1 talking point week in china 6 china consumer 5 week in

1 Talking Point5 Week in 60 Seconds6 China Consumer7 Banking and Finance8 Property

10 Economy12 Corporate Q&A15 Society and Culture19 And Finally20 The Back Page

8 November 2013Issue 215www.weekinchina.com

Week in China

Next up, Alibaba?

ww

w.be

nita

epst

ein.

com

Do two hugely successful tech IPOs indicate that US investor appetite has returned for Chinese listings?

Brought to you by

Atech firm knows it has becomepart of the social fabric when it

inspires a hit TV show. Case in point:Craigslist. Elizabeth Meriwether saysshe based her hit US comedy NewGirl on her own experiences ofbrowsing the classified ads on thewebsite, recounting to Collider.comthat it was a time in her life when shewas “bouncing from Craigslist subletto Craigslist sublet”. Sure enough, the listings web-

site plays a prominent role in theopening episode of New Girl, withthe show’s star Zooey Deschanelusing it to find a flatshare. The se-ries aired its 56th episode thisweek, perhaps because Deschanel’scharacter Jess is exactly the sort ofroommate that thirty year-old sin-gletons would like to find. Theshow’s mention of Craigslist –

Dotcom fever rides again

which started in San Francisco in1995 and now gets 20 billion pageviews per month – is evidence ofhow pervasive the site’s reach hasbecome in the US. And while it re-mains privately-owned, a wide-spread recognition of theCraigslist brand probably helpedits Chinese equivalent go public inNew York last week.

Are we seeing a revival in Chinesetech IPOs in the US?On the evidence of the past weekor so, the answer would seem to bea qualified yes. The initial publicoffering of 58.com, widely dubbedas the ‘Craigslist of China’ was a re-sounding success, increasing inprice by more than 45% on its firstday of trading. The company raised$187 million, pricing its offering at

$17, well above the expected rangeof $13 to $15.Like Craigslist, 58.com is a classi-

fied advertising platform, with afootprint that spans 380 Chinesecities. According to the prospectus,130 million users access the siteeach month, with an average 1.9million listings posted every day (as per the second quarter). WebsiteTechCrunch says the ads arebroadly similar to those in the US,but that 58.com has been especiallysuccessful in hosting short termjob classifieds for blue-collar work-ers. And while 4.3 million mer-chants also advertise on the site,probably what excites investorsmost is 58.com’s success in makingthe leap onto smartphones screens.About 39% of its page views comefrom mobile applications.

Qunar and 58.com surge in US stock debuts, but will Alibaba soon follow?

1

The big one: New York’s battle to win Alibaba’s listing may not be over yet

Photo Source: Reuters

Talking PointWeek in China

8 November 2013

Talking Point

But it wasn’t just 58.com thatproved a hit with US fund man-agers last week. Following closelyon its success was a second IPO,this time for Qunar, a travel web-site controlled by search enginegiant Baidu (for our first mentionof Qunar, see WiC126). It raised$167 million and surged an eye-popping 89% on its first day oftrading last Friday, according toBloomberg. It too priced its offer-ing above the initial target of$11.50, persuading investors to partwith $15 for each American deposi-tary receipt.Qunar shares have since trended

downwards but have kept hold ofmost of their early gains, closing at$26.50 earlier this week.According to the New York Times

that sort of enthusiasm “suggestsinvestors may be warming oncemore to Chinese companies thatseek initial public offerings in theUnited States”.But last week’s heady mood

needs some context too. Light-inTheBox, the only other Chinesetech firm to list in New York thisyear, more than doubled in priceafter debuting in June. Its own de-positary receipts are now tradingabout 10% below their IPO price.The bigger picture tells a story

too. The first wave of Chinese techIPOs started out with Sina.com –owner of the enormously popularTwitter-equivalent, Weibo – in2000. Over the next decade atleast 200 other firms followedSina to Nasdaq or the New YorkStock Exchange (many from thetech sector), raising moneythrough IPOs or reverse takeovers. So far this year five Chinese firms

have completed IPOs on Americanbourses, a small increase on lastyear when just two sought a listing.Then again, the figure is muchlower than 2010, when Reuters re-ported that 40 Chinese firms hadsought American IPOs.

Week in China8 November 2013

Why the reduction in China IPOson the US markets?The past two years have not beenkind to US-listed Chinese stocks. Aslongtime readers of WiC will recall,the entire group has been draggeddown over suspicions about fraud-ulent accounting. This began inmid-2011 when short-sellers likeMuddy Waters began publishing re-search on dubious practices it al-leged to have uncovered (see issue111). The high-profile exposure ofSino-Forest – “effectively a Ponzischeme”, Muddy Waters alleged –eroded confidence in the financialstatements of a number of otherChinese firms. There was wide-spread dumping of shares in ‘China-concept’ stocks and the sell-off wascompounded when the US Securi-ties and Exchange Commission ex-pressed its own reservations aboutChinese financial reporting. McKinsey has estimated that in-

vestors in US-listed China stockslost 72% of their investment over atwo-year period.Of course, solid Chinese compa-

nies were tarred with the malprac-tices of their less scrupulousbrethren. With stock prices sagging,some of the majority shareholdersno longer saw the benefit of a USlisting. Delistings of Chinese firmsfrom American bourses outnum-bered new public offerings.So has the mood changed? That is

the debate triggered among invest-

ment bankers after the successesamong last week’s IPOs. But as theNew York Times cautions: “Thequestion now – for both Americaninvestors and the companies fromChina waiting in the wings to raisemoney from them – is whetherthese recent deals are an anomalyor have truly managed to unfreezea market that was once a top desti-nation for Chinese companies seek-ing to list overseas.”

An interesting week to IPO…It may be a coincidence but it wasnevertheless a notable one: lastweek not only saw the two ChineseIPOs in America, it was also the firstanniversary of the ban on new list-ings on China’s own domesticbourses. The freeze, said to havebeen prompted by a desire to elim-inate IPO candidates with dodgierfinancial statements, has blocked anestimated 900 companies frommaking their market debuts sincelast November. According to the Fi-nancial Times, 270 have since with-drawn their applications after regu-lators demanded fresh financialbackground checks. Most of the oth-ers are stuck in the holding pattern– though about 10% of the waitingfirms have now been cleared by theCSRC listing committeee pending fi-nal approvals to raise a combinedRmb55.8 billion ($9.1 billion), ac-cording to earlier estimates fromErnst & Young.

2


Talking Point

The Financial Times is reportingthat the IPO freeze could last an-other six months but the truth isthat no one really knows when theblock is going to be lifted. When therestrictions were adopted, manybankers were hopeful they wouldbe gone by Chinese New Year. Ninemonths later and the embargo isstill in place. So with no domestic opportunity

to raise equity capital, it’s no sur-prise that faster-growing firms havebeen eyeing overseas markets. Fortech outfits that’s led to a gravita-tion back to the US, which offers aninvestor base most familiar withtheir industry.

Still wary?The short-sellers haven’t gone away,mind you, and they still have Chi-nese companies firmly in theirsights. That became clear once morein October when Muddy Waterspublished a new 81-page report onNQ Mobile, describing the maker ofmobile phone security software as a“massive fraud”.In response NQ defended itself in

a conference call, issuing a series ofpresentations, press releases and in-terviews.Bloomberg conducted its own

mini-investigation. Its conclusion:“Accountants, a professor and alawyer interviewed by BloombergNews said the report’s criticism ofNQ’s cash accounting and the waythe Chinese company got fundsfrom its US public offering may beunfounded. On the other pointsMuddy Waters raised in its report,it’s still hard to gauge their validity.”NQ has been experiencing delays

in collecting payments from cus-tomers. These are considerablylonger than those of competitorslike Qihoo 360 and Tencent, some-thing that Muddy Waters sees as ared flag for fraudulent behaviour.But Bloomberg interviewed a part-ner with New York-based account-


ing firm Marcum Bernstein &Pinchuk who said that isn’t a given.It identified another Chinese firm –AsiaInfo-Linkage, a telecom soft-ware developer – whose collectionswere even slower. Its main cus-tomers are the biggest phone carri-ers in China, and the accountingfirm says that a valid explanationfor NQ’s figures is that it deals withlarge clients that pay slower.As Bloomberg surmises: “The

mixed scorecard helps explain whythe stock declined more than 60%nearly three days after the report,then pared the loss to 44% by theNovember 1 close in New York.”Another short-selling debacle

back in the news is Silvercorp. TheHenan-based but New York-listedfirm has recently appeared in courtsuing short-seller EOS Holdings fora report that it says wiped $230 mil-lion off its market value.Silvercorp is a miner, not a tech

company. But it is also a telling case,given the ferocity of the charges andcounter-claims unleashed since EOSpublished its original analysis inlate 2011 alleging that Silvercorp hadinflated its profits and misled in-vestors about its production levels.

