The Adventures of CSE Students!

Tuesday, April 1, 2008

People vs. chemical plant

Residents of Xiamen, a port city in east China's Fujian Province, never expected that "PX," an abbreviation for the word "paraxylene," would have become the hottest word on the tip of their tongues. Both their explanation and courage regarding this term have given birth to another definition -- "Protect Xiamen."

In 2006, the Xiamen city government introduced a US$1.41-billion chemical plant project, "the largest industrial project ever in the city's history." Tenglong Aromatic PX (Xiamen) Co Ltd headed the project. They expected to produce 800,000 tons of paraxylene (PX) and generate revenues of 80 billion yuan (US$10.45 billion) a year.
PX project site in Haicang District.Paraxylene is a highly polluting, carcinogenic petrochemical used to make purified terephthalic acid, a raw material needed for producing polyester film, packaging resin and fabrics.
The planned location of the PX project was in a development zone in Haicang, a district with more than 100,000 residents, where many Hong Kong and Taiwan businesses have invested.
The nearest residential area was less than 1,500 meters from the plant, and one fifth of Xiamen island lay within a radius of 10 kilometers. Gulangyu, or Piano Island, the city's largest tourist destination, was only 7 kilometers from the site.
About 4 kilometers from the site was Xiamen Foreign Languages School, a senior high school serving 5,000 students, attached to Beijing Normal University.
A man's desperation

Like many other young people, 30-yea-old Huang Qizhong wanted a home of his own after years of working in this beautiful port city.
I want a house with a big French window. The sun would stream down upon the floor and I would bathe in the sunlight.
I want a house with a beautiful garden and vast lawn. I would look out upon the blue sky and enjoy the warm breeze.
I want a house that faces the sea. I could hear its sound and smell its taste.
The Future Coast community in Haicang District.The Future Coast, a so-called No.1 health coastal residential community in southeast China, has no doubt fulfilled all his expectations for a home. Although the community lies in Haicang District, 20 km from the city center and most of the households are migrants, his dream house has an incomparable sea view and a modest price of 4500 yuan per square meter, as compared with 10,000 yuan per square meter and even higher in the city center.

In early 2006, Huang spent nearly all his savings and bought a house there. But soon his dream became an utter nightmare. An awful stench from a nearby wastewater treatment plant and a sour taste from a big chemical plant always make him sick and wake him from his dreams.
On May 10, 2006, he wrote about these issues that plagued him and posted this new topic on a local real estate forum. His thread read: "Let us unite and save ourselves and our fruits, our homes." He wrote down his cell phone number at the end of the thread.
A tossed stone raises a thousand ripples. On that very day, he received numerous calls from other house owners in his community. They decided to unite and safeguard their rights. Together they did a site investigation of the chemical plant.

On May 22, 2006, they sent a letter of complaint in the name of representatives of owners to Haicang District government, but received no response. Then they sent emails to Xiamen City Mayor's Mailbox, but their emails were forwarded to Environmental Protection Bureau of Haicang District; still no response.
On July 7, 2006, they sent the letter of complaint by EMS to the State Environmental Protection Administration (SEPA) and the National Development and Reform Commission (NDRC). Later, they tracked the number of the EMS and confirmed that the two departments had already signed for the letter.
On July 8, 2006, the NDRC issued an Official Reply of the NDRC on approving the PX plant and its accessory projects with an annual output of 800,000 tons, by Tenglong Aromatic PX (Xiamen) Co Ltd. This document, acquired by the Southern People Weekly magazine, reads: "The NDRC approves the PX plant and its accessory projects by Tenglong Aromatic PX (Xiamen) Co LTD, to provide necessary raw material for the company's PTA project." The document also asked Xiamen Municipal Development and Reform Commission to "accelerate the project according to the approval."
According to public reports, the project would bring to Xiamen a GDP of 80 billion yuan (US$10.45 billion), as compared to Xiamen's GDP in 2006 at 112.6 billion yuan.
The "big" figure made the house owners feel "small" and desperate.

