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british sinophile, the monthly report

issue 1, june 2013

l a c i t i l o p , s t a p s l a n o i d t n a a n r s e f f i r Int a t e v i t i n u p . , a m t r a o d f e c r i m o n o c ! e h t y n l o r e m t s thi quar


Britain’s relationship with China has never been more important.


The Big Five - top China news


Monthly Briefing


Qu’est ce qui s’est passé?


But the Dalai Lama doesn’t need a referendum…


Sun Wars

All in

Welcome to the first edition of Scope, the monthly report published by British Sinophile! Scope brings you the top stories out of China from this month, boiling them down into a more manageable format with accompanying analysis. By taking in our research, our readers should develop a strong background in everything that matters in China today. Through our tracking of China affairs using both foreign and Chinese news agencies, gathered by a committed research team, Scope is able to bring the most important topics straight to your email inbox in an independent and intelligent manner. This first edition begins with a summary of China-UK relations as they stand. How does Britain match up to China in terms of trade? What barriers currently exist to improving Sino-British relations? ‘The Big Five’ are the news pieces that have had the greatest impact this month. If our readers are going to look at anything, it ought to be this. Over the following few pages is a briefing, detailing everything of mention that has happened in China this month. Our research is divided into topics , with accompanying feature pieces to give our readers

the necessary background detail to the most important stories. All our pieces are published alongside the latest economic data and quotes from those in the know to help provide context. In the first of this month’s opinion pieces is a look at the warming relationship between France and China, and how this might affect the UK. Next, is a short piece comparing David Cameron’s meeting with the Dalai Lama last year and membership of the EU. Lastly we have an article on the complications of China-Europe relations as the EU looks to impose tariffs on Chinesemade solar panels. Please enjoy reading this publication as much as we have enjoyed writing it. Don’t forget to check out our archive of past content online.

Adam Knight Scope Editor British Sinophile Founder


Britain’s relationship with China has never been more important. Scope - the opportunity or possibility to do or deal with something, from the Italian ‘aim’ and Greek ‘target’. China’s growth over the last three decades is well-documented. The breakneck speed at which it has economically, socially and, to a lesser extent, politically transformed itself has dominated headlines for years. Its story provokes awe, scaremongering and debate across every section of the news while fresh economic figures, political slogans and demographic facts emerge on a daily basis. The tale of China’s rise is an exciting and dynamic one. It also comes at an important point in world history, a juncture that China is largely responsible for. The passing of Hong Kong into Chinese control in 1997 marked a symbolic moment not just in Sino-British relations, but all of China’s history. The superpower of two generations earlier handed the baton of global rule on to its grandson, the then nascent but growing People’s Republic. In doing so, it signified the very end of Britain’s formal Empire and the transition of international authority away from its traditional custodians in ‘the West’ towards the emergent powers of the developing world.

economy in 2011, forecasts show that Chinese nominal GDP will surpass that of the US within the next decade, having seen an average of 9.9% annual growth between 1978 and 2012. The value of its imports and exports has already passed America’s, totalling $3.87 trillion in 2012. China’s wealthiest province, Guangdong, has a GDP larger than all of Indonesia, a country almost 10 times as big with over twice as many inhabitants.

Earlier this year, Stephen Schwarzman, founder and CEO of the Blackstone Group established a scholarship to send American or European students to study at Tsinghua University in Beijing for one year. In his closing speech he summed up the current situation many individuals, students and businessmen face, saying, “People know very little about China, and this ignorance is not an option anymore.”

China’s rapid growth has not been entirely smooth, however. There are some on-going doubts about the sustainability of China’s rise, given its reliance on financial credit, demographic time-bomb, increasingly outspoken and internet-using middle class, pending environmental ruin and widespread corruption. The general view, however, is that given the evidence that President Xi Jinping and his Premier, Li Keqiang, are seemingly committed to economic and social reform, China will continue to defy its critics for the time-being.

It was a simple observation, but one that will ring true for many people. The differences in societal and business culture between East and West are surprisingly large given the globalised nature of the modern world. But correcting this ‘ignorance’ is not easy. Historical, political and cultural factors play a vital role in Chinese current affairs, and it is very difficult to appreciate and understand these without some degree of background or contextual knowledge. At the same time, the sheer volume of China news, both from Chinese and ‘Western’ sources, makes the act of following, tracking and analysing what is happening an incredibly difficult task for those who want or need to know it, either on a personal or professional level. The commitment in terms of time and resources to read, document and evaluate the amount of news needed to fully understand China, is simply too big.

Yet despite all of this, the UK lags behind many other countries when it comes to capiFor a small nation with stagnant GDP growth talising on China’s blossoming economy. Despite robust growth in terms of bilateral that in many respects is stuck in its own trade, the UK is comways, the UK holds a disproportionate from a very low “People know very little about China, and ing base with sales to amount of diplomatic this ignorance is not an option anymore.” China accounting for sway in the world. a mere 2.5% of total But this is by no means stable. Attacks UK exports in 2010. Recently released figures show that Chinese on our established multiculturalism, the ongoing EU membership debate and five years of tourists spent £69bn abroad last year, 40% higher than in 2011. Yet Britain attracted only effectively zero economic expansion are further eroding Britain’s international standing. 179,000 Chinese holidaymakers last year, compared to over one million who travelled to Just as the economic crisis has catalysed an France. As things stand, Chinese investments oriental shift in power, these events have worth tens of billions of pounds are on standweakened our relations with allies old and new. If unresolved, our long-held but declinby pending an amicable end to trade and political disputes between China, the UK and ing position in world affairs will be eclipsed the EU. not only by the new growth in developing economies, but also by the mounting protectionism that is beginning to grip China’s only Visa bureaucracy, human rights issues, dotwo true competitors, the EU and the USA, as mestic protectionism and politically-sensitive meetings with exiled Tibetan leaders are all they begin to feel threatened by China’s increasing influence in the world. individual factors that have harmed ChinaUK relations in recent times. This publication When it comes to measuring just how impor- maintains, however, that a main barrier to improving bilateral interaction is a simple lack tant China is globally, the figures really do speak for themselves. Officially overtaking Ja- of awareness or understanding of Chinese affairs and how they affect the UK directly. pan to become the world’s second largest

British Sinophile looks to remove these barriers to understanding, providing our readers with the knowledge and analysis needed to improve the UK’s standing alongside China. Our team are not journalists, but avid Chinawatchers who offer a portal to the most important stories with well-researched accompanying opinion. Through dozens of hours’ research every week, we are able to trace what is going on in China day-by-day and condense it into a more manageable format, to supply our readers with exactly what they need to know and an explanation as to why they need to know it. Relations with China have never been more important to the UK; our future international economic and political reputation depends on our ability to adapt to the current shift in world power. The scope for improvement is certainly there.