To get its information, an EOSmole installed cameras near themine, counting trucks and estimat-ing production levels. In a detailedanalysis of the dispute, CaijingMagazine reports that Silvercorp’sowner Feng Rui was furious at thistactic, reporting the EOS employeeto local police for trespassing. Hewas subsequently arrested andtaken to court in Henan on chargesof photographing the mine ille-gally with intent to damage Silver-corp’s business reputation. (Thecase is ongoing.) EOS’s accusations did spark a

new corporate governance offen-sive at Silvercorp. Feng hired KPMGto conduct a forensic audit and theresults led to a 40% recovery instock price to $10. On the otherhand, the international geologiststhat Feng hired to prove up Silver-corp’s reserves found that there wasonly about half the silver claimed inthe company’s 2011 annual report(when the stock price was closer toits $16 peak).Amid the confusion over the con-

flicting data being issued by bothsides, one of the more interestingdisputes was their argument over

3

LUNGS AND LENSES. The smog enveloping China’s cities isn’t just an

irritant to their inhabitants’ lungs. The government in Beijing is now

concerned that pollution is a direct threat to national security. As the South

China Morning Post reported in a front page story this week, the authorities

are worried that its network of surveillance cameras is being rendered

obsolete in smoggy conditions. When visibility in Harbin dropped below

three metres last month, cameras could no longer penetrate the thick layer

of fug. Security personnel now worry that terrorist groups from areas like

Xinjiang might choose smoggy days to launch attacks across the country.

The SCMP says the smogs can get so bad that even the latest infrared

cameras are of little use, quoting an engineering expert with Shenzhen

Yichengan Technology that the pea-soupers afflicting many Chinese cities

are impenetrable to current camera technology. To this end, the government

has funded two teams – one civilian and one military – to come up with a

solution. The timeline is four years, suggesting that the authorities are

resigned to the fact that city smogs are here to stay and likely to worsen.

Planet ChinaStrange but true stories from the new China

Talking Point

the truckloads counted by EOS.Feng has tried to refute the claimsby insisting that the short-sellerhas undercounted his production.Why? Because all of the trucks wereoverloaded, Caijing cites Feng assaying. It’s a curious defence.Clearly Feng would prefer to incurthe wrath of the highways agencythan the securities regulator...

Back to the sentiment on tech list-ings…Last week excitement over 58.comand Qunar has whetted appetites fora more gargantuan Chinese tech list-ing. The candidate in question, ofcourse, is Jack Ma’s Alibaba Group,which has been talking to differentbourses in hope of arranging bene-ficial terms for its market debut. Following the barnstorming IPO

of Twitter this week, Alibaba prom-ises an equally exciting offering,likely to value the company at closeto $100 billion and raise $15 billionAs we reported in issue 211, it

looked last month as if the stricterHong Kong regulations had per-suaded management of the meritsof New York. But like Hamlet – whoteases audiences with his will-he-won’t-he indecision – Alibaba’s


bosses have remained coy. The certainty of a US listing has

receded in recent days. Indeed, in acase of the tech giant ‘doth protesttoo much’, its CEO Jonathan Lu gavea recent interview to the SouthChina Morning Post in which hehinted that Hong Kong remains itspreference. Alibaba founder Ma has also

commented on the topic. “Ouroriginal plan was to launch theIPO this year, but since our boathit the rocks in [Hong Kong’s] Vic-toria Harbour, we have to post-pone it,” he said, indicating thatthe listing won’t happen this year. Ma told media he has not set a

new timetable, but was heartenedby a recent blog posting by HongKong stock exchange boss Charles Licalling for a “proper debate” on“non-standard shareholding struc-tures” for “innovative companies”.The issue is the dual-class share

structure that Ma wants. This wouldallow the founder and his partner-ship to nominate the majority ofthe board (and by definition namethe CEO and retain managementcontrol; a structure Ma says is es-sential as “it is impossible to eventhink of the company being led by

an outsider”). Such arrangementsare currently not permitted in HongKong for corporate governance rea-sons.Ma is not giving up: “Hong Kong

has no need to change anything forAlibaba, but Alibaba is very glad tosee that the city is reflecting afterthe company proposed its IPO plan.Hong Kong should have this debateand Alibaba will be very happy toparticipate in the discussion and wewill participate with a positive andoptimistic attitude.”The dual class structure is per-

mitted in New York but Ma’s reluc-tance to push ahead suggests hesees disadvantages with the USroute. Want China Times agrees,saying Ma will “think twice beforelisting in the US because it mightface lawsuits related to its Alipaybusiness” (which was spun off incontroversial circumstances, seeWiC118). The current message seems to be

that Alibaba’s IPO is on hold. Frus-tratingly for New York bourse exec-utives the city looks like it’s secondchoice. That could stall the trend –flagged by 58.com and Qunar’s IPOslast week – of a resurgence in Chi-nese listings in the US. n

4

Illustration: ww

w.benitaepstein.com

All hands on deckThey may be longer than the Eiffel Tower is tall, but the

fleet of Valemax mega ships hasn’t impressed the

Chinese, who have banned them from docking at their

ports. It has been a huge setback for their owner Vale,

the Brazilian mining giant as the vessels were

designed specifically to carry iron ore to China, its key

market. The ban was enforced in mid-2011 and as we

pointed out in WiC137, Vale can’t afford to idle these

colossal freighters indefinitely; we thought it looked

likely to find a compromise with Chinese shippers. This

week that happened. Xinhua is reporting that

Shandong Shipping had agreed to pay $500 million for

four of the Valemax vessels.

The Wall Street Journal called it a “breakthrough” in

the thorny Sino-Brazilian stand-off, while Economic

Oberver noted of the deal’s specifics that Shandong

Shipping has purchased the vessels but will lease

them back to Vale. If this provides a blueprint expect

to see a lot of Valemax vessels finally unloading at

Chinese ports soon.

The Week in 60 Seconds

1China needs economic growth of 7.2% to ensure a sta-ble job market, Premier Li Keqiang said in remarks

published this week. Li claimed that the economy needsto ensure that at least 10 million new jobs were createdeach year to cap the urban unemployment rate at about4%. The Chinese economy is set to grow 7.5% this year,its slowest pace in decades.

2Two Chinese banks that sold nearly $2 billion worth ofshares in Hong Kong listings got lukewarm receptions

on Wednesday from investors. Huishang Bank, a regionalbank based in Anhui Province, priced its IPO at the bot-tom end of the marketed range on Wednesday, raising$1.2 billion. Also on Wednesday, shares in Bank ofChongqing closed slightly down on their first day of trad-ing after the company raised $548 million. Analysts reck-oned investors are concerned about how China’s financialsystem will cope with a potential deluge of bad debt.

3China’s biggest pork producer Shuanghui, whoseholding company bought Smithfield Foods, the

world’s largest hog farmer, earlier this year is to be partof a potentially $6 billion listing in Hong Kong. If suc-cessful, it would be one of the biggest IPOs in the city inrecent years. Shuanghui could also use the IPO proceedsto pay down debt used to acquire Smithfield or allow itsprivate equity owners an opportunity to exit.