"For us, the best way out is to move away from here, before house prices begin to fall sharply," Huang said.

So at the end of 2006, he tried to sell his house but finally he gave up. "The price of houses in other districts is much higher, we can't afford to move," Huang said.
Huang's experience epitomizes many other homeowners throughout the country who are trying to safeguard their rights but accomplish nothing.
Opposition from academicians
The appearance of an academician gave new hope to those homeowners of Future Coast like Huang.
Zhao Yufen, an academician with the Chinese Academy of Sciences, proposed that the plant be relocated to avoid the possible threat of pollution in the future.
On March 18, 2007, China Business published an article entitled "Dispute over the safety of the Xiamen PX plant" which said that led by Zhao, who is also a member of the National Committee of the Chinese People's Political Consultative Conference (CPPCC), the country's top political advisory body, 105 political advisors, most of whom are experts and scholars from colleges and universities, submitted a proposal during the annual session of the CPPCC in March asking for the plant to be relocated.

Citizens compared it to an "atomic bomb" and sent nearly one million text messages via cell phones to their friends and families urging the government to renounce the project.
"The Taiwan-funded Xianglu Group has begun building a PX plant. It's like an atomic bomb in Xiamen," read a text message that spread quickly in Xiamen at the end of May. "Many people will suffer leukemia and more babies will be born with congenital defects."
The mysterious text message."A paraxylene project should be at least 100 kilometers from a major urban settlement, but we are only 16 km from the project. For the sake of our future generations, please forward the message to all your friends," it reads. At the end of the message, it also calls for Xiamen residents to demonstrate in the street on June 1 to protest the project.
Even now the source of the original text message is still a mystery.

On May 30, the Xiamen authorities put on hold the chemical project, earmarked for the city's Haicang District, 16 kilometers from the city center, after encountering huge pressure from citizens who were virulently opposed to the project. They said the plant would pollute the environment and that it was potentially dangerous.
On June 1, nearly 2,000 Xiamen residents took to the streets in a protest march to demonstrate against the plant.
The demonstration continued on June 2.
On June 3, the Xiamen Public Security Bureau issued a notice asking organizers of the demonstration to give themselves up to the police, saying that they would otherwise be severely punished and even charged for criminal liability.
On June 7, the Xiamen municipal government announced that the construction of the chemical project would be decided by an environmental assessment.
A month later, the Chinese Research Academy of Environmental Sciences was entrusted by the Xiamen municipal government to carry out the assessment. Li Yanwu, Director of the academy's Center for Environmental Assessment, and his colleagues completed the report late last month.

According to an abbreviated version of the report posted on the official website of the municipal government, experts concluded that the southern area of Haicang District, the original location of the planned PX plant, was too small and inadequate for the diffusion of atmospheric pollution.
The local government had allocated two targets in the southern part of Haicang. These areas were targeted to develop a sub-center of the city and to create an industrial zone focused on the chemical industry.
However, according to the environmental assessment report, urban planners were advised to choose one or the other, but not both.

If the city government's priority is the first target, then the area is unsuitable for the development of the chemical industry, the report said. If the latter, a number of residential buildings should be demolished, citizens should be relocated and strict controls over the chemical plants should be imposed, the report said.