01. Premier Li Keqiang makes first foreign trip.

03. French PM visits Beijing.

Li Keqiang, the man in charge of the world’s second largest economy, visited India, Pakistan, Switzerland and Germany as part of his first foreign tour since taking office in March. The selection of India for his first stop was seen as symbolic of the importance of the India-China relationship - Mr Li expressed that with improved cooperation, China and India could become the ‘engine’ of the world economy. Referring to the various border disputes between the two nations, Mr Li said that China and India have far more interests than differences. Trade between the two neighbours has come a long way, jumping from $5bn in 2002 to a high point of $75bn in 2011, before dropping to $61.5bn last year.

President Francois Hollande of France made a twoday trip to China where he met with the Chinese leadership to discuss bilateral relations and sign a series of trade deals. Mr Hollande therefore became the first ‘western’ leader to meet the new Chinese government. The two socialist brothers put aside their differences on issues such as Syria and human rights to pen some 18 different agreements across a range of industries. Mr Hollande faces increasing criticism at home for his businessbashing ways and mounting social problems. The trip was seen as a success overall.

In Pakistan, Mr Li spoke of the need for the two nations to work together to solve the country’s energy shortages. The two nations pledged to establish an ‘economic land corridor’ linking China to the Arabian Sea. China has historically been a long-time ally and arms supplier to Islamabad, referring to Pakistan as its ‘iron brother’ and ‘allweather friend’. The agreements reached between Mr Li and the Pakistani government will look to reduce Pakistan’s massive trade deficit with China. Upon arrival in Bern, Mr Li signed a Sino-Swiss free trade deal. With this, Switzerland became the first continental European nation and the first of the world’s top 20 economies to reach such an agreement with Beijing. Bilateral trade stands at $26bn. In the final leg of his four-nation tour, Mr Li arrived in Berlin to meet with Chancellor Angela Merkel. Sino-German relations have gone from strength to strength. Germany is China’s biggest trading partner and technology exporter in Europe, and second largest outside the EU, after the US. Bilateral trade surpassed €150bn in 2011, accounting for one third of the EU total. Mr Li said that China and Germany had the potential to form a ‘dream team’ in comments that highlighted Beijing’s drive to form a special partnership with Berlin that could bypass the EU. Mr Li also took the opportunity to comment on several on-going EU trade investigations into Chinese products, emphasising Beijing’s opposition to the imposition of tariffs while at the same time not ruling out retaliatory duties should the European Commission push ahead.

02. China’s quarterly economic data released. GDP growth fell to 7.7% for the first quarter of 2013, compared to 7.9% in Q4 of 2012, taking economists and China-watchers around the world by surprise. Asian stock prices did not react well to the news. The PMI (Purchasing Managers Index) for manufacturing, services and construction all fell, indicating slower growth across the economy. It is generally accepted that China’s growth will continue to slow partly given its already rapid rise, but partly due to a number of policy restrictions. President Xi and Premier Li have both indicated a tolerance for slower expansion so as to avoid environmental degradation. This implies that the government will limit temporary boosts to the economy as wider political plans for market-based changes for long-term expansion are laid out.



Policy shift marks reform potential.

The Chinese government signalled that it was open to some political reform with regards to the economy. Using the most pro-market language heard in over a decade, a series of policy proposals accompanied by a speech by Premier Li Keqiang emphasised the government’s commitment to reform in light of weakening economic data. The reforms will include granting greater autonomy to private enterprise, facilitating foreign trade and the easing of restrictions on foreign exchange rates. Observers expressed delight and surprise at the announcement.


05 China-EU solar panel war. The European Commission looks set to go ahead with its plan to implement anti-dumping tariffs on Chinese-made solar panels in an effort to protect the European industry. Although muted at first, the Chinese government has since retaliated, warning it would respond with its own punitive tariffs, perhaps targeting imported wine, much to France’s horror. Fourteen EU members are now lobbying to drop the proposition, led by the UK and Germany (who incidentally submitted the initial complaint against China).

Contrary to the surprising GDP figures, data across various industries showed continued expansion. Industrial production in China was up 9.3% on April 2012, higher than the 8.9% increase in March. Retail sales were also up by 12.8%, totalling $284bn. FDI (Foreign Direct Investment) also saw some incremental growth, expanding by 0.4% to $8.4bn in the year to April.


Politicians in India and in China realise the potential global economic and political power they would wield if only they could put aside their differences and work together. Unfortunately, this still seems a long way off. Relations have been tense since a brief war in 1962 and despite 15 rounds of talks, the various border disputes between the two countries have never been settled. Combined, they make up about one third of the world’s population and large proportion of its GDP - the potential is definitely there. Relations this month were dominated by attempts to cool the diplomatic standoff along India’s Ladakh-China border ahead of Premier Li’s visit. Chinese troops had strayed 19km across the Actual Line of Control, the current standing boundary between the two nations. There, they pitched tents and refused to leave until just a few days before Li’s arrival. The incident received wide coverage in India, but little in China, much to the frustration of the Indian media.

China-India Relations

India this month also expressed fears that China was expanding its influence in Nepal, part of India’s traditional sphere of influence. China is looking to crack down on Tibetan nationalism within its Himalayan neighbour as the country is now home to several anti-China dissident groups.