4China Petrochemical, parent of Sinopec, plans tospend up to $17.4 billion buying a 2% stake in the

subsidiary over the next year, in an apparent move to


Li announces magic number

prop up Shanghai’s A share market. Chinese regulatorshave urged major shareholders and parent companiesof China’s major listed firms to buy shares to supportthe stock market. The state-owned parent started thepurchases on Tuesday, buying 6.06 million shares, or0.005% of the listed arm, in Shanghai.

5Suntech has sold most of its manufacturing assets toa smaller rival, Shunfeng Photovoltaic (for more on

which, see WiC212), for Rmb3 billion ($493 million) in anattempt to pay back creditors. Suntech, once the world’slargest solar-panel maker, said it will move away frommanufacturing panels and become a seller and distrib-utor of solar equipment, according to a court filing. Chi-nese creditors, owed at least $1.8 billion, are likely to befirst in line for some of the proceeds. It wasn’t clearwhether US bondholders would see any of the money.

6An 8 year-old girl in Jiangsu Province became theyoungest person in China to be diagnosed with lung

cancer. Her doctor reckons her cancer could be attrib-uted to air pollution, said China News Service. Fine par-ticulate matter, known as PM 2.5, can lead toinflammation and result in malignancy. Lung disease isthe leading form of cancer in China.

7Chinese telecommunications giant Huawei hasscotched rumours it wants to buy BlackBerry.

Huawei, the world’s third largest smartphone maker, hassaid it wants to grow organically, not by acquisitions. n

The major news items from China this week were...

5

Shuanghui plans Hong Kong listing

Sinopec parent cheers market with share purchase


China Consumer

When Shuanghui Internationalcompleted its $7.1 billion ac-

quisition of Smithfield Foods – theworld’s biggest hog producer – itwas generally portrayed as thelargest purchase yet by a Chinesefirm of an American company. As we suggested in WiC196, the

situation isn’t quite so straightfor-ward as that – Shuanghui Interna-tional is registered in the Cayman Is-lands and controlled by privateequity investors, many of them non-Chinese. Now some of these interestsseem keen to cash out, followingnews that Shuanghui has appointedadvisors to prepare for a $6 billionIPO in Hong Kong next year.The company’s operating arm in

China, Henan Shuanghui Develop-ment, has also been busy. But in try-ing to expand its commercial reach,it is provoking confrontation withrivals who don’t want it getting afoothold in their local markets. In one incident reported at a

wholesale facility in Yiyang Countyin Jiangxi, Shuanghui staff evencame under attack by workers froma rival abattoir. Three men intenton sabotage broke into the build-ing on October 3, says the BeijingTimes. There was a confrontationwith a duty clerk, followed by afight. The local police detained theclerk for almost three weeks after-wards but failed to apprehend theintruders, says Liu Jintao, aShuanghui executive.Speaking at a press conference in

Beijing, Liu said this was typical ofthe treatment suffered byShuanghui in other parts of theprovince and that it was time to


Getting a grilling

“take up legal weapons to protectour own interests”.Shuanghui is actually a major in-

vestor in Jiangxi having spentRmb1.2 billion ($196 million) threeyears ago on Asia’s largest porkslaughterhouse in the provincialcapital Nanchang. But most of itsmeat is sold outside the province incities like Shanghai, Nanjing andHangzhou. When it has tried to sellpork in places like Yiyang, it has runinto bitter opposition. “We can pro-duce locally, but they do not wantus to sell locally,” Liu complains. The reason is simple, according

to Chen Wenyun, boss of the out-let that was attacked in Yiyang.Since opening at the end of Sep-tember, his store has sold pork forRmb22 a kilo, about Rmb5 lessthan the other wholesalers, gener-ating daily sales far greater thanits competitors. Shuanghui has been trying to

reap economies of scale by central-ising more of its slaughtering facili-ties and taking direct control overthe meat produced and distributedthrough its supply chain. But as it does so, it is biting into

markets that have supportedsmaller and less sophisticated oper-ators. One option is to negotiatewith the local abattoirs to give uptheir traditional business and signup as Shuanghui wholesalers in-stead. But some of the slaughter-houses aren’t ready to give ground.Shuanghui says the resistance inYiyang is not an isolated case andthat it has encountered oppositionacross Jiangxi. This has includedseizures of meat consignments and

confrontations in which lorries havebeen blockaded or prevented fromunloading.Another allegation made at the

press conference in Beijing was thatYe Jinhua, a senior official in the lo-cal trade and commerce bureau, islinked to much of the trouble inYiyang. He also happens to be theoperator of the only slaughterhousein the county. “For a long time Yehas used his public authority overslaughtering controls to monopo-lise the county’s meat market, rais-ing prices and causing local con-sumers to complain,” the BeijingTimes suggests. If Ye did plot the resistance to

Shuangui, he must be regretting thesubsequent publicity. He is also be-ing accused of ripping off farmersby charging them for VAT, despiteduty being suspended on meat inJanuary as part of an effort to keepdown prices. “It wasn’t until ourpress conference that our counter-parts [i.e. other pork suppliers] re-alised that VAT on pork was can-celled at the start of the year, butthat they were still being chargedthe full amount. Now [the suppli-ers] are collecting all their receiptsand trying to find Ye to get a re-fund,” Shuanghui’s Chen crowed toChina Enterprise News. Reports this week in the People’s

Daily suggest that Ye has been sus-pended and is facing investigation,although officials in Yiyang have re-fused to comment. n

Success for Shuanghui in US, problems at home

6

A bystander in the bacon wars

Photo Source: Shutterstock

Banking and Finance

By early October there were 15 re-gional Chinese banks waiting

for approvals to go public. Unable tolist on the domestic A-share market,the lenders are turning to HongKong for capital instead.One example is the Bank of

Chongqing which began trading inHong Kong on Wednesday after a$548 million IPO. Huishang Bank,another lender formed from 31 ur-ban credit cooperatives in Anhui’sHefei city priced its own offeringthis week as well, raising $1.2 billion(slightly below the $1.3 billion antic-ipated).Everbright Bank, the banking arm

of state conglomerate China Ever-bright, is already listed in Shanghai.Yet it too has got approvals to raisecapital in Hong Kong and plans tosell as many as 120 million H shares.Analysts calculate the offering couldraise more than $5 billion. That’s al-most $6 billion in equity fundrais-ing with the promise of more tocome. So why the rush to market? After a lending binge in the wake

of the 2008 global financial crisis,Chinese banks are looking to re-plenish their capital. Take as an ex-ample China Merchants Bank,which raised Rmb27.5 billion ($4.5billion) in a rights issue in Shang-hai in September. China’s banks must attract a total

of Rmb1 trillion in new capital thisyear, Sheng Songcheng, chief of sta-tistics at the People’s Bank of Chinatold the China Daily. That’s the min-imum required if they are to extendan estimated Rmb9 trillion in newloans while maintaining a capitaladequacy ratio of 12%.


Time to replenish

In the past China’s banks havetended to replenish capital organi-cally through a combination ofrapid earnings growth and paltrydividend payouts. But the stratagemis fraying. Profit growth continuedto decline in the third quarter as thebanks grappled with an increase insouring loans, as well as narrowinginterest spreads. ICBC, the world’sbiggest lender by assets, reported amere 7.7% rise in third-quarter earn-ings last week – a significant slow-down from the 12.5% growth in thesecond quarter (bad loans increasedby 30% on an annualised basis too). Still, there is some good news for

bankers. According to the 21CN Busi-ness Herald, the central bank willpermit 20 lenders to sell up toRmb300 billion in asset-back secu-rities (ABS) by the end of June nextyear. That’s a big increase on thequota set for the pilot scheme,which stood at just Rmb50 billionwhen it was first introduced in 2011.By selling down some of the riskierassets in their loan books into asset-backed securities, the banks couldfree up more capital for lending. As matters stand, securitised as-

sets account for nearly 26% of thebond market in the US. In China thefigure is less than 0.5%. “The gen-eral view on securitisation has beenturning from fearful to rational,”the 21CN suggests. “It is obviouslyexcessive in the US but obviouslyunderdeveloped in China.”The move isn’t going to be a quick

fix for the more financiallystretched of the banks, not least be-cause the expanded scheme is tinywhen measured against the Rmb130

trillion of assets at sector level. More immediate relief could

come from another source of fund-ing: preferred shares. This asset classranks above common stock in re-spect to dividend payments and as-set liquidations but is generallyfairly illiquid and carries no votingrights. Banks often issue preferredshares in times of stress – GoldmanSachs sold Warren Buffett’s Berk-shire Hathaway $5 billion of pre-ferred stock in late 2008 (it paid ahefty 10% fixed dividend and couldonly be bought back by Goldman ata 10% premium). Not surprisingly,common stockholders aren’t usu-ally enthused by such arrange-ments, but their terms can attractcapital during difficult times.The securities regulator has said

that it has been readying new rulesfor firms to issue preferred shares.Meanwhile local media expectbanks to be the first sector to get ac-cess to the planned pilot pro-gramme on launch (although whenand how big it will be remains to bespecified). It may be an important means of

fundraising, mind you, given fundmanagers are becoming more cau-tious. The New York Times reckonsdemand for both the recent bank-ing IPOs in Hong Kong was “luke-warm” and said it suggested “in-vestors are concerned about howChina’s financial system would copewith a potential deluge of bad debtthat could swamp the country’seconomy”. n

