Worst yet, at least for the bureaucrats, were the series of articles on bribery and graft published by Southern Weekend, easily the most aggressive newspaper in China when it came to saying things like they are. However, longevity sometimes can be short in China when you start to step on the wrong toes. Apparently, this is exactly what the editors of Southern Weekend, Chang Ping and Qian Gang, the later being a former senior colonel who was stripped of his rank when he took part in the Tiananmen Square protest, did with some of the recent stories.  They were dismissed from the paper and no one seems to know what has happened to them. 

Loose Cannons

Interestingly enough, all Chinese newspapers are owned by the government but as time has gone on, the various editors in many cases have gotten rather aggressive in their reporting. The editors of the Southern Weekend top them all. Southern Weekend is affiliated with the Southern Daily which is the newspaper of the Guangdong province branch of the Chinese Communist Party. However, the removal of the offending editors was ordered by the State News and Publishing Bureau which is a Central Government Agency and thus higher in the peeking order than the provincial government. Apparently the article, which certainly touched a nerve told about the case of Azhang Jun who was in charge of a group of vicious hooligans that dealt in robbery and murder. The gang accounted for no less than 28 murders in a period of eight years and the paper indicated that the cause of them according was Zhang's younger years, which were apparently spent at a Chinese prison where he was terribly mistreated.  

This is a big business with China itself manufacturing 20-million VCD players annually.  By the end of 1998, the last to figures were published, about 50 million homes owned these players, probably more than the number in use in the Untied States at that time.  Movies on the street sell for a little as 80 cents according to the New York Times, while the players can be had for around $70.  Thus, an American movie is often dead in the water before it even hits the Chinese theaters due to the fact that it has literally been seen by everyone and even if it hasn’t, for around a buck, a family of eight can buy the show, a heck of lot cheaper than going to the theater.   

The normal time it takes these pirates to crank up their copying apparatus is two days from the time an American Movie premiers. That is pretty fast action when you consider that it takes almost that long to fly the copy to the Mainland.  Officials say that they are doing their best to crack down on the illegal industry, but in an business where the machinery can be readily repositioned and set up again in less than three hours, what good would it do to close a plant.  An official of a legitimate Chinese movie maker that had their own films ripped off said that trying to put a stop to the practice is “just like drawing water with a bamboo basket”.  

In spite of the pervasiveness of corruption, China’s leaders are loath to make any drastic changes.  Corruption is only punished when offending officials make too much of a show of their newfound wealth.  Opulent homes and mistresses are historically unknown in rural China and are sure tip-offs that improprieties have been committed.  In the meantime, the system continues to flourish.  The quality of leadership is ever more diluted by a downward spiral of incompetence exacerbated by inexperienced people with bags of cash assuming high-ranking municipal jobs for which they are totally unqualified.  Novice office holders seeking to maximize the yield on their investment are constantly on the lookout for new ways to shake down their constituency.  How long before this system reaches the breaking point is anybody’s guess, but retribution is not far away.

Movies

While China's alter ego, India, has gone move made producing substantially more films than any other country on earth and geometrically increasing their output, China has literally no movie screens and none are being constructed. As we have indicated, earlier, the Chinese people prefer to see their movies on VCD players and watch illegally printed Western style movies from the convenience of their homes. However, the Chinese Government would like to see that change and in order to increase the number of movies shot in that country they have begun offered nominal fund matching programs for production. However, this diminutive amount of money the country is willing to contribute comes at a heavy price in state censorship. That is not to say that movies not financed by the state are not being censored, censorship has always been a way of life here and that does not seem ready to change very soon.  The government does not want Chinese life portrayed in anything but the best light, however that does not conform with reality and serious movie producers are desirous of making movies that have some resemblance to reality. Because of the fact that reality is not always slightly, there is a constant battle between filmmakers and government officials regarding what the ultimate product will look like.

Government censors are against depicting gambling by Chinese citizens in movies in spite of the fact that the people are among the biggest gamblers on earth. They are against the showing of the small and sparsely furnished residences that the Chinese population lives in and yet, that is the way the great majority of the population lives. Furthermore, censors would like to have people playing everyday citizens dressed to the nine's with clothes befitting Fifth Avenue sports on Easter Sunday which is hardly the case. Censors would like to promote the "big lie" and make China into something that it is not and the people have little interest in seeing fairy tales.   The biggest quirk of all seems to be the fact that after the film has been duly tormented by full time censorship on the set with bureaucrats getting in everyone's way and complaining about just about everything that is going on; when the film is put in the can, the government usually will not let it be released overseas. This indeed creates a strange conundrum. There are almost no movie houses in China and there is no overwhelming rush to build them, the Chinese made movies are so inferior that there is also no rush to turn them into VCR's so that they can be played in the only way they can be viewed within the country and they are not often allowed to be exported so that they are never seen by the outside world.

No one has yet been able to discern exactly what the government here is thinking about when on the one hand they promote Chinese indigenously made films by supplying studios, film, money and expertise but on the other they put these films on the shelf after they are made; never to be seen again. Most strangely, the best Chinese movies are not produced officially and these "underground films" once finished are quickly hustled out of the country to be shown in film festivals all over the world. Such a movie was "Devils on the Doorstep" which won the Grand Prix in Cannes but was never shown within China. However, legal or otherwise, China makes movies the same way they make everything else; "cheaply". To spend more than $100,000 on a movie here is considered wasteful and if the film can then be safely spirited out of the country, it doesn't take long for the principals to get their investments back.

In order to encourage the making of movies, Beijing has created studios throughout the country where wanabee movie-makers can go to get the films finished and distributed. However, this is what they are told, but in reality, when the film is finished it is usually spirited into a warehouse where it will sit for eternity gathering dust. You see, the bureaucrats in the movie industry are the same as the bureaucrats in any other field, they are given an quota by the government and god-forbid they don't make it.  However, if the movies are ever locally screened there could be parts of it that would offend Chinese leaders and the heads of the studios are not willing to gamble on that. The heads of the official Chinese studios are only obligated to see that a certain number of films are produced, but being shown is quite another matter. And even if this was not a problem, the distribution would cost substantial money and bring no return:

        "Since theater ticket sales are dismal in China, especially for domestic films, there is no prospect of making money here. The   only real opportunity for profit is distribution at a foreign film festival. But films must obtain new permits each time they travel.  Indeed, when Mr. Wang (a local legit producer) decided he wanted to take "Go for Broke" to the Rotterdam Film Festival in the Netherlands in late 2001 -- more than a year after it had been approved for viewing in China -- he and his business partner, an American named Corey Vietor, were forced to steal a print of their own movie when the formal approval was slow in coming."

        " Shortly before the festival, a Shanghai Film Studio representative had accompanied the print here for the addition of English subtitles. Unbeknownst to the representative, Mr. Wang replaced the nine reels of film that were in the trunk of the studio man's car with nine reels of advertising, thus liberating "Go for Broke." It has since traveled -- with approval -- to festivals in Tokyo and Vancouver, B. C., as well." (Making a Movie in China the Hard Way: Legally, Elisabeth Rosenthal, The New York Times, April 25, 2002.

The bottom line, China is no India when in comes to the making of movies and most interestingly, the Chinese have no egos when it comes to the cliché, "made in China" when it comes to films. Chinese produced product just doesn't do it for these people that are looking for a semblance of reality and a close look at how the rest of the world looks.  Moreover, we see no change any time in the near future.

Mother China

Having set the stage, now let us tell you about the real China.  The country is conservative and it is paternal, an almost paradoxical combination.  The government plays the role of both mother and father to the people, attempting to create the environment that they think in the long run will most help China’s overall manifest destiny.  Chinese leaders have substantial flexibility because of the fact that China is not a democracy in any sense of the word, and when something is placed on the drawing board that makes long-term sense, the leaders usually jump on it.  However, China, as opposed to its neighbors, has not taken advantage to any great degree of its substantial economic resources because much of the industry in the country operates both indigenously and autonomously. 

The Government is making a concerted effort to pull things together and are starting to issue plastic identification cards containing a microchip to the entire population. These cards be able to give bureaucrats substantial knowledge of what is really going on in the country. Interestingly enough, in China, everyone already carries a card bearing an identification number, a photograph and a picture of the holder. The new cards will carry far more information and can be used to carry medical records, determine whether the holder is a taxpayer or not, act as a medium for exchanging money and or borrowing and repaying it (debit card) and a host of other highly sophisticated operations. This will bring China's tax collection system into the 20th century and tie the provincial regulations together. It will aid the  enforcement of various laws and help eliminate China's vast underground economy. The systems will require five-years before all of the people in China will have the cards with college students being the first to try them out. Talk about big brother!!  

The world is a strange place and the things that happen are often not what they appear at first blush. The Chinese and the Americans can not appear to be giving in to  each other and between the Chinese entry into the World Trade Organization, U.S. spy planes taking long looks at what goes on in China and the Taiwanese always never knowing what the Mainland is going to do next. And now and again they have done really weird things. Lin Ti-chuan a Taiwanese legislator was slipped a Mickey while visiting Mainland China, collapsed, wound up in a hospital where she was pronounced dead. 

Some say, a kidnapping gone wrong, others say that it was a message to Taiwan that the Mainland is deadly serious about there intentions relative to what they consider to be their own territory. The Mainland issued all the right regrets and apologized profusely but the deed was committed on their territory and a message my well have been sent.  However, the United States has some trump cards that it is holding and can play them with a degree of impunity. However, while China was awaiting word on the WTO vote, which as we known know was in their favor, they suddenly found some religion and started acting like well behaved world citizens. Now that this is a done deal, we will await whether they continue the act. China threatens to wreck havoc on Taiwan or to shot American spy planes out of the air, at that time, they were calmly told that their admission to WTO hung in the balance, now we have little to threaten them with. . However, the rules state that neither can rain on the other's parade.  

A Game Of Chicken

This is best exemplified by the fact that China regularly announces war games just off of the Taiwanese Coast and pretends that they are invading the country. No one ever knows in advance whether they are serious or not but almost everyone is well aware that this has been going on since the Communists took over China. In the Pacific Rim, incidents like these are only meant to show the size of the leaders male organs to the rest of the world and once they have exhibited their private parts, they stick their military might back in their pants and go back to business. The Wall Street Journal in a story by Charles Hutzler recently put this high risk game into perspective.  

    "Beijing's decision to hold and publicize the war games now shows how deeply domestic     concerns are driving Chinese politics. Internationally, the exercises appear ill-timed, coming on the eve of the annual fractious debate in the U.S. Congress on whether to renew China's low-tariff trading rights. But domestically, Chinese leaders can't be seen as giving in to Washington. And the Bush administration has raised the stakes in recent weeks, selling Taiwan a large array of weapons, vowing to defend the island from Chinese attack and letting the Taiwan president visit the United States. A coming political shuffle in China is also pushing political leaders to court the military. Politicking among party bigwigs has already begun ahead of a shuffle of posts late next year; taking a stronger stance against the U.S. is seen as one of the best ways to win points with the military." 

