Editorials

Two years ago, Tencent CEO Jack Ma could have only dared to hope that the free social app they launched under the name Weixin would come to dominate the Chinese social media landscape. A recent announcement that it has 300 million users and counting confirms Weixin’s unassailable position as China’s number one app.

Weixin, which goes under the name WeChat internationally, can attribute this phenomenal success to its chimera-like platform. People can send each other text and voice messages as well as pictures, links and locations. Friends can be added through their QQ or Facebook accounts, their current location or their phone number. For those with a sense of adventure, the ‘shake’ function connects to anybody within a 1000km distance who is also shaking their phone, and the ‘drift bottle’ service initiates completely random encounters.

Indeed, so many people are flocking to use WeChat that China’s state-owned telecom companies blame it for the decline in SMS texts sent. China Mobile, China Unicom and China Telecom collectively demanded subsidies, either from the government or from Tencent. Tensions escalated over the past few months, with the Ministry of Industry and Information Technology signalling that WeChat would have to pay fees. Following widespread online outrage, this statement was withdrawn.

Tencent has stated repeatedly that it will not charge WeChat users, as subscription based models or single payments would drive users towards the other free apps. Tencent has not made any profit from its golden child yet, so they must find another way to monetize. It has started looking instead at the app’s huge potential for marketing and e-commerce as the next potential source of income. 

A recent report by McKinsey found that social media has a greater influence on the purchasing decisions of Chinese consumers than anywhere else in the world. 74% of WeChat users are in their 20s and the majority own the smartphone necessary to use the app, meaning that a huge pool of disposable income is potentially just a personal message away. WeChat is capitalizing on this by creating an ‘official account’ feature. These are used by celebrities and companies to directly reach fans and customers using ‘moments’, messages and photos. WeChat are even currently rolling out the beta version of a service which allows companies to create custom menus. These would provide a link to the official site and list the closest shop locations.

One company which has successfully utilized their official account is Starbucks. Their WeChat campaign invited users to share an emoticon with the Starbucks official site, and they would receive a song through WeChat that reflected the mood of their emoticon. 238,000 emoticons were sent within the space of just a few months. This was undoubtedly a triumph but marketing departments have to be careful not to inundate people’s mailboxes with advertisements; too many adverts and people might stop reading, or indeed turn to another, less commercialized app.  

WeChat will have to be careful in how it treats its 300 million users. The company faces three potential checks to its meteoric rise: competition, censorship and cyber-security. E-commerce giant Alibaba’s recent investment in Sina Weibo represents a significant threat to WeChat’s commercial ambitions. Alibaba and Sina Weibo plan to integrate their services, essentially providing a comprehensive mobile platform for both socialising and shopping. In this battle WeChat has a significant advantage: many of Sina Weibo’s users are ‘zombie’ users who rarely, if ever, use their accounts. However, the fact that there is presently no option to make purchases through WeChat may have a future impact. Tencent is no doubt considering its popular ‘Tenpay’ online payment service as another addition to WeChat, although nothing has currently been announced.

This competition means that the smallest mistake could make the difference between a universally adopted app and a passing fad. As a result, concerns about censorship and cyber security become crucial. The Chinese service blocks certain banned phrases and users share their personal information with the company in order to set up an account. This has not affected the number of Chinese users signing up, but as WeChat starts to implement plans for worldwide expansion, it will start to become a problem. WeChat claims that it does not censor phrases in the international version, but a ‘glitch’ in the system which prevented the phrases ‘Falun Gong’ and ‘Southern Weekend’ from being sent would suggest otherwise.  Furthermore with headlines warning against a Chinese cyber-security threat, users around the world may not be comfortable sharing their personal information with a Chinese company.

[Source: Value2020] 

Despite these impediments, WeChat has already had a measure of success abroad. There are already 40 million foreign users, 1 million of whom are in Malaysia. So far, the expansion strategy has been either to find local partners or to establish joint ventures. Tencent in India is supported by the Ibibo gaming site and a strong partnership exists with Thailand’s largest web portal, Sanook. Plans to work with Indonesian company MNC Media to establish a joint venture were announced this year.

WeChat has engaged in an aggressive marketing strategy in Indonesia; a tactic which has been staggeringly successful. After a celebrity-filled television ad campaign, daily sign-up figures reached 90,000. However, WeChat’s ambitions are not limited to South-East Asia; they aim to become an international brand. In addition to targeting the Middle-East with an Arabic version of the app, they plan to penetrate further into America with the establishment of a WeChat customer service centre in America.

The main advantage of the WeChat app internationally is the integration of Instant Messaging with social networking via streaming content feeds and location plug-ins; no other app combines these features as successfully. As WeChat starts to invest in international markets and starts monetizing, the challenges it faces will be decisive. One eye will be trained on the fates of previously popular social networks and messaging services such as Myspace and MSN Live Messenger. Their decline has opened the market further for WeChat, but they also stand as a testament to the fickle loyalties of social media users around the world.

As ISAF prepares for withdraw from Afghanistan in 2014 the future of the country will very much depend upon the ability of China and India to assume new responsibilities on the World stage and put aside conflicts of interest in terms of geopolitical perspectives. President Karzai has reiterated his ambition to “Emulate America`s democracy and China`s economic success’

China`s Xinjiang province and Afghanistan have a long history of trade through the Wakhan corridor, which is the two countries point of contact stretching for some 100 km. All future regional cooperation will be channeled through this area be it pipelines, transportation infrastructure or trade in the “gateway for Eurasia”, as part of China`s western development.

Currently China is doing what it does best in developing nations and investing. At the end of 2011 China National Petroleum Corporation (CNPC) signed an exploration agreement with the Afghan government for a joint venture to explore and mine three fields in the Amu Darya basin in the north of the country. In the South the Metallurgical Corporation of China (MCC) and Jiangxi Copper have a copper mine at Mes Aynak. It currently employees around 500 Afghanis under the supervision of 70 odd Chinese Engineers but has yet to break ground, scheduled for early 2014. It is estimated the mine contains around 11 million of non-ferrous metal at a approximate vale of $42 Billion

In terms of aid over the last few years, India has committed $2 billion worth of aid to Afghanistan: most are infrastructure projects including a 220 km highway connecting Delaram and Zaranj (providing connectivity to Iran and Central Asia). Others focus on health and educational facilities (India is currently constructing and Agricultural University in Kabul). On Paper Indian companies are willing to invest a further 10 billion, including a proposed steel plant. These investments dwarf  China`s current commitments of just $75 million in preferential loans however China will undoubtedly emerge as a large investor in the country. India enjoys historical and cultural close ties with Afghanistan, particularly amongst ordinary Afghanis and are culturally suited to interactions with Afghanistan, something the Chinese find more difficult.

However the issue is not simply financial but the ability of the Afghan government to use it effectively. The billions of dollars spent by the US have yet to realize significant national improvements in primary health care for example. Whilst there is a Confucius Institute in Kabul it is largely empty by comparison to its other Central Asian counterparts.

