Shanghai Corruption Scandal broadens

More on the Shanghai corruption investigation. Keep in mind that they could find this same thing in any city in China. The reporting of this scandal suggests there is something unique about Shanghai. The author's reference to political motivations is a widely held belief throughout China and probably accurate.

A former political secretary of late Vice Premier Huang Ju has been detained as a result of the Shanghai pension fund corruption investigation, the Financial Times reported. Wang Weigong's detention was reported Friday by a Chinese financial magazine. Huang, who died in June, was a high-ranking member of the Communist Party's Politburo Standing Committee, the country's most powerful body. Wang joins former Shanghai party secretary Chen Liangyu as a target of an investigation into the misuse of Shanghai's pension fund. Chen was expelled from the party in July and is awaiting trial on corruption charges. Wang's detention has been interpreted by some as an effort by President Hu Jintao to purge the party of remnants of the "Shanghai gang" led by his predecessor, Jiang Zemin.

One Child Policy

This is interesting. I haven't heard about these slogans before, but Shanghai and Beijing don't have them. In its characteristically sensitive fashion, the government once again proves that it is in desperate need of a PR lesson.

China has banned crude and insensitive slogans promoting the country's 'one-child' family planning policy, such as "Raise fewer babies but more piggies," which have stoked anger in rural areas, state media said Sunday.

Among the slogans that were forbidden were "One more baby means one more tomb" and "Houses toppled, cows confiscated, if abortion demand rejected." Such slogans are often found painted on roadside buildings in rural areas.

The Beijing government is notorious for having a tin ear. Its policies encourage corruption and ruthless management.

The policy continues to engender anger and resentment, especially among farmers in the countryside, because of the sometimes brutal methods used to enforce it, such as heavy fines and the seizure of property. Local authorities themselves face demotions, criticism or the loss of jobs if they fail to hit population targets.

Media reports said all public servants in the province's Bobai county had been ordered to collect fines from people who violated the policy. If violators failed to pay within three days, their homes would be demolished and their belongings seized.

One villager said some fees were as high as $1,300 — an unmanageable amount for an area where most annual incomes were only $130.

Any time an official's compensation is tied to number of births, the amount of new investment generated or tax revenues brought in with no checks or balances on the other side, there will be trouble. In China, the national government has virtually no control over local governments, and local governments often terrorize the population in their jurisdiction. It threatens the government in Beijing which is why you hear President Hu harping on "social harmony" all the time.

National law prohibits doctors from disclosing the sex of a child in an attempt to reduce the number of abortions of female children. Unfortunately, doctors are poorly compensated and a few extra kuai will often loosen the doctor's lips.

Fraud

If you get the following letter in the mail or by email, it is a fraud.

"Dear CEO,

We are Shanghai SQL Network Information Technology Co., Ltd, which is the domain name registrar centre in China. We have something need to confirm with you.

On the June 29, 2007, we received an application formally. One company named "Saibo Investment(China) Co.,Ltd " applied for the Internet Brand name"[your company's name here] " and the domain name "[company name].tm/ [company name].net.cn /[company name].org.cn".

These days we are dealing with it, hope to get the affirmation of your company because that may relate to your intellectual property on internet. Now we have not finished the registration of Saibo company yet,in order to deal with this issue better, please let someone who is responsible for trademark or domain name contact me as soon as possible."

Shanghai SQL Network Information Technology Co., Ltd, is not a licensed agent for domain name registrations. They want your money. They will offer to register your domain name for a price and then hire a filing agent to perform the registration. Obviously this will cost more than hiring an agent directly.

Call your lawyer or have a Chinese employee call Shanghai SQL and threaten to turn it into the local AIC if Shanghai SQL does not immediately recant its claim. Then register your domain name which you should have done anyway.

Danone Gets Clobbered by the Chinese

This political disaster illustrates how MNC's still get trampled in China. The Chinese see the French as the corrupt foreign business partner in this one. Normally when it comes to the French, I'm inclined to agree. However, in this case I'll give the French a reprive. This is a classic Chinese JV gotcha:

"It began in 2005, when executives at Groupe Danone, the French beverage and yogurt giant, say they noticed something peculiar in the financial figures coming from their joint venture in China with the Wahaha Group.