Interestingly enough and in spite of opinions to the contrary, China who has the largest standing army on earth has neither a well trained or well equipped military. Their navy is almost non-existent as a modern fighting machine and only China's ability to deliver nuclear warheads sets them apart from being a third rate military force. The country's  leaders are well aware that a nuclear war is not a viable alternative and China's military spending is somewhere in the neighborhood of what Japan, a country that has constitutionally banned offensive weapons spends, you can get some idea how under nourished the Chinese military really is. Their military outgo absolutely pales when compared with that of the U.S. who outspends the Chinese by at least seven to one. The Chinese are now becoming more acutely aware that their modest nuclear arsenal may well be checkmated by America's plans to cover the United States with a sophisticated missile shield which will destroy whatever bargaining chips may still exist.  

For whatever that is worth, a future American missile curtain has not stopped China from flexing its muscles at least as it relates to Japan among others in the Pacific Rim. Japan believes as do most other nations, that their territory begins 200 miles from their shores. China which never stops stirring the pot against their age old enemy, Japan on no less than seventeen occasions last  year alone, Chinese ships toyed with Japans hallowed space. However, Japan has been supplying China with hard cash in the form of soft loans and its people are beginning to wonder, why on earth are they paying a tithe to a country that invades its territory whenever the whim seems to strike. However, even should that problem be solved, it would still leave the sore created by the unsolved problem of what the Japanese call the Senkakus  Islands and the Chinese call the Diaoyu Islands. Surprisingly these are the same islands only with different names. While these islands are of no particular value and are totally uninhabited, it gives bureaucrats in both countries the opportunity to rant and rave about the other's transgressions and cravings. Should either of these nations determine to homestead on  these East China Sea territories, the semi-friendly jostling could quickly escalate into a much more serious situation. 

China has never admitted or discussed the use of germ warfare but a Russian defector has charged that high ranking Soviet officials were able to determine that a Chinese  experimental attempt to turn the hemorrhagic fever virus into a biological weapon had backfired and caused an epidemic. What was particularly dangerous about this accident was the fact that this disease causes profuse bleeding followed quickly by a painful death. Of course the Chinese should have known better as they had been used a guinea pigs by the Japanese during World War II who killed thousands with the insidious biological attacks. This action caused  China, a country not big on signing treaties,  to be signatory of the 1972 treaty barring weapons of this sort.  

Controlling the Environment

In the meantime, it is not only China's external enemies that they have to fear. The country has evolved at breathtaking speed causing internal dislocations in many areas. However, it all boils down to the fact that the people feel that they are entitled to more freedom. Even at the very top of the Communist Party in China they are beginning to admit serious problems with the masses relative to religious, ethnic, political and economic differences of opinion with the government. People in China are tired of massive corruption , official arrogance and bureaucratic delays. This has shown itself in numerous ways but passivity seems to be on the way out and the party brass is becoming extremely concerned. This is more than a small religious minority demanding certain rights, this is a grass roots problem which doesn't want to go away. The International edition of the New York Times put the problem into perspective in an article by Erik Eckhom on  June 3, 2001 relative to what is called "China Investigation Report 2000 - 2001."

    "...The 308-page report cites growing social and economic inequality and official corruption as over-arching sources of discontent. The income gap is approaching the "alarm level," it says, with disparities widening between city and countryside, between the fast-growing east coast and the stagnant interior, and with urban populations. The report describes corruption as "the main fuse exacerbating conflicts between officials and the masses. Protests of all kinds have become more common as China changes from a state-run economy - a risky course the leadership feels is necessary to China's long-term growth - and as the public becomes more assertive about rights...The report provides no estimate of the number of disturbances but its strong language suggests that the scale of demonstrations and riots has been greater than revealed by the official press or in reports abroad..."In recent years some areas have, because of poor handling and multiple other reasons, experienced rising numbers of group incidents and their scale has been expanding, frequently involving over a thousand or even ten thousand people," it says."

The bottom line simply seems to be that the more the Chinese people get educated and can inter-relate to Western ideas, the more unhappy they will become with continuingly oppressive Central Government edicts. The  recent Chinese admission into the World Trade Organization is only going exacerbate this problem. Among the numerous reasons for this will be the underlying problem that their recent WTO membership potentially  brings with it massive Chinese unemployment. It will also directly bring the knowledge to the people on how the other half of the world lives. They already have television and Internet  and are not at all pleased with what they are seeing. Far from being a homogeneous mass of mindless people walking around in a daze, the Chinese are educated, industrious  and historically independent and are not going to sit still very long for a government that does not have the people's  interests predominant in the government's order of importance. The disparity between rich and poor in this country, once not an issue when communist philosophy was the guiding light, is now a sore that will not soon close without substantive remedial action.  

INTERNET 

Within and without, China's Internet is hardly the window onto the globe that its proponents had in mind. The Ministry of Posts and Telecommunications has been authorized by government edict to have all channels run through those that are government controlled. Bureaucratic thinking has it that this will create a "healthier exchange" of information. Thus, the 20 Internet service providers that interface with the global Internet, are highly restricted and apparently that is the way they will stay for the near future.  

Authorities indicate that these regulations were initiated in order to protect the Chinese people from "obscene and pornographic materials" as well as insuring that state secrets stay behind national borders. At the moment the subject is fairly mute because the Chinese net is mostly in English which only a relative few can understand. In addition, computers are out of the reach of most Chinese and while it is a media that has substantial interest, it is a little like automobiles, the great majority of the population, just can't afford the price tag.  The cost of commercial Internet service alone is equal to half of the average person's salary.  

China is really not in a position to allow full-blown communications between its citizenry and the outside world because it will cause a restiveness that could lead to insurrection. When the standard of living has been raised substantially, the government will no longer have the same problems with showing the people what the outside world is really like. For the moment, the average person in China is still living on rice, rice and more rice and at best riding a bicycle. He can be as much of a spendthrift as he wants on his $40 or $50 per month.  China will be forced to open this electronic gate, but not until it will not cause a revolution.

Internet Travel  

For the people living in China, these must be heady times. For the most part, it is the foreign educated Chinese that are now bringing new industries to the country that had previously not existed here before the rise of the Internet. for the most part, China's industries were local in nature and whatever you needed had to be available in the local town that you were in or you weren't going to get it. Communication was difficult, transportation was poor and not allowed for the people themselves and even if you could travel, you didn't know where to go for what you wanted or even if it existed. If your province produced shoddy merchandise at very high prices, that's what you were stuck with. With foreign educated students returning to their motherland every day, China has become ever more worldly and innovations like the "yellow pages" of the telephone book have come into vogue. In China for the first time the people can indeed let their fingers do the walking and yet this is something that we have taken for granted literally ever since the telephone was invented. 

More esoteric but just as necessary is travel. Because people were not allowed to do it, no travel agencies or facilities of any kind had sprung up to assist  a traveler in making reservations. People could not even tell what hotels even existed in each city and if they did, what there rates were and  what there facilities were being offered. When the government began allowing people to travel they started out by packaging tours that began at a place certain and ended just as singularly. You had to go for the specific number of days allocated and by the transportation mode that the government had picked no matter how much money you had or how inconvenient the schedule was.  The rooms would be the same and everyone would go on the same tours whether they wanted to or not. Internet gave entrepreneurs the opportunity of changing that and today, hotels, means of transportation, restaurants and shops have all made it to the net along with travel agents that will take care of your itinerary for a price. The work in putting this together must have been back braking, but so many of those things that we take for granted in the West are only now becoming a way of life in China. How can anyone live without yellow pages or travel agents. Maybe that is why China has one of the best records on longevity in the world in spite of being a population that is smoking itself to death.

Slogans

This is also a land of slogans. The people are able to judge the government's direction from the signs that are plastered on the country's billboards and woe unto anyone that misinterprets their meaning. These messages do not appear as if by magic and they proliferate primarily for three critical reasons. The first is that for many years banners bearing sayings were literally the only way in China to get a message across. Ornate signs hung from tall buildings in critical parts of town were read by everyone and their messages could not possibly be misconstrued. The second is that commercial outdoor advertising was banned for many years by the government and for that reason, the government still dominates the choice locations which they had gloomed unto early on.  The third reason is just as important as its predecessors. The government decrees by law that advertisers must contribute 3% of all advertising space to their propaganda. China had a flying start at this slogan oriented propaganda thing as it probably started with Mao who made up slogans faster than a speeding bullet. He had a saying for just about everything that could happen and that seems to have set the precedent for what has occurred since. 

During World War II, both China and Japan waged a slogan conflict with each side trying to outdo the other. The Japanese used the slogans to pacify, the Chinese to inspire their people  to fight back at their oppressors. However most students of sloganeering say that the grandest age for this art form occurred during the Korean War when all of the people in the country were urged to work harder and harder for victory against the oppressors. After Mao died, Deng Xiaoping directed sloganeering into another arena. Deng was much more interested in the country's economic growth so that the slogans that appeared everywhere during his regime cajoled the people to better themselves economically. The urge to produce more and better products appeared everywhere during this period. As time passed,  the use of slogans became much more sophisticated and suggestions to act became much more subliminal in nature. People were no longer being hit in the head when advised what to do. Eventually we will probably see the Government of China hiring a Madison Avenue Advertising firm in an effort to better get their message across. At that point we can be assured that China  will have arrived as a real economic partner to the West. 

China has overcome many problems in its attempt to build a better life for its people,. however, a better life consists of many parts and the Government is attempting to address everything at once. If any part of the chain collapses, the entire system will fall apart and that is something that can not be allowed to happen according to the heads of the government. China has built massive amounts of new housing, created new and wonderful ways of stimulating agricultural production, addressed its infrastructure and has become the world most powerful exporting nation. It has occupied Hong Kong and added their hard currency reserves to its own and has become a world political and economic power in the space of less than a decade. A prodigious feat.

China is flexing its new found muscle in many directions but if it cannot find the necessary energy reserves, all else will fail. The people have become mobile and they have learned of the better things in life. New industry in China is becoming more thirsty for energy. These luxuries require boundless amounts of fuel that presently do not exist in China. China's own internal estimates show that they will have an oil shortfall within this decade of over 3 million barrels a day and many economist feel that this number is extremely low. In order to supply enough natural gas during the same period of time, China will have increase their proven reserves by 400 percent, a virtual impossibility. Neither of these is an easy task, especially when you consider that the only way that this is going to happen is for China to find reserves in its southwestern most region, which borders an area occupied by neighbors,  Afghanistan, Uzbekistan, Kyrgyzstan and Kazakhstan. 

This part of the world is in a state of upheaval with religious fundamentalists causing substantial commotion. The Taliban's brand of radical fundamentalism has been exported to these nations and because of this has gotten the entire region off balance. Moreover, because this fact, an association has been formed by a group called the "Shanghai Five". It is actually made up of six countries which include Kazakhstan, Kyrgyzstan, Tajikistan, Russia, China and Uzbekistan, the last to be admitted. This group is in theory is supposed to work together to solve political and economic problems that are pervasive in the region. It appears though that they have formed some sort of group that is only looking to defang the Afghanistan religious fanatics before they infect any of the smaller countries in the region and cut off oil and gas supplies. There is little question that Russia is already looking for an excuse to put the Taliban out of its misery but would like to have some company when it attacks. Mr. Putin is not going to put up with these folks for very long with or without assistance. 