Banks are seeking to raise new capital

7

Photo Source: Imagine China

Property

Be rational when buying ahouse, don’t just blindly follow

others.That was the fairly humdrum ad-

vice being given to potential home-buyers as they crammed into a gym-nasium in Beijing late last month.

Southern Weekend reports that aproperty developer had rented outthe gym to accommodate tens ofthousands of people who wereturning up to buy an apartment ina new project in the capital. Therewas similar momentum elsewherein the city.

New apartments at Xuhui ETiandi sold out after just two hours,for instance, while another projectdeveloped by China Resources Land


What’s going on?

ran out of units in only an hour-more. “Apparently, buying a houseis like winning a lottery ticket, it alldepends on luck,” one homebuyergrumbled.

More than six months after thecentral government started to re-lease its grip on measures designedto rein in property sales, homeprices are creeping up again. Pricesrose 9.5% year-on-year in Septem-ber and last month they were up10.7% on average, the highest ratesince data tracker China Real EstateIndex System began keeping recordsin June 2011.

In leading cities like Beijing andShanghai, there are signs that theformer euphoria is back in abun-

dance. Home prices in Beijing leapt16% in September from a year ear-lier, picking up from large increasesof previous months. Shanghai’sprices also jumped 17%, and newhomes in Shenzhen and Guangzhouwere a fifth more expensive.

Not wanting to miss out, coupleshave resorted to extraordinarymeasures to get a stronger footholdin the market. The city governmentof Beijing reports that applicationsfor divorce soared by 41% to nearly40,000 in the first three quarters of2013, surpassing the total figure for2012. The implication is that manyof the couples are filing for divorceto sidestep tax regulations that tookeffect in March mandating that a

Data about the property market continues to confuse

8

“I’ll take the lot”: an enthusiastic homebuyer picks up a few apartmentsPhoto Source: Reuters

Property

couple selling a second propertymust pay capital gains tax of 20%(singles selling their sole propertyare exempt, if they have owned itfor five years or more).

Reviving sentiment in the realestate market is a mixed blessingfor Party leaders as they gather onSaturday for the Third PartyPlenum. Further surges in priceswill fuel concerns about rising so-cial inequality, frustrating thosewho are unable to afford their ownhomes. But the exuberance in themarket will calm fears that earlierclampdowns might have taken toomuch steam out of the wider econ-omy, as well as putting excessivepressure on local governments,who rely on land sales to fundmuch of their budgets.

Investors also have a lot at stake.So far this year Chinese propertydevelopers have issued $23.7 billionof overseas bonds, almost threetimes the previous record from2009. But only one of the propertybonds that priced this year was in-vestment grade, with a handful intriple B territory, says the SouthChina Morning Post.

“If there is a slowdown in prop-erty sales, the firms that have issuedparticularly high-yielding instru-ments may have problems meetingtheir coupon payments,” one re-search analyst warned.


A closer look at home pricegrowth suggests that price increaseshave largely been concentrated inthe major cities, where there is stilla shortage of supply. Such dispari-ties are not new. Beijing and Shang-hai often report booming sales,while other parts of the country re-main sluggish.

Wenzhou is one of the laggards.Hit hard by weakening exports andslowing investment, property pricesin the city in Zhejiang province con-tinue to slump. Average new homeprices declined by an annualised1.8% in September.

Haikou in Hainan province isn’tfaring much better, edging up 1.1%as it grapples with a problem ofoversupply.

“Polarisation is now very serious.Home prices in some second-tiercities are shaky,” says Eliza Liu, chiefeconomist at CCB International.

In a market as large as China it’snotoriously difficult to generaliseabout national trends, especially asthe real estate data is often frag-mented or incomplete.

It’s also clear that a top-down ap-proach to implementing policiesacross the sector at a national levelisn’t going to work.

Hence analysts report that thecentral government is allowingmore local officials to come up withproperty measures of their own in-stead of imposing national policies.

“The regional differences acrossChina’s property market are verypronounced. Therefore the intro-duction of a unified national prop-erty tightening policy is no longernecessary,” real estate expert YinZhongli told the Chongqing Busi-ness News.

This week the Shenzhen govern-ment announced that it will raiseminimum downpayments on sec-ond home purchases to 70% from60%, says China Securities Journal.The capital city, Beijing, also intro-duced tightening measures in late

October. Shanghai is reported to bemulling new measures of its own.

In other cases, local governmentswant to relax earlier tightening.Wenzhou now allows families tobuy two homes, instead of just one.Wuhu in Anhui province, whichwants to attract a more educatedworkforce, has even been trying toencourage university degree hold-ers to buy property by exemptingthem from deed tax and offeringother upfront subsidies.

Meanwhile for those outsideChina – particularly investors – thatare trying to assess the broad impli-cations of all the data that Chinesereal estate generates, WiC can onlyconsole that parsing what is goingon doesn’t get any easier... n

9

Wondering whether to buy too


Last week we reported that a re-porter from News Express had con-fessed to taking bribes to help anunidentified party slur Zoomlion, amaker of diggers and concrete mix-ers. This week, one of China’slargest bottled-water producersNongfu Spring has filed a complaintwith the top media regulator accus-ing the Beijing Times of deliberatelydefaming the company. Nongfu saysthe newspaper has published asmany as 76 “fake” stories to taintits image.

In April, the Beijing Times pub-lished reports alleging that Nongfuhad adopted the water-quality stan-dards of Zhejiang province insteadof the stricter national levels, despiteselling its water nationwide. ButNongfu claims that the newspapermade up remarks from national andprovincial health watchdogs to sup-port its “biased” reporting.

Nongfu also said it had filed adefamation suit with a Beijing court,seeking Rmb60 million ($9.7 million)in damages from the newspaper.

Keeping track

Economy

Sometime in the fourteenth cen-tury a young orphan in rural

England walked to London afterhearing that its streets were pavedwith gold. He soon discovered hismistake, but has a stroke of luckwhen a benevolent merchantnamed Fitzwarren takes him in as ascullery boy. The boy buys a cat andmuch later becomes Mayor of Lon-don. Such is the (highly-abridged)tale of Dick Whittington, wellknown to generations of UK school-children, as well as devotees of thatstrangely English stage phenome-non, pantomime.

The tale is based on a real indi-vidual, Richard Whittington, theyounger son of a Gloucester busi-nessman. He was indeed sent to Lon-don, but to become a mercer (clothmerchant). Whittington became asuccessful trader in silks and velvets,later becoming London mayor.

Whittington would have found ittroublesome to rise to a similar po-sition in modern-day China (afterall, the post of mayor is not open tobusinessmen, only to Party bureau-crats). And he may also have foundhis move to the city a difficult one,thanks to the constraints of thehukou, China’s system of householdregistration. In fact, it was designedpurposely to keep villagers in theirvillages, and discourage movementto cities.