Security in Central Asia is inexorably tied up with the Afghanistan peace process and the future of Afghanistan itself will depend upon its prospects of economic integration within the region. It has a key role as a land bridge for transit, trade and connectivity in a Modern Silk road. A proposed Iran – China natural gas pipeline will very much depend upon stability in Central Asia and the ability to negate attack on the line by a potentially resurgent Taliban.

Long-term growth in Afghanistan will depend upon its ability to develop agriculture and exploit mineral wealth of which it has reserves of several trillion dollars. China`s role will be significant and taking a lead in the development of Afghanistan now will avoid years of potential turmoil both on its borders and domestically. China must do more, but finding the political will to embroil itself in the semi vacuum left by ISAF will require a new form of foreign policy. To date many have observed that China has simply benefitted by the relative stability brought by ISAF. China has no experience of deploying its military abroad to support another country however as long as the Taliban operates in Afghanistan, there is possibility for destabilization, civil war or that they will provide sanctuary for Xinjiang separatists, worse, active support. Perhaps the time for non-interference in the internal affairs of other states has come to an end as China shifts from a Mercantile power to a truly world power.

Facts and figures form 2^nd CICIR (China Institute of Contemporary International Relations) Forum, May 2012.

When the Chinese switch on their computers or mobiles and open their internet browser, over 40% of them visit an online literature website. The most popular site is Shanda Literature, which some estimate owns a staggering 85% of all literary resources on the net. Every minute, this company earns 1000 RMB and its authors upload an additional 42,000 new words. 

Many attribute this phenomenal success to Shanda’s ‘freemium’ business model. Although there are several different literature platforms under the Shanda umbrella, the business model generally remains the same: Authors publish their own work online, often in serial format. Readers pay between 2 and 5 yuan per 1,000 characters, and if an author became popular enough, they sell their copyright to the website and split the profit. Publishers can also have their own ‘shop front’ on the site, much like Taobao.

Once they have selected an author as a VIP, Shanda Literature starts to develop their work. Shanda Literature’s parent company is Shanda Interactive Entertainment, founded in 1999 by Chen Tianqiao and Chen Danian. Originally a games company from Shanghai, it established Shanda Literature Limited in 2008 and placed it under the leadership of Xiaoqiang Hou, who had previously worked at Sina.com. Shanda Interactive Entertainment’s extensive resources mean that the company can engage in cross-media promotion, turning the stories into games, comics and TV series.

This cross-media promotion creates literary ‘superstars.’ Successes include authors such as ‘Third Son of the Tang’, whose stories of the supernatural have earned him the top place on the 2012 Online Chinese Authors Rich list. Initially a law graduate, his income from book royalties is estimated at 33 million RMB.

Shanda also produces e-readers, with its ‘Bambook’ taking about 28% of the market, although personal computers and mobile devices still remain the most popular tool for accessing literature. Capitalizing on this, Shanda has successfully collaborated with telecom operators in China in what seems to be a mutually beneficial arrangement; China Telecom’s ‘Tianyi’ e-reading software brought in 30 million RMB in sales last year, and expects revenue to reach this year to hit 1 billion. With the development of mobile technology and wireless internet, reading online content using mobile devices will only become more prevalent in the future.  

The cyber literature boom has not only changed the way in which books are delivered, but it has also transformed the way in which they are written. The serial form has proved hugely popular as it allows both readers to not only consume the work, but also rate, comment and make suggestions, creating a sense of community. Stories are delivered in shorter, regular chunks; commercial interest means that there is a proliferation of fantasy and romance novels. A popular new genre is Time Travel Literature; a modern office worker is suddenly transported back to the Tang dynasty, or a warrior unexpectedly turns up in modern Beijing.

The ‘quantity over quality’ approach, coupled with the lack of editing and quick turnover means that some are bemoaning the death of serious literature. This is not necessarily the case; author Murong Xuecun, who posted his first work, Leave me alone: A novel of Chengdu in instalments online was nominated for the 2008 Man Asian Literary Prize and several sites have started collaborating to award their own web literature prizes. 

Questions of genre aside, many authors on the internet have found a degree of freedom from censorship. Although anything too popular will be checked by the authorities, the wealth of material means that online literature is impossible to effectively monitor, especially when dealing with the complexities of language and metaphor. This may partly explain why web literature in China is significantly more successful than in the West.

Outside of success in China, Shanda literature estimates that up to 30% of its clicks come from overseas.  As a country where English and Chinese are both widely spoken, Singapore has become a perfect testing ground for Shanda Literature’s international ventures. It’s collaboration with the Singaporean newspaper company Lianhe Zaobao to allow Singaporean readers access to the Shanda website appears to be a tentative first step into the global market. Numerous statements issued by the company have indicated their intention to expand to the US. So far, however Shanda have dragged their feet in actually implementing anything substantial.

Their apparent hesitation may be justified.  An argument about the applicability of this business model overseas has been that it requires a huge amount of original content posted for little profit by a large base of writers as well as readers. In this regard, the sheer size of the Chinese population has worked in Shanda Literature’s favour.

The growth of self-published e-books in the West would seem indicate that the pool of writers willing to work for relatively small returns is actually quite large. However, this presents Shanda with yet another challenge: entering an already crowded market. Amazon has recently established its own publishing company, which offers authors a bigger cut of the profits as well as more creative freedom. Although most of Amazon’s e-literature profits come from acting as a middleman to publishers and receiving a small commission, in recent times several well-known authors have gone over to Amazon’s publishing house, such as thriller writer Barry Eisler. Most of Amazon’s releases are still released as complete works rather than in instalments, although it does publish some serials in its US store. Like China, most of the serial works are Genre, with crime and sci-fi titles such as Gooseberry Bluff Community College of Magic leading the market.

Whether Shanda Literature will be able to break into foreign markets ultimately depends on whether readers will respond to the serial format. It may be a hard task converting readers, especially when the e-book market is already so saturated. On the other hand, publishing chapter by chapter, and becoming involved in a literary community may appeal to younger readers and authors, as it has done in China.   

So, instead of queuing outside of bookshops for midnight releases, will readers in the West be staying up late to download the newest instalment of their favourite novel from Shanda? It seems improbable, at least in the next few years. Shanda Literature itself is unlikely to make a significant impact in non-Chinese speaking countries, as it first needs to create a community of authors and readers. As for the ‘freemium’ model and serial distribution of literature, this model evolved alongside Chinese internet culture, which makes it hard to export. However, a small serial e-book market does exist in the West, and presents an opportunity for development.

By Leonard P. Goldberger for China Brain.

“It doesn’t matter whether the cat is black or white, as long as it catches mice.”

Deng Xiaoping

Sales of technology–related assets out of financially-distressed companies ‑- especially those in bankruptcy -‑ are nothing new.  The recent U.S. bankruptcy case of In re A123 Systems, Inc. is, however, noteworthy for at least three reasons:  First, it involved the sale of highly advanced lithium‑ion phosphate battery technology to a Chinese buyer.  Second, the controversial sale of this advanced technology, that was developed with U.S. government stimulus funding, was cleared by the Committee on Foreign Investment in the United States (“CFIUS”).  And third, the U.S. creditors of A123 Systems mustered enough political support to counter stiff Congressional opposition to approval of the sale.  In this respect, the U.S. creditors seemed to be channeling Deng Xiaoping’s pragmatic approach to advancement of economic self-interest in the face of entrenched countervailing political ideology.