A blogger who insists
Lian Yue is a pen name of a columnist who lives on the Gulangyu.
"He is our spiritual support," another house owner of Future Coast Wu Yumei said.
Lian Yue posted about 150,000 words related to the PX project on his blog since he first reproduced and posted the report by China Business on March 18, 2007. He gave the thread a brief title - "Xiamen Suicides." At that time, this piece of reportage could not be found in any local media except Lian's blog.
On March 29, 2007, Lian called for Xiamen residents to break the information blockage and save themselves. He wrote in his blog, telling Xiamen residents to do 12 things:
1. Don't be afraid. Talking about the CPPCC proposal is not a crime; you won't get arrested.2. If you have a blog or often visit BBS, please post this news by China Business: "Dispute over the safety of the Xiamen PX plant." It is legal to reproduce and post any news report published by legally published newspapers and magazines on your own blog.3. If you are afraid, you can tell your friends, families and colleagues the facts and discuss it with them, they might have not known about the project yet.4. If you are still afraid, then tell your best friend and your family.5. If you are not afraid, tell your friends in Zhangzhou and Quanzhou cities, because they are also in danger.6. Tell them the following facts:7. This is a chemical plant opposed by 105 CPPCC members, some of whom are authorities.8. A PX project should be at least 100 km from the city to be considered as safe.9. Xiamen residents were deprived of the right to know about the PX project, a fact that proves the project is against the people's will.10. It will cause an economic recession, property depreciation and a reduction of tourists. Furthermore, Xiamen people will be considered as weak and stupid.11. Your possibility getting cancer will drastically increase. 12. You don't need to act bravely, just let people around you know the facts; you will not be blamed for Xiamen's future.
On May 30, he reproduced and posted on his blog a Xinhua news story that the Xiamen city government had announced it would suspend the project. On June 1, he reproduced a story by China Radio International reporting the demonstration against the proposed plant.
During this time, it is unknown that how much pressure he endured but significantly on June 9, Lian changed his MSN signature to: Every word you say is under surveillance.
"People live in Xiamen City say no to the project. This is a fact that has been recorded by history. The process of opposition is a great thing," Lian Yue told the Southern People Weekly in an interview.
On December 7, he signed up to attend a public hearing held by the local government to hear public opinions on the project. At this time he used his real name: Zhong Xiaoyong.
Government's role

An official from the Xiamen city government, who refused to give his name, said: "The government faces strong political pressure after the June 1 Demonstration," but he refused to specify regarding this pressure.
Another senior official from the CPC Xiamen city committee said: "The PX project is different, it was approved by the National Development of Reform and Commission. It is not up to us to decide what to do next."
Lin Congming, Vice Director of the city's Publicity Department, told the Southern People Weekly: "The Xiamen city government is an open and responsible government."
What Lin said is true if one judges from only one aspect. The city government may indeed be China's most accessible city government. No military guards stand at the entrance and citizens may come and go freely. One only needs to do a simple registration to get into the three office buildings; it's easy to find every senior official's office, even the mayor's office.
The Xiamen city government learned an important lesson about respecting the people's right to know. On June 13, Xiamen Mayor Liu Cigui said that the suspension of the project was not due to political pressure from the Fujian provincial government or the central government. He said that if the regional environment assessment report proved the project was not appropriate for Xiamen, the city government would then consider canceling or relocating it.
"The government's channel to communicate with the general public is always open. We published much information in local newspapers and broadcast on TV. I think, to some extent, the Internet and text messages on cell phones have twisted the project," Lin said.
According to the Southern People Weekly, some local officials still feel regret regarding the project's possible relocation, because it means a loss of possible GDP growth, a factor that still important when assessing local officials.
"Xiamen is the second biggest city in Fujian, but its GDP is lower than the third biggest city -- Quanzhou. This puts great pressure on officials in Xiamen. All the cities in China are pursuing quick GDP growth and Xiamen is no exception," said Xu Guodong, a professor with the Law School at Xiamen University.
The Xiamen government held two public hearings on December 13-14, 2007, seeking opinions on the project that was suspended on May 30.
Of the 107 people selected by lottery to represent the residents of Xiamen at the hearings, 91 opposed the project, 15 voiced their support and one left without speaking.
About 80 lawmakers and political advisers also attended - 15 addressed the forum and 14 of them spoke against the government's plan to build the plant.
The Beijing News reported on December 19 that the Xiamen government might relocate the halted US$1.41-billion chemical plant to Gulei Peninsula in Zhangzhou, Fujian. Zhangzhou has a population of more than 4.5 million.
Happy ending