In Mao Zedong’s time, the secu-rity apparatus made sure that mi-grants were repatriated to wherevertheir hukou designated. Later, as aresult of Deng Xiaoping’s economicreforms, the state gradually relaxedits grip on the citizenry’s move-


The green grass of home

ments, allowing the rural poor toseek factory jobs in the city.

But the hukou didn’t go away. To-day the source of frustration is it de-nies those who migrate the same ba-sic rights as those enjoyed by urbanresidents, cutting them off frombenefits like state healthcare andschool places for their children.

That’s created a lot of angry mi-grants, perhaps as many as 236 mil-lion of them. That’s the numberquoted in an official report of thosewho would like to settle for good inthe cities in which they work. Thisweekend a meeting of China’s polit-ical bosses – known as the ThirdPlenum – has prompted speculationof potential reforms to the hukousystem, ending the discriminationagainst migrants.

But that alone might not beenough because rural folk are lesslikely to settle permanently in citiesunless another key issue is ad-dressed: their right to sell theirfarmland.

Unlike their urban peers, rural res-idents cannot buy or sell land out-right because they only hold theright to farm it (typically on 30-yearleases). This effectively shuts themout of the property market. It alsoties up their assets – their homes andsurrounding land – and contributesto an underlying sense of economicinsecurity.

In advance of the plenum meet-ing, policymakers have been tinker-ing with a range of pilot pro-grammes designed to test landreform among rural folk. The Econ-omist referred to one scheme lastweek in Guangdong that allows vil-lagers in Gumian to mortgage theirhomes to borrow extra cash. In free-wheeling Wenzhou, the local gov-ernment plans to go a step furtherby allowing urban residents to buyhouses from villagers – although theChinese press warns that buyers willbe cautious about doing somethingthis radical until laws are changed ata national level.

More reports on land reform in advance of the Third Plenum

10

Seeds of change?

Photo Source: Thinkstock

Economy

And in another attempt to ad-dress the rural property rights co-nundrum Citic Group, one of thecountry’s largest conglomerates, isoffering an innovative trust productbacked by land rights on a small plotof land in Anhui province. The trustwill lease land from farmers andhand it over to companies to man-age, reports Reuters.

By bringing more land under pro-fessional management, there arehopes that agricultural productivitywill improve. And the benefit for itsformer farmers is that they will re-ceive a regular income (from therent), but also a small cut of anyprofit made by the managementcompany, reports the Shanghai Se-curities News.

Parts of Citic’s plan look similarto a project in Jiaxing in Zhejiangthat allows farmers to lease theirland to a professional agriculturalfirm but be guaranteed to regain theland rights should they want themback (see WiC199).

If Citic’s project works, the pro-ceeds could help migrants with theirtransition to city life. CenturyWeekly believes the programme of-fers a “higher, long-term return than


the usual one-off compensation”they get when land is sold off by lo-cal governments. Although the proj-ect is in its early stages, ZhangJisheng, a senior official with CiticTrust, told Shanghai Securities Newsthat there are teams preparing toreplicate it in other places.

All of these schemes demonstratea degree of experimentation aheadof the Third Plenum (see WiC213),when the leadership is expected tooutline its key objectives for thenext 10 years.

But attendees will also be for-given a sense of déjà vu on ruralland reform, after years of discus-sion on the topic. Hu Jintao calledfor the “gradual” establishment ofa “unified rural and urban market”for land sales at his own thirdplenum meeting in 2008, for in-stance. Perhaps Xi Jinping will gofurther this month – at least he’s seta deadline that all farmers must re-ceive formal deeds to their propertyby 2017.

Some already have. The Econo-mist says this is an important step:“It is going to be a laborious task,with much squabbling and much re-course to satellite-aided surveying.

But without demarcations, a well-ordered land market cannot takeshape. And local media now fre-quently report on the handing overof deeds to happy farmers who havenever held such things before.”

Despite this, those hoping forgroundbreaking change in themonths ahead are probably goingto be disappointed, the South ChinaMorning Post warns.

There are powerful interestswhich benefit from the currentarrangements, not least the localgovernments who sell land to raisemunicipal revenue. As farmers of-ten lack firm ownership credentialsfor their land, it makes it easier forlocal cadres to seize and sell it withtoken compensation, making mas-sive profits by selling it on to realestate developers.

That’s a situation that suggestland reform cannot occur in isola-tion. There will need to be a thor-ough overhaul of how local govern-ments are financed too.

No coincidence, then, that alter-native means of raising revenue (mu-nicipal bond sales and property tax,for instance) are thought to be on thePlenum’s discussion agenda too… n

11

Week in China

With an archive of over 3,000 articles, WiC's website is theplace to go to find out about China. Over the past three

years we've covered all the big business stories and trends,making our site a comprehensive and trusted resource.Readable, uncluttered and easy to use, you can use the site tolook up our articles by industry, or even by company. Plus youcan download back issues, as well as our book on China's Tycoonsand our in-depth Focus reports.

Access is free to Week in China's subscribers, using their logins.

www.weekinchina.com

Visit our new and improved website

Corporate Q&A

Blame China. That was the mes-sage from Pernod Ricard a fort-

night ago as it warned of fallingprofits. The spirits maker – whichowns brands including Martell co-gnac – said Chinese demand hadslowed substantially in the wake ofPresident Xi Jinping’s austeritycampaign. This had seen its earn-ing hit as a consequence of fewergovernment-sponsored banquetsand less gift-giving.

Diageo and Remy Cointreau havealso blamed “Chinese governmentmeasures” for slowing sales growthin the latest quarter, according tothe Wall Street Journal.

Nor is it clear if this is the ‘newnormal’ for luxury spirits sales inChina, with even Remy’s boss Fred-eric Pflanz admitting he can’t pre-dict when the sluggish climate willreverse. “We don’t know when thiswill stop,” he says of the austerity.

Other executives in the drinksbusiness are starting to wonder tooif they need to adjust their salesstrategies, including WiC readerRussell Badham. He has also beenfeeling the impact of the anti-ex-travagance campaign. As chief ex-ecutive of Melbourne-based APWInternational, Badham oversees aservice to Australian wine exportersakin to a traditional European ne-gotiant. Over the past few years hehas seen growing volumes of Aussiewine delivered to China with APWshipping roughly 250,000 bottlesannually. Here Badham discussesthe importance of the Chinese mar-ket to Australian vineyards, as wellas how Xi’s measures are being feltby producers.


Selling Shiraz in Shaanxi

How important is the Chinese mar-ket for Australian winegrowers?It’s very significant because of whatwe can loosely term as the ‘gentrifi-cation’ process underway with Chi-nese drinkers. We’ve seen the samething happen before in otheremerging markets. People who oncedrank beer or spirits start to drinkwine. Now it’s happening in China,making it the biggest growth mar-ket for Australian wine anywhere inthe world.

That’s very good news as Aus-tralian exports to the UK, Europeand the United States collapsed af-ter the financial crisis. Our tradi-

tional customers have been feelingthe financial pinch, especially asthe Australian dollar stayed verystrong, pricing our wine out of themarket. Take the UK, where mostpeople buying wine at less than £10($16) a bottle don’t care where itcomes from. They just want a redor a white, or a dry or a sweet, andthey choose primarily on price.Our wine became too expensive, sothey bought from elsewhere.

How about in China? Where is Aus-tralian wine positioning itself?Fortunately Chinese demand wasstrong enough to cushion us

Meet the man who is selling Aussie wine in the hinterlands of China

12

Badham: China is the biggest growth market for Australian wine

Corporate Q&A

through the financial crisis, takingup some of the slack left by ourother markets.

The nature of Chinese demand isalso changing. Traditionally Aus-tralia has sold a lot of bulk wine tothe Chinese for as little as A$1.20($1.13) a litre which is then bottled aslocal production. My guess is thatmore than half the wine sold underChinese labels today is still beingsourced in bulk from places likeChile, Spain and Italy. But as I men-tioned, the ‘gentrification’ process– or the growth of the Chinese mid-dle-class – means we’ve gone fromselling very cheap wine to sellingmore mid-point and higher-pricedbottles. So there’s a double benefitfor Australian producers: they’re in-creasing their volume of sales butthey’re also increasing their prices.