When considered separately, the first two reasons are not particularly remarkable.  By agreeing to pay $256 million for A123 System’s automotive battery technology assets, Wanxiang America Corp., the U.S. subsidiary of Wanxiang Group Corp., a leading Chinese automotive parts manufacturer, simply outbid Johnson Controls, Inc., its Milwaukee-based rival, at the U.S. bankruptcy court-supervised auction.  (Wanxiang’s final bid was over $125 million more than Johnson Controls’.)  Money talks in bankruptcy — that is what’s supposed to happen.

This is certainly no surprise considering that advanced battery technology for automotive purposes falls neatly in the intersection of the huge Chinese automotive market — the fastest growing in the world — and the Chinese government’s highly incentivized focus on development of alternative fueled cars as provided in its Twelfth Five-Year Plan.  Indeed, A123 Systems’ battery technology is already being used in cars produced for the Chinese domestic market (e.g., various models produced by Shanghai Automotive Industry Group (Roewe 550 PHEV; Roewe E50 EV; Roewe 750 HEV) and by Geely (PHEV sedan)), so it is only natural that a major Chinese automotive parts supplier like Wanxiang would take advantage of this opportunity to acquire such a strategically‑important technology asset.

The second reason also follows.  The U.S. bankruptcy court‑approved sale was conditioned upon Wanxiang receiving favorable CFIUS review of the transaction.  CFIUS is a high-level, federal inter-agency committee chaired by the Secretary of the Treasury that is charged by law with reviewing transactions that propose to transfer ownership of U.S. businesses to foreign control for potential threats to U.S. national security.  Putting A123 Systems’ advanced battery technology (developed in part with U.S. government stimulus funds — a sore spot for many of the deal’s critics) into the hands of a Chinese buyer, so soon after CFIUS’ recent denial of a transaction involving a Chinese-owned windmill farm in Oregon, made the timing of this review somewhat sensitive.  However, the part of A123 Systems’ business that involved military-related application of its technology was deftly carved out and sold to a U.S. buyer in a rather savvy bit of politically-sensitive maneuvering.  This, of course, limited the CFIUS review to only the transfer of the consumer automotive battery technology aspect of the business.  With that, there appeared to be few actual national security (as opposed to political) concerns, and CFIUS’ approval was obtained in the ordinary course. 

The third factor was a bit more complicated and, indeed, the most interesting aspect of the entire transaction.  In this respect it may portend well for future sales of technology‑related assets to Chinese buyers.  Coming off of the robust China‑bashing from the 2012 presidential election, certain U.S. Senators and others in Washington were highly critical of this proposed sale.  Adverse publicity from other recent China related developments in Washington added to the politically charged fallout:  The House Intelligence Committee report recommending that U.S. companies not do business with Huawei and ZTE because of their connection to the Chinese government; the Ralls Corp. suit against President Obama over his order rescinding its acquisition of its Oregon windmill farm; and the steadily growing alarm over Chinese cyber attacks on U.S. businesses.  And it certainly didn’t help that A123 Systems was the recipient of over $249 million in U.S. taxpayer funded stimulus money (only half of which, it turned out, was actually spent), and about $125 million in tax credit incentives from the State of Michigan.  Among other things, Congressional critics argued that sales of advanced U.S. technologies — especially those to the Chinese — undermined national security by rendering Americans overly dependent on foreign sources for critical technologies (Recall that a similar political backlash occurred against the trend of Japanese purchases of U.S. assets in the 1990s).

 Indeed, Johnson Controls hired its own lobbyist to oppose U.S. government approval of the sale to Wanxiang.  In the face of these political headwinds, the official committee of A123 Systems’ unsecured creditors (which represents the collective interests of all unsecured creditors in the bankruptcy case) sought and obtained bankruptcy court approval to hire its own lobbyist to counter the political opposition to the sale within the U.S. government.  This is highly unusual in any bankruptcy case; and significant because the bankruptcy court allowed the use of bankruptcy estate funds to engage in a controversial, extra-judicial political fight.  Of course, the committee’s logic is clear:  If the politically based opposition to the proposed sale could be overcome, and Wanxiang, the highest bidder by $125 million, allowed to become the successful purchaser, then the U.S. creditors stand to reap a much higher recovery on their unsecured claims.  Apparently, the U.S. creditors’ political juice was sufficiently effective to neutralize the Congressional critics.

Is all of this just an isolated instance, or the beginning of a broader trend?  My view is the latter.  Chinese direct investment in U.S. businesses and assets has been steadily increasing over the last few years.  According to The Wall Street Journal, in 2012 alone, Chinese direct investment in the U.S. exceeded $10 billion (which was higher than the total amount of Chinese investment in the U.S. in 2009 through 2011 combined).  The demand for technology related assets, in particular, will inevitably increase as the Chinese government funds massive development of new technology related industries in order to implement its national economic goals according to its Twelfth Five Year Plan.  The fact that technology assets are not geographically rooted, like real estate or other fixed assets which would necessarily have to remain in the U.S. to be economically exploited, will also likely accelerate the trend.  Moreover, in an economy like China’s, where indigenous innovation is sometimes difficult to accomplish, the acquisition of existing, proven technologies is the fastest way for Chinese companies to move up the global value chain.

Here, Wanxiang’s acquisition of an advanced technology out of A123 Systems’ bankruptcy case provides a roadmap for other Chinese companies seeking to do likewise.  With the smart engagement of skilled U.S. insolvency professionals, Wanxiang was able to successfully navigate the somewhat arcane bankruptcy sale process, as well as a perilous political minefield.  Other Chinese companies, similarly flush with cash and in search of strategically important technologies, are likely to follow this strategy of acquiring valuable technology assets stranded in financially-distressed corporate shells.  As Wanxiang America’s president, Pin Ni, commented, “You just need to understand the rules, follow the rules, be very transparent, and let them make the decision.”

Moreover, future deals involving Chinese investors are likely to be more plentiful and involve smaller acquirers and targeted companies alike.  As more middle-market Chinese companies (Wanxiang being a huge company with about $4.2 billion in annual revenue) get comfortable with the U.S. bankruptcy sale process, they will inevitably come to better understand the limits of U.S. political sensitivities, and become more effective “players” in situations involving financially distressed U.S. businesses and assets.  Wanxiang has shown them the way.