International Relations


cose actions. In a separate inci- visit the controversial Yasukini dent, 6 Chinese sailors were War Shrine, an article by two govcaptured by N.Koreans and held to ernment-sponsored Chinese acaransom. They were eventually re- demics questioned Japan’s leased under undisclosed condi- sovereignty over Okinawa. China tions. A N.Korean delegation reiterated that the Diaoyu islands arrived in Beijing on May 22. are one of its ‘core interests’ and so Among the political rhetoric, Pres- must not be interfered with by the ident Xi urged N.Korea to return USA as agreed by the countries. to the 6-Party Nuclear talks aimed at resolving its disputed nuclear Locals protested as China and program. The timing of the visit Myanmar announced plans for an was important as Xi is set to meet oil pipeline connecting China’s It was revealed that China’s in- with both South Korea’s and Yunnan province to the Strait of vestment in Africa topped $75bn America’s leaders over the next Malacca. China responded by showering Burmese towns with over the last decade, close to months. investment. America’s total spend over the same period. China has received The hacking scandal reared its criticism for a lack of transparency head again as several countries and The Arctic Council announced it with regards to African invest- multinationals accused China of will grant China observer status. ment, with its true motives com- coordinating attacks. The Austral- There is increasing competition ing under scrutiny. China signed ian government was quick to claim for influence in the Arctic as new over $6bn worth of mining and reports that China had stolen natural resources, fishing grounds construction deals with Sierra plans for its new intelligence hub and shipping routes become availwould not harm ties. After a Pen- able as the ice melts. EU observer Leone this month. tagon report implied for the first status was deferred as Canada opChina hosted the Israeli PM, time that the Chinese government posed its membership due to an Netanyahu and Palestinian lead- had tried to break into US defence EU-wide ban on the import of seal er, Abbas, simultaneously. The computer networks, China called products. two were kept several thousand the US the ‘real hacking empire’. Several Chinese newspaper artikilometres apart at all times. Speculation that Beijing might facili- As the Japanese PM Shinzo Abe cles expressed how it was in Chitate a meeting proved optimistic. further stoked Chinese hatred by na’s best interests to keep Europe allowing members of his cabinet to together politically and economiAn Australian white paper reported that the country no longer sees With David Cameron effectively barred from visiting China, several China as a strategic threat, but as other personalities threw their hats in the ring to represent the UK in an important partner instead. PM Beijing. As part of his wider campaign to undermine Mr Cameron, Gillard’s conciliatory tone is much Boris Johnson was first in line, followed closely by one of Prince softer than Kevin Rudd’s four Charles’ right-hand men. The only man with a scheduled trip, Kenneth years earlier. Australia’s decision Clark, was forced to cancel it as it was made apparent he would be in 2011 to allow 2,500 US troops to unable to meet with any high-level officials. be stationed in Darwin caused tension between the two nations. There has been no minister-level contact between the two countries for over a year. The cabinet is split on how to deal with the situation: China-North Korea relations Foreign Secretary William Hague and Deputy-PM Nick Clegg favour a were put under strain as firstly the tougher stance on human rights and so do not want to be seen bowing Bank of China announced it had to Beijing’s demands. PM Cameron and Chancellor George Osborne ended all dealings with key would rather not damage relations any further. In the meantime, SinoN.Korean banks in what appeared British relations are at a low-point, not helped by the hosting of Chen to be the strongest public response Guangcheng, a Chinese dissident, in Westminster earlier this month. yet to N.Korea’s increasingly belli-

Francois Hollande, France’s President, made a two-day trip to meet with China’s leaders. He signed 18 business deals, including the $8bn sale of 60 Airbus planes. Sino-French trade is coming from a low base, however, with France’s deficit standing at €26bn. Several British observers viewed the visit as a diplomatic snub to David Cameron as punishment for meeting with the Dalai Lama last year.

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cally. This coincided with a visit by the Greek PM Samaras as he asked for further Chinese investment in his country. China’s official stance is to assist but not save Europe. President Xi Jinping is visiting Trinidad & Tobago, Costa Rica and Mexico before heading to America on June 7-8. Defence and Security talks have begun between China and the US, laying the groundwork for wider discussions to be held between Mr Xi and Mr Obama. China repeated its claims to several islands in the South China Sea, this time in response to protests by the Philippine government. Several Chinese tour companies have started to do trips around the disputed territory and China has asked The Philippines to remove all staff and facilities from the Spratly islands, despite their presence on the island for decades.

China-UK relations at a low-point


China’s green potential

Most people would associate China’s energy industry with corruption, public protest and most of all, pollution. China is, however, one of the world’s biggest markets for green technology (in the same way that it is the world’s biggest market for just about everything). Most of China’s environmental problems are caused at the local level due to the Chinese political promotion system. It values growth rates above all else, meaning long-term and costly environmental projects are often overlooked by power-hungry local officials. The central government, however, has reiterated its commitment to green technology repeatedly. Carbon-reducing plans and provisions to increase China’s use of energy-efficient technology and practices were included in the 12th Five-Year-Plan back in 2010, and Xi Jinping has spoken publicly in support of greener projects. The UK specialises, among other things, in high-grade machinery and technologically advanced manufacturing. China’s green opening has the potential to translate into a boom for the UK-based technology and services sectors. % Progress is being made, but with competition from Germany and the , US, British companies must push forward. Experience shows arriving M YU or omers first in the Chinese market counts for a lot. f s t t rofi , - cus iekcn p ch ic FC l in Fal er of K from pidem y e n ow y awa ird flu sta ing b dur

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Economy & Business

In a sign that the rapid growth of China’s luxury consumer market might be starting to slow down, sales of various super-luxury items were down in the first quarter of 2013. Luxury watch sales were down 25%, the growth of the toprange diamond market slowed and Bentley sales were down 20% having been 25.9% higher in 2012 than in 2011. On the other hand, midrange luxuries sales have continued to soar. Diamonds with slight imperfections saw a 24% increase in sales, while car brands such as Audi, Mercedes and BMW all saw strong growth, albeit at a slower rate than in the first quarter of 2012. Overall auto sales in April were up 13% from a year earlier. China currently accounts for 27% of worldwide luxury goods consumption - this is expected to grow to 34% by 2015.