Should the influence of the Taliban continue to expand, China would then be forced to take matters into its own hands as well to insure a guaranteed supply of energy. They are much more dependent on outside energy needs than the Russians.  There is little question that any and all of China's neighbors could well become diner for either of these large countries if they are taken over by fanatics and start to play hardball. China has already started building a pipeline to carry fuel from this region to Shanghai, which if things go according to plan should be completed within the next several years. Now they have to hit oil. It seems to me that if I was a member of the Shanghai Five, I would be having someone check to see that armaments were left at the door. 

Oiling The Machinery

Life is riddled with anomalies. More often than not yesterday's friends are today's enemies and vice versa. One of the biggest hates on earth was contained in the messages that China sent Indonesia after the fall of their Suharto headed government. During that period, riots were regularly conducted against the wealthy indigenous Chinese population which had achieved living standards far beyond that of the natives. The jealousy that had built for a long time, was allowed to take a more physical form and many Chinese were driven from the country. Many left in such a hurry that they left their possessions behind them. Moreover, the Taliban or their counterpart Muslim terrorists had made substantial inroads into the Indonesian way of life and training camps were constructed for these mass murderers within that country. Worse yet, these camps were being constructed with the tacit approval by the Indonesia government officials. China was already fighting a war with these folks in their southwestern provinces and already had their hands full. Along with this occurrence, foreign investors had already run for shelter and the funds that in previous decades made Indonesia a monolith in the region, dribbled to an abrupt stop. Indonesia had suddenly. at least from an economic point of view had indeed become a pariah state and no one had much interest in what went on in this, the largest Moslem country in the world.

However, in spite of the fact that the country had become almost an anarchy while one inept government after another had shown no ability to lead the people;  there was little question that Indonesia had been well endowed with natural resources. Among the products that this country had in abundance was oil and China seeing the fact that by acquiring investments in Indonesia could insure a steady source of supplies from a nearby country no matter what happened in the rest of the world. China had been estimating that because of a dearth of new supplies being found on its mainland that they would need to import 100 million tons of oil per year by 2005. This was forcing a readjustment of their entire economic plan and they had been unable up until this point to pin down a reliable source. Government officials assigned PetroChina and CNOOC, the two largest Chinese oil companies, the task of locking up this supply. Moreover, they were the ideal candidates because they both had recently raised substantial funds through the use of stock offerings of their public stock.

Given free reign to purchase whatever was necessary, in April of 2002, PetroChina Company bought Devon Energy Corporation and CNOOC Ltd bought Repsol-YPF SA's properties in Indonesia. The fact that foreign owners were all too happy to get out of the Indonesian morass did not stop these Chinese companies for a second. In one fell swoop, CNOOC became Indonesia's largest offshore oil producer and when combined with the purchase by PetroChina, the two when combined now accounted for 12% of Indonesia's total oil production of 1.4 million barrels a day. Interestingly enough these acquisitions came on the heals of ExxonMobil's forced, halt in operations in Aceh Province because of a rebellion there and a dangerous situation rearing up in Sumatra where the population has been demonstrating against Chevron Texaco there. Probably what brought about this sudden thawing of Chinese - Indonesian relations was the visit that President Megawati Sukarnoputri paid to Beijing during which time she told them that not only would Indonesia not object to these acquisitions but that they would welcome them, an abrupt about face from what had been the facts of life between the Chinese and Indonesians.

Moreover, because oil companies from the western nations were concerned about the political events taking place in Indonesia, oil production had been diminishing since 1998. In addition, new exploration had come to a grinding halt with oil companies wanting to take their cash out of the country rather than explore for new fields with their cash flow. Having found what they believe to be right partner, there is little question that Indonesia will also tempt China further with promises of gas from the Tangguh field in eastern Papua, one of the world's largest non-producing fields. The problem in developing the field had been that there was literally no market for the production unless a major client could found to purchase the output. There is little question now that CNOOC will be given a substantial interest in the field in exchange for their promise to develop the field and purchase the output. This is not a stretch because China is developing one of the largest LNG terminals in the world at Guangdong and has yet to contract for feed stock.

It is only a few years ago that these folks were fighting like cats and dogs. Interestingly enough, new economics seem to create better neighbors and both countries had developed a real need for each other in an economic sense. However, China could well have problems in the future with their large investments here as the country from a political point of view remains dramatically  off kilter and could come apart at the seams at almost any given moment. The masses here are not great fans of the Chinese and if the country turns into an anarchy, the Chinese investors will be sent packing in a skinny minute.

China – Large Projects 

China doesn’t build small projects. Since they rejoined the civilized world after centuries of hibernation, the Chinese have been playing infrastructure catch-up with a vengeance, creating legendary construction products that have regularly used over half of the world’s annual cement production.  The dam at “Three Gorges”, the country’s road construction and the rejuvenation of cities like Shanghai, where 3,000 skyscrapers were erected in just a few years are the things that set China’s evolution apart. When China hosts the 2008 Olympics, it will show us how it is done all over again. It is interesting to note that they won the nod at the time of their 80^th anniversary of the founding of the Chinese Communist Party. While their only real competitor in the colossal construction game, Japan, plans and carries out massive construction projects just to keep people busy and on the payroll, China’s projects are of the much needed infrastructure variety, and each one is a more dramatic addition to the landscape than the last. By contrast, disasters such as Japan’s bullet train have put that Government so far behind the eight-ball that it may never get out of debt.  

Multi-billion dollar price tag projects have become de rigueur all over the world,  with airports, railroads and dams leading the way in terms of massive expenditures. However, the world’s economies are entering an era in which the inexpensive movement of energy is becoming critically important; any project that can facilitate this aim is sure to get priority.  The United State’s Alaskan pipeline, which linked oil fields to warm water harbors from which it could be transshipped to the lower forty-eight states has been dubbed one of the great wonders of the world. However, there are projects on the drawing board all over the planet that will dwarf that effort. One of them is the pipeline that will stretch across Turkey and into Europe to supply oil to that continent. Another such project is the West-East pipeline that is being built in China, which is currently estimated to cost a tad over $20 billion, a prodigious price tag, even for infrastructure development.

Energy

China, one of the largest countries on the planet, has a unique problem. Almost all of its energy production and reserves, coal, oil and natural gas are produced in the far West, while all of the country’s major population concentrations are in the East. In addition, China is not exactly an easy country to cross. Its geographical divisions are some of the most treacherous on earth.  High, jagged  mountains, steep gorges and wild rivers abounding in the area in which the pipeline will be laid. The project “belongs” to PetroChina, a quasi-corporate unit of China National Petroleum, publicly traded in Hong Kong.  PetroChina actually makes money, and wields a lot of clout because of its dual public/private role.  

This duality will help PetroChina put a lot on the table to attract assistance Western energy companies as joint venture partners. As a government agency PetroChina has unquestionable authority to make a binding agreement. As a public company, no one can question its profit making motives. Among those in hot pursuit of a deal are Exxon Mobil, BP PLC  and Royal Dutch, each of which could provide substantial and much needed expertise to this play to pay venture. The pipeline originates in the Tarim oil and gas region, where a great abundance of natural gas has already been discovered. However, many believe that the discoveries to date represent only the tip of the iceberg in one of the greatest energy finds outside of the Middle East.   

China has traditionally rejected any business terms that “compromised national integrity,” including foreign corporate partnerships, concessions or sharing natural resources. In this case, though, China has a desperate need for rapid production of internally produced energy. The country has immense coal reserves but they are primarily of the high sulfur variety, which is no longer in vogue. Oil or natural gas are acceptable alternatives, but any substantive reserves are located in the far West. The distance from Tarim in the Xinjiang Province to Shanghai is 2,500 miles across no less than 40 rivers.   

Currently, natural gas supplied only 2% of China’s energy, a figure which the Central Government has targeted to grow to 10% in the next several years, an incredibly difficult task. However, in China, the incredibly difficult can often be accomplished in a few short years. Foreign assistance is highly desired, not because of the money that those companies can throw at the project, but because foreign logistical and technical assistance can accelerate the project’s completion date.   

Politically, though, there is more to this project than meets the eye. Western China has been shortchanged by China’s infrastructure investment strategy, and it is payback time. Competing ethnic groups and religious fundamentalists are fomenting unrest. China needs a fire extinguisher in the form of a substantially higher standard of living.  This priority far overshadows the country’s desire to slow its loss of foreign exchange spent on imported oil and speed the conversion from high sulphur coal to cleaner natural gas.  

But all that glistens isn’t gold; international geologists have some serious questions about exactly how much natural gas is really located in the Tarim Basin. While foreign oil consortia are more than interested in putting their toes into to the water to test the temperature, PetroChina is offering only expensive concessions in the more questionable seismic areas.  Thus, foreign companies are standing in lines to buy tickets in the bleachers and they may be so far from the playing field that no one can see the game. However, this is standard operating procedure for negotiations in China. Offer foreigners nothing to begin with, and when they are given a scrap, they will appreciate it.  

Another and possibly more serious problem from an economic point of view is the fact that gas from the East China Sea is quickly coming on line and Shanghai is going to be getting electricity from the highly lauded Three Gorges Dam. Everything in the energy field seems destined to wind up in Shanghai, which will have an embarrassment of riches. Moreover, China National Petroleum Corporation has projected energy needs that are unjustified by current industrial growth rates. With a world recession on the horizon, this project may be one of the great over-reaches of all time.  

However, in spite of the possibility of a multitude of substantial energy resources coming on line simultaneously, that is not preventing China from reaching out in whatever direction they deem necessary to add to their growing cache of reserves. China’s newly enlightened leadership is reaching out in many directions and in a host of industries to force the country’s continued high level of growth. Moreover, this leadership strongly believes that energy represents power, which you can never had enough of and if nothing else and they are convinced that those who control power will be in the global catbird seat. 

Taiwan Relations

The Mainland’s state owned, China National Offshore Oil is the primary company responsible for exploring property claimed by the government that is not located within its physical borders and the company is the third largest energy producing entity in the country. They have found a relatively unexpected collaborator in Chinese Petroleum, a Taiwan Company based in Taipei. The two country’s have set up a test-drilling joint venture that could possible tap into some of the largest oil and gas reserves in the world. In addition, in spite of what is commonly believed, the companies have been working together for some time in the area that separates them, the Taiwan Strait and have just put the final touches to an agreement by the two for joint drilling of some of the choicest locations.  

The two have gone so far as to create a jointly owned company that will be based on neutral territory somewhere within the general region. However, this is not the first time the two countries have reached agreement on a joint venture to harvest the would be riches of this very choice location. The original agreement between the two was signed as far back as 1996 and ratified by both countries in 1998. Things were moving along swimmingly until the following year when the Mainland determined that Taiwan was not moving fast enough in the direction of becoming a Chinese appendage and all of the understandings were put on the shelf. The negative rhetoric has died down somewhat and the Mainland view on its relationship with Taiwan has changed somewhat.  

