Considering a Economy Ticket on a Chinese Airline

I just had a discussion with a good friend whose parents are considering a trip to Bangkok on China Airlines in economy class. I hope they consider this before hitting "process payment": A China Airlines Boeing 747-400 has 14 first class seats, 64 business class seats and 319 economy class seats. A United Airlines Boeing 747-400 has 14 first class seats, 73 business class seats and 260 economy class seats. A flight from the US to China takes anywhere from 11 to 16 hours.

Chinese Currency Issue

I don't purport to be an expert on currency valuation, but I am attempting to educate myself on the China issue. I understand that the US believes that part of the trade deficit between the US and China is attributable to the undervaluation in the yuan. And I understand China's response to the US.

I'm certainly no genius when it comes to economics; however, I wonder how much Senators Charles Schumer, Lindsey Graham, Charles Grassley, Max Baucus understand. Do they understand all the implications of their proposed legislation or are they just beating drums because it is the popular thing to do? If I were laying bets, my money would be on the latter.

The current piece of legislation put forward by the Senators proposes a good whacking for China if it doesn't take steps to significantly revalue its currency. It tasks the Treasury with identifying countries with "fundamentally misaligned" currencies to target for "priority action" - you can replace "China" in both of those quotes.

When it identifies a country that falls in that category, the Treasury must oppose changes to IMF governance measures designed to benefit the "designated country". Then the Commerce Department must take this designation into account when considering whether a country should be considered a market economy or nonmarket economy in antidumping cases.

If a country doesn't take action to remedy its fundamentally misaligned currency within 180 days of designation by the Treasury, it faces five consequences: 1. the level of undervaluation must be considered by Commerce in antidumping reviews; 2. the federal government is prohibited from purchasing goods/services from the country (China) unless it has joined the WTO's Government Procurement Agreement (I'm guessing China has not); 3. Treasury must seek special consultations at IMF under Article 4 of the Articles of Agreement (I have no idea what this is); 4. any projects financed through the Overseas Private Investment Corp. would cease; 5. the US would oppose financing for any projects in the country (China) by multilateral development banks.

The President is permitted to override any of these punitive actions if he/she determines that it is in the interests of national security or a vital economic interest.

If the designated country (China) has failed to remedy the situation after 360 days, the government is required to take the following additional actions: 1. USTR must request dispute settlement consultations at WTO; 2. Treasury must consult the Board of Governors at the Fed on whether remedial intervention is appropriate.

Again, the President could intercede, but the criteria becomes from stringent.

At the risk of appearing a China apologist once again, I think this legislation is shortsighted and guaranteed to provoke a trade war with China if it is passed. China cannot and will not revalue its currency today. I'm not suggesting that China shouldn't do so in the long run (over the next 10 to 15 years). But anyone paying attention over here - and that would include the Chinese government - watched Taiwan and Thailand, among others, revalue their currencies. It wasn't a pretty picture.

For those not clued in on China, IT ISN'T STABLE. It cannot withstand the monetary and political crisis that would ensue if it were to break free of the dollar. China in chaos is not something the world needs. This isn't Iraq today or Germany in the 40's. You aren't going to make China a democracy. They don't want democracy here. They want a benevolent dictator model. In absence of that, they have no problem with socialism - or Communism with Chinese characteristics. Shaking up the government isn't nearly as desirable as continuing to let it evolve over time.

I don't believe in wasting political capital when the marginal returns are negligible. Given that the Chinese government isn't going to revalue the yuan 30% this year, or whatever the US government is pushing for today, where should the US government flex its muscle? How about human rights? How about pushing China to continue to meet its WTO commitments? How about IPR, opening prohibited industries, revamping its legal system, adopting transparency in government practices? How about adopting and implementing food safety, drug testing and safety? The possibilities are endless.

For anyone not paying attention, here are the stories in the paper in the last 24 hours about food and drug safety: http://www.msnbc.msn.com/id/19513182/ , http://www.msnbc.msn.com/id/19487107/ ,http://www.msnbc.msn.com/id/19481931/ , http://www.msnbc.msn.com/id/19457564/ . China could use a bit of help and guidance in these areas. China generally needs and welcomes training and investment in its future - IPR training, food inspection training, etc.

In most cases, you get more bang for your buck with dialogue with China rather than sanctions or punishment. Sanctions and punishment invite retaliation which hurts American businesses in China struggling to compete with the Chinese, Europeans, Aussies, Indians and other Asians. China will be the economic battle ground for the next 50 years.