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China’s banking sector defied the economic slowdown, expanding at a rate of 20.7% last year. The China Development Bank grew 38% due to its policy bank status. This means it focuses on issuing loans for government development and doesn’t collect retail deposits. Most of its funding comes from bond selling. Various organisations revised their growth forecasts for China in 2013. The European Commission predicted China would grow 8% in 2013 and 8.1% in 2014. It said that the principal driver of growth in China would be consumption as rising wages and real interest rates mean that household wealth is increasing. Sales of gourmet seafood, such as abalone and sea cucumber, are down as President Xi’s campaign to promote frugality gains momentum. Luxury hotels, banquet halls and high-end bars have all seen tumbling earnings in recent months after Xi waged war against government excess. The phrase ‘four dishes and a soup’ has become a well-known euphemism for Xi’s efforts to counter corruption, after he announced new rules

“I said to the Chinese Investment Corporation the other day, ‘I’m not embarrassed that you own 10 per cent of our biggest water company or a big chunk of Heathrow airport. I’m proud. I think it’s absolutely great. We want to be the destination for Chinese investment. Tell the other Chinese investors – come to London; spend your money.’ ” David Cameron The UK government is in talks with China Investment Corporation to secure hundreds of millions of pounds towards the cost of a £4.1bn ‘super-sewer’ in London. CIC already own 9% of Thames Water, who are overseeing the project, and 10% of Heathrow Airport.

officials’ from a year earlier, the fastest pace since July 2012. Jewellery and gold sales were up 105.1% on last year, The UK Environmental Industries while food sales were up 9%, home Commission (EIC) has agreed appliance sales were up 13.1%, costerms with its Chinese counter- metics were up 11.2%, but clothes part to grant greater access to the sales were down 0.3%. Demand for Chinese market for its members. unprocessed gold rose by 20% in The agreement will permit UK en- the first quarter, against a 13% fall vironmental technology and in global demand. service companies to seek accreditation in China, thus allowing Chinese retailers are turning more them to offer their products to and more to foreign products as increasing domestic overheads Chinese customers. have reduced profits. By selling A report by Standard & Poor higher-quality imported produce, claimed that China’s corporate retailers are able to establish highdebt will overtake that of the US er margins. Chinese consumers are within two years. Debt belonging increasingly looking to foreign to Chinese non-financial institu- goods as a number of health scantions will apparently exceed dals have tarnished the Chinese $18bn, compared with a projected manufacturing industry. $13bn in the US. China’s growth has been fuelled by high levels of Ninety Chinese cities are projectinvestment particularly in real es- ed to have an average income of tate, infrastructure and manufac- ¥30,000 by 2020. The Economist tured, all of which are primarily Intelligence Unit identifies this as the threshold at which Chinese funded on credit. cities will be able to ‘leap forward’ The Chinese housing market has amid rapid urbanisation. There are proved as unpredictable as ever - 22 such cities at the moment. Urin a single week, sales of new resi- ban per capita income reached an dential properties in Shanghai average of ¥24,565 last year, 12.6% were up by 30%, with prices 11% higher than 2011. lower than the previous week. Overall property sales in the first Chinese State Grid, the world’s largest utilities company with quarter were up 69%. revenues of $300bn and investTotal revenue for China’s top 50 ment in Brazil, Portugal and the retailers was up by 15.8% in April Philippines bought a stake in the Australian electricity network in a deal worth $800m. covering meals.


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Sina Corp, one of China’s largest internet firms and owner of Weibo, China’s domestic version of Twitter, posted $13.2m in net loss in the first quarter. Revenues were up 19% on a year earlier and the loss was smaller than the year before. Weibo has over 500m active users every day.


China-EU solar panel dispute China and the EU became involved in a bitter trade dispute over solar panels. The European Commission accuses the Chinese of ‘dumping’ government-subsidised panels at artificial prices, thus distorting the native European market. China reacted calmly at first, but has since upped the rhetoric given the $27bn trade at stake. If the EC goes ahead with its plans, punitive tariffs at an average of 47% will be levied on Chinese-made solar panels. Fourteen European countries, including the UK and Germany have asked the EC to reconsider. The EU is China’s largest trading partner, but relations have been soured by several high-profile trade investigations involving large Chinese multinationals. As it stands, it looks likely that the move will go ahead. Angus MacDonald, managing director of British Renewables has said, “Imposing the levy would be to commit economic suicide. It would risk the entire UK/EU solar industry, make climate change obligations more expensive and, ultimately, would result in a net loss of hundreds of thousands of jobs. It’s unfortunate that there wasn’t enough EU investment in solar manufacturing to create viable products when the opportunity arose. The fact is that China saw the market opportunity and did invest and, as a result, the burgeoning UK/EU solar development industry hinges on use of Chinese imports to make it viable.

Energy & Environment

Society, Health & Law

Chinese environmental authorities approved plans to start construction on what will be the world’s tallest dam in southwest Sichuan province. The 314m high structure will be far taller than the 185m Three Gorges dam and a little taller than the world’s current highest dam in Tajikistan. The projected cost is around £2.9bn. The Environment Ministry accepted that the dam would have an impact on the area’s highly diverse flora and fauna. Similar projects have met with public protest in previous years.

The Chinese bird flu pandemic was finally brought under control in mid-May. 130 people were infected on the mainland, with 36 people dying. The government was quick to act, shutting down live poultry markets, and acting to standardise transportation and handling procedures. The economic impact was unprecedented, costing the agricultural sector an estimated $6.5bn.

Energy consumption in China grew 6.8% in the year to April, 4.8% faster than the month before, totalling 416bn kW hours. China currently relies on coal to provide 70% of its energy needs, but the government is increasingly looking to its rich shale gas reserves as part of a global drive for investment in the fledgling industry.

fox and mink meat being passed off as beef and lamb. The latest in a long series of food scandals to hit China saw suspects using chemical processes and steroids to create fake meat that was then sold to some of China’s top hotpot restaurant chains. Public outrage ensued.