On December 20, Lian Yue posted a statement on his blog saying that a win-win situation had been achieved. The government has regained the people's support, and people have successfully safeguarded their rights. He himself had finished his job regarding this issue. He stated that he wouldn't accept any further interviews on this topic any more.
On December 21, academician Zhao Yufen played down her own contribution and gave all the credit to all Xiamen citizens.
Wu Yumei, a house owner of Future Coast, told the Southern People Weekly: "Everything's becoming better. The event is a milestone in China. We are lucky."
(China.org.cn January 14, 2008)

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China and the West: same bed, different dreams
Sun Mar 30, 2008 10:25pm EDT
By Alan Wheatley, China Economics Editor - Analysis

BEIJING (Reuters) - Did you know that the slide in the dollar and the surge in oil to over $100 a barrel were part of a deliberate U.S. strategy to reduce the purchasing power of China's foreign exchange reserves?
Few in the West probably noticed the comments by Li Lianzhong, made last month in a public forum, even though he is the head of the Communist Party Central Committee's economic think-tank.
After all, no one has a monopoly on conspiracy theories.
But Li's views illustrate that, despite China's integration into the global economy, a gulf in comprehension sometimes separates Beijing and the West. The world is not yet flat.

Indeed, mutual recriminations seem to be on the rise. What is China up to in Africa? What are the real motives of its sovereign wealth fund? Western critics want to know. Why is Washington blocking investments by our companies? Why are Western media distorting coverage of Tibet? ask Chinese skeptics.
The danger for markets is that such antagonism could erode the trust underpinning economic links, especially when slower growth is putting Western politicians on the defensive and August's Olympic Games are heightening Chinese sensitivities.
"Both sides will need to learn better how to deal with each other. There are plenty of examples on both sides of misunderstandings and inability to comprehend how the society works, which then leads to real problems when it comes to the investment process," Jonathan Woetzel, a senior partner in McKinsey's Shanghai office, said in an interview.
As Woetzel put it, ties with the West can still be summed up at times with the Chinese saying "same bed, different dreams".

COMFORT LEVEL
That was the background to a visit to Beijing last week by OECD chief Angel Gurria, who made a pitch for closer cooperation with the 30 industrial democracies that make up his membership.
Gurria's purpose, he told reporters, was to make the OECD more relevant and to "create a level of comfort" on both sides.
The Organisation for Economic Cooperation and Development is in theory well suited to ironing out wrinkles in China's relations with the West. The Paris-based group does not lend money, so it has no pesky conditions to impose.
Rather, its members share information and establish best practice through peer reviews in what Gurria calls a "soft law approach". In short, member governments can take or leave the policy advice on offer. Perfect for Beijing.
The problem is that while China participates in a range of OECD activities, it is not a member.
And Gurria, though suggesting that China might join other emerging economies in the OECD's Development Centre, said Beijing had expressed no particular wish for full membership.
"This is too important to be urgent, so we should let it take its own pace," he said when asked about membership prospects.

U.S. Treasury Secretary Henry Paulson also stresses that building trust with China is a marathon, not a sprint.
Paulson, who made dozens of visits to China when he headed investment bank Goldman Sachs, is making the trek again this week, principally to meet Wang Qishan, a newly promoted vice-premier who is taking over responsibility for the "Strategic Economic Dialogue" that Paulson instituted with China in 2006.
FLASHPOINTS

Critics say the SED talks have delivered little of substance, but Woetzel said such structured dialogue is needed to avert the risk that Beijing or Washington ignores the other's interests, be it on security, the energy or the environment.
"Take energy. The U.S. and China are in the same boat. We are collectively the world's largest energy consumers, investors and polluters. So from the world's point of view, it's not 'either/or'. It's 'and'. So both countries need to work together and to explicitly think about a framework where they can consider each other's rightful interests and needs," Woetzel said.