What does a typical bottle of Aus-tralian wine cost to buy in China? It’s a tough question because thereare so many different types of wine.But as a general rule, a bottle thatleaves Australia for A$5 arrives duty-paid in China for about Rmb150($24.60). Landed at this price itwould probably be sold to final cus-tomers for anything up to Rmb350,although there are shipments ofwine leaving Australia at muchhigher wholesale prices than that.

Another reason it’s difficult to es-timate retail prices is that we can’tassume the same mark-ups as othercountries, where a wholesaler putson a fairly standard percentage andthe retailer or restaurant adds itsown margin too.

In my experience we’ve generallynot sold too much wine into “tradi-tional” retail networks in China.Only one of my distributors sells di-rectly to shops and restaurants atthe moment, for instance. Instead,the huge majority is being sold topeople who buy it for gifts and forbanquets – or for what I call ‘oilingthe machinery of Chinese life’. It


means that Australian producershave less of a picture on where theirwine ends up but my sense is thatmuch of it is headed for local gov-ernments or business groups.

Demand also spikes around thekey festivals like Chinese New Year. Ihave one customer who buys athousand cases every year, slaps hisown label on the bottles and thenjust gives them away.

Have sales been hit by Xi Jinping’scampaign against wasteful spend-ing?Yes. We may have been a bit opti-mistic in our predictions for thecalendar year but we are downabout 40% on target and I knowother Aussie exporters who are do-ing worse in year-on-year terms.There was also a lot of discussionabout the “frugality campaign”during my most recent visit toChina in September.

Longer term, my take on the situ-ation is that sales of top-end Frenchwine are going to be hardest hit.Dining out and gift-giving are sucha crucial part of Chinese business

culture that they aren’t going to dis-appear completely. But they couldbecome a little less lavish, whichmight even turn out to be good forAustralian wines because they gen-erally offer much better value. I’mcertainly hoping so.

Do the Chinese have a sense of Aus-tralian wine as a national brand?Wine production is much more di-verse than national labels can de-note. Try telling a producer fromBurgundy that you are classing himin the same “French” bracket as onefrom Bordeaux. I know people fromBordeaux who won’t even drinkfrom the Left Bank! But it’s also truethat early-stage interest in wine isoften shaped by perceptions aboutnational labels, which can make itharder for the New World producers.

Drinkers with a limited under-standing of wine, or those with un-limited cash and a desire to showoff, gravitate first to what they thinkto be the top wines. As the Frenchhave hundreds of years of history inthe industry, as well as the reputa-tion for making the best, most ex-

13

He likes a drop too: Chinese leader Xi Jinping shares a toast


Corporate Q&A

pensive wine, they have an initialadvantage.

Here’s an example of the Frenchinfluence. Twenty years ago westarted bottling our wine withscrewcaps because they providemuch more consistent closure thancorks and today it’s difficult to findbottles in Australia without them.But our Chinese importers insist onbottles with corks because their cus-tomers think that if the French do itthis way, it must be right. Thatmeans that China is the only marketwhere we put our drinking wine un-der cork. Even so, I predict this won’tlast long as the same thing hap-pened with the Canadians, wholearned their wine from the Frenchand also once believed that bottleswith screwcaps meant that the winewas cheap. Now the Canadianswon’t accept a white wine undercork and increasingly they prefertheir reds with screwcaps too.

So you’re saying that what workedin other countries can work forAustralian wine in China too? I think the basics can be similar inhow wine is marketed, particularlythe focus on value for money. Whatmade Australia popular in the UKfrom the mid-1980s was that wesold fresh, clean and fruit-forwardwine with a relatively high-alcoholcontent. We also demystified it. Peo-ple could understand our labels,which wasn’t the case for most ofthe French bottles. But most of all,we offered wine that was greatvalue-for-money and I think this is akey selling point today too.

There are people in Australiawho think we should be marketingour wine to the Chinese on the ba-sis of its diversity. But my view isget them drinking Australian winefirst and we can try to sell them thenuances later.

Why not try to repeat what we didin the United States, the UK andCanada by blasting our way into the


market on the basis of a fresh, un-complicated and affordable taste?

What Australian wine do the Chi-nese want to drink most?The simple answer is a single word –red – but in particular the Chinesewant our Shiraz. Obviously theydrink a swag load of Cabernet andBordeaux blends from the Old World.But from Australia they are buyingShiraz, Shiraz and more Shiraz.

We experience this firsthandthrough shipments from ourbiggest seller Hoggies Estate but atnational level the Chinese are buy-ing Shiraz from almost any districtand across all the price points.

Of course Australian vineyardsoffer a much wider range than Shi-raz alone. We have some very goodPinot Noirs but demand for themis lower. Even the great CoonawarraCabernets can be a struggle to sellin China. The exceptions are whenbrand and reputation trump pop-ular trends – like Penfolds, whichsells itself, no matter the bin or thevarietal. Penfolds Bin 707 is ashighly sought after in China asanywhere else in the world, for in-stance. I would love to make a dol-lar every time that I’m asked if Ican source it.

More generally it sounds likeyou’re confident about prospectsin China?I’m optimistic, certainly. Of course,the market still has a long way todevelop but it offers lots of new op-portunities. For example, in the lastfew years I’ve been attending a ma-jor alcohol expo at Guiyang inGuizhou province where thousandsof producers and distributors turnup. One of the largest halls is dedi-cated to baijiu, a spirit that the Chi-nese are very proud about produc-ing. That’s fair enough but itbemuses me that so many Chinesecustomers refer to baijiu and someof its equivalents in conversation as‘white wine’. It’s a bugbear of mine.Wine is made from grapes, not fromgrain or vegetables! Would you callwhisky ‘brown wine’?

This makes the task of sellingwhite wine more challenging. Buteven with whites, the opportunityis growing. Five years ago hardly anycustomers would ask me to open abottle of white for tasting. But that’sstarting to change and it’s the samewith sales. Two years ago I was sell-ing 40 cases of red for every case ofwhite but now that’s down to about15 reds for every white. As I said, themarket is evolving quickly. n

14

Chinese have a growing appetite for wine, especially red


Society and Culture

To hear Jack Ma put it, his invest-ment in the film studio Huayi

Brothers was largely down toStephen Chow, the Hong Kong co-median. Ma, who owned 8% of thecompany when it was listed on theShenzhen bourse ChiNext in 2009,told reporters that he once eaves-dropped on a conversation betweenhis staffers, who were laughing hys-terically.

But the Alibaba boss couldn’t un-derstand anything they were saying,until one of them explained to himthat they were paraphrasing linesfrom Chow’s films. “I suddenly feltso behind, like I didn’t know any-thing,” Ma said. So he went out tofind a copy of Chow’s A ChineseOdyssey Part One: Pandora‘s Box. Hefell in love with the flick and subse-quently decided to invest in a studiothat worked frequently with Chow –in this case, Huayi Brothers.

Huayi is now one of China’slargest film studios and Ma’s stakegained substantially in value. InJune this year, he sold 3.1 million ofhis shares, making $15.3 millionfrom the transaction. Given Ma’sreputation as one of China’s mostsuccessful tycoons, it was not sur-prising that news of his selldownquickly rocked the stock’s perform-ance, leading the company to sus-pend trading the next day.

Perhaps Ma didn’t enjoy Chow’smost recent offering Journey to theWest: Conquering the Demons,which was also distributed by HuayiBrothers. That’s because the inter-net mogul has been selling hisshares again. Last week he offloaded3 million more, generating Rmb260


Huayi in new share offer

million (Ma still owns a 4.13% stakein Huayi, worth over Rmb1 billion,or $164 million). And once again, thenews sent the shares down, drop-ping 25% in just one week.