Two primary schoolgirls died after being consuming yoghurt that had been laced with rat poison by the head-teacher of Unrest in Xina rival primary jiang, in China’s school. He was atnorthwest, retempting to damsulted in the ¥ bn age the other’s deaths of 21 law Value of the 2 million reputation as the enforcers. Police fake condoms seized two schools comresponded by deby police peted for pupil taining a number places. This was of suspects, seizthe most recent of ing homemade several shocking explosives, arms and separatist flags in the process. cases where profits appear to have Official reports say many of the been put before public safety, and suspects were engaged in clandes- has led to much soul-searching tine Quran studies. Ethnic Muslim among ordinary Chinese. Uighurs make up about 43% of the population. The Chinese govern- Migrant workers protested in Bement is often accused of suppress- ijing, demanding greater rights ing native customs and religion. and improved working conditions. Beijing claims it is merely acting to Police blanketed the streets with prevent the spread of Islamic ex- officers to try and contain the few tremism. hundred demonstrators.


Chinese solar energy company, Hanergy, bought UK solar installation firm Engensa in an effort to expand its reach within the residential market. This comes at the same time as an on-going tariff debate between the European Commission and China, who are accused of ‘dumping’ solar panels Exiled political dissident, Chen in the European Union. Guangcheng accused the Chinese government of neglecting his Protesters in Shanghai opposed nephew who was imprisoned after the construction of a lithium facto- supposedly assaulting a police ofry. Protests over pollution are be- ficer as they searched for Mr coming increasingly frequent in Chen following his dramatic esChina, highlighting growing social cape from house arrest last year. tensions across the country. In re- Chen Kegui was diagnosed with sponse, district officials limited appendicitis in April but is being what procedures could take place refused access to proper medical at the factory in apparent capitula- treatment. tion to the protesters’ demands. The protest comes at the same 900 people were arrested across time as another explosion at a gas China as the government further pipeline in Jiangxi province. cracked down on the sale of rat,

Twenty-seven workers were killed in an explosion at a coal mine in Guizhou province. Official figures show that 1,973 people died in such accidents across China in

2011, 19% fewer than the year before. China’s anti-corruption agency announced it would begin investigations into Liu Tienan, a senior economic policy advisor. The report came more than five months after a Chinese journalist, Luo Changping, boldly challenged Mr Liu and investigators by publicly accusing him of shady business deals and other misdeeds, including threatening to kill his mistress and overstating his academic qualifications. State media praised Mr Luo’s persistence. The All China Women’s Federation held an international meeting in Beijing, emphasising that despite gains, income inequality in China is widening. The annual income of female urbanites was about 78% of their male counterparts in 1990 By 2010, the ratio had dropped to 67%. The Chinese government highlighted the need to increase the provision of graduate jobs. By last month, just 28% of recent graduates in Beijing had found jobs. Official unemployment in Beijing is only 4.1%, but this rate is distorted as it does not include certain groups such as graduates or migrant workers. Some 7m students will enter the graduate job market in July.

“As the Chinese middle class develops it will find, like the middle class in any other country, that it requires social and government action to improve standard of living and that increases in personal income alone is not enough. Problems such as clean air, freedom from pollution, education, and health all require government as well as personal participation. Demand for social and government action to improve living standards will increase as the middle class grows in China.” John Ross, Renmin University


Chinese Political Reform

On Friday May 24, the Chinese government released a series of policy proposals that implied Premier Li Keqiang and others were seriously considering re-structuring the way in which central government is involved with business. They outlined a plan to reduce government intervention in the market and allow private businesses to have a greater role in price-setting and investment decisions. Sceptics question just how ready China is for change, especially given its current reliance on credit. What is clear, however, is that these announcements are the strongest sign yet that the new government is set on re-evaluating how China will maintain its rapid economic development. The proposals suggest expanding taxes on natural resources, taking steps to allow market forces to determine bank interest rates, as well as encouraging the entry of private capital across the economy. Foreign investors will also be given greater freedom in a number of sectors. The government has promised to loosen controls on foreign exchange reserves. The announcements signal a major policy shift with the hope of improving living conditions for the middle class and making China a stronger global competitor. It is some of the strongest pro-market language heard in over a decade.

Politics Lei Zhengfu, a former Chongqing official, is to be prosecuted for accepting bribes after the leaking of a video showing him having sex with a young woman as part of a honey-trap to ensnare officials and then blackmail them for cash or preferential treatment. The maker of the video and woman involved will also be charged. Ten other officials have been dismissed since January in relation to the case.



Science & Technology

After months of speculation, fuelled by the circulation of several grainy images, the Chinese military announced that it was preparing to test fly its first unmanned combat vehicle (UAV), or stealth drone. The drone has been named ‘Li Jian’, meaning ‘Sharp Sword’.

Dissident artist, Ai Weiwei opened a new installation in Hong Kong - a map of China made out of formula milk. The piece is seen as a jibe at China’s poor food safety record, referring to a 2008 milk scandal in which several thousand babies fell ill after drinking tainted milk. At the time, the government tried to cover up the incident, scared that it would harm their international standing just before the Beijing Olympics.

China’s 4G network should be operational by August. China Mobile is the world’s largest mobile communications company, with 710m subscribers, twice the US population.