Energy and the environment are obvious flashpoints as China's hunger for resources grows and concern over global warming mounts. Paulson will address both issues in a speech during his two-day visit.
China and the West have done well so far to manage the strains of the Middle Kingdom's meteoric economic rise. Beijing's accession to the World Trade Organisation in 2001 has taken a lot of the sting out of China's outsized trade surplus by putting the fiercest commercial disputes in the hands of a neutral umpire.
But getting both sides on the same wavelength will not happen in the blink of an eye. It was perhaps fitting that Gurria was in Beijing to launch a book about China's long-run economic performance -- from 960-2030 AD.
(Reporting by Alan Wheatley and Tyra Dempster; Editing by John Chalmers)

© Reuters 2007. All rights reserved. Republication or redistribution of Reuters content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Reuters.

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China Above The Law
A Poorly Functioning Legal System Is Supposed To Hurt Economic Growth. But Nobody Told The Chinese.
NEWSWEEK
Updated: 4:25 PM ET Nov 5, 2007

On Feb. 2, a Communist Party journal published a speech by Luo Gan, a Politburo member and China's top law-and-order official, that startled the country's burgeoning legal profession and foreign investors. Luo declared that the Communist Party should maintain its dominance over the nation's courts and resist "enemy forces" that were trying to Westernize its legal system. Just a week earlier, Beijing had announced that the country's economy was continuing to grow at a dazzling pace, hitting 10.7 percent last year. The two headlines pointed to an increasingly conspicuous paradox that is puzzling observers: how is China's economy managing to grow so quickly without an independent and modern legal system? And how long can it continue?
Western economists and legal scholars have long argued that a robust legal system and impartial courts are prerequisites for a mature market economy. Effective, transparent and predictable judicial institutions are deemed necessary to assure businesses and customers that investments will be protected, contracts enforced and disputes resolved equitably. The rule of law encourages innovation by establishing intellectual-property rights and ensuring that inventors--and the firms that back them--are rewarded for their efforts. Without these protections, it is assumed, stock exchanges, commodities markets and other hallmarks of a complex capitalist economy cannot function properly.
Many developing countries with weak judicial systems have been hobbled by corruption, waste and inefficiency. But China seems to be thriving despite its own rudimentary court system, which remains firmly under Communist Party control. Since Beijing introduced free-market reforms in the late 1970s, a booming private sector has emerged, hundreds of millions of people have escaped poverty and overseas investment has flooded in. The secret: entrepreneurs have found a variety of creative solutions to get around China's unreliable courts. These include seeking mediation for business disputes from sympathetic party officials, enforcing contracts by threatening to go elsewhere, and protecting trade secrets with heightened security--solutions aided by the pro-business slant of China's leadership.
Beijing all but abolished the legal profession during the Cultural Revolution. After Mao Zedong's death, it slowly began to rebuild the judiciary, adopting Western-inspired reforms. Today China's courts do function after a fashion, and its citizens are turning to them in record numbers--about 8 million cases were filed last year. Indeed, China's leaders now tout the rule of law as one of their guiding principles.
But in reality, legal reform has lagged far behind changes in China's economy. Though education levels are rising, for example, many judges, lawyers and prosecutors remain poorly trained. Cases are still often decided by bribes and political connections. And the party shows no sign of ceding its control--almost all judges are party members and required to obey its orders. Beijing still fears that an independent judiciary could undermine the party's monopoly on power.
In place of a proper legal system, however, other mechanisms have emerged to play its role. Large foreign and domestic firms, for example, have learned to resolve or avoid contract disputes by exploiting the country's hypercompetitive business environment. If a supplier fails to deliver on time, they simply threaten to give their business to someone else. And China does have rules, which are largely pro-business, though they are enforced differently than in the West. For example, the government recently imposed a new regulation requiring local officials to grant business licenses faster, leaving bureaucrats less time to demand bribes. "People from legal societies always underestimate the power to affect change through administrative, rather than legal structures," said Arthur Kroeber, managing director of the economic research firm Dragonomics in Beijing.