A healthy, strong, friendly China is something we should invite. If we whack them in areas where we have very little hope of succeeding, it dilutes the effectiveness the whacking we need to give them then they, with the assistance of Yahoo and Google, throw political prisoners in jail and torture them, or gun down a group of protesters or repress the citizens. Or when the entire government of Shanghai uses unlicensed versions of Microsoft Office on their PCs.

France Strikes Again

I wish they'd keep her.

Office Fit Out

I once heard the CEO of MNC explain that you will never have as bad a relationship with your board of directors back home as you do when you construct something in China. It is easily the worst relationship I had with my superiors back in the states, and I was just fitting out our office space, 1/2 of which was largely complete when we leased it. I'm very easy going, but that experience is one I hope not to repeat.

It took centuries to get plans approved. Once plans were approved and construction began, things went down hill. Our construction team was constantly harassed by building management and by the city building department. We constructed and tore out and constructed and tore out.

I began to catch a lot of flack at the speed of progress from an otherwise exceptionally understanding group back home. We were leasing space at an exorbitant rate per square meter for office space we were unable to use.

Finally construction was complete and we were ready to call the building department and the fire department for the necessary approvals to obtain our occupancy permit. Both departments had approved the plans and specs and required changes to them prior to approval. The fire department walked in the front door and immediately instructed us to remove all the wood paneling in one half of the premises. I'm a bit confused seeing as how we didn't put up the wood paneling - ie, your office approved it when the prior tenant did fit out - AND you approved the plans and specs we sent you which clearly showed the wood paneling. Nope. Wood paneling had to come down and drywall had to go up.

By this point I was avoiding phone calls from the US hoping that the construction would be complete before I had to face another conversation. No such luck. I promised by boss that we'd have the occupancy permit early the following week (the conversation was on a Friday) because I was assured construction would be complete by the weekend. And it was.

Breathing a sigh of relief, I came in Monday morning waiting for the fire department to inspect the premises, the last step in the process. Then I receive the phone call from our architectural firm: the fire department in Shanghai is taking the week off. WHAT???? Yes, they are attending a function in town this week and will not be going to work. What happens if there is a fire? Silence.

How do you explain that to the people back at home who think you are completely incompetent already?

Shanghai Service

A lot going on at the office today. About 3:00, we began to notice that the office was stifflingly hot. After a quick walkabout and some consultation, we determined that there was no aircon blowing. We have HVAC problems on a routine basis, usually when it is hot. Today was exceptionally hot outside so no one was amused.

Our secretary, well known to management at this point, called to inquire and simultaneously complain. Management explained that they had turned the HVAC unit off in the building for some maintenance. Huh???

This is just the stuff that happens here. No "it is broken and we are making some repairs"; the Class A office building we are spending a bloody fortune on thought it was a good idea to perform scheduled maintenance on the HVAC unit at 3:00 on a Wednesday afternoon. At the end of June.

Interior Decorating

Wonderful story today. We have had a number of pictures lying around that everyone has been too lazy to do anything about, mostly me. Nothing you could call art - a Rolling Stones concert poster from spring 2006, a ticket from Clapton several months ago and one from James Brown in 2005 (normally I'm not a fan of hanging on to concert tickets, much less framing them, but they are in both Chinese and English and pretty cool, plus James Brown is dead. Could be worth some money some day), a Communist Party tree from 2005 (we are on the ball here) and a few other things.

Rather than go buy a hammer and nails, we figured we'll take advantage of the cheap labor. So my secretary calls the management company for our building who normally does this stuff for free, and they announce a new policy effective last week. No longer will these services be rendered for free, the charge is 60 kuai. My secretary was appalled and flatly turned them down. 60 kuai is less than US $10. I stopped arguing with her long ago.

Not easily discouraged, she called the architectural firm that designed our fit out over a year ago. They agree to send someone down for the price of a taxi ride (roughly US $1.40). The gentleman showed up, almost on time, to scope out the work. After getting a sense of the labor and materials needed to hang 5 pictures, he announced he would need to return to the office to get his tools. This did not make my secretary happy since she was then required to shell out US $2.80.

Thirty minutes or so later he returned with a helper and his tools. I was in the open area of our office talking to an intern and my colleague when we glanced up to survey the work. The gentleman was using a pair of scissors to dig a hole in the wall (he opened them into a V shape and shoved one side in twisting it to enlarge the size of the hole). At this he had our attention. Once satisfied that the size of the hole would accommodate the screw, he took a screwdriver and used the handle to pound the screw in far enough to finish it off with the other side of the screwdriver.