China’s first aircraft carrierborne aviation force was formed, significantly advancing the navy’s blue-water capabilities. This comes at a sensitive time, as China is involved in maritime territorial disputes with several neighbours, In response to weaker-than-ex- including Japan, Vietnam and The pected economic data, Premier Li Philippines. Keqiang said there was ‘little room for further government spending China offered to contribute to the or stimulus’ to help boost the UN peacekeeping mission in Mali. economy. Many investors had According to reports China has ofhoped that the Chinese govern- fered to send a civil engineering ment would step in to help lift eco- company, 150 soldiers and as many nomic activity. as 600 peacekeepers to the country. “If there in an over-reliance on government-led and policy China’s current driven measures to stimulate growth, not only is this un- contribution to sustainable, it would even create new problems and risks." UN peacekeeping in terms of personLi Keqiang nel far exceeds that of the four A documentary produced by other UN Security Council memCCTV, China’s state broadcaster, bers - the US, Russia, Britain and claimed that the Dalai Lama is di- France. rectly behind a recent spate of selfimmolations and is active in the New laws were introduced banproduction and distribution of ning all luxury cars from using mil‘terrorist’ guidebooks for young itary-plates. Vehicles registered as people in Tibet and Sichuan prov- such can avoid parking tolls and ince. The programme was broad- speeding tickets. Chinese netizens cast days before Li Keqiang’s visit have long complained that officers to India, home to the Dalai Lama. abuse their positions. The documentary will be released in several foreign languages. The Ministry of Finance approved an ¥8bn housing subsidy. It will mainly be granted to those living in the less-developed regions of central and western China who are seeking to buy, rent or upgrade homes. House prices are often cited as people’s main concern for China’s future.

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UK scientists criticised Chinese researchers for developing new strains of the flu virus in a veterinary laboratory, calling it ‘appalling irresponsibility’. The British scientists claim that doing so poses a huge risk to public health Peng Liyuan, President Xi JIn- should the virus escape. ping’s wife has been named 54th on Forbes’ ‘Most Powerful Women’ list. She is one of eight Chinese women in the top 100.


According to a survey conducted Num by BBC's World Service, 25 counmobi ber of Sa le m tries now see China as having a 2012 s sold in C sung (mill mostly 'negative influence' on inhina i 2011’s ons), trip in ternational affairs. China's perle figur e. ception around the world is the worst it has been since 2005, with 39% of those surveyed indicating negative views on China's role in the international community, which is roughly an 8% swing from the previous year. According to the study, the Chinese surveyed viewed the US and Japan as the most negative powers. Ye Wo-Cheng became the youngest ever participant in the European Tour golf competition, aged just 12 years old. Over 1,000 Chinese fans gather for a Harley Davidson rally in Zhejiang province. Having opted out of the Schengen Area, a 26 country bloc in which visitors only need one visa to visit all member states, the UK has fallen behind other large European nations in attracting Chinese tourists. Chinese tourists need to go through a separate, longer and more expensive visa application process to come to the UK. Around 179,000 Chinese travellers stopped in Britain last year, compared to over a million in France. This comes as figures show China’s travel industry grew 28.7% in the first quarter of this year and that Chinese tourists spend some £69bn abroad every year. Ministers have taken some steps to ease visa restrictions and have seemingly ruled out ever joining the Schengen Area due to various privacy and practicality issues. Research has shown that only 7% of Chinese tourists are willing to apply for more than one visa.


“Here power comes first, money comes second, and unless the first two are possessed, the law comes a poor third. And that is the reality of China.” Mr Keith Darby on Chinese business culture that led to his failed joint venture with a SOE.

Qu’est-ce qui s’est passé? Should Sino-French relations worry the UK?

As China-UK relations hit a low-point, how worried should Britain be about warming relations between Paris and Beijing? Taken from, written by Adam Knight The visit of a French leader to China wouldn’t ordinarily cause much of a stir among British China-watchers. President Hollande’s tour of Beijing and Shanghai last month was in many respects actually very ordinary. Branded a ‘sales tour’ by the French media, Hollande (and the hordes of businessmen he’d brought with him) were in China to do one thing and one thing only - drum up business. Nothing unusual there. For the UK, however, the trip coincided with the realisation [read official denial] that the British PM, David Cameron, would be refused access to top-level Chinese politicians should he come to Beijing. Red-faced advisors had to hastily explain away the ‘temporary’ removal of his Beijing travel plans scheduled for some time soon. The reason - Cameron’s private audience with the Dalai Lama last year. Cameron’s political stunt in meeting with the Dalai Lama, justified or not, has dealt China-UK relations a hard blow, sinking them to their lowest point in recent times. It’s only right therefore, that we should get a little jealous when we see our old friend/enemy, France, cosying up to China’s new leadership. But beyond the rhetoric of ‘strategic partnerships’, ‘mutual trust’ and ‘multipolarity’ as the two socialist nations put aside their differences on issues such as Syria, could this mark a turning point in SinoFrench relations at Britain’s expense? Upon his arrival in Beijing, Mr Hollande immediately turned his pen to signing a trade deal worth some $8 billion to sell 60 Airbus planes to China. Seventeen further business agreements were formalised, ranging across tourism, agriculture, nuclear power and urbanisation. Some commentators were right to point out, however, that France is starting from a low base in terms of bilateral trade. It only accounts for 1.27% of overall foreign trade with China, compared to over 5%

for Germany. It is also currently running a trade deficit of €27 billion, higher than any other of China’s trading partners. ‘Oh dear…’, you might say. That is, until you see the UK’s figures by comparison. The UK, sixth (or seventh) largest country by GDP, accounts for a mere 0.85% of foreign trade in China, lower than poor, suffering Italy who makes up 1.03%. From the other way round, a report by the Rhodium Group last summer looked at China’s FDI in the EU (the total sum of investment into businesses from China into Europe) from 2000 to 2011. It highlighted that the UK made fewer trade deals than countries such as Germany, and also received less investment from China than France over the ten year period. France’s ability to cut high-value deals such as the recent Airbus sale is reflected in these FDI figures too. They show that Chinese companies invested an average of $81.7 million per project in France from 2000-2010, compared to just $38.7 million on UK projects. Figures for investment in China released for the first quarter of this year put the UK ($231m) in tenth place, behind France ($417m) and Luxembourg ($274m). So not as low a base as the UK then. It would seem that Sino-French business ties have eclipsed British interests for several years already. But, as if this trend were not enough, France also appears to be making ground in previously-stalwart areas of British dominance. Following an announcement by the UK Treasury last year to make London - already the world’s largest currency trading hub - the leading centre for yuan transactions outside of the Chinese mainland and Hong Kong, Sir Mervyn King, governor of the Bank of England visited Beijing in February to finalise plans for a three-year currency swap. Fantastic! Did this make Paris a little jealous? Perhaps. Keen not to give any breathing space to their British cousins, Bank of France governor Christian Noyer announced in April that it too had