China knows that there are big bucks and a lot of good technology available in Taiwan that can be utilized on the Mainland. The more aggressive nature of the government towards a lot of things is gradually rubbing off as it looks like Taiwan will soon enter that arena more directly. After all, if the Mainland can let the once hated entrepreneurs into the Communist party, an oxymoron if there ever was one, they can certainly manage to deal with their own relatives living only an island away. The Central Government want to tap those resources now and no longer believes as strongly that dealing with Taiwan will impede their long term goal of reunification.  

In addition, China Eastern Airlines which is the third-largest carrier in China has concluded a deal to sell 25 percent of its cargo carrying subsidiary to China Airlines, the largest airline in Taiwan. However, the fact that the two companies have inked the contract still does not guarantee that the deal will go through. Moreover, this transaction is more “Pomp” than “Circumstance” because of the fact that, at the moment you can’t get there from here. In other words, Mainland China does not allow direct flights from Taiwan. If anything, however it is Taiwan that has been the reluctant bride and is somewhat reluctant to conclude this and other transactions. They have been following a policy of “no haste, be patient: relative to the Mainland which was instigated by Taiwan’s President, Chen Shui-bian.  

This transaction might send a signal that the Taiwanese Government is having second thoughts about the careful approach which has produced no discernable results. However, if this transaction goes through, the Taiwanese side will have little to say about management and the company will remain in the control of present officers and directors. As a matter of fact the seems little downside for the Mainland Chinese because they are giving up next to nothing in exchange for a substantial injection of money. For their part, the Taiwanese, get to give China a lot of money and hopefully get some goodwill in exchange, however, we doubt that.  

Moreover, these is not the only deal being actively pursued by the countries and while the pace of negotiation is often painfully slow, there is no question that there is substantial inertia present to get something done between the two logical partners.  The only problem with the deal which is still being refined is the fact that the Mainland does not allow direct transportation of anything directly between the two countries so that the logistics of transporting whatever materials that are needed  by joint venture and whatever recoveries that are made is still being worked out.  There is no longer any question though that unless some unforeseen political disaster strikes, the issues will be solved and watch for deals to be made in numerous industries as the two countries move ever closer together in spite of the delays caused by  the inevitable bickering.  

Yale University

China has made some stranger bedfellows in the past than Taiwan. It has a relationship with America’s Yale University that has remained passionate for a century and a half which seems to be picking up even more steam. More foreign students from China make up Yale’s student body than from any other country; over three-hundred which for a school of its size is a prodigious number. The liaison has almost taken on the luster of diplomatic relations between two countries. Now, when high ranking Yale administrators visit Beijing they are occasionally invited to receptions at the Great Hall of the People, an honor usually reserved for foreign state officials. However, whatever honors that have been bestowed upon the American University seem to be richly deserved. Yale has hung in there through thick and thin at no perceptible gain to them. Their theory has been that China is the populated country in the world and it is critical that someone is their keeping the door open.  

A substantive piece of the more liberal new criminal laws that China put into place recently were innovated at Yale in workshops with high ranking constitutional architects from that country. In addition, the University has started a Chinese Law Center for educators and politicians in hopes of creating a more level legal playing field in the country. Lawyers and regulators along with educators from Yale are working with members the American Securities and Exchange Commission and their Chinese alter egos in an effort to create better laws, more flexible trading practices and increased transparency within the Chinese stock market system. When someone in China is told to buy a stock, there is literally nowhere that they can find legitimate information on the company and for this reason, many people have gotten severely burned.  

Behind the scenes training of medical professionals in the area of AIDS education has been going on at Yale long before China admitted that their country even hosted that disease.  Great strides have been admittedly made in China in the areas of prenatal AIDS care and work has been done in the area of preventing transmission of the disease between mothers and their children. Yale has also developed programs in many other medical areas in which the Chinese appear to be deficient while associates of the University that set their roots down in China at the turn of the 20^th century, built a teaching hospital in the province of Hunan long before this sort of thing became fashionable.   

The relationship between the two strange bedfellows began primarily as method for some of the more overzealous graduates of Yale to bring Christianity to China substantially before the turn of the century. Most early expatriates were Yale educated missionaries seemingly with a zeal to impart the wisdom of Western religious beliefs on a country that was then relatively naïve and backward. For some strange reason, this didn’t seem to overly offend their sensibilities and when it came time for high-born Chinese Children to attend college, Yale became the school of choice and so it has gone for decades. If anything, Yale is now attempting to ramp up its relationship with the Mainland to the degree that their president talked about how important the country now is at the University’s commencement with other department heads singing a chorus based on the same tune. More importantly, the relationship seems to continue unabated without the ebbs and flows that sometimes effect countries because of extraneous outside political problems. In all of these years, no teachers have ever been recalled by either country when their governments were feuding or when the United States refused to back a Communist Government in that country. Education seems to transcend politics as well it should and this seems to be as good a place as any for nations to meet on neutral territory, that of the university campus where agendas don’t have the same anxieties attached to them.   

Infrastructure

While China always seems to be able to put together the manpower and the technical skill necessary to build infrastructure, it is not  always as successful with industrial projects. As we have pointed out, China is in the process of completing a national highway system that goes far beyond its immediate needs. When the project is completed it will encompass a series of highways crossing the length and breadth of the country while connecting every major city, and even now the few vehicles on the roads cannot fully utilize the highways that have been built. China keeps its truck and car import tariffs high, hoping to fill the roads with home-built wheels.  

This is truly the only country on earth where the manufacturing of cars and trucks is a cottage industry.  The first totally indigenous Chinese car was produced in the early 50s and since that time scores of companies have gone into that business.  There are some production facilities that crank out less than two-thousand vehicles a year, a number that would be considered hopelessly uneconomically elsewhere, even with reference to ultra-expensive limited edition models produced only for high-end customers. In most other countries differing types of automobiles are produced on the same production lines, producing substantial economies of scale. This is hardly the case in China, which has allowed numerous mom and pop automobile manufacturers to stay in business over the years whether they were turning a profit or not. This was due to the fact that each small manufacturer had a local monopoly relative to its own regional highway system.  They various automotive companies literally could not compete with each other because the products produced couldn’t be delivered to remote locations.  

In addition, the Chinese manufacturers were turning out vehicles that were designed for particular local conditions. Cars that operated smoothly in mountainous territory using low gear ratios were grossly uneconomical in flatter terrain. Many of the automobiles that were produced in the countryside had to double as delivery vans. Of the 100 auto manufacturers in China, most are hopelessly unprofitable and have been so literally from the day they opened for business. In spite of that, each province wanted the prestige of having at least one manufacturer, no matter how unprofitable under their aegis just for bragging rights, hardly a survival of the fittest strategy. For years, China’s economic central planners could do whatever they pleased no matter what the cost if it helped keep the people employed. However, the people that now make decisions in Beijing have now discovered that this type of provincial arrangement is dissipates valuable resources and from a purely economic point of view, atrociously extravagant.  

In the early nineteen hundreds there were probably as many as thirty automobile manufacturers in the United States turning out an odd assortment of vehicles that they thought would sell. No one had yet learned the right formula and these vehicles were produced one at a time in every conceivable shape and size. Since no one had as yet sorted out what the peoples ultimate tastes would be, small manufacturers tried to jam product down the throats of their consumers. Cars, to some degree evolved with technology and new fangled devices such as air conditioning, radios and rear view mirrors arrived with great fanfare along with leather adjustable seats, road following headlights, climate controlled interiors, global positioning systems and the rest.  

What made the United States somewhat unique at that time was the fact that it already had an existing middle class that could afford these new fangled contraptions and a highway system that although puerile could at least accommodate Sunday drivers out for joyride. Under the American system it was not critically important that too many competitors had entered the game because the existing  competitive system would soon narrow the participants when it was found that not everyone could turn a profit. When World War II ended there were only about five manufacturers of importance remaining. A few more entered temporarily after the war ended thinking that they could use the production techniques discovered in war production to successfully compete. Some of these entrants produced mechanically excellent cars but for whatever reason, they failed and soon either closed up shop or merged with the larger companies. As time passed, even the larger companies began consolidating and when the smoke had cleared there were only three totally indigenous American auto manufactures left standing. As time went by there was additional consolidation within these manufacturers as various models were discontinued.   

The same events occurred overseas as many of the smaller companies were taken over by the larger ones. As cars became technically more and more complex, it became increasingly difficult to devise or afford spiffy new models every year. Dies had to be drastically changed at great expense and new models had to be carefully road tested for deficiencies. By this time, the American consumer had become litigious and woe upon an automobile manufacturer that used tires that would blow out, engines that would overheat or cars that would burn too much fuel. However, advances within these fields allowed the innovator substantial competitive advantages and the automobile companies learned how to make advertising pay big dividends. Agencies were soon writing scripts to be used in the media that went something like this, the fastest this, the most luxuriest that and the smoothest this. In the midst of all this primping came new problems facing manufactures, government recalls, warranty competition, (who could write the longest warranty) and lower and lower lead requirements in gasoline to make it less polluting. Environmental rules were made stricter literally with every model and this became a business of the super-big and one not at all for the faint of heart.  

China being new to the mass produced auto game, early on was not experienced with these nuances. Their industry was protected by tariffs and even if it hadn’t been, it wouldn’t have mattered because there weren’t enough people in China that had money to make the country interesting for the majors car manufacturers.  As China changed, their economic order of importance became dramatically different and today China represents the most appealing market in the world, but it is also a country that protects its own. It could not find a way to protect much of the automobile industry though because the manufacturing throughout the country was universally archaic, luxuries were few and innovation was rare. The people of China as they became wealthier desired something more than a car that had only a motor and four wheels. Thus, China made the determination to revamp the entire industry to make it both universally appealing and globally competitive.  

China is well aware of the fact that by concentrating their production they have the ability to manufacture with economies of scale that can literally bury anyone else provided that they deliver a product that has panache. They further see that this industry which is currently held together by bailing wire could become a big producer of foreign exchange if it is pasted back together properly. Moreover, with China’s entry into WTO, they are no longer going to be able to protect local manufacturers who will soon be forced to become profitable or perish. Rather than wait for the inevitable to take place, the Chinese Government recently determined to "fix" the industry now from the top down. Small manufacturers were either ordered closed or forcibly merged with larger companies,  

The large companies and there were only three, First Automobile Industry Corporation, Shanghai Automotive Industry Corporation and Dongfeng Automotive Group when the smoke has cleared will probably be all that is left of the industry, those left standing will receive government credits to revamp production lines, fold in smaller manufacturers and to offer credit to car buyers in throughout the country. The decision making process which had been held in the hands of the central government will be transferred to the manufacturers who will now have the responsibility of taking the temperature of their consumers on a regular basis. What models do they want, what accoutrements should be included and how many cars should be made are all decisions that the manufacturers will soon have to deal with. Most importantly, once set adrift they will have to turn a profit or perish. The rewards for failure in China can often be harsh.  