This kept us entertained for the better part of the afternoon. My colleague took pictures which I will post if we can figure out how to get them off his camera. No one in the office thought there was anything unusual about this except us (3 westerners) and we were doubled over in laughter.

The Money Just Grows on Trees

I was sitting around with a group of guys this evening after a meeting discussing business in China. There was a lot of frustration about the difficulties of running a business here and the general perception outside of China that money is falling out of trees. You just have to be under the right tree.

Other than real estate speculators, recent stock market junkies and communist officials, I don't know anyone who has gotten rich quickly and easily in China. There is a learning curve here and it is steep. Often companies will set up shop in China, or worse - buy someone else's, and expect to run it from the US after they have hired some "particularly talented" Chinese to manage their new China operation. Or they may have acquired a supplier with whom they've had an excellent working relationship for a number of years.

You can't run a business in China as if you are a passive investor giving Chinese management annual output and profit targets. You will get your shirt handed to you. If you are lucky. This business model generally works out as follows: new management speaks your language until about 2 days after the deal is done. Then little things start popping up. Profits aren't meeting expectations, and there is a general concern back at home that no one knows what is going on in the China operation. Several executives fly back and forth a couple of times during the first year to check on things and try to iron out some of the issues.

The second year, profits plummet. Management back in the US is unable to get any straight answers from China management, so the execs fly back over. They are shocked to find they have been locked out of their own manufacturing facility by their own general manager, and they are unable to communicate with the employees. The general manager, who happens to be the nephew of the vice mayor, tells management that he will take all the employees with him and the city will shut down the manufacturing plant for failure to do xy&z if US management doesn't pay him some exorbitant amount or give him an interest in the company or some other unsatisfactory demand.

US management is also shocked to learn that the general manager has set up a competing plant manufacturing the same widgets next door to their plant. He is allocating all expenses to the US plant while all contracts and profits are held in the name of his competing plant which the US company unwittingly paid for. And there is not one thing US management can do.

Some free advice. Read Mr. China. It is still relevant today. Assume nothing. Have at least one person (depending on the size of your operation) and an accountant from your headquarters in the US spend at least three years working in your China operation. Be prepared to hear unbelievable tales from your expat in China and support him. Know that everything you do will take three times as long and cost three times as much has you have budgeted. Be prepared to lose money for the first three years. Give foreign corrupt practices act lectures frequently. Never build your own facility unless you absolutely can't avoid it - buy someone else's mistake. It is much cheaper. Be glad you aren't in a joint venture. It would be much worse.

Smells of Summer

This pretty much says it all. Too bad they are planning on limiting it.

(If you are planning on logging on from China, the government has blocked the site)

China Eastern Airlines

I have been a bit of a China Eastern apologist in the past, but I have decided to mend my ways. I took a trip to Bangkok this weekend with some friends and flew the friendly skies on MU (China Eastern's call sign). Against my better judgment, we flew economy to save some money. This is a 4 hour flight, and it is miserable in economy.

Going to Bangkok, our plane boarded at the terminal which was a good sign. The flight wasn't too crowded, so the seat next to me was open and I had an aisle seat. My friends had fantastic seats in the front of the economy section (more leg room) near the bathrooms. They were entertained by first time fliers trying to figure out how to get into the bathrooms. It sounded like a Far Side cartoon. Passengers would push on all parts of the door for a few minutes trying to get in and suddenly someone would come out and the door would close. The passenger trying to get in would resume pushing on the door with no success. There are instructions on the outside of the door in both English and Chinese.

I was starving and had avoided dinner thinking we would eat on the flight. The Chinese airlines are much better at feeding you even if it isn't very good. Unfortunately, we were given the box of assorted breads in lieu of a meal. The box of assorted breads contains one dry roll with no butter, two pieces of cake that are dry and fairly tasteless, a small packet of some sort of nuts, a smaller packet of something I wasn't even willing to open and two kit cat bars. Not what I had in mind.

The flight back was a whole other deal. I had a window seat and we had requested additional leg room - specifically the emergency aisle which really doesn't contain much more leg room. The gal gave us seats directly in front of the emergency aisle that don't recline although the seats in front of us did. That meant that the heads of the people in the row directly in front of us were about 6 to 10 inches away from our faces. For 4 hours.

The top of the seats in the MU planes are rounded on the sides to cradle the head of the average Chinese person. The average western person's head is in a different place so this is not a convenience. My friend complained that the rounded section hit his shoulders and dug in.