plans for a currency swap with China. The total value of offshore yuan-denominated bonds issued by French companies was nearly 7 billion yuan in 2011-2012, twice the value of those issued by British corporates. About 21.4% of Sino-French trade is completed in renminbi. France already leads the Eurozone in terms of RMB payments, with a 249% increase for the year to March 2013. This ranks it fourth in the world, after the UK, Singapore and Taiwan. Could Paris someday rival London as a global yuan trading centre? It’s certainly something to keep an eye on. Life isn’t all about economics and business though, is it? There’s got to be more to the Sino-French/British relationship than trade, hasn’t there? After all, the UK is apparently the most influential nation in terms of ‘soft power’ at the moment. That’s got to count for something. ‘Brand UK’ has a certain pull, especially among the young. Our universities attract over 100,000 Chinese students every year and have more joint programmes with Chinese higher education institutions than any other country. In France, by comparison, there are approximately 30,000 Chinese nationals enrolled in higher education. According to the British Council, in 2010 there were 240 million learners of English in China, compared to just 70,000 students of French. British scientists co-author more research papers with China than any other country, except the US and Japan, totalling almost 2,500 every year. So, in some respects, we ‘win’ in terms of cultural influence. But what does this actually translate in to? As we have seen, it doesn’t necessarily mean better business relations. What about in terms of attracting Chinese visitors? Unfortunately not - once again, we are outdone by the French. Approximately 149,000 Chinese tourists visited the UK in 2011, compared to 900,000 for France. With Chinese tourists spending a total of £69 billion on travel globally in 2012, 40% higher than in 2011, there are obvious economic losses in not luring Chinese holiday-makers across the Channel.

But the Dalai Lama needs no referendum… Written by Pinky Lee A comparison between Britain’s relationship with the EU and with the Dalai Lama.

The UK could maintain the same low-committal but essentially loyal relationship it has with the EU, just as Cameron did last year with the Dalai Lama during his visits to the UK. Both involve a certain amount of risk but also restraint at the expense of public opinion. There was no vote on whether to meet the Dalai Lama in May, despite fears of losing billions in Chinese investment. Instead, damage was limited through careful stage-managing: the location for the meeting was apolitical, the conversation private. In the face of China’s opposition, Cameron stated: “The Chinese government is aware of our policy on Tibet. We recognise Tibet as part of China. We do not support Tibetan independence and we respect China's sovereignty.” And when human rights and Tibetan autonomy proved too much of a distraction from the emergency G7 euro zone crisis talks, Cameron forbid MPs to meet the Dalai Lama on his 2nd visit to the UK in June. The priority of diplomatic relationships with China does not mean desertion of the Tibetan cause for autonomy. UKIP leader Nigel Farage, who at his meeting with the Dalai Lama in 2008 compared the EU to the oppressive regime of the People’s Republic of China, is too quick to condemn Britain’s stance on Tibet’s status:

Behind this lie two main factors. The first is that ‘Brand France’ is pretty strong in itself. Whether it is luxury clothing, jewellery, cosmetics, wines or even whole vineyards, Chinese tourists cannot get enough of Paris’ shopping opportunities. Britain’s pull just cannot compete, especially when combined with the second factor - the UK’s outdated visa system. Britain opted out of the Schengen Area, a bloc of 26 European countries which have abolished passport or visa controls along their common borders, when it was established in the 1990s. This means that Chinese tourists wishing to ‘do Europe’ must apply for a separate visa, requiring finger prints and the filling out of a lengthy form, if they wish to visit the UK, on top of the shorter application for a Schengen Area country visa (no fingerprints required). For many Chinese, it just isn’t worth the hassle or expense, as the figures show. So France trumps the UK again. Should the UK be worried? Probably - but not necessarily about the strengthening ties between France and China. We need to focus more on our actions or, to be more specific, inactions when it comes to developing the China-UK relationship. The growing closeness of one of our oldest allies with the world’s second most powerful nation should give us cause to re-evaluate our own China-ties. In an economic time where every business deal matters and every tourist pound counts, the UK government needs to be making amends for previous political stunts like meeting exiled Tibetan leaders, and revising bureaucratic procedures which hinder UK trade. PM Cameron should be taking a leaf out of President Hollande’s book, rather than feeling bitter about being snubbed in favour of his French counterpart. After all, there’s enough of China to go around for everyone - you just have to play by the rules.

We should not confuse desires with expectations. The accusation that Cameron exploited the Dalai Lama’s visit for a photo opportunity is not unreasonable, but then the Dalai Lama could not have expected much else, considering the UK’s need to remain financially competitive in the bid for Chinese contracts. In any case, the Dalai should expect more support from the EU than the UK, seeing that any statement Cameron delivers would have less weight than a single resolution upheld by 27 EU member states, which did materialise in 2008 in the form of the EU resolution on Tibet. The understanding between Cameron and the Dalai Lama is absent in the increasingly antagonistic attitudes of the British to the EU. The priority of selfgovernment should be expected by the EU parliament, and appreciation of this right should not require for Cameron to withdraw the UK’s membership of the EU or hold a referendum on the issue. Rather, the EU should demand less, and as with the ban in June 2012 Cameron should act with conviction to protect commercial interests, not create unnecessary uncertainty. Renegotiation, not referendum, is the answer to grievances about the UK’s membership of the EU. Perhaps Cameron might take a leaf from the Dalai’s book and trust in the possibility of consensus and progression in a multinational system: the Central Tibetan Administration (CTA) organises and guides a global community, and though it has its critics, No member state has yet withdrawn from the EU because trust and a sense of obligation to system is what makes the system, despite the lack of commitment and the fight for exemptions, work. Cameron can maintain a stable relationship with the Dalai Lama in difficult circumstances with little room to manoeuvre; let us see if he will be as adept in negotiations at the EU conference table.


“This is radical stuff, really. People have talked about this for a long time, but now we’re getting a clearly spoken reform agenda from the top.” Stephen Green of Standard Charter, on the recent announcements on Chinese political reform.