Finally, all of this is not likely to be lost on other U.S. creditors and their financial advisors.  Often overlooked in marketing valuable assets trapped in financially distressed companies is the huge potential market of foreign (especially Chinese) buyers who are likely to pay cash at prices far in excess of typical “fire sale” values.  This will create even greater liquidity in the U.S. bankruptcy marketplace, allowing it to function even more effectively than it already does.  If the landscape of U.S. bankruptcy sales begins to shift in this direction, it is likely that creditors of other financially distressed sellers will demand that assets be marketed to foreign buyers in spite of any domestic political blow-back.  U.S. bankruptcy courts, recognizing the inherent economic benefit of reaching a broader and deeper pool of potential buyers, will also likely relax, or even eliminate, certain existing impediments in the bankruptcy sale process that make it more difficult for foreign buyers to effectively compete.  All of this will certainly accommodate the attraction of investment capital from a more global marketplace. As the U.S. creditors of A123 Systems seem to have figured out Deng Xiaoping, they too have come to realize that money trumps political ideology. 

China has recently embarked on major infrastructure reforms which will directly affect the aviation, railway and highway industries. As well as giving businesses involved in logistics or construction a huge opportunity for growth and consolidation, the changes will also have serious social implications, especially in the North and West of China where transport networks are still insufficient. 

As a potent symbol of middle class success, automobile ownership in China is on the rise, and transport networks are changing in response. There are grand plans in motion to create a complete ‘National Trunk Highways System’ for the entire population of China, linking the cities and provincial capitals with around 5.29 million kilometres of road.

There are hopes that this will boost the flagging domestic automobile industry. Although Chinese consumers are buying more cars than ever before, they tend to prefer foreign-made vehicles. The China Association of Automobile Manufacturers (CAAM) reported that 18.51 million cars were produced in 2011. Although exports of China-produced vehicles are forecast to his one million in 2012, representing an increase of 150,000 units, the domestic market seems uncertain for the future. In the first half of 2012, domestic automobile companies only shifted 3.15 million units.

The general secretary of CAAM, Dong Yang, even predicts that if poor sales continue over the next few years, up to half of China’s domestic auto brands may disappear. Their current reliance on low-price, rebadged and re-launched versions of foreign-brand models which have recently ceased production indicate that these low domestic returns are likely to continue. As a result, the automotive industry is looking elsewhere; emerging markets such as Brazil, South Africa and Vietnam are some of the Chinese automobile industry’s biggest markets. Although the current models are undoubtedly inferior to their European and American counterparts, tighter safety restrictions in car manufacturing indicate that Chinese cars may eventually close the quality gap. However significant inroads will only be made if greater attention is paid to design; cars are are aspirational purchase as well as a mode of transport.

When embarking on a longer journey, most Chinese travellers tend to either fly or take a train. Currently, only military aircraft are permitted to fly in low altitude airspace. This is set to change in the next few years as the space is gradually opened up to non-military aircraft, presenting a massive opportunity for the domestic aviation industry. Combined with the vast airport expansion scheme currently planned, the aviation industry will undergo a staggering transformation. Chinese city to city travel stands at about 300 million trips a year; it is estimated that within the next two decades, Chinese domestic flights alone will represent the largest aviation market in the world. Within the same timeframe, Boeing predicts that China’s air carriers will take delivery of 5,000 new airplanes, worth US$670 billion. Most of these airplanes will be foreign-produced, and it remains to be seen whether Chinese aviation manufacturers will be able to expand their market share.

(Click on each province to see present and future airports)

However, the domestic aviation industry also faces competition from the railway sector, as trains remain the vehicle of choice for many Chinese people. Over the last five years, a total of 19,700km of new railway lines were built in China, 8,951km of which were for high-speed trains. The closing months of 2012 saw the opening of the world’s longest High-Speed railway line. The 2,298km line currently connects Beijing to Guangzhou, stopping at major cities such as Wuhan en route.

Despite these advances, scenes of cramped, crowded trains during major holidays stand as a painful reminder that the current railway transport network is still inadequate. In response, the government is forging ahead with further expansion; by 2015 they expect to have 120,000km of railway lines in operation, including 18,000km of high-speed lines.

This focus on an integrated, high speed railway network will place China’s rail transport system far ahead of countries such as the US and India, and will engender both increased domestic consumption and international trade. It is currently cheaper to ship to the US form Guangzhou than to overland to Beijing.

China is often viewed as a single, homogenous entity, in reality this is not the case. Disparities in development between the coastal cities and the Northern and Western regions still exist, and for many in rural areas, transport is inadequate. The combined development of the highways, railways and aviation routes will not only address this issue, but will also connect Chinese people to each other like never before. If previously isolated communities are connected to metropolises like Chongqing, it will not only give them greater mobility and access to markets, but will also connect them to a sense of a greater national community. 

As 13,000 pig carcasses floated down the Huangpu river last week, the issue of China’s poor food safety standards once again became front page news. Citizens were outraged, but despite the shocking images, there was little mention of just how much food safety in China has started to improve in recent times

There is now a far greater awareness of food control issues amongst the general populace, partly engendered by social media, and this has created more pressure for change than ever before. This is primarily being driven by the new middle class, who find themselves with more money to spend and more of a voice to ensure that what they feed their families is reliable, trustworthy and true to the claims made on the packet. Recognizing the potentially combustible nature of this issue, incoming President Xi Jinping has indicated that he will tackle issues of food safety as part of a general drive to improve the wellbeing of Chinese citizens

Long gone are the days of the Sanlu milk scandal of 2008, when government authorities tried to supress information about the tainting of dairy products from the public. They massively underestimated the potential of the internet to disseminate information easily and quickly. Now, stories of poor water quality, poisoned foods or dangerous drugs are picked up and published on the web before the government has a chance to react. A market has even grown up around it; a popular food safety app available in Chinese lists scandals by date, location and severity. Now, the people control the information flow. A warning that Coca-Cola’s ‘Minute Maid Pulpy Orange Juice’ contained an agricultural fungicide called carbendazim was forwarded over 77,000 times on Sina Weibo within just 15 hours.

This increased knowledge has some serious implications for food companies in China. As the middle class grows larger and wealthier, people start thinking not about what they can afford to eat, but what they want to eat. Unlike China’s pollution problem, where most people have no choice but to suffer the poor air, consumers in China can choose not to buy a suspected product. One can see the effect of this on the profits of companies like KFC and Shuanghui Group, who suffered huge drops in profit as a result of doubts regarding the safety of their food and supply chains. KFC sales in China not only dropped by 6% following the scandal, but the western fast food industry as a whole also suffered. In order to rebuild brand confidence, KFC owners Yum Brands Inc. announced their intention to improve control on poultry suppliers, increase public communication and remove over 1,000 sub-standard chicken houses from their supply chain. Although sales in China are still suffering, the company initially predicted that sales could drop by up to 25%/.This may indicate that KFC’s attempt damage control was at least partially successful.

On the other hand, if a company can maintain their customers trust, then this represents an opportunity for growth. The organic market in China, although still in its nascent stages, has found a growing market among high and middle income consumers.

The combination of increased spending power and consciousness, along with a fear of losing face, has undoubtedly led to food safety becoming a top priority for the government. Bureaucracy in China has always struggled to manage the food chain in China, and not without reason. 80% of Chinese food producers and processors are still small and medium sized enterprises, making effective enforcement problematic, if not impossible. The 106,000 regulatory staff in the Food Safety Department of the Ministry of Health are required to supervise around 10 million registered businesses. This number does not include all the unlicensed restraints, hotels and street sellers.

