may even be able to gain a foothold in the global data market.

Overseas Prospects

Building on this domestic success, China has started looking abroad. US regulations prohibit exports to and launches of US satellites from China; effectively forcing China to either develop its own technologies or to find other, less hostile partners. Historically, European co-operation and assistance has been vital in expanding and developing the Chinese space industry; China enjoys a successful working relationship with the three European space agencies and China’s ‘Dragon’ program uses data from European satellite to help develop China’s earth observation science and applications. However, as space technology has matured, China has started testing the waters in emerging and developing markets in order to start exporting its wares.

China has already made and launched communication satellites for several developing countries, including Nigeria, Pakistan and Venezuela, and The China Great Wall Industry Corporation has also sighed contracts for communications satellites with Bolivia, Belarus and Turkmenistan. Value for money is the main selling point; by offering the same service for less, they are able to win contracts away from European and American companies. The executive director general of the Bolivian Space Agency even commented on this, indicating that they were making a saving of over $50 million dollars by choosing a Chinese company. As more countries recognize the need for increased telecommunications and mapping services, yet are unwilling to pay a premium, it is highly likely that China will be able to make further advances into these markets.

Potential Problems

However, in the quest to gain a further share of the commercial space market, China will face some severe problems. The first is the reliability of its products; the Chinese-made NigComSat-1 commercial satellite which was exported to Nigeria failed 18 months after its launch in 2007. China acted swiftly, taking full responsibility and replacing the satellite with no additional cost to Nigeria. This resulted in serious financial losses, but the incident highlights how highly China values it’s customers in emerging markets. Judging by the slew of recent satellite contracts, their approach seems to have been successful.

The second, and much larger problem, will be U.S mistrust of China’s intentions in space. Although the 2013 National Defence Authorization Act recently signed by Obama does somewhat relax export restrictions, it still continues to prohibit exports to and launches of US satellites from China. This weariness may be justified. The 2007 anti-missile test was seen by many as an indication of China’s hostile designs, and another Chinese rocket launch last month, believed to be the test of anti-satellite technology, will hardly engender trust between the two nations. However deals such as the Pentagon’s renewal of its $10.7 million annual lease of China’s Apstar communication satellite, which carries data for American forces operating in Africa, may indicate a more pragmatic attitude.

With official backing and overseas interest, it is likely that the meteoric rise of China’s commercial satellite industry will continue. What remains to be seen is whether China’s increasing dominance in the global satellite industry will provoke hostility, either due to security concerns or simply as a result of their ability to undercut competition.