There was a Chinese gentleman in front of my friend and his fiance who started scratching his head about an hour into the flight. All the sudden there was great commotion coming from my friend. Apparently, flaky scalp pieces where coming over the back of the seat into my friend's face and his fiance's water. The gentleman had sores on his arms and face which didn't make them feel any better.

Upon arrival into Shanghai at 12:00 a.m. the MU plane did not pull up to the terminal. It was pitch black outside, no lighting and we were forced to feel our way down the stairs to the pavement before making our way to the buses. This is made more difficult by the fact we had bags and carry-ons and the stairs were not even so you didn't know whether you were going to be stepping down or on a landing between stairs. We were tired and not amused.

Bangkok

Bangkok is one of my favorite places to escape to when I need a break from China. And I need a break from China about every 6 to 8 weeks. The city feels like southern Asia. Unlike China, Thailand does not have the overwhelming stretch of highrises. Buildings tend to be 2 to 5 stories, older, and spread out. As a result, you can actually see the sky. Thais are by and large Buddhist and that comes through in their culture. Traffic is as bad as Shanghai, if not worse, but the drivers are calm and considerate. The whole culture is more laid back than the Chinese culture. That may explain why it is an economy based on tourism and not much else.

The Thais offer the best service in the world. And for me, the center of Thai service is the Oriental hotel. While it is a luxury hotel, it lacks the stiff upper lip of the Penn in Hong Kong. It is a casual hotel with top notch rooms, excellent food and every amenity you expect of a five star hotel. It sets the standard that all other hotels want to live up to.

A love of Thailand seems to be universal among expats. Each expat will tell you their favorite spot and they all seem to be different. I haven't found my favorite spot yet, so I feel compelled to keep looking.

Graduation Ceremony

One of my coworkers graduated from graduate school today, and I attended the ceremony with another colleague. I can report that there is absolutely no difference between a commencement service in the United States and China. Except language. And my inability to speak Chinese didn't seem to made it any worse.

The campus was beautiful. It was built 80 years ago by the Catholics and operated as a Catholic university until Mao's reign when it was confiscated and used for various purposes. It has operated again as a university for a number of years. The buildings are traditional Chinese, well maintained on the exterior and surrounded by well tended gardens.

The administration managed to find the one eyesore on campus to serve as a commencement hall. Thankfully it was scorching hot, and there were only 500 or so students graduating. The doctoral candidate's names were read individually, and each student was presented with a diploma. The administration spared us the pain of individually recognizing the graduate students which made the exercise more tolerable.

My colleague was thrilled by the event, as she should have been. She is young and bright and well educated. I know she will do well in life, and I'm very happy for her.

The Inevitability of Global Warming

I'm one of the few Americans who hasn't seen and doesn't plan to see Algore's An Inconvenient Truth. Perhaps I am close-minded. Perhaps short-sighted. I refuse to base my opinions on scientific matters on some third rate movie by some hypocritical dilettante hack who is vying to be to eco-matters what Jimmy Carter was to foreign policy. And is succeeding.

Recently I have been attending local "lectures" on various business topics which have been quite useful. I signed up for one this evening on the environment thinking it would cover....I'm not sure what. Obviously I was asleep at the wheel. In China, efforts toward the mitigation of environmental damage are well founded. China is a cesspool. The air is dirty, the water is dirtier and it just goes down hill from there. So when groups and individuals talk about cleaning up the environment here, even the seal clubbers jump up and down.

But the environmentalists don't present well. I was pleased to see that this group was cleaner than most and dressed appropriately for the occasion. They had forgone the usual effort to commune with nature by appearing unwashed, unshaven, ill-kept and wearing hemp skirts and a troika of earrings through their nostrils. Yet, quite typically these environmentalists lack perspective. The lecture began with "clearly we are all on the same page with respect to global warming...". Sorry, miss, but you just lost me, and you haven't even gotten to the part about turning off your cell phones. There is sufficient evidence of pollution and environmental disasters in China that it isn't necessary to invoke the end of the world speech or take the obligatory swipe at the frighteningly naive, poorly educated, ill-spoken President of the United States.

Within the first 5 minutes, she'd laid out her credentials. Which were, as with all hardcore environmentalists, sketchy. She recently graduated from MIT - I assume with a masters of some sort as she appeared to be in her mid to late 30's - and she embarked on her career as gifted environmental prodigy within the last year. She appeared to have formed many of her opinions on the condition of the environment from her professors whose names she invoked often and unnecessarily.