Furthermore, the Ministry of Health is only one of seven different agencies that deal with food safety. The remit of these agencies often overlaps, with agencies unwilling to act on incidents that may be the legal responsibility of other departments. In addition to this fragmentation of authority, the food testing laboratories, especially those situated in rural areas, suffer from a shortage of funding, skilled staff and modern technology. 

These systematic flaws have plagued attempts at regulation and frustrated many Chinese consumers. However a recent announcement that the State Food and Drug Administration will be promoted to ministerial level as part of an effort to streamline bureaucracy in China indicates that Xi Jinping is fulfilling his promise to make structural improvements. It has also been reported that there are plans to establish a food safety standards centre, which will establish compulsory industry standards, as well as a new nationwide food safety monitoring system.

China is not the only country fighting to establish effective food safety controls. Only recently, donkey, water buffalo and goat meat was found in South African burgers. China’s neighbour India is also struggling;13% of all food failed to meet standards set by the Food Safety and Standards Authority of India. 

Although China’s plans will not be easy to implement, they are an important step towards making food in China safe. The combination of official policy and consumer power is a potent one. Indeed, as the middle class in China continues to grow, consumer spending trends will accelerate changes quicker than any government can push through, and any company that falls foul of the food safety rules can expect to be severely punished by their customers as well as the CCP.

December of last year saw a sudden flare-up in the already tense relationship between China and Japan. As as often the case, the tiny chain of uninhabited islands that China calls “Diaoyu” and Japan refers to as “Senkaku” was the focus of diplomatic conflict. Japan’s control over the Diaoyu chain is passionately disputed by China. While China may have a valid historical argument to make in favour of its possession of the Diaoyu chain, Japan has controlled the islands since 1895, and was affirmed of its possession of the islands in 1971, when the United States “returned” them to Japan following a period of post-war American control.

Though strong nationalism is common to both nations, patriotic fervor has particularly grown in China, where anti-Japan protests occasionally spill over into violent riots and boycotts of Japanese products.

While it may be the primary factor, national pride is not the only driver of the dispute: the islands, like the Spratly chain to the south, are near large reserves of oil that were identified in 1968. Although it is unclear how much energy potential the oil fields contain, they have remained untapped until the present day. Both countries need the oil, having maximized production from other sources, and both are energy-import nations.

Furthermore, energy use is closely correlated with GDP growth. This has unique ramifications for China, which must continue growing, albeit at a slightly slower rate, in order to perpetuate the gains in individual material wealth that guarantee the political stability that the Communist Party relies on to stay in power. GDP growth rates that are well in excess of five per cent per year must be matched by significant growth in energy supplies: even moderate estimates project that China will account for more than half of the world’s growth in oil consumption over the next two years.

While Japan is less desperately concerned with its energy supplies, the Japanese government feels that its territorial sovereignty is at stake. The public agrees: Shinzo Abe, the current Prime Minister, was elected last September with a hawkish military platform, and a promise to stand up to China over the islands dispute. Faced with the growing clout of China’s military – and in particular by the modernization and growth of the PLA Navy – Japan feels that it must not give ground. While Japan remains locked in a military alliance with the United States, which quietly supports Japan’s claim, America refuses to become heavily involved in the dispute.

Meanwhile, the balance of power in East Asia is inexorably shifting towards Beijing. While Japan and China’s economies are mutually dependent, Beijing may have more economic leeway, and stands to risk less by damaging trade through symbolic military maneuvers and grandstanding to its public on the issue. Ultimately, while responsibility for military flare-ups is shared, Japan is playing a defensive position, while China is testing the limits of its newfound power.

These parameters explain how it is possible that two major world powers would, at least by the metric of military near-confrontations, seem to be teetering on the brink of war. The Western press has routinely expressed shock and fear that the two countries could be playing such a dangerous game, especially in a time of global economic uncertainty. But articles that raise the prospect of war between the two nations, while expressing a valid concern, overstate the risk involved.

In reality, the possibility of war is abhorrent to both governments. China is playing as hard as it can to try to force Japan to compromise, but the Abe government understands the nature of the two-way street. To ask how much is at stake is futile, because the possibility of war between China and Japan has no historical precedent in the nuclear era, let alone in the 21^st century. Although China may still seethe with resentment over Japan’s abject barbarism during the Second World War, an assault on the islands now would be far too risky. Aside from confronting a country that is allied or friendly with most of the world’s nuclear-armed states, the economic fallout on a global and regional scale would be enormous.

Even an economic blockade is impossible. To put this reality in a simplistic equation, China’s social stability is predicated on a growing economy, and its economy is dependent upon foreign consumption. To end economic ties with Japan, as a start, would eliminate China’s third-largest export market after the European Union and the United States. Moreover, China still relies on imports from Japan, despite recent double-digit monthly declines in import value. While this may indeed speed the development of certain Chinese industries – cars, for example – declining trade with China’s closest big trading partner has a negative overall effect on the national economy.

In the near future, we may expect the dance of military provocation to continue. Meanwhile, the disruption in the nations’ trade relationship will continue to hurt both China and Japan, but Japan, currently experiencing worse economic circumstances, will feel it more. China’s leaders are probably hoping that the fear of actual confrontation, and the financial pressure of a decrease in imports, will force the Abe government to compromise. This seems unlikely, as nationalism runs high in Japan, and the emotional and strategic cost of giving up the islands is still much greater than the financial strain. Meanwhile, Xi and his colleagues will keep their eye on homegrown nationalism, a force that the Communist Party uses to whip up support for the regime, but which stands at odds to the ides of social harmony that the Party promotes. While happy to accept the dividend in popular support, the CPC is wary of the kind of destructive riots that shook mainland cities in September of 2012, and earlier in 2005. To the extent that public opinion is under the control of the Party, Xi will not want to risk too much lawlessness in the streets by excessively fanning the flames of conflict, especially so early on in his tenure.

Over the longer term, the islands dispute poses a multifaceted challenge to leaders in China and Japan. Both countries have benefited greatly from a healthy trade relationship that is now declining. This is because, while China and Japan’s trade volume has grown to a total of $350 billion USD over the past two decades, the gap in their foreign policy outlook has not shrunk proportionally. Maintaining sovereignty, saving face, and maximizing economic benefits cannot be achieved simultaneously without some compromise, and hardheadedness will prevail as long as both sides can afford it.

By Patricia Calvo for China Brain.

Patricia Calvo’s work arises from an interdisciplinary space between art and anthropology.  Through photography, archives and installations the artists explores issues related to permanence, disappearance, invisibility, destruction, symbiosis, and mutation.

During her fifteen-year stay in Beijing she has registered, through photographic archives and a series of found and produced objects, the social and architectural reconfiguration of Beijing and other Chinese cities, questioning the concepts of temporality and spatiality, problematizing the notions of past and future, and showing how the cities are radically built and destroyed in a performance of natural and artificial urbanization.