An interesting facet of the industry downsizing now occurring in China is the fact that alliances were created early on between the major manufacturers abroad and the local Chinese car makers. Some of the multi-nationals misjudged the survivors and guessed fatally wrong when it came to picking a partner. The team at General Motors batted 100% while those at Ford totally struck out. This will make the coming end game more interesting to watch as Ford tries to re-enter the competition with literally no way to do it.  

So that is the way things seem to stack up as it relates to the Chinese automotive industry but many economists have spent considerable time trying to figure out exactly what World Trade Organization membership is really meant to China relative to its overall production capabilities. An industry that is illustrative of what could as this saga unfurls is that of the manufacture of textiles. This is hardly a new industry to China as large factories have been de rigueur in this country for decades. However, it is interesting to note that after a slow start, the quality of Chinese production has become first class in the last several years so that there seems to be no real issue relative to whether or not they are going to be able to compete on a global level. The next doubt that seems to require addressing is the issue as to whether the Chinese are conscious enough of changing fashions and are capable of fine tuning their production to meet this waxing and waning cycle of ever changing fickle demand. Surprisingly, the answer to this question is also yes; the Chinese textile manufacturers have stationed representatives all over the world and are both conscious of change and have recently developed the capabilities of turning around their production on a dime.  

Incidentally coming that far they are even beginning to start flexing their muscles in the direction of dictating and originating new styles and they have had modest success. Moreover, many of the Chinese textile manufacturers have gone public in Hong Kong and are now sitting on big bucks giving them the latitude of improving production techniques and overall quality control while being able to simultaneously prune their workforce. This allows them the ability to purchase the preeminent machinery in the world to make their factories run efficiently.  

Provincial Government

Throughout the earlier years, the central government was in charge of things like the military and international relations but as time went on, it was becoming more apparent that the country had literally become a diverse group of provincial governments all marginalized and pulling apart in their own way from Beijing. The provinces were different from the capital and under the formerly planned economy were order what to manufacture and plant. Having the freedom do plant and manufacture would soon result in distortions to the system that potentially would be fatal. Without bringing everyone back into line with central planning, the people would soon become once again economically deprived and the food shortages which had finally been successfully addressed would once again show their ugly features. 

Communism was in China in reality was now only history, but a strong central government was critical to economic advancement. Essentially though the state’s planners saw that the problem was that in moving to quickly in the direction of free trade, democracy and all of the other supposed good things in life could through entire procession permanently off track. It was a calculated risk taken in the Forbidden City to have the Central Government take a strong hand in matters, reassert their control over the provinces, eliminate duplicate sources of production and abolish high cost producers that needlessly only continued to drain state funds. Another reason for continuing a rule with an iron fist was the fact that all is not well in China and there are many groups that given only a tad more latitude would have their leaders for lunch. The farmers, the workers, the migrants, the women, and the older people have been overlooked as the society has either progressed or regressed depending on what color glasses you are looking through and who is doing the looking.  

Most extraordinarily of all, China as well as Russia looked toward the Government of General Augusto Pinochet in Chile when attempting to relate to a formula of government that would accentuate the perceived needs of their country and maximize its potential growth without activist groups getting into the act and causing trouble. It was determined that it was necessary for the central government to be run with a strong hand, to be totally dictatorial in nature while gradually freeing industry to become competitive, one link at a time. Chile’s rule of no unions and no elections was masterfully geared to induce multi-national investment in the country. It worked like a charm and probably if Pinochet had eliminated a few less of his competitors and had used firing squads instead of torture as his means of that eradication and had not gotten to old to manage the country’s affairs, Chile would still be steaming along in fine style. However, all of those things did go wrong but the formula was set in stone and China believed that they had the opportunity of looking backward at the mistakes that were done there in order to do it better.   

However this process in itself caused the already ingrained bureaucratic corruption in China to grow like Topsy as even greater opportunities to milk the system appeared. The fact that local government no longer had the same rigid governmental quotas to fulfill that they had in the past allowed them the luxury of dismissing employees summarily, looting the company’s remaining assets and inventory; selling these off for a pretty penny and then summarily dumping the skeleton of what was left to an industrialist that was willing to pay a now substantially lowered price. The price at this point had become unimportant because the proceeds would go to the government.  

What had occurred is a transference of money from the state to the bureaucracy in one easy step. In addition, the price of privatization had been reduced by the fact that the private sector was no longer bidding on all of the things that had already been unloaded. This allowed for more bidders to get into the act and appeared to outsiders as a healthy contest between the buyers in a legitimate auction. Whereas the auction probably was legit, that’s about the only thing in the process that was. As a matter of fact, the state could even offer financing for the privatization with the money they received in the sale of the asset. In addition as opposed to having a drain on their books which would never pay taxes, they now had a productive asset which could pay them dividends over scores of years. Everyone seemed happy about the transaction, the central government had gotten rid of a none producing asset, the purchasers received a ready made building and a franchise and the seller, the state received what money remained after the lead bureaucrats carved up the gravy. Whoever, there are a lot of people that get thrown out of work in this process, but that is just a result of coming to gripes with 21^st century and progress.  

And indeed, a middle class has arisen out of the chaos and there are now indigenous people that can afford some of the better things in life. However, that seems about as far as the Central Government is prepared to go at the moment. Business continues on as usual when the state has to deal with potential dissenters. However one of the immediate benefits of their new economy is that it is no longer necessary to jail singular radicals who are preaching religion, democracy or an end to the death penalty. With the exception of the Fallon Gung, in the “new” China it is only necessary to remove the pulpit out from under where one is preaching, the incarceration of the preacher is no longer necessary. Fundamentally individual dissenters are isolated rather than jailed in this new regime. However, whenever there is an opportunity for unified action by any faction the government is programmed to take strong remedial action. Chile did not succeed with groups of agitators running around complaining about their lot in life. Unions, Political Parties, student unions and new fangled religions will set off time bombs in the government and are rapidly defused one way or the other.  

In China, the Central Government evaluated literally all of the plants that were in the business of turning out textiles and made a determination similar to their study of the automobile industry as to which of these could be profitable and which couldn’t. Those that couldn’t make the cut, and there were a lot, were ordered shut with ample compensation order to be paid to the provisional authorities when they turned over the melted down spindles (they weren’t taking any chances on paying for a plant to be closed and black-market goods continued to be produced) to the Central Government to insure compliance. This stipend tended to diminish the hysteria of closing factories, dealing with the newly unemployed and losing tax revenue, something that had never been accomplished in China since the Communists had taken over. Most of those producers that were left were soon privatized and the top workers from the closed factories were invited to work in the new company. This kept the most modern and well run facilities churning out product through the use of the crème of the manpower available in China for that job.  

Moreover, in spite of this plethora of labor, China is no long relying solely on this factor in their quest to turn out quality goods at a minimal cost. China is now utilizing sophisticated software programs in their textile production. These high-tech programs are able to eliminate a great number of employees. There are some interesting statistics available to graphically illustrate this fact: in the four years from 1995 to 1999, the number of people employed in that industry has plummeted from 6.7 million to 3.5 million according to recently released Chinese Government statistics and is the number of those employed is continuing to drop while production continues to rise.  

Production in the clothing field alone has risen 1700 percent since 1978 while the value of exports are now 50 times higher than they were then. China will be geared up to make mince meat out of the global textile competition in 2005 when export quotas to both the United States and Europe fall by the wayside due to the generosity of the World Trade Organization. The World Bank predicted that China’s production will increase almost by 400 percent more from the date of their entry into WTO.  The only thing that seems to be lacking in the Chinese scheme of things is having name brands which cause repetitive buying. These are not all that hard to come by if you have the loot and at the right time, China will start acquiring them. In the meantime, all of China’s looms seem to spinning to the same tune, they are operating at full tilt and at the moment Chinese Factories do not need to take on the additional expense of paying for the advertising and public relations to keep their names in the public eye.  

When push comes to shove, it will not become a matter of China against the rest of the world as many would think. It will become a contest between one Chinese manufacturer and another for survival. The rest of the world will be sitting on the sidelines as Chinese textile companies go after one another with hammer and tong. As this struggle reaches its zenith, branding along with advertising  will become consistently more important as the death spiral continues literally out of control and China will eventually be sent into textile chaos after putting most of the rest of the world’s production out of business. The entire scenario should begin unfolding in the next year or two and it will be interesting to watch the twisting and turning that will occur.  The effect upon American manufacturers will be negligible except on their books. Massive expenditures on plants in now uncompetitive countries will have to be written off.  

In earlier articles, we have discussed the fact that new wars will most probably be fought in non-physically and we have addressed as an example how during the conflict in Yugoslavia, the American CIA was able to make mincemeat out of the Serbian banking system, rendering it literally non-functional. Primarily, this sort of thing represents the future of war,  “Internet Warfare” that has already become part of our daily lives and some nations are already on the firing line, China is a standout in this regard facing down three rather prodigious opponents simultaneously. We have previous mentioned their ongoing information wars with the Falun Gung as well as their high level confrontation with Taiwan which is fought in their mutual war rooms. However, these conflicts are not going to result in armed warfare anytime soon, the United States has dipped its own oar in the water and will be making very serious waves in this arena in the near future.  

All of us are familiar with the United States’ strategy of getting its economic and political message across to the people of other countries an intimate part of its overall strategy, reflected in the massive and successful reach of the Voice of America. The broadcasts were extremely important in creating the environment that led to the collapse of the Soviet Union, which in turn, has temporarily secured peace on an international level. Moreover, we have been beaming our propaganda into Mainland China through the facilities of both Voice of American and Radio Free Asia for decades. While we call it “transmission of information”, the Chinese seem to think that we are pushing the envelope and subverting their government. While we certainly don’t feel that this is the case, it would not be a push to say that we are trying to re-indoctrinate their people toward a more democratic point of view. However, Chinese officials have determined that these continuing broadcasts were not at all helpful and started jamming them over a decade a go.  

Communication

Enter, stage left, Internet! This has certainly caused the price of poker to go up, at least as it relates to the intelligence community. Now the United States had a way to get its propaganda to the people of China in living color and in three dimensions.  Internet use in China has been skyrocketing at a rate of over 400 percent a year (in a bad year) and is now nudging the 30-million mark. However, that number includes the usage of Internet-Cafés and the like. The CIA thought that Internet was a really neat way of spreading the gospel according to “W”. However, the Chinese Government was violently against the idea in principal and in practice as well and erected substantial barriers to the process by controlling the server capabilities for the population. In other words, the house had rigged the Internet to broadcast only stuff approved by the bur crates. In order to get around this minor irritation, the CIA began setting up a series of servers that could be alternated regularly, thereby confusing the attempts of the government to censure our propaganda.  

Although you probably never knew it, the Central Intelligence Agency in addition to operating a high-tech spy network, stays on top of their game by investing in companies that they perceive to have new technologies that can be put to valid espionage uses they, the CIA that is, advertise the fact that they are in the venture capital business and make no bones of what their investment objectives are. This is one VC that is not interested in their return on capital.    