The second problem with environmentalists is that they have the liberal habit of being condescending and patronizing. Her new group has developed a system for approaching the "environment crisis" which begins by appointing a "brain trust" which consists of . . . her and her buddies on stage for starters. The other members of the Brain Trust were public figures (including members of the Administration that she had just taken a shot at) private sector industry leaders (no doubt selected for their deep pockets rather than for their sense of impending doom) and the scientific community that peddles the eco-propaganda.

One of the many goals of the Brain Trust was to educate the Chinese and American publics on ways to forestall or reduce the inevitable effects of carbon monoxide gases and other deadly threats to humanity. Of course it would also be necessary to educate the press, because they don't write enough about global warming, climate change, and whatever the new tag line is today. If we just had more stories on global warming, more people would get on board.

Oddly enough, she was able to recruit a Hollywood film producer who is also ... a professor at New York University - an amazing coincidence and an unusual combination - to assist in putting together a documentary for the Chinese audience that will be the "Chinese equivalent of An Inconvenient Truth". Fantastic. Can't wait to stand in line for a pirated copy of that gem. Perhaps Susan Sarandon will narrate.

She explained that we needed a holistic approach to environmental change and energy conservation that addressed each major segment of society: transportation, construction, public education including requiring a number of courses in green building for architects, education of the press, education of governments, developers, manufacturers, hotel management and other service sectors. Their mantra is "Strategy, yet tactical". There are 300,000 buses in China (each spewing more filth in a nano second than a pasture full of cows). This group is dedicated to putting 10 green buses on line in 2007.

They had a number of catch phrases: jump-start cooperation, online matchmaking, EE Building Multi-use Excellent Centres, etc. The problem is they need sponsors. Big sponsors. She seemed to grasp the financial consequences of the group's big thoughts.

The issue that I have is not with the group's goals. China needs help with the environment. Clean air, clean water, pastoral scenes - these are luxuries of developed nations. Comfortable, wealthy nations. China is a third world nation struggling to keep it's head above water. It has 1.3 billion people, many of whom could teach the underclass in Europe and the United States a thing or two about starvation. It is a country still struggling to attract jobs to feed people while getting wacked over the head on WTO compliance issues, an insolvent banking system, systematic corruption throughout all levels of government, trade imbalances, an opaque legal and regulatory system, geo-political issues (good luck finding anyone in China who thinks Taiwan is a sovereign nation), environmental crises, currency issues and on and on. It doesn't have the resources or the expertise to mess with green technologies, and the government has no desire to impose heavy-handed expensive regulations that will drive businesses to Vietnam and India.

Having said that, major cities have been moving polluters to the burbs and beyond. There are few coal burning plants in Shanghai or Beijing proper and some localities are requiring environmental assessments as part of a business license. But nowhere is the water potable and the air quality is abominable in many places. Even Hong Kong which has virtually no manufacturing left is troubled by pollution as severe and at some times worse than Shanghai due to all the factories in southern China.

Educating the Chinese government and Chinese businesses in the value of energy saving construction and technology is worthwhile, particularly when it ultimately saves money or has a nominal cost. But knock off the Brain Trust nonsense and lose the attitude. China doesn't need An Inconvenient Truth and other over-the-top eco-slobber.

Dalian, China

I spent the weekend in Dalian, a city in northern China on the coast. It is a very nice city - I would recommend it for a weekend. When I arrived in 2005, one of the China magazines rated it the top place to live in China. The weather is moderate, it is still affordable, and it has a very nice coastline full of wild flowers.

My only hesitation regarding permanent residence is that I didn't see any expat hangouts. These come in pretty handy when you are having a China day and can't bear the thought of another goat stomach or chicken feet lunch. I'm sure western restaurants exist, but we are very spoiled in Shanghai. We have everything - excellent Thai, Indian, diners, French, Italian, German, English, Spanish, Korean, Japanese, US BBQ. There are a few Mexican joints, but I wouldn't call them excellent, or particularly good. That goes for German too, but that is just my prejudice against the culinary form as a whole.

Luckily, Dalian locals still enjoy the Chinese tradition of the car brawl. Pushing, shoving, yelling for what seems like hours while the two cars are parked in the middle of the intersection making it virtually impossible to get around them.