Corruption is widespread, but it has not hurt the economy as much as expected because the party has begun evaluating its officials based on economic development in their jurisdictions. Though many bureaucrats exaggerate local growth rates, many others strive to attract businesses to their areas and help them grow. "There is political motivation" to resolve disputes, says Richard Thoman, who spent two decades doing business in China as a top executive. "The local mayor can smooth things out for you. In a sense, it's almost like an arbitration process."
Similarly ad hoc solutions have developed for protecting property rights. Foreign businesses often complain about China's poor record in this area; pirated DVDs and knock-off luxury handbags are still easy to find. But this hasn't stopped Chinese and some foreign companies from innovating. Douglas Fuller, a visiting professor at the Chinese University of Hong Kong, points out that Taiwanese computer-chip design firms have succeeded on the mainland by adopting tight security measures at their factories and designing products that are difficult to reverse-engineer.
A spin on that strategy comes from Leonard Liu, founder of the U.S. software company Augmentum. Applying lessons he learned while managing two Taiwanese companies, he has protected Augmentum by requiring much stricter protections at its Chinese offices than exist at its U.S. facilities. Augmentum's computers in China have no removable disks and their USB ports are disabled. There is no externale-mail system, and any employee who attempts to connect to the Internet without permission is fired. "We make sure you cannot take anything away that is in bits and bytes," Liu says. "American style [intellectual-property] protection is very helpful for innovation, but I will not say it's necessary."
Of course, there's no guarantee that China's economy can continue to grow at its current pace with such jury-rigged solutions, and many experts expect it to falter unless an independent legal system emerges. These experts argue that the need for clear rules and procedures will grow as Chinese society and commerce become more complex, and the current workarounds--based on a hodgepodge of informal rules and personal relationships--will become less useful. Among those making this argument most forcefully are members of China's own burgeoning legal profession who favor Western-style reforms.
Giving impetus to their cause are increasing numbers of ordinary Chinese citizens, who have taken the Communist Party's rhetoric about the rule of law at face value and are starting to demand more from the country's courts. "Chinese bookstores are filled with quite good books about how the legal system can be used," says Jerome Cohen, an expert on Chinese law and a proponent of Western reforms who teaches at the NYU School of Law. "You're finding people who are really trying to make the system work like it does in other countries," he says.
But other pundits argue that China may well keep on defying expectations by continuing to grow without major legal reform. They point out that the government has proven deft at maintaining social order and encouraging other trends that could keep the economy humming. "Economic growth here depends [more] on cheap labor and a stable political environment, [and less on] the improvement of the legal system," says Pan Wei, a professor at Beijing University's law school. "And political determination is also very important."
Moreover, the sheer size of China's economy is likely to continue luring local and foreign investors, regardless of the legal environment. "China's a special case because there is still great faith in the Chinese market and its potential," says Michael Dardzinski, a Beijing-based corporate lawyer. "The rule of law is just one issue among many others that is weighed against the long-term potential to make money." Lawyers and academics may continue to argue about whether reform is necessary and how to make it happen. In the meantime, others are simply taking care of business--any way they can.

URL: http://www.newsweek.com/id/68381
© 2007

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Not Quite So Cheap
America begged China to strengthen the yuan. It has, but the results haven't made anyone happy.
Mary Hennock
NEWSWEEK
Updated: 12:49 PM ET Mar 8, 2008