Huayi Brothers will be hopingthat a strong performance from itslatest blockbuster Young Detective

Dee: Rise of the Sea Dragon will re-verse the trend. The costume drama,directed by Hong Kong’s Tsui Hark,,has already grossed Rmb544 millionat the Chinese box office, a localrecord for a costume drama (it is setin the Tang Dynasty). Young Detec-tive Dee is the prequel to Detective

Top film studio offers cinemas bigger take to keep blockbuster on screens

15

Clued up: Angelababy stars in new detective movie produced by Huayi


Society and Culture

Dee and the Mystery of the PhantomFlame, which pulled in Rmb304.9million during its release in 2010.But this time – in an effort to builda franchise for future films – Tsuiabandoned the middle-aged Dee ofthe first film (played by Andy Lau)and turned the clock back 25 years tointroduce a younger version of theseventh century magistrate. To ap-peal to younger audiences Tsui castactors like Angelababy and Taiwan’sChao Yu-ting in the lead roles.

The new line-up changes themood of the film. “Compared withMystery of the Phantom Flame,[which left a] depressing and darkfeeling, Rise of the Sea Dragon ismore bright and cheerful,” moviecritic Zeng Nianqun wrote in theBeijing News.

Strong performance at the boxoffice could also be a result ofHuayi’s new commercial strategy.According to Sohu Entertainment,Huayi has reduced its own share ofticket sales by taking only 30% ofthe revenue while the cinemas col-lect the remaining 70%. Film stu-dios typically expect to collect up toa 47% share of box office revenue.

The reason? The studio wantedto keep the film on as many screensas possible for as long as possible.Young Detective Dee, which was re-leased before the National Day hol-iday, faced intense competitionfrom Hollywood imports like NowYou See Me and The Wolverine. ButHuayi reasoned that competition inlater weeks would prove muchweaker. Only two Hollywood filmswere showing (Stalingrad andArnold Schwarzenegger’s LastStand), so the longer that Young De-tective Dee could stay on screens,the better.

Industry observers say it isn’t thefirst time that studios have adjustedtheir stake to incentivise cinemas tokeep a film on screens for longer pe-riods, although the last time thishappened was more for propaganda


reasons: China Film Group offeredto reduce its share of takings to gen-erate as much traffic as possible forThe Founding of a Republic, the2009 ‘epic’ celebrating the 60th an-niversary of the Communist Partyseizing power.

More often than not it is the op-posite situation: studios demand-ing a larger share of cinema rev-enues. When Zhang Yimou releasedThe Flowers of War in 2011 (seeWiC135), he demanded that the stu-dio kept 45% of entrance money(instead of the 43% offered) to off-set the higher costs of making thefilm (it starred Hollywood actorChristian Bale in a lead role), saysBeijing Daily.

Another studio executive told theSecurities Times that adjusting stu-dio takings according to film andstudio is a fairly standard practice inthe United States. In April the Regaland AMC Entertainment cinemachains joined battle with Disney af-ter the studio demanded up to 65%of the box office take for one of thesummer’s biggest films, Iron Man 3.

For Huayi Brothers less might

have ended up with more by boost-ing the longevity of Young DetectiveDee.

But the strategy may prove lesslucrative over the longer term.Meanwhile competitors will worrythat the precedent will encouragebig cinema groups like Wanda tostart to negotiate studio takes closerto the 30% Huayi took for DetectiveDee for films from other studios too.

Snap happyWiC reports from the WGC-HSBC Champions in Shanghai

For the African fisherman callingashore to find out which market

will pay most for his catch or thehealth worker looking for expert ad-vice on how to treat an isolated pa-tient, mobile phones have been ahuge blessing.

But for the world’s golf stewards,the positives can be harder to find,as WiC discovered at the WGC-HSBCChampions tournament in Shang-

16


Chao: plays Dee, the Tang Dynasty’s answer to Sherlock Holmes

Society and Culture

hai last weekend.Dustin Johnson won the high

profile event, which is establishinga reputation as the sport’s ‘fifth Ma-jor’. The American pocketed justover $1 million in prize money, fin-ishing three shots clear of Eng-land’s Ian Poulter, the defendingchampion.

But part of the fun at the coursein Sheshan was watching the localcrowds, especially in light of vari-ous reports about unruly behaviourfrom Chinese spectators at othertournaments.

In fact, the behaviour seemedpretty good. One middle-aged manenjoyed himself by shouting “Lefty”whenever Phil Mickelson wasnearby but there was no sign of the“You da man” or “In da hole” oafish-ness that features at courses in othercountries.

Mobile phones were more of anissue, however, less because callswere being made on the course (al-though WiC saw a few) and more be-cause of smartphone cameras click-ing away or glinting in the sun asplayers crouched over putts orlaunched the ball off the tee.

The temptation to snap BubbaWatson in his bright pink shirt wasso overwhelming for one woman onFriday morning that a marshal toldher to stop filming at each of thefirst four greens (she then disap-peared, presumably because herphone battery ran out).

The stewarding effort in Shang-hai was substantial. Younger mar-shals served as sentries, holding upsigns telling spectators to standstill at appropriate moments. Walk-ing alongside the players as a prae-torian guard was another group ofolder, sterner volunteers who didmost of the admonishing of thephoto-takers. And for the top play-ers, there were usually two moremembers in the protective layer,professional looking and dressedin black.


This gave each hole the look of amedieval progress, as sentries, prae-torians and the soup-tasters of theinner-circle protected their golfingroyalty from affront.

With the tournament quicklyinto its stride, one problem soon be-came apparent. Professional golferswalk at quite a click, pacing pur-posefully after each shot. That leftsome of the older praetorians stum-bling up the final holes like battle-field survivors. But most of the spec-tators moved at a much slower pacestill, dawdling to discuss how bestto get their surreptitious shot ofRory McIIroy at the next. Often thecrowds would be catching up just asthe golfers were preparing to playtheir shots, adding to the stewardingchallenge.

Keen for context, WiC asked someof the more seasoned golf hacks atSheshan how Chinese crowds com-pare. The response was that mobilephones are an annoyance univer-sally but a little more so in Chinabecause many spectators are new togolf. After winning the trophy,Dustin Johnson also suggested in afriendly way that a few less cameraclicks would have been appreciated.

Nevertheless the warm weather,relatively clear skies and occasionalscent of neighbouring pine treescontributed to the sunny mood at

Sheshan. The course is a good onefor spectators with changes in ele-vation providing decent vantagepoints alongside fairways and nextto greens. There are lots of oppor-tunities to gawp at the luxury realestate that surrounds Sheshan –mostly stuccoed mansions andfaux hunting lodges located at thefringe of fairways. But WiC’sfavourite discovery was the yachtmoored in an over-sized duck pondnear one of the holes. Long distancevoyages are out of the question butit must make a nice spot for a late-afternoon cigar.

The overall impression of thecrowd at Sheshan was of a young,inquisitive but self-assured bunch,enjoying its surroundings. The tour-nament was exciting too, with theleading players fighting for the titleright up to the final holes.

“It’s great to be back in Shanghai,the event’s ‘spiritual home’”, GilesMorgan, HSBC’s Global Head ofSponsorship and Events, told WiC(last year’s WGC-HSBC Championswas held in Guangdong). “Peopleforget that this tournament is onlyeight years old. When it was firstplayed here in 2005, parts of thecourse were a building site. But lookat the quality today, the range ofsurrounding facilities, and the grow-ing crowds.”

17

Dustin Johnson triumphed in Shanghai last weekend

Photo Source: Getty Images

Society and Culture

Another key difference is thedepth of the field, says Morgan. Inits early days the event had more ofan ‘exhibition’ feel. But rankingpoints from the PGA and EuropeanTours are now on offer and most ofthe world’s best came to play inShanghai this year. That meant thatthere was no shortage of the com-petitive tension that characterisesall great sporting events and Mor-gan believes that the Champions isnow truly established in golf’s globaltop tier, trailing only a handful oftournaments in the United States,and The Open in Britain.

A triumphant Dustin Johnsonconfirmed the Champions’ risingstatus, calling it “the biggest win I’vehad in my career so far”.

An experimentBeijing’s new plan to winNobel Prize for Science

One imagines that when Beijing-based ambassadors brief visit-

ing dignitaries on acceptable smalltalk to use on Chinese leaders thesubject of Nobel Peace Prizes is usu-ally on the ‘best avoided’ list.