While there I ran a 1/2 marathon. Had to sign up for the full marathon because the only 1/2 they were offering was limited to wheelchair participants - not so good on the ego. So I ran my 21.xxx k and quit. I am now promising myself that I will quit doing 1/2 marathons where the temperature is over 75 degrees. I could have fried an egg on my head.

Shanghai Alleys

If you make it to China, be sure to spend a day getting lost in the city. As long as you have 30 kuai and your hotel card, you don't have to worry. Cab drivers don't speak English, but they can read a hotel card, and with the exception of Dongguan and Shenzhen, most of China is very safe. It is one of the positive things about Communism: the government doesn't tolerate much foolishness. One of the negative things is that I can't get to my blog because they have blocked it.

There is a tremendous amount of redevelopment going on in every city, but down the alleyways, you can still see old China at its best. The people on the left are watching a card game - another spectator sport in China. On the right is an outdoor restaurant that is idle in the afternoon.

There are millions of little lanes tucked away in China. My first apartment was a lane house that was rehabbed. The inside was fantastic - 15 ft ceilings, beautiful molding, an ornate winding staircase and modern bathrooms/kitchen (thankfully). There are many old lane houses like mine down these little lanes, often among lane homes occupied by Chinese families that have not been renovated.

It was a beautiful day and this barber didn't want to work inside.

Bicycles

I mentioned that the bicycle is used for everything here: general transportation, construction delivery, moving services, kiosks, coal delivery, the Anheuser Busch beer "truck" - you name it. Notice all the great colors.

The two barrels attached to the bike on the right were filled with restaurant waste - it was nauseating. I have no idea where he was headed.

This guy hauling the heavy load was none to pleased that I took his picture. He yelled at me for a bit. Can't say I blame him all that much.

Here we have the window delivery guy, and I believe a trash collector.

Why the Chinese Don't Need Gyms

Yep, it's a gal.

This woman is delivering coal around the neighborhood.

He has a load of watermelons in the back, and he weighs, not surprisingly, about 80 lbs.

Your Tax Dollars At Work

This blog is supposed to focus on China, but I'm wondering if my country has gone nuts. I just read this article by the AP on gay and lesbian inmates being granted conjugal visits. I have no problem giving gays and lesbians the same treatment as heterosexuals in just about any context, particularly in this one. But what the heck are they doing giving heterosexual prisoners conjugal visits? It is PRISON. You are supposed to do without a few things in PRISON. It isn't supposed to be fun.

I miss the days when prisoners had to move boulders from one side of the canyon to the other and back. This whole idea that it is somehow going to make it easier for prisoners to blend back into society if the State pays to operate a brothel is a stretch I'm not willing to make. Give them something to look forward to when they get out: here is your job at the waste disposal plant, AND you get to have sex with anyone you want. Merry Christmas.

Guanxi

If you are a China junky, or if you read the papers, you may have noticed that Minister of the State Food and Drug Administration Zheng Xiaoyu recently met with some bad news. He's going to get a bullet in the back of the head for embarrassing Beijing. Beijing is often embarrassed because corruption is endemic throughout all levels of government a Chinese colleague recently reminded me. But Mr. Zheng didn't have friends in high places.

Don't feel too badly for Mr. Zheng. He raked in over $800,000 US in bribes for approving food and drugs for the domestic and export markets, many of which were later determined to be fraudulent and/or contain toxic ingredients. Mr. Zheng has appealed the sentence; however as one local in Beijing stated "he has zero chance of not dying".

By contrast, in 2006 Beijing decided it had enough of Chen Liangyu, the Communist party chief of Shanghai. The Communist party chief of a province or city is the highest post, above the mayor. Shanghai and Beijing have traditionally had a rivalry. That has escalated recently as Shanghai quite openly refuses to implement many of the central government policies. And it has not gone unnoticed in Beijing.

In addition to planting himself firmly on the other side of the aisle from President Hu, Mr. Chen managed to misappropriate 10 billion RMB from the social security fund in Shanghai. For perspective, 10 billion RMB is approximately 1/3 of the fund. But Mr. Chen wisely understood the importance of friends, and as a result, his head is still attached to his body. Shanghai was a stronghold of former president Jiang Zemin who protected Shanghai's ruling elite, and whom it appears is largely responsible for the survival of Mr. Chen.

China and Hong Kong are ripe with banking scandals. Papers are full of stories in the past 5 years of corrupt banking officials scamming millions of dollars from Chinese banks (none of which were particularly solvent to begin with). Death sentences were passed around, many commuted, again depending on the level of guanxi the executive had with the party. It is a particularly effective means of eliminating the political competition.