Intercontinental Memories is a work situated outside China –if only territorially– and, as in her previous projects, it is interested in digging further on the issue on temporality and spatiality, now through the idea of permanence. Intercontinental Memories is the artistic expression of the development of Chinese society in another part of the world, its currents, its mutations and its anchors.

The work is a visual registry of Chinese immigrants in Cuba during the fifties, a generation trapped between two revolutions: the Cultural Revolution from which they ran away, and the budding island revolution that they paradoxically found. China and Cuba represent two countries that have shared theoretical and political structures, but  were culturally divergent. Calvo situates her project in that first generation of immigrants, most of them dead now, by visiting the Chinese cemetery, reviewing family albums, personal documents, everyday dynamics, newspapers, workplace identifications, personal objects, and rationing cards. She also explores their descendants, analyzing their physical appearance and everyday dynamics: the encounters and mis-encounters that befall migrants –what happens to migrants in  faraway locations, unknown to them, where the promise of a better future becomes a permanent question.

Severo Sardy talks about the three ‘races’ that characterize Cuba: the Whites, the Blacks, and the Chinese. The latter remains hidden, shut off, almost imperceptible. It is precisely the quality of imperceptibility that interests Calvo in her exploration of what remains and what disappears. A permanence which is almost monolithic, as when one stares at a mask all day waiting for it to change its expression, even to show a grimace. 

There is an air of increased optimism in the global economy, and it is especially strong with relation to China. After all, China has no impending collision with a “debt ceiling” like the US, and is structurally still competitive unlike much of the European Union.  China’s data is looking positive in the short term. Yet this newly initiated investment-led boost to growth is exacerbating China’s deep economic imbalances and may come back to haunt the country’s new leaders later in their tenure.

The simple facts are well known: China’s economy needs to rebalance away from investment and exports towards domestic consumption. For this to happen, consumption (driven mostly by household income) needs to increase at percentage rates higher than GDP growth for several years. Meanwhile investment must do the opposite – or else the debt that lies behind it is set to become an even greater risk for the economy as returns diminish.  China is currently undergoing yet another mini-investment boom, with increased spending on real estate construction, infrastructure and especially railways as the government reacts to more than a year of slowing GDP rates. Since September, non-bank sources of financing, including trust lending through wealth management products, have been providing much of the new funds as these statistics show.  Many worry that these opaque forms of financing are dramatically increasing risks in China’s financial system.

This “stepping on the accelerator” was widely expected by analysts watching China, who argued that the incoming leadership of Xi Jinping and Li Keqiang would not be comfortable starting off their tenure without halting the falling growth rates of recent periods.  If they are to quickly consolidate their hold on power, growth has to pick up.

Reuters recently published an interesting piece of analysis arguing a similar line.  Whilst China’s difficult economic rebalancing is almost certain to involve lower rates of growth, , Reuters here suggest that the economic slowdown must first be stopped before serious reforms can begin.

Michael Pettis, famous China finance expert and Professor at Beijing University, argued recently in a note that, counter-intuitively, if China’s growth rates remain high throughout 2013 (around 8%), this is a sign that leaders are not yet seriously attempting rebalancing, and thus the eventual cost of adjustment will be higher and more painful.  He recommends watchers to focus on the second half GDP figures, stating:

“If Beijing has really gotten its arms around the rebalancing problem and is serious about adjusting quickly, I expect reported growth to drop sharply, perhaps to close to 6%. If not, I expect reported growth to remain well above 7% in the second half of 2013. This would worry me.”

Even with growth picking up, it would be unwise for investors to get too enthusiastic about China’s prospects.  There is a strong probability that this pick-up is designed to be fairly short term, as China’s leaders have repeatedly stressed the need to rebalance.  If the acceleration continues too long, it will only increase China’s already considerable credit risks whilst making the eventual and necessary adjustment all the more painful. Investors would be well advised to watch seriously for signs that policy is shifting again, and if not, to consider the longer term consequences of China’s increasingly shaky development model.   

China watching is a precarious pastime: even the most astute observers can’t help being wrong, as they try to extrapolate political shifts from the symbolic and often highly ambiguous signals broadcast by the PRC’s secretive leadership. But following the selection of a new General Secretary – a rare event, as the last two reigned for ten years each – all eyes are focused on interpreting the new leader’s first decisions, in the hopes of divining what may follow over the next decade.

Xi Jinping, who ascended to the position of General Secretary of the CPC late last year, is the first of his faction to take the top job. They are referred to as the Communist Party’s “princelings,” with the imperial connotation that the name suggests. Children of revolutionaries who fought alongside Mao sixty years ago, the princelings have a reputation for middle-of-the-road conservatism – they reject both the party’s left wing, who are perpetually concerned over the fast pace of change, as well as the ardent market-oriented reformers, who argue that the pace of development is still dangerously slow.

Known for over a year as Hu’s heir apparent, Xi has accordingly been sheltered from the intense scrutiny of Western analysts. Still, the media has consistently reported on two traits in Xi: his smooth and swift ascent through the party ranks, and his charismatic appeal, which differs so much from that of his predecessor. While premier Wen Jiabao often played the smiling counterpart to the dour countenance of Hu Jintao, Xi brings a measure of charisma and informal charm that the position hasn’t seen in recent times. This trait in a national leader shouldn’t be underestimated: it may allow Xi greater political capital in enacting policies unpopular with the party or the people at large.

 Upon taking power, Xi moved swiftly to consolidate his control over the armed forces, both more quickly and completely than Hu Jintao did after taking control in 2003. Xi made highly public visits to military installations, and displayed his charisma as he told jokes to low-ranking sailors while sharing a meal in a ship’s mess.

Beyond the typical media choreography, there was a clear diplomatic signal to China’s neighbours and the United States: don’t expect any softening of China’s increasingly assertive geopolitical stance. Xi will maintain or even expand the rapid modernization of the military. So far, this effort has been led by the navy, ostensibly because China’s most contentious territorial disputes are over two tiny, hydrocarbon-rich island chains. To the south, China claims the Spratley archipelago, a title that is fiercely rejected by several ASEAN member states. To the east, both China and Taiwan claim the Diayu chain, which has long been controlled by Japan. Although China’s aggressive posture incurs a diplomatic cost by worrying its neighbours, China is an essential trade partner to all of them, and a primary source of foreign direct investment for many, particularly in Southeast Asia. This grants leeway to the CPC to make bold assertions of possession, a policy that pays a domestic dividend, as it is very popular among China’s increasingly nationalistic population.

While military policy was the focus during Xi’s first five weeks in power, domestic concerns are by far the most pressing problem the new General Secretary will face. On this subject, the signals were less clear cut. Last year was a difficult one for the CPC: the party witnessed the greatest public-relations disaster since the 1989 protests when Bo Xilai, the fast-rising and charismatic governor of Chongqing, was arrested and imprisoned in connection with the death of British businessman Neal Heywood. The story fascinated world news outlets for weeks, while the censors struggled to control reactions in China’s ever-expanding galaxy of microbloggers. Moreover, economic growth dropped slightly as a result of lower exports to Europe and a sluggish American recovery, while bitter complaints of corruption continued to be expressed both in local protests, and online.  