With the dollar falling to record lows against the euro and the yen, no one is watching the yuan. Not even the American presidential candidates who had been blaming U.S. trade woes on Chinese currency manipulation. But look: after years of increasingly anguished Western calls for China to free its currency, Beijing finally has. The yuan strengthened against the dollar by 7 percent last year, and an additional 3 percent so far this year.
If the United States is starting to get the yuan it asked for, it is not seeing the results it expected. The American argument was that as the Chinese get richer, the yuan should get stronger, so they can buy more U.S. goods and help correct the huge U.S. trade deficit with China. The Bush administration spent plenty of time spotlighting China's "unfair" exchange rates at the IMF and G8 summits last year. Hank Paulson's appointment as Treasury secretary was trumpeted as a way to gain traction on the currency issue in particular, because as chairman of Goldman Sachs he developed strong relations with Chinese officials. But the rise of the yuan has not had an impact on the trade balance.
To those who've crunched the numbers, it's not a surprise. As American economists like Fred Bergsten have noted, Chinese labor is so cheap in comparison with American labor that it would take at least a 40 percent appreciation of the yuan against the dollar to make a dent in imbalances. What's more, Beijing's reasons for easing up on the yuan have nothing to do with ties to Paulson, much less concern about candidates like Senators Clinton and Obama, who threaten to punish "currency manipulators."
China has its own worries, particularly inflation. Last week, when Prime Minister Wen Jiabao delivered his annual report to China's Parliament, he stressed the twin perils of overheating growth and inflation. Wen told delegates it was vital to "keep structural price increases from turning into significant inflation." Consumer inflation hit 4.8 percent in 2007 (the government's target was 3 percent). In January, it surged to 7.1 percent, an 11-year high.
A stronger currency is seen as a key weapon against inflation. Aside from food inflation, "what concerns policymakers is inflation related to raw-material costs," says Qing Wang, Morgan Stanley's chief economist for Greater China. A stronger yuan would reduce the price of dollar-denominated oil, steel, copper and other minerals. Last month the central bank said it would "further bring out the role of the exchange rate" to promote balanced growth.
It will have to go much further to help U.S. businesses, but already the rising yuan is hurting Chinese exporters by making their goods less competitive abroad. The exchange-rate shifts have helped knock as much as 20 percent off profits at some small and midsize firms, which represent 71 percent of jobs in China.
Economists now expect China's currency to gradually appreciate by some 10 percent over the next year. Smaller firms will likely continue absorbing the appreciation, as well as the extra costs of fuel and raw materials, in tighter profit margins. At the same time, they are also under pressure from new labor and human-rights laws, pushed by the West and some Chinese. Pensions and health insurance are now compulsory, and firing harder. Small firms complain that adds roughly 20 percent more to their costs. Wang Jianping, a small Wenzhou-based shoe manufacturer whose costs went up more than 20 percent last year, thanks to both exchange rates and labor, believes that forcing Chinese small business to adopt such Western laws is like judging "a primary-school student with the standards of a college student."
What do Americans make of all this? Mostly, they aren't impressed. U.S. Democratic Congressman Sander Levin has been one of China's staunchest critics, pressing for labor rights to be written into trade deals. He says the recent renminbi appreciation is "a positive development," but "more rapid and sustained appreciation is necessary," while any suggestion the renminbi is near a fair market value is "simply false." As the United States heads into recession, others are now beginning to complain that currency appreciation is actually a bad thing. National Association of Manufacturers vice president Frank Vargo says yuan appreciation is "definitely" stoking U.S. inflation as China-made goods rise in price.
For now, the plummeting dollar has dampened the fervor of last year's U.S. debate on the yuan. That could change. The Democratic contenders have both ratcheted up their rhetoric on the yuan to clinch blue-collar support, and John McCain is a notorious free trader. The election outcome probably does not matter, however. What the record shows is that China will free the yuan (or not) for its own purposes.