In any event, the CIA Venture fund, what ever they call it, put some big bucks in a small technology based outfit in Emeryville, California by the name of safeweb that is in the business of installing Internet privacy servers. In plain English, a privacy server disguises the sites that a viewer is watching from so that no one can tell and he can watch without “Big Brother” knowing about it. By providing the CIA with scores of these machines and moving their viewers’ perceived location from one place to another before anyone can get a fix on their location, the CIA creates an environment in which Chinese viewers can travel wherever they want on the web without any fear of getting caught. Moreover, the CIA does not believe that it is necessary to send out their regular dose of misinformation  and half-truths,  because it is convinced that it is only necessary to show the average person living in China what is going on in the outside world. They are probably right in assuming that this should be more than enough to convince them that some changes are in order.   

In addition, the CIA and Voice of America have teamed up in another intriguing concept: they are pruning the e-mail addresses of influential Chinese net watchers and creating a very hefty address book. By utilizing these mailing lists they can communicate at will with these people as long as the Chinese technicians can’t shut the system down. If the theory works as planned, the CIA would be in pig heaven, able to proselytize everyone on the Internet in China simultaneously. In the meantime, nothing in life is ever as easy as it appears. The Chinese Government has arrested any number of people and made it clear that watching things on Internet such as the sites of the Washington Post Site or Amnesty International could result in them becoming unwilling donors to their organ transplant program, an unforgettable experience.   

China is rather desperate, considering that their leaders are convinced that the next war is going to be fought with computers, rather than armies. They are so convinced that they are right that the government is considering adding another service to the army, navy and marines. This would be some form of computer disorganization group which would attempt to destabilize their opponents during hostilities, working to throw their economies into chaos through the use of highly sophisticated computer programs, to redirect the internal flow of utilities by interfering with the programs which determine where energy is supplied and locking up communication systems by interfering with circuits. If this weren’t enough, they probably have the capability of creating havoc with flight control systems, causing transportation backups, and in addition are fully capable of sending bogus information on the targets of their ordinance, causing interception to become difficult if not impossible.  

Furthermore, they have established a fiber optics networks which extend the length and breadth of the country. Fiber-optics make communications impervious to foreign attempts to disrupt the systems because for the most part they are impermeable. People in the National Security Agency of the United States are saying that this was what caused the EP-3E (Peter Rabbit as it is called by the Navy) incident. U.S. intelligence had to get closer and closer to the Chinese border at the source to read the encoded signals that intelligence was trying to interpret.  Contrary to what appeared in the American press, this is what ultimately caused China to bring down the plane. 

Burma leads the pack in creating methodology to constrain purported Internet abuses. Simply put, the unauthorized possession of a computer with networking capability will bring the lawbreaker seven to fifteen years in the clink. In Burma, that usually means that we will not be bothered by that perpetrator again, at least in our lifetime. China and Vietnam have done Burma one better by nipping Internet offenses in the bud. They have required that all networks install filters so that any material observed by Chinese computers is sanitized at the source. In spite of all these precautionary steps, China has felt the need to enact a new series of laws regarding Internet usage, creating penalties for what would be normal usage in other societies. Paranoid leaders are convinced that the Web is being used to leak state secrets, to distribute pornography and to support separatist movements in Tibet and Xinjiang. Singapore has used a similar system to block out decadent materials such as the Playboy site.      

Moreover, we were reading them like a book and they weren’t going to have any more of it. Although, the Chinese were able to acquire some very advanced and sophisticated equipment, most of it is of no value to them because they don’t have the delivery systems to read anything we have. In order to do that, they would have to have an armada of aircraft patrolling either the Mexican or the Canadian border on a full-time basis. In addition, this assumes that they were able to figure out how to work our systems, which would have been literally impossible. However, there is no question that they did receive a valuable cache of high-tech equipment which you can believe they are studying intently.  

Be that as it may, the worst torture known to man is being suffered by most high-ranking Chinese intelligence officials. Almost all of the computers in China contain equipment and software purchased from either Microsoft and/or Intel, both American companies. The Chinese officials are being driven crazy by the fact that there could be Trojan Horses planted within either Windows or the Pentium devices. These horses of another color could take various hues and shapes. They could be viruses that are only waiting for an incident to occur that makes the United States unhappy and they release their deadly toxicity. They could take the form of a hidden switch which at the proper time can be simply turned off from any location in the world or they could even be programmed to start giving off disinformation at the proper time, causing mathematical computation to be off a digit or so. This could render missile guidance systems hopelessly worthless or even worse; conceivably they could be programmed to take a circular route landing back exactly where they started. All of the above could be hidden within some legitimate program and allowed to lay fallow until needed.  

One could certainly wonder if Microsoft’s cooperation on matters such as this with the National Security Agency didn’t help them avoid the wrath of the Justice Department who wanted to break them into little pieces.  In addition, there is no question that between the Pentagon and the National Security Agency, Intel has two of the largest clients in the world. They could easily be compromised in the name of national defense or if that didn’t work they could be compromised relative to having their business taken away. This in itself could be a disaster of substantial proportions and could literally cause the company’s collapse. No matter what the bait, there is little question that American companies could soon be shown the light on these issues, and that cooperation could soon be worked out.  

In the meantime, the United States is far ahead in utilizing the technology of future electronic warfare and that is what is quickly driving China up the wall. The Chinese are also profoundly aware of that one American nuclear sub lying undetected off of the coast of Mainland China could unload more atomic weapons on the Mainland in shorter order than the entire country has in its arsenal. In French we call that the ultimate’ equalizer, but then again as Einstein said when asked what weapons the Third World War would be fought with he said, “I don’t know but I can  tell you with what weapons the Fourth World War would be fought with, rock and spears.” As with all things, the problems revolving around the EP-3 over flight were resolved. It appears that there is an agreement that the United States and China were signatories to called the 1998 Agreement on Maritime Military Consultation. This agreement seems to cover matters concerning the high seas and international airspace. The fact that the doomed the doomed plane was flying over international waters when the collision occurred seemed to make a conference under the auspicious of that agreement more than logical. However, not on the agenda in Guam is compensation with the Chinese still demanding a cool million and the United States offering chewing gum money. Don’t hold you breath on a payment but, the worst is over relative to hard feelings.  

Computing China Style

 One of the most glaring problems facing the Chinese is  their use of sophisticated computers. The original Mandarin Language has 13,000 characters and even when this number is reduced into what they call the "simplified" alphabet, that reduction brings the grand total to down to a hardly manageable 5,000. Try to analyze where China can go in that field, which as we know is where it is going to be in the 21^st century. Picture fitting 5,000 characters. Thus, nationalism aside, the Chinese need the English language to communicate with their computers,  either, they must be conversant with English or they must be able to make the English language phonetically translate into Mandarin a literally impossible task.   The few Chinese keyboards that have been created require up to six keystrokes to produce one character in Chinese. The only hopes for the future lie in speech or handwriting recognition but sadly, these are complicated by the sheer number of characters and sounds that have to be analyzed.  

The only hope on the immediate horizon is the Lexicus Recognizer, developed by Motorola, an gigantic achievement that is rated at 95 percent accuracy, using the entire 13,000 character alphabet. Motorola attributes the fact that they have been able to get as far as they have with the fact that the Chinese handwriting or printing is much more uniform than English and in spite of the large number over transliterations necessary, they are highly accurate.  The problem with this type of system is that you can create two-way errors, those coming in and those coming out. You fist have to convert the system to English and then after you have arrived at the data, it has to be again converted to Chinese. Thus, what may have seemed like a small error at the beginning of the process can be magnified geometrically.  

Others are working in the same field because whoever makes it work is going to hit a home run. Apple has a machine voice recognition machine that can convert 60 characters a minute. This, at the moment is far to slow for commercial applications and Multi-Corp Inc. of Calgary has dusted off a new type of keyboard that can create Chinese characters by a process of elimination. Although the Multi-Corp device represents stunning technology, it takes an average of 2.7 keystrokes to create a Chinese Character, still far to slow. Another company that is still in the picture is Xiaojun Computer, a Beijing technology company, that uses a phonetical conversion system to make Mandarin work with only 24 keys. All these models have a long way to go and until they get it straight, the only ones in China that will effectively be able to utilize computer technology are those that a proficient in English. 

SCIENCE 

China has always been known as a scientific innovator rather than a copycat. Science is considered to be a noble undertaking in a country that prizes internal technological progress. On the other hand, science and bureaucracy seem to be diametrically in opposition and while China has research and development centers galore; they also lead the world in progress numbing government interference. China’s almost nine hundred laboratories, institutes and academies employing 1.5 million scientists and technicians are using outmoded equipment, following government polices evolved during the dark ages and are being paid on a monthly basis what a starving New York cab driver takes home in an afternoon for a months work.  Fully half of China’s scientific community has been driven to pure research into esoteric regions offering little or no hope of success. China’s unique innovations over the last decade, beyond some minor agricultural advances are not enough to fill a small thimble.  Thus, the government has had enough and is rapidly transferring the scientific elite into real-world industries that are dealing with real-time problems.  

China has become more interested in getting a return on its research dollars but unfortunately has reacted a little late. Many of the brightest stars were sent to the United States and other western countries for advanced training, but when they had completed the prescribed curriculum, most remained to enjoy the good life while staying put. Thus, in the United States alone, 175,000 of China’s best scientific hopes have opted out of the system and remain here. Although the expatriates undoubtedly have some ingrown chauvinism, without super-colliders, Tokamaks and  Cray’s, many feel that there is no ability to even start competing in China which can not afford even the down payment on the newest and most sophisticated of scientific apparatus.  Since the west pays the highest wages in the most critical of industries, talented software programmers as an example, hardly ever find their way back to the mainland.  

One of the major problems in China’s science was the Cultural Revolution, which seemed to think that being smart was a crime against the state. The universities literally shut down in 1966 and it wasn’t until 1971 that they began taking students again. But then, a student was accepted on a hit or miss basis with only political connections being a guaranteed path to a higher education. No entry exams were given and for the most part, pure research became about as acceptable as mad cow disease. Scientists had to go through reorientation and they were held up to ridicule. Thus, even if the schools and the programs had survived the cultural revolution, it was not an exciting thing to be a scientist during those times and the country lost over a decade before sanity returned in 1976.  

Other problems abound, but the most critical is that Chinese scientists now have an open wire to those in the rest of the world. They are getting a taste of the scientific freedom that exists elsewhere as opposed to the closed society in which Beijing forces them to operate. They are asking for more academic freedom to publish and share information with their global peers and you can expect that to happen on the same day that China announces that they no longer have any interest in reuniting with Taiwan.

THE MILITARY

 Every once in awhile, especially when the Pentagon is negotiating with congress for more money, an article mysteriously appears in the newspapers about a new weapon that the Chinese have developed and that our military needs funds to counteract it. While there is not much question that China has made some strategic advances in the areas of long-range missiles (potentially at the expense of United States' security), for the most part, their delivery systems are still relatively archaic and uncertain. Their enormous army, the People's Liberation Army (PLA) which includes the all branches of the military is basically a low tech force incapable of fighting a war in which the enemy is not reachable by land.  