In response to these challenges, Xi has already demonstrated a leadership style that is more vigorous and public than that of his predecessor. Xi quickly embarked on a “southern inspection tour,” which was more or less a series of photo ops and publicized meetings throughout the wealthy province of Guangdong. Although the CPC is used to communicating in ambiguous symbols and euphemism, this time the reference was unusually clear. One of the last and most significant events in the life of Deng Xiaoping, the man who dismantled Mao’s command economy and initiated China’s unprecedented rise to global prominence, was a very similar inspection tour in 1992. By quite literally following in Deng’s footsteps, Xi is trying to repudiate the idea that he will shy away from meaningful reform.

Chinese news agencies repeated focused on two themes of Xi’s tour: his repeated pledge to expand the “reform and opening up” initiated by Deng thirty years ago, and Xi’s effort to bridge the gap between the CPC and the Chinese people. The first point comes as no surprise, particularly after a year of slow growth. The second was more unprecedented, as Xi made sure to be seen driving around in a minibus with a single police escort, and refused to close any roads when he visited the bustling metropolis of Shenzhen. This repudiation of pomp and circumstance may be the beginning of a serious anti-corruption drive, but it is more likely a directive to wealthy cadres to hide the obvious symbols of their excess. This will gain some time for the new General Secretary and Standing Committee – the most powerful members of the party, with whom Xi must come to a consensus – to develop a longer-term plan to reduce corruption, which threatens to derail China’s winning formula of quick economic development and relative social peace.

To an extent, Xi and the new Standing Committee have already acted in line with the two messages broadcast over the course of the southern inspection tour. In line with his promise to persist with economic liberalization, several small reforms were passed that should facilitate further foreign direct investment in China’s economy. And as a demonstration of his commitment to fight excess and corruption, the size of the Standing Committee was reduced from nine to seven members. And, in keeping with the tradition of trying out new policies in Guangdong, an experimental program was launched in that province to make public the expenditures of CPC officials.

If Xi Jinping’s first few weeks of rule have demonstrated any single overarching trend, it is that he will likely be a stronger and more active leader than his predecessor, Hu Jintao. Many see Hu as having failed to either pass the necessary political reforms, or to adequately control China’s increasingly restive population. Although he is a princeling, Xi is already looking like more of a reformer than his membership in that faction would suggest. But whether he will go far enough remains to be seen. To fail to improve the Party’s reputation, which is increasingly marred by corruption in the eyes of the people, would be an egregious failure. Some high-level members of the Party have gone so far as to suggest that without meaningful action, the CPC may lose control of China even before Xi steps down in ten years’ time. Stimulating domestic consumption will be another great challenge for the new leader, as consumption in the developed world is hardly growing at all, let alone at a sufficient rate to support continued economic expansion in China.

If he is able to surmount both the economic and the political challenge, then Xi may be credited with being the greatest leader China has had since Deng Xiaoping. But ten years is a very long time in politics – especially in a country that is changing as fast as China. Not that that is an advantage. While he has plenty of time to falter, or to fail to address new problems, Xi must begin addressing corruption and enacting economic reform immediately. The stakes are higher now than at any time since Tiananmen. 

Much has been said of this being the “Asian Century,” and of the economic rise of China and India. As the West struggles to deal with a series of domestic problems, especially sluggish growth and high unemployment, many are looking to the giants of the east to power the next phase of global growth. Together these markets already account for nearly 40% of the global population, and much of the world’s economic dynamism will be found there in the years to come. But it remains to be seen whether China and India will compete or cooperate in their economic ascent to world significance. In a conversation with Indian Prime Minister Rajiv Gandhi during the late 1980s, Chinese supreme leader Deng Xiaoping commented, “The 21st century can only be the Asian Century if India and China combine to make it so.”

So what does the Sino-Indian relationship look like in 2012? In brief, it’s fairly contentious. With such a crowded geopolitical space in Asia, there are numerous points of conflict. The most persistent obstacle to closer Sino-Indian ties is a border dispute dating from the 1950s over the sparsely populated Himalayan regions of Aksai Chin and Arunachal Pradesh. A recent dispute over the outline of the map of China featured on China’s new passports has raised the ire of India’s officials; India retaliated by issuing a new visa that shows all the contested territory as belonging to New Delhi.

Such disputes, while petty in nature, are often the proxy for the deep-seated mistrust with which the two nations regard each other. While India and China likely understand the enormous economic costs of a military confrontation, both sides have undergone substantial military buildup, egged on in part by each country’s nationalist press.

Another long-running source of tension is India’s 50-year-old pledge to protect the Dalai Lama, former spiritual and political leader of Tibet. China’s relations with Pakistan and Sri Lanka, as well as Sino-Indian competition for influence in Myanmar, are further complicating aspects of a complex relationship.

Relations between India and China are indelibly marked by the disparity in the nations’ growth patterns over the past thirty years. While the countries share certain basic similarities – including populations over one billion people, high economic growth, and the expectation that they will lead the world’s economic recovery – China’s rise has been markedly more successful than India’s. Partly the gap can be explained through historical timing: while Deng Xiaoping began opening up China’s command economy in 1978, India only commenced dismantling the License Raj ten years later. In India, there is a persistent sense of inferiority. China’s image of clean cities, successful international events, and manufacturing prowess is often held up by the domestic Indian press to criticize conditions at home.

The comparison is not unwarranted. Even as India’s booming cities continue to grow and millions are lifted out of poverty, China is puling further and further ahead. A simple comparison of GDP growth rates tells the story: while China’s rate has been hovering between 9% and 11% for the past decade, India’s rate has been lower, and more volatile, varying between 10% and under 4%. In the areas of health care, quality of infrastructure, and foreign investment, China has a decisive lead over its southern rival.

An essential aspect of the divide between China and India are the separate ways the two countries have evolved economically. China produces so much of the world’s goods that “Made in China” has become a global cliché. Much as the United States passed from being the world’s manufacturer in the post-World War Two era to being primarily a services economy today, China is attempting to diversify its economy by stimulating domestic consumption and investing in the tertiary sector. India, meanwhile, appears to have bucked the historical trend and embraced its role as a global services provider without first developing a significant manufacturing base. While India has benefited immensely from U.S. companies’ hi-tech outsourcing efforts, much of the country remains unindustrialized. Even though India’s government has promised to increase the share of manufacturing in the national economy to 25% by 2025 (compared to 16% today), India’s relative lag will likely prevent it from ever competing with China in the production of durable goods, a highly valuable sector for any global power.

The comparison, however, is not entirely in China’s favor, as India benefits from a couple of distinct structural advantages. Aside from the resilient, albeit chaotic nature of India’s parliamentary system, which is frequently challenged by the task of democratically governing 1.2 billion people, India enjoys a free and relatively uncensored press. This acts like an escape valve for popular discontent in India, whereas in China, even internet comments are censored for possibly subversive content. Although departing Chinese premier Wen Jiabao has made many pointed comments about the “urgent” need for reform in China, no meaningful liberalization occurred under his and former Prime Minister Hu Jintao’s ten-year reign. The attitude toward reform of Xi Jinping, China’s relatively unknown new prime minister, remains to be seen and the extent to which popular discontent may build up and materialize further is a serious concern.