URL: http://www.newsweek.com/id/120102
© 2008

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A Piracy Culture
Beijing continues to defy U.S. and European efforts to stop IP theft.
NEWSWEEK
Updated: 8:05 PM ET Oct 15, 2007

On a recent afternoon at Beijing's famous Silk Street Market, a vendor displayed a wide selection of Burberry rain coats. Price: $40, subject to negotiation. Like virtually all of the luxury goods for sale at the market, the coats were counterfeit. To tourists who swarm the market daily, they may seem like just another great bargain. But to Beijing's critics they are a symbol of indifference, if not outright defiance. Burberry is one of five companies suing the Silk Market, five of its vendors, and the landlord of the property himself, for selling knock-offs of its products. (The other brands are Gucci, Chanel, Prada, and Louis Vuitton, which just opened its first outlet in Beijing.) The companies are seeking a few hundred thousand dollars in compensation, among other remedies. The landlord of the building, Zhang Yongping, said in an interview recently that he is innocent, adding: "We don't allow any fake products in the market." Told of the prominent display of Burberry coats just a few floors down from his spacious office, Zhang turned to his lawyer, who quickly told a NEWSWEEK reporter, "Tell us which vendor it is and we'll go down there."
The cloned garments in the Silk Market, and Zhang's seemingly feigned ignorance of their existence, shows why some experts think the fight against Chinese intellectual-property violations is hopeless. Western governments and corporate executives are deeply frustrated by China's indifference to the IP issue, but rather than give up, both are putting more pressure than ever on Beijing to crack down on pirates. In October, the U.S. initiated action at the World Trade Organization, demanding that China provide details of its efforts to combat piracy, including information about specific cases and their outcomes, by the end of January. "I think we continue to see a troubling disconnect between comments made by Chinese leaders and enforcement," Chris Israel, the U.S. Commerce Department's Coordinator for International Intellectual Property Rights, told reporters at a recent IPR roundtable hosted by the American embassy in Beijing.
Indeed, despite years of legal action by corporate America, the piracy problem is worse than ever. At the U.S. Embassy round table, an assistant FBI director said U.S. companies lost $40 billion in 2004 alone from intellectual-property rights violations, most of them committed in China. There is almost nothing that Chinese firms don't copy--software, movies, clothes, auto parts, computer-chip designs, even antibiotics. For years, most of the piracy was confined to the local Chinese market. No longer. Chinese exports of fakes are on the rise. According to a report by the U.S. Patent and Trademark Office, the value of counterfeits coming into the United States from China was up 47 percent in 2004 from about $134 million in 2003. (About 67 percent of counterfeit goods seized by U.S. Customs officers came from China.) The report noted that IP infringement in China had reached "epidemic levels."
China presents unique challenges. The central government has long viewed intellectual property not as an individual right, but as something to benefit the state. It encouraged borrowing, if not stealing, technology (especially foreign technology) on which to build a strong economy. Now that the nation is booming, the commercial environment is so competitive that many see ripping off other people's ideas as the quickest way to cash in.
The Internet has multiplied all of the enforcement problems a hundredfold. College students across China, like many of their peers in the U.S. and elsewhere, download the latest Western television shows and movies from vast networks of computers. One young student recently interviewed by NEWSWEEK said that it was legal to do so; after all, she was using a network run by her university. "Cybercrime, including IPR infringement, is the fastest-growing problem faced by China-U.S. cooperation," FBI Assistant Director Louis M. Reigel III said recently in Beijing.
That's one reason Chinese companies spend far less than their Western counterparts inventing new products and innovations. According to a 2003 report by the accounting firm PriceWaterhouseCoopers, China spent less than 6 percent of total R&D on basic research, compared with 19 percent in the United States. Companies spend more time and money tweaking existing technology just enough to avoid paying royalty and licensing fees. Some government officials implicitly support this practice, railing against unfair foreign patent royalties, for example.
Foreign firms are desperately seeking ways to protect their brands in China. Victor Kho, a Hong Kong-based investigator, spends his days researching counterfeit networks and coordinating raids for his clients, which include Mercedes and Ford. "Progress is being made, but may be slower than people expected," he says. "There are too many people who want to be rich, and copying things is the easiest way."

URL: http://www.newsweek.com/id/47450

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