China’s top brass isn’t impressedthat the Chinese winners of this ho-nour have all been vocal critics ofthe government. (In 2010 the com-mittee gave the award to a jailedpro-democracy activist, bestowingthe honour on an empty chair inOslo and rousing the sort of inter-national media attention that theChinese leadership detests.)

Mo Yan’s win for Literature lastyear helped make the Nobels a littleless taboo (see WiC168).

But the lack of recognition in thescience category of the Award alsorankles, reminding the Chinese ofthe innovation gap that still existswith more technologically-ad-vanced economies of the US, the UK,


Germany, Japan – and even Hun-gary, if one were to go by Nobel lau-reates in science alone.

The quest to win a Nobel for sci-entific achievement has promptedthe launch of a new initiative inwhich the government is selectingscientists for additional support andfunding. The so called ‘Ten Thou-sand Talents Programme’ was intro-duced last year and last week some279 researchers, academics andtechnicians were selected as worthy.Of these, six are reputed to be con-sidered as potential Nobel grade.

Xue Qikun, a quantum physicistat Tsinghua University is one of theelite. Liu Zhongfan, director ofPeking University’s Centre forNanoscale Science and Technologyis another, as is Wang Yifang, direc-tor of the Beijing-based Institute ofHigh Energy Physics. All three havewon international prizes for theirwork previously.

So what does the Ten ThousandTalents Programme offer? On thispoint the information is rathervague. All of the ten-thousand-talented are supposed to receivefunding of Rmb1 million ($164,048)for their work. Will that suffice?

It will help but scientists say it is-n’t just about money. Many com-plain of more mundane, everydayobstacles to their ingenuity, includ-ing having to hold administrativejobs as well, meaning a lot of time isspent on paperwork. Another gripe

is the difficulty of obtaining theequipment necessary to carry out thetype of experiments in the NobelPrize mould. Some scientists whohave returned to China as part of itsearlier ‘Thousand Talents Pro-gramme’ even talk about having tosource parts for their laboratorieson shopping website Taobao, re-ports the Global Times.

Others say the problems rundeeper, pointing to an educationsystem that sometimes looks at thespirit of curiosity with suspicion; anacademic mentoring system thatfosters loyalty rather than open de-bate; and a general lack of intellec-tual dynamism that discouragesmany foreign-educated Chinese sci-entists from returning home.

Writing in the South China Morn-ing Post last month, Cong Cao, anassociate professor at the School ofContemporary Chinese Studies atthe University of Nottingham, hadthis to say about the Ten ThousandTalents Programme: “Winning a No-bel Prize is completely differentfrom winning an Olympic gold. Un-til there is the creation of an envi-ronment conducive to first-rate re-search and nurturing talent – whichcannot be achieved through top-down planning, mobilisation andconcentration of resources (the hall-marks of China’s state-sponsoredsports programme) – this Nobel pur-suit will continue to vex the Chinesefor many years to come.” n

18


And the winner... isn't China

And Finally

WiC has mentioned Mao’smuch-quoted saying that

women “hold up half the sky” be-fore. But in the eyes of Beijing’s po-lice, they are as likely to be holdingup half the city’s drivers too.

How do we know? Because theytold us so via their official weibo ac-count last week under a series ofposts titled: “Women Drivers PleaseTake Care to Avoid These Mistakes.”

Top of the list was forgetting torelease the handbrake. Then camefailing to change gear properly, be-ing too heavy on the brake or accel-erator, and lacking a general senseof direction.

“The handbrake is only used forparking. However, lots of femaledrivers forget to release it, leading tomore gas consumption,” the au-thors reminded their readers, inwhat they may have regarded as ahandy tip.

In the same civic spirit they alsocautioned that – “on their own” –some women “can’t find places theyhave visited many times before”.

Along with wearing high heelsand failing to tie their hair backproperly, this often led to situations


Give us a brake

in which women are responsible fortraffic accidents because they “spottheir turning too late and swerveto make it”.

The points were even illustratedwith a cartoon of a woman drivingin large red stiletto shoes. Anotherimage showed a female driver ap-pearing to lose her cool as she triesto work out which direction to take.

Needless to say, plenty of femalenetizens were unimpressed by thisblatant sexism – and even a few mentoo. “I like advice but is it necessaryto make it based on gender? Thetreatment of male and female driv-ers should be equal!” one woman re-sponded to the police’s post.

Another called it as she saw it.“Sexism!” she declared. “Official ac-counts should not be so biased.”

The police refused to apologise,saying that they would also postpositive reports about female driv-ers in future, as well as negativeones about men.

Other netizens backed up thepolice claims. One of the mostcommon gripes was about expen-sive cars being driven badly bybeautiful young women. The gen-

eral assumption was that theyhadn’t bought the car themselvesand they probably hadn’t passed adriving test.

Such prejudice isn’t helped bycases like the one in Ningbo thissummer when a newly qualifieddriver was being taught by her hus-band how to reverse her Lexus SUVinto a parking space. Pressing toohard on the accelerator, she pinnedher spouse against the back wall ofthe garage. Hearing his screams, thewoman put her head out of the win-dow and tried to move forward. Butunfortunately she forgot to take thecar out of reverse, crushing him andslamming herself against the sidewall. Both of them died of their in-juries. n

Beijing cops slam women drivers

19

Eyes on the road, please


“Everyone in China has probably heard of me by now”

* Verdict of the Ukrainian billionaire Oleg Bakhmatyuk. He told the Financial Times that his firm Ukr-LandFarming has done deals with COFCO and New Hope to export food to the Chinese market. Ukrainemade its first-ever corn shipment to China last month and is seeking more Chinese investment in its agri-cultural sector. “We are now building the pipeline, a sort of Ukrainian Gazprom, to pump these crops intoChina,” says Bakhmatyuk, speaking metaphorically, of the nations’ growing arable ties. Oleg Bakhmatyuk

Top of the crops

ChinaWenzhou

Shenzhen

Shandong

ShanghaiNanjing

Nanchang

Harbin

Hong Kong

Henan

Hangzhou

Guangzhou

Chongqing

Beijing

The Back PageWeek in China

8 November 2013

20


Photo of the Week

Some of the places referred to in this issue

If bling’s your thing: a BMW is displayed at the Canton Fair decoratedwith gold and yak bone

$28.2 millionThe amount that Wang Jianlin, China’srichest man, paid for Picasso’s “Claude etPaloma” at an auction at Christie’s in NewYork. The painting’s estimated reserve wasbetween $9 million to $12 million.

Rmb1 billionThe amount invested in networkinfrastucture by each of Alibaba’s 13 maincourier partners since the beginning of theyear, says the e-commerce firm. They haveall expanded their capacity to handle thesurge in deliveries expected for Singles’Day, November 11.

Rmb11.11The price of the cheapest accidentinsurance policies that Ping An will offer onSingles’ Day. As an extra incentive: if singlepolicyholders get married within a year ofpurchasing some of the insurancepackages, they will receive honeymoongifts with a value of as much as Rmb4,999.

11%Percentage of China’s single people thatreside in Guangdong province, the highestconcentration in the country, saysmatchmaking website Baihe.com.Residents of Beijing, Jiangsu and Shandong(rank second, third and fourth in the survey)also have a tough time finding love.

In Numbers

Where is it?

@2013 Week in China is published weekly by ChinTell Limited, a company based in Hong Kong. All rights reserved. To contact us email: [email protected]

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in thesepublications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents ofthese publications or for the errors or omissions therein.

With 1.3 billion people, 293 languages and an often opaquebusiness culture, China can often seem as mysterious as theMona Lisa. Our easy-to-search website now helps you to findsome of the answers. It contains a growing archive of morethan 3,000 WiC articles. And the site has another advantage: subscribers are able to

read us on the move each week via their Blackberry or iPhone.To get our weekly email and access the site, you’ll need to go towww.weekinchina.com/welcome/ and sign up. It takes just acouple of minutes to register.

Sign up today!

1 talking point week in china 6 china consumer 5 week in

Documents