After a lengthy investigation, Danone officials concluded that their closest partner in China, Wahaha's longtime chairman, Zong Qinghou, was operating secret companies outside the joint venture - companies that were mimicking the joint venture and siphoning off millions of dollars."

This happens every day of the week. The foreign company finds a partner it thinks it can trust, cuts a fair deal making everyone wealthy and then gets taken to the cleaners.

"In late 2006, after Danone says it discovered the parallel companies, Zong agreed to sell a majority stake in those companies to Danone, which intended to fold them into the joint venture.

But after signing the agreement, Danone says, Zong pulled out of the deal and then began creating even more mirror companies, including his own separate sales division."

You CANNOT run a business in China as if you are a silent partner. You will lose every time.

First Head Rolls

China executed Zheng Xiaoyu, the former head of the China FDA, yesterday. Good riddance.

This is just in from Beijing. I've often looked at the water jug in my house and wondered why I should feel comfortable drinking out of it. That holds true with the brands of Chinese bottled water in the stores. There doesn't appear to be much preventing someone from filling jugs up with a water hose.

When my aunt first came to Shanghai years ago, she watched a woman on a street corner sticking Sunkist tags on oranges and the selling them. That still happens of course, but now the people put the stickers on behind closed doors. I frequently see Sunkist labels on fruit at small sidewalk vendors.

Very little is as it appears to be.

Generally I shop at the western market in our building. US $10 for a box of cereal. US $1.20 for an imported Coke. Cheap insurance.

Dining out is a bit sketchier. Most western places where I eat are probably safe. Most Chinese places are probably not.

Legislation for the Other Person

Chinese officials are finding the one child policy to be too restrictive. Particularly when their young mistresses want in on the "child" thing.

In other corruption news today, those "wily" public officials are giving the Chinese judiciary a run for their money.

Update: This isn't exactly accurate. You can have more than one child if you pay 3 times your combined annual salary to the government. Most Chinese aren't in a position to do that.

Trouble in Paradise?

Social Discontent is on the rise. "According to the most recent publicised government figures, 87,000 "mass incidents" were reported across China in 2005, up 6.6 per cent on 2004 and 50 per cent on 2003." Those are just the numbers Beijing is willing to release.

The Chinese will tolerate corruption to a point. When it starts to affect them personally, the government hears about it. I believe most demonstrations occur in the rural areas where corruption is worse and the people can least afford it. Beijing has demanded that local authorities determine the root causes of these problems, and where social discontent is most prominent, local officials will be punished.

This is a bit like asking the fox to guard the hen house. In those places where local officials are the "root cause" of the demonstrations, authorities are not going to be gentle in trying to quash unrest.

Beijing is already putting its spin on the problem. "Fugitive criminals and underworld gangs, as well as those who steal rural production materials, produce or sell fake and substandard commodities, kidnap children and women and smuggle drugs, explosives and guns will be targeted," Mr Liu the vice minister of public security explained.

I think they are mixing their problems. Social unrest generally occurs when local officials "steal" farmers' land, require exorbitant bribes from people who are least likely to have the means to pay them, or deny some basic civil liberty to individuals. Criminals are another matter altogether.

Corruption Lottery Continues

The problems continue at the Food and Drug Administration. Cao Wenzhuang, the former director of drug registration approvals, was recently sentenced to death for accepting $300,000 in bribes from pharmecutical companies to approve fake drugs. The expectation is that his sentence will be commuted to life in prison.

The Times suggests that "[T]he death sentences appear to be a strong signal that China is determined to crack down on rampant fraud, corruption and counterfeiting in the nation’s food and drug industries." I am told by local Chinese that this is more a function of cleaning house of political enemies than cleaning house at the FDA. International embarrassment is a convenient excuse, but if these folks were close friends of President Hu, they might be reassigned to a less lucrative post or left alone entirely.

The simple fact is that this type of corruption is systemic - it exists throughout the Chinese bureaucracy from the banking industry to the real estate industry to customs to local governments. We'll see if these actions signal changes. Perhaps the international reaction to the discovery of melamine-tainted wheat glutin in dog food, diethylene glycol in toothpaste and nitrofuran, malachite green, gentian violet and fluoroquinolones in fish coming from China has caused a change in heart and strategy for the Chinese government. For the Chinese citizens and for the expats living here, I hope so.