Furthermore, while India’s growth has comparatively sluggish, its demographic profile is well suited to continued economic expansion. While Chinese women give birth to 1.55 children on average, India’s women produce 2.58. The one-child policy may have been necessary to curb China’s huge population growth in the 20^th century, but India’s young and growing workforce bodes better for the future. Moreover, as labor costs continue to increase in China, some experts predict that India’s manufacturing sector will enjoy some much-needed growth. That may help to offset the dark side of a fast-growing population, which is the creation of masses of unemployed young men. Despite their ongoing rivalry, Chinese and Indian cultures share many characteristics: a fondness for education, especially in the sciences; family loyalty and conservative values; an ethos of hard work; and of course, a never-ending thirst for tea. However, the most compelling similarity is their shared desire for growth, and especially domestic consumer growth: a walk around any major city in either country would likely convince the reader that the Asian Century is upon us. From Guangzhou to Mumbai, the optimism and energy that these cities encompass is simply electrifying. With continuing urbanization and young populations (especially in India), domestic growth seems secure in the short term. But will India’s economy be able to provide enough jobs in manufacturing and services, while continuing to drag people off the land? The country’s stability hangs in the balance, as the peril of unemployment and slow growth threaten twenty years of economic progress. And will China ever match its economic reform with a political overhaul that provides its people with a proper voice? The marked rise in protests in China over the 2000s, coupled with an increasingly aware population of “netizens,” bodes ill for the country if political reform is neglected by the new administration.

For both nations and indeed the world at large, stakes are high. How China and India attempt to resolve their internal problems while encouraging peace and cooperation has great implications for the future of the global economy. Most importantly, the conflicts over strips of Himalayan land need to be put to rest, as they present the risk of armed conflict between two of Asia’s strongest regional powers. Bilateral trade has fallen slightly in the first half of 2012, a worrying sign amid the nations’ diplomatic skirmishes over territory. But both Xi Jinping and Manhoman Singh appreciate the role of economic growth in ensuring peace, and vice versa. With complementary specialties, the Chinese and Indian economies have great prospects for integration. More trade and cooperation may require Chinese and Indian politicians to swallow their pride and trust their rival, but the mutual benefits would be enormous. 

In his book, The Rise of China’s Soft Power political scientist Joseph S. Nye writes, “[In today’s age] success depends not only on whose army wins, but also on whose story wins”. This comment remains especially pertinent in 2012, after what has been another big year for China in attempting to ‘improve its story’ to the rest of the world – primarily through the use of soft power.

In international affairs, the term ‘soft power’ refers to a country’s attempts to gain influence through co-operation and persuasion, rather than force. Popular routes include creating goodwill through foreign aid, the spread of culture such as arts, film and music, and of course diplomacy. In effect, economic sanctions and threats of military intervention are replaced by offers to reduce trade barriers and promote cultural exchanges.

Over the last two decades, China has increasingly relied upon soft power as a means of building global relations. It has spent billions on aid programs to Africa and Latin America, built Confucius Institutes around the world and attempted (pretty successfully) to improve its global image through high-profile events like the 2008 Beijing Olympics and 2010 Shanghai Expo. China Radio International now broadcasts an English channel 24/7, and pundits like Yang Rui, host of CCTV’s English-language program “Dialogue”, regularly welcome foreign guests with a cultured British accent.

How have these initiatives played out? Have they contributed towards a more positive global image of the PRC? The answer is complicated. Some analysts regard soft power as “the most potent weapon in Beijing’s foreign policy arsenal”, claiming it has been indispensible in counter-balancing the “China threat” perception that emerged in the early 1990s over the Dragon’s continued economic and military growth. For its part, China has been quick to exploit reduced American involvement in Africa and Latin America while the Bush administration  was distracted elsewhere by its unpopular and expensive war on terror. After all, its active involvement in the UN and its search abroad for raw materials and sales markets depend heavily upon the goodwill of the world’s developing states.

Many statistics are encouraging. The enrollment of foreign students in China increased to 240,000 in 2011, from fewer than 35,000 a decade ago. In 2004, Argentina, Brazil, Chile, Peru and Venezuela afforded China MES status, and opinion polls conducted by BBC in 2009 indicated a preponderance of positive views of China in the region (approval rates of China were roughly 62% in the Central American countries). China’s African policy has seen similar gains, as evidenced by the breaking off of diplomatic relations with Taiwan by many countries in favor of the PRC (a crucial component of the one-China principle). By 2007, the Republic of South Africa, the Republic of Central Africa, Guinea-Bissau, Liberia, Senegal, Chad and Malawai had all embraced China as a major diplomatic ally.

Nevertheless, critics are quick to point out that China’s attempts to improve its global image can only go so far in light of inconsistencies we see with respect to its policies at home. The 2008 Olympics – a major success abroad – were followed by domestic crackdowns on human rights activists. Shortly after the Shanghai Expo (2010), China imprisoned Nobel Peace Laureate Liu Xiaobo. Furthermore, despite China’s attempts to turn Xinhua and CCTV into global news competitors, many Western viewers continue to regard them as ‘brittle propaganda’. A BBC poll in 2011 indicated that, although China remains popular in Africa and Latin America, views of China have become predominantly negative in the U.S., India, Japan, South Korea and most of Europe.

Many African states have additionally criticized China for not properly implementing its infrastructure projects abroad. In particular, China has been accused of causing environmental degradation through mining, and of disregarding working conditions. During Hu Jintao’s 2009 visit to Zambia, a scheduled trip to one of China’s mines was cancelled over fear of workers’ protests.  In Ethiopia, rebels have gone as far as to kidnap employees of Chinese oil companies; 9 Chinese oil workers were shot and killed during an armed raid near Addis Ababa in 2007.

In sum, Chinese soft power over the last decade has had both considerable strengths and weaknesses. It has successfully assumed the ‘diplomatic offensive’ in regions neglected by other significant actors (notably Africa and Latin America), used Confucianism as a vehicle through which to promote Chinese culture internationally and established strong, economic links with developing economies. On the other hand, these initiatives are often accompanied by too-intensive exploitation of raw materials, the implementation of infrastructure projects through Chinese labor (adding to unemployment in host countries and raising concerns over quality), as well as interference in other states (especially when Chinese aid is contingent upon access to resource and sales markets).

The deliberate employment of soft power tools within China’s foreign policy reflects a growing realization by the PRC that it must continue to improve China’s image abroad. To do this, however, it must offer a more-than-superficial image to the rest of world, especially those parts which do not rely heavily on Chinese foreign investment. Advances must be made in the areas of political and diplomatic soft power – assuming a more constructive presence in international debate over sensitive issues such as Syria and climate change would be a great first step.