“We want to apologise to the Egyptian people and to people who have paid attention to this case across China,”



The mother of a 15-year old Chinese boy who etched graffiti into a statue inside an Ancient Egyptian temple. This came as members of the Chinese government criticised Chinese tourists for tarnishing China’s image abroad with their antics.

ce mer com a. It’s e f hin ue o l val s in C four Tota saction te was P D tran wth ra t of G gro es tha th. tim grow


Sun Wars

The on-going trade dispute between China and the EU shows the dirty side of clean energy. Solar power. It conjures up images of innovation, progressiveness, tranquillity, and cleanliness. But the solar industry has begun to show its true colours in the last few weeks, and it’s far from green. Instead, recent events have brought out the dark and murky side of the business, much more regularly associated with, let’s say, the more traditional energy industries. It is a story of international trade wars, punitive tariffs and an industry divided, and it certainly makes for good reading. The European Commission has all but decided to impose harsh import tariffs on Chinese solar panels in an effort to prevent the ‘dumping’ of cheaper Chinese-made panels, which they claim are artificially priced due to government subsidies they receive back in China. Europe accounts for about 80% of China’s solar sales worldwide and it is claimed that low Chinese prices therefore undercut the European market by about $26.5billion a year, equivalent to 6.5% of total EU imports. After three months of deliberation, the EC has settled on tariffs of up to 67.9% for some of China’s biggest solar panel manufacturers, with an average of 47.6% applying to the majority of businesses. The move comes after an investigation undertaken by the EC on behalf of EU Pro Sun, an industry association representing solar panel producers from 20 EU countries. In a press release on the 9th May, EU Pro Sun compared the European and Chinese industries like this: The European solar industry is the global technological leader. All significant technologies applied internationally in the field of solar energy have been developed in recent years in Europe. The technological advantage of the most important production facilities in Europe is more than a year in advance of competitors of other regions.

Europe has the strongest industrial and research clusters in the field of solar energy, and thousands of young Europeans are preparing at European universities for a future career in the solar industry. The share of labour costs in the European production of solar modules is only 10 per cent thanks to the world’s highest levels of automation. Compared to low-wage locations, Europe thus has a clear advantage in production processes and quality assurance. Europe works by the highest social, environmental and quality standards, which are not met in China in particular. The production capacity of the European solar industry is around 10GW, equivalent to 70 to 100 per cent of the forecasted European solar market volume this year. However, this key technology risks disappearing from Europe is the state-funded Chinese solar manufacturers are allowed to continue selling their products in the EU massively under their production costs. So there are obviously some people who feel pretty strongly about it… But for all those who are standing up for EC intervention, there are plenty more who it would seem are passionately against the proposals. On a Europe-wide level, over 1000 companies have rallied against the move and fourteen EU member states including the UK and Germany have chosen to distance themselves from the move. At a time when France and Germany in particular are both seeking to increase exports to China, they can definitely see the worth in not upsetting the Chinese government. Yao Jian, spokesperson for China’s Ministry of Commerce said recently: China is firmly against restrictions. We are committed to protecting the interests of both Chinese and European businesses. This case affects more than US$ 20 billion in products and hundreds of thousands of jobs, and we do not want to see a trade war. If the EU places restrictions on products, China will take action to protect the interests of its own businesses, thus we hope the EU carefully considers its measures. The whole affair is very much reminiscent of the ‘Bra Wars’ which tainted EU-China relations back in 2005. Over 80m items of cheaply-made Chinese


clothing were blocked at European ports in a move fuelled, in particular, by France and Spain’s protectionist demands. An agreement was only reached through intense negotiations between a younger Bo Xilai and the similarly seedy Peter Mandelson. European relations were blackened and Sino-British talks were overshadowed by the whole debacle. Politics aside, many European solar energy companies are warning against the impact the proposed tariffs would have on the industry in general. A report by Prognos has claimed that some 240,000 EU jobs are at risk from the proposal as many solar energy companies rely on the cheap price of Chinamanufactured panels to keep their own prices competitive. With regards to the UK directly, the Solar Trade Association said it is ‘very disappointed’ by the EC’s proposals, stating that; “These duties, if imposed, will damage the UK solar market, particularly the largescale ground-mount sector. It seems absurd that [trade] commissioner De Gucht is supporting these proposals, when the duties will actually result in a net reduction in EU solar jobs, restrict the growth of the solar market and damage Europe’s chances of meeting its 2020 renewable targets." The Prognos report (which, on an interesting note, is so strongly refuted by EU Pro Sun that they commissioned PwC to compile a counter-document), goes so far as to say that imposing these tariffs could cut the UK solar market by up to 80%, resulting in 38,600 job losses and costing the British economy £3.46 billion. For the time-being, China’s response has been very restrained given the billions of dollars’ worth of trade that are at threat. It would seem they are still holding out for a diplomatic resolution, failing which they could have a case to take to the European Court of Justice, the IMF or the WTO. Having said this, the rhetoric is building, especially in light of several other on-going trade investigations involving China. The EC needs to think very carefully before committing to the tariffs at the end of this month. All in all, the whole matter reeks very much of hypocrisy, coming from an organisation that aims to promote free trade and development in the green

energy industry. How much longer China can stand for it is anyone’s guess. The UK government has already taken a stand alongside Germany in distancing itself from the EC’s decision, but it needs to do more. As a powerful contributor to the European solar technology development, the UK should use its place on the various industry committees involved to renegotiate the tariffs in question. Failure to do so might see wider economic and political implications. Adapted from the online article, ‘Not so clean after all’.

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Written by Adam Knight

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Scope is published by British Sinophile, a research organisation focused on promoting China-UK relations, with operations in Oxford and Beijing. Editors: Adam Knight, John King Researchers: Ian Carpenter, Aaron Filous, Josh DeFriez, Zhang Yawen Writers: Pinky Lee, David Stinson All views expressed are those of the individual author and do not necessarily represent British Sinophile.

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Scope, June 2013 (British Sinophile)  

Roundup of everything that's happened in China this month with accompanying analysis as to how this affects the UK.

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