The best planes in their air force were supplied by the Russians who are not in the habit of giving away anything good that can potentially be used against them when the chips are down. The navy lacks even one aircraft carrier and their submarines are primarily of World War II vintage although, these are being replaced with adequate newer vintage models.  Literally all equipment that exists is second rate and communicates equipment for co-ordination between units is non-existent. They have insignificant night-fighting ability and little or no gear designed to protect their troops from chemical, nuclear or biological weapons. However, as an industrial power, China is moving smartly forward. Advances in every field are coming amazingly swiftly. While they are still not in a class with the United States, they are moving in that direction are are not to be taken lightly.   

While I wouldn't want to be Japan if the Chinese become really ticked off at them, I thing that the United States has a decade or so before China can be serious threat. By that time, we will have created a missile defense system, probably buying yet another decade.

Birth Control

China always seems to do what it takes to get by.  Although some of their theories seem strange to us, the reasoning is basically simple. As an example of what seemed to be bizarre thinking when it originally was announced by the government the regulation that couples in China could only have one child. This horrified people in China and its implications were soon discussed all around the world. However,  when you consider the fact that in 1980 at the time the regulation was put into effect, the country could not feed the population that then existed let alone, fed its projected additional population of hundreds of millions more in the years to come, you can certainly understand the reasons for its existence. Moreover, there were substantial problems with this regulation as boys were more highly regarded than girls in China and as we have pointed out earlier, United Nations analysis pointed out that they believed that there were 50-million less girls unaccounted for in the Chinese census than should have existed and that most of these had probably been done in at birth by parents wanting a boy.   

However, eventually the Chinese were able to address their agricultural problems and the government became more comfortable that no one was going to starve to death. Most of the people in China had been unhappy with the “one couple, one child rule” and had lobbied long and hard for its softening. With China’s population still growing at gargantuan proportions, this view could hardly be tolerated.  However, the bureaucrats determined to throw the people a meatless bone. They came up with a convoluted plan which in essence would allow any couple in which both parties were the second generation of one-child families, to have a second child. In plain English they are effectively giving away ice in the winter time. First, back as of 1980, Chinese families were large because big groups were needed to till the soil. Thus, the larger the family the easier it was to address all of the necessary chores. In addition, considering the fact that there was no social safety net, the boys usually were responsible for taking care of their parents in their old age. Thus, the more the better had become the Chinese rule and families always tended to be large.  Thus, the percentage of people that were born into one-child families over 21-years ago had to be about as rare as the extinct Do- Do Bird.  

Furthermore, since the rule went into only 21-years ago, it covered only people who were married with one child at the tender age of 21 or younger.   This  was a tough trick to pull off, because the Chinese were now marrying at a more advanced age couples who at 21-years of age already had a child were rare.  Once again the chances of this were about the same as getting caught in a flood in a telephone booth. When you combine the chances of coming across a live Do-Do Bird with getting caught in a flood in a telephone booth, you can see that the Chinese Government officials have put literally nothing on the table at all. However, the bureaucrats probably feel better for it and they can point to a projected target population of 1.6 billion in 2040, an increase equal to the projected total population of the United States at that time. Everyone was overjoyed at the announcement, however no one had taken the time to analyze it. In China though, things are done a little step at a time.  

Another factor was a tremendous shift in production going on within the country. For the most part, people were leaving the farms and moving to the big cities where work was available in many new industries. Moreover, the people believed that they had a better chance of striking it rich in the larger metropolitan areas than they did down on the farm and they were probably right. This movement of people was unusual to China, a country heavily into family values and ancestor worship. Most people in the country had never traveled more than 50-miles from their place of birth for two reasons: cultural ties and government prohibitions would not permit it. The government’s theory was that it was much easier to keep track of folks if they stayed put. In addition, if they moved around too much, they could end up on the dole when they finally settled in a new area.  

Thus the Chinese Government enforced what was known as the hookup system which literally had been in place since the Han dynasty around the time of the birth of Christ. Hukou is a residence permit without which you cannot move around China freely. In a highly populated country, it was about the only way to maintain control over crime, and to be sure that there were going to be enough people to staff any new industrial plants without economic incentives. In other words, historically, if someone new suddenly showed up in the neighborhood, you knew that something was amiss. It was always the case that people clamored for Hukou's in the larger cities where opportunities were greatly expanded,  and there was always a flourishing black market in these permits. For example, the price of a Beijing Hukou currently runs about $12,000. Because bureaucrats are free to issue these permits to a certain number of qualified people each year, they have become a prime source of graft.  

People with a good Hukou are able to marry better as well, because the Hukou is similar to a dowry. Should a man from the country marry a woman from the city, he will probably receive a Hukou from that area as a right. Parents will tend to save for many years to buy these Hukou’s for their children believing that this is their only chance to get ahead in life. This created an environment that changed the historic marriage ritual. Usually, these were planned affairs arranged for by the parents on both sides. This was no longer easy to do when the ratio of males to females changed. While females were not valued highly at birth, when they reached marriageable age, their value increased. The movement to the cities created another problem, people didn’t know each other and the Chinese being a proper people, it took them some time before they did. This also put off the raising of children from some time. 

All of these changes in China brought with them substantial dislocations.  Modern plants were usually erected in the big cities. The older, uneconomic plants located in rural communities were summarily shuttered. This created a demand for workers in the urban areas and left many of the rural communities without any industry with the exception of farming. Because of the Hukou system, the attraction of higher wages and bright lights could not do the job by themselves, and China had to look for another way to solve its employment problem. Eventually, the bureaucrats put a toe in the water and announced that they were going to allow a small change in the way things had been done for 2,000 years. Residents of rural communities would be allowed to apply for Hukou's if they wanted to move into the small cities around their community. However, they would have to show that they had a legal home and a source of income in that community. There are already 150-million excess workers, so this requirement was more than just palliative. Note that the number is 150-million excess workers, not people. That is certainly a large number and China is going to let many of them move but they must show the ability getting a job.  

This is going to be rather difficult when you consider that these towns where they are going to be able to go are not the places where either industry or demand exist.  Bureaucrats are saying that it is their intention to build more new plants in these smaller cities but it appears as though the plan will only tend to line the pockets of local officials who will be able to up their income by issuing the permits. While the program shows a small attempt at progress, China is about to explode with all of these people out of work and a plan being put forth that may start to have impact at least several decades. The country has literally no social programs and when people are hungry they tend to get a tad ornery. China has figured out how to deal with the outside world but as yet does not have a clue in dealing with their own country and they had better get it figured out before too much longer.  

Whatever else, China has accomplished much in the last several years. In spite of the fact that at times, the country seems to be moving ahead in spite of itself, has the most vibrant large economy in the world. In the future it will be hard to sustain the rate of recent progress because China will be expanding from an ever enlarging base and many have said that the easy progress is behind them. As social reforms continue and more rights are granted to the people, cheap labor will no long be so readily available, social systems will have to be put into place that will drain money that normally would have gone into infrastructure development and other countries will have learned how to compete.  

On the positive side though, China’s entry into the World Trade Organization is causing a quick economic pop. However, none of this progress came by chance. All of the recent advances can be attributed primarily to one man, Zhu Rongji who is at present the Premier of China. His term is going to end shortly and a leader of his quality, tenacity and self assurance is not likely to emerge any time soon from the pack of conservative old men that make up the remainder of the ruling hierarchy. Zhu was willing to make the hard decisions that could  have blown him away, and he stood behind them. He derided his compatriots who did little or nothing to advance China or who questioned his direction.  

Recent History - ZHU

Let’s take a look at what the man has accomplished in a short period of time. The 72-year old Zhu, who left office in 2003, started to gain prominence as the mayor of Shanghai at the age of 62. He was invited into the cabinet at that time with the not too shabby title of Vice Premier, and as such he oversaw financial reforms while running the central bank. It was Zhu who was eventually able to rein in the omnipresent inflation that had plagued China had since the Communists took over, and controlled the expanding money supply which indirectly had been its cause.  

Before Zhu got involved, China had a number of differing types of money within their system which allowed them to keep careful track of who had what, but this system had a murderous downside. Primarily, it was just plain confusing and required bureaucratic permissions to exchange money going in one direction or the other. In other words, each type of money in China was used for different purposes and you had to use this money for this and that money for that with no right of automatic exchange. As a result, Chinese companies were unable to deal in the international market and drastically restricted foreign trade. China’s exports were severely  hampered by this system. It was Zhu who did away with it, opening China’s markets to the rest of the world and vice versa. Indirectly, this was the biggest single step towards WHO admission and without it, WHO would still be a dream. 

His next job was to take on the federal bureaucracy, and he did a brilliant job, cutting the number of jobs substantially, at least by 30%, something considered unachievable in the United States, 10 percent would be a startling number here and he did it in literally a few short years, made the decision process more streamlined and eliminated the opportunities for graft in almost every area he touched.  He closed or privatized unprofitable state businesses, and in doing so brought in much needed money into the federal system and he bailed out the financial system which was overloaded with loans that were in default. He changed banking laws along with those of the nascent stock market and created a more level playing field for doing business.  

Under Zhu, abject poverty has almost vanished and China is rapidly developing a moneyed middle class. Overall, we would rank Zhu up there with Jack Welch of General Electric in his management instincts and abilities to lead and control. However, Welch had a score of years to turn GE into the behemoth that it has become while Zhu did the job in China in less than a decade and was facing entrenched bureaucrats wherever he turned.  He overwhelmed them by the assurance that he was right and his willingness to forge ahead in spite of substantial odds and a number of co-leaders who were anxious for him to stumble. Zhu is China and they will lose a very important cog in their wheel when he steps down in the next several years. 

While Zhu has indeed done a great job, everything is still far from perfect and the further away from the glare of Beijing you get the looser the controls seem to be. It is always the bureaucrats that are getting into trouble in China. It seems that there is this small city near Hong Kong that during the years before the former British Colony became absorbed by the Mainland, the city was held up as an example of entrepreneurship under Chinese rule. Someone seems to have spoken substantially too soon on the matter, and today Shantou City is considered the “Wild West.” Eventually, Shantou became known in nearby Hong Kong the home of pirates, a place where contraband of any type could be purchased for a discount price and if necessary moved out of China into a friendly nation of the buyer’s choice.  

At least, that was Shantou’s claim to fame until people in the neighborhood noticed the really bizarre things going on at the Shantou City Commercial Bank, an affable little spot owned by local politicians and used to subsidize the modernization of the region through economic development of a unique brand. The bank was formed in a merger of 13 credit co-operatives in the region, whence it derived an instant and substantial customer base. Furthermore, the bank was located in one of the “special economic zones” personally established by Deng Xiaopping as “capitalist showcases.”  The central government in Beijing was anxious that they perform admirably because they were being watched by the world.  

Banking or the Lack Thereof

Beijing was constantly in touch with the local politicians, cajoling them to show the world how well China could run its banking businesses.  The authorities, anxious to please their leaders, went all out to achieve that goal. The bank became a “bank for all people,” including the local pirates and drug dealers, prostitutes, petty criminals and even murderers; everyone was welcome within their four walls.  

Although they considered its policies overly aggressive, honest local people would still deposit their paychecks into the institution. However, they did not necessarily do it because they liked the bank. The government had a rule: if you work for the city or state government you will be a depositor at Shantou City Commercial Bank, or you will be looking for work elsewhere. The people found that this was a strong incentive to make regular deposits at the bank but as we have said this was not your normal bank. It didn’t pay one penny’s interest on deposits of any kind. Furthermore, it was very dangerous to complain about that fact, as several people who were last seen in the bank lobby arguing with tellers had disappeared. Eventually people forgot about the fact that the institution was of the non-dividend kind variety, and chalked up the anomaly to the price of having a nice job.  

However, while the bank would not pay interest on their depositors’ money, it was extremely generous in making loans. Literally anyone that wanted to borrow money at the bank was able to do it, and bank management prided itself in the short time that they could arrange a lending package. One of the unusual services that Shantou City Commercial Bank provided for borrowers was fake collateral if you did not have enough assets or earning power to get the loan on its own merits. While this was indeed a most generous add-on service, and one used by many in the community, the collateral came at a price. Customers really took out two loans, the first for the money and the second for the backup collateral.  

The money was lent under fairly standard terms, but the collateral came at a rather high price, and had to be repaid on a weekly basis in cash. The rate was rather high and most people when they started analyzing the interest that they were paying became concerned. The rate for having the bank provide collateral was called 6 for 5. In other words, for every 5-dollars that were borrowed, 1 dollar in interest was charged every week the loan was outstanding and this didn’t include the more normal rate of interest on the loan itself. Furthermore, it was a good policy to stay current on the interest on these loans as the bank had a habit of sending a team of collectors to visit defaulters. These were rather large people that carry sticks and somehow by the time that they got through with you, you paid or were not seen again. Many in the city found the bank’s tactics crude, but there was no where else to borrow money.  

With stories like these circulating around the city one would think that the bank would have had a tough time getting new depositors. However, they had an excellent public relations department which would regularly match the list of the businesses in town with depositors in the bank. Should you not be lucky enough to be a regular depositor of the bank, these pleasant public relations people would send you a lovely letter extolling the bank’s virtues and suggesting that you would find Shantou a lovely place to do your business. However, the letter also gave you only a short time to make a positive decision, and if you did not respond quickly enough, they would send a team of their employees to make a house call. You see, Shantou believed in hands on management and more importantly, regular visits with members of the community to convince people of their eagerness to please. The problem was, that if upon the visit you still weren’t convinced that this was the place for your money, you were usually taken out in back and beaten until you changed your mind. Most people were  eventually convinced by the bank’s public relations department to give the bank a try.  

When the bank determined that they needed money for more important purposes they sent out a notice to clients that they had capped their withdrawal rate. This could cause some degree of pain to depositors because when this sort of thing happened, and it seemed to happen regularly, customers were not allowed to withdraw more than a few-hundred dollars at a time. This caused some severe hardships in the community, but the bank had a solution. Although you could not withdraw your own funds, the bank would let you borrow whatever money may be necessary to tide you over. Naturally, this type of lending was handled by the phony collateral department and the large men with sticks. In spite of the fact that this service was seemingly a great boon to the community, very few people used the privilege and seemed to be able to find other sources for getting their money like selling their most prized possession in neighboring Hong Kong for a pittance.  

But whatever its reputation, the bank was indeed profitable. In spite of the fact that it was a quasi municipal enterprise, it was owned independently by local political officials and as such was a private tax paying institution. In spite of rolling up gigantic profits with the bank’s aggressive banking procedures, they somehow never were able to show a profit, and therefore did not pay any taxes. Beijing became concerned by the fact that if the bank remained in good standing from a regulatory point of view, which they were and their assets had grown mightily, how then could they not be making money. Beijing sent in their auditors and found that they were indeed right, the bank was making more money than they could handle, and were siphoning it off into overseas accounts belonging to the principals. When the investigation was finished it showed that the scale of tax evasion set an all time record in China.  The money was sent off shore by a complicated system of export rebates which allowed profits to be made in other countries, an excellent reason to do business with Shantou and one of the factors that caused the surrounding region to grow so quickly.  

And what about the retail clients of the bank? All of the money had been siphoned overseas and there was nothing left in the coffers. The Chinese Government didn’t have the money to pay them back so they set up a tax to allow the people to pay themselves back. Today the city is the highest taxed in China and will remain so until the bank is once again on solid footing, but the people will have deposited their money twice,  once from their wages and the second time from taxes. This indeed was a very unusual bank and one that certainly got the attention of lenders all over of the globe for their unique banking practices. This was not the success story that China had planned.

CHINA AND THE WORLD BANK  

Many have called the World Bank misguided and those maybe the kindest words of all. This organization seems incapable of determining when a country no longer needs its help in backing projects and can rely on internal funding or private sources for funding. An example of this particular type of confusion has occurred over and over again in China where private lenders stood by, ready willing and able to provide infrastructure financing, only to be rejected because the World Bank was offering lower rates. This is world class strange.

The World Bank’s mandate is clear, it is only a “Bank” of last resort  and was not created to become a competitor with private financing sources. Furthermore, the World Bank’s terms are far more lenient and often more forgiving than private sources who make sure that the I’s are dotted and the T’s crossed before loans are completed. China is one of the world’s wealthiest nations in terms of hard currency reserves and its current account surplus is particularly awesome.  It is more than a stretch to figure out what these World Bank people are doing in the country at all. However, China's repayment history has been excellent and the World Bank's collection history has been dismal, this may be the reason for the madness.

On occasion, China has been placing  its excess money into U.S. Government Debt instruments when it has borrowed from sources such as the World Bank, in effect earning money on its borrowing. ([1]) We think that General Marshall would be turning over in his grave if he saw what was going on. Not only is the World Bank loaning money to  countries that do not need their help but by their own admission they have had disastrous results in one of their highest priorities, the building of dams to create agricultural independence, electrification and navigability. The only problem was that people that did not need to be resettled were, people that needed to be moved weren’t and even when things were worked out correctly, compensation was often not adequate.   Even worse, the dams are created without even the slightest thought as to a grid that can transport it output or the people that can use it. Consider the wonderful generating plants built in Zaire where the people have neither grids or electricity. An amazing boondoggle that only the hapless World Bank could have foisted on them. Then they want to be repaid!! Good Grief. 

The World Bank stated, “The bank intends to reinforce the vigor with which it addresses resettlement issues and to ensure compliance with its policies that set environment, social and international law safeguards. While several steps have been taken over the past few years to improve the quality of resettlement, there is a long way to go, especially with respect to improving resettlement performance during the implementation phase of the project cycle.” As is this wasn’t bad enough, in India, Human Rights Watch stated that “villagers were beaten and arbitrarily detained for peaceful protests.”([2]) (over relocation relative to a World Bank financed dam in Central India)  

And complaints have circulated from all quarters that World Bank Funding has provided an opportunity for corrupt dictators to stuff their pockets full of cash. Many have said that the Bank was just plain not doing its homework relative to transnational corruption. Others have seen to it that corruption begins at home. James Wolfensohn, the World Bank President has recently found the same kind of infrastructure problems as home as he and his organization were fostering elsewhere. It seems that a few of the Bank’s loyal employees were feathering their own nests while out stamping for good old World Bank U. Wolfensohn didn’t hit the panic button to hard, he only called in Price WaterhouseCoopers, set up an internal fraud investigating team, hired outside specialist and issued an internal memorandum requesting employees to call an emergency hot line to allow them to rat on their fellow employees anonymously and with recourse.  

This is an organization that has been warning every country on earth that if the World Bank “secret police” finds signs of corruption in a country, they will either not be eligible for the Bank’s largesse or at least they would only get a fraction of what normally would have been advanced. Some wags are wondering whether the same thing will happen to Wolfensohn’s vaunted salary and benefits now that corruption has been uncovered in his own home.  

So, unbearably archaic at birth, ill-equipped to adjust to a changing world and structured so that the stronger members would dominate the weaker, the United Nations has spent enormous sums of their members’ money accomplishing little, other than providing a home for senior diplomats that have seen better years. Pontificating and posturing have become the essence of its existence, and its brethren at the World Bank and the IMF have not fared much better. For the most part, humanity has given up any hope of its dreams being fulfilled at that cathedral of bureaucrats. Amazingly, we no longer even visit the edifice. ([3]) However, China has been able to work these folks to their advantage in ways only unworldly folks can imagine and in spite of having more hard currency than anyone else in the world, they are constantly on the World Bank's dole.

CHINA AND THE UNITED NATIONS 

Many have stated that the United Nations was created in another era and no longer addresses the exigencies of the modern world.  They have said that reform was essential, not mandatory; yet political convenience, not experience, education or intelligence, continues to dictate the selection of the UN’s management. John D. Rockefeller would not have kind words for his son who donated land, today worth hundreds of millions of dollars, to an organization that has drained the treasuries of the poor and contributed only a series broken dreams.   

Power remains unbalanced with political exigencies of greater importance than logic. All  the nations should have a forum in which to resolve their differences; yet Iraq, which attacks its neighbors, pollutes the atmosphere with burning oil wells and plays with chemicals and missiles that threaten the destruction of the globe, remains a member in good standing do such friendly countries as Belarus, North Korea, Syria and Iran. Taiwan, an economic miracle, has no voice at all because a relative across the straits threatens world chaos if Taiwan is allowed to speak. Two of the most powerful nations on earth are not members of the Security Council because they lost a war, Japan and Germany. If every country that lost a war were eliminated from the Security Council, it would have no members. 

The Financial Times on July 14, 1997 put the financial plight of the United Nations into perspective in a series of vignettes.  

“Meanwhile, the UN is still having to borrow from peacekeeping accounts – cash contributed by members in good standing – in order to replenish its sinking regular budget and meet day-to-day expenses.”  

“China, with a population of  $1.2 billion is assessed at less than Belgium, but it will probably see its rate rise sharply, because of the acquisition of Hong Kong. National income is a factor in agreeing to assessments.” 

“’It’s like the playground bully when we were in school’, a European diplomat observed. ‘You feared him, but you couldn’t fight him.’”

China plays the United Nations like a well strung violin. They use it as a bully pulpit and through its good offices they are able to propagandize the world. However, they are also getting free lunch. They pay literally nothing for their membership and are balking at any purported increase. We can only admire their chutzpa and would like to have these folks negotiate my next raise.   

CHINA – DRUGS

Interestingly enough, in spite of the fact that more often than not, there are not enough drugs available in China to provide anesthetics during operations, antibiotics or shots to ward off diseases or even topical ointments for infections and burns, there is now a profusion of the illegal stuff around for domestic use or export into other countries in the region. This indeed is a massive turnabout from the time during the 1800s when the British hooked the Chinese on Opium both for fun, profit and population control purposes. Chinese gangs are in the game today, but do it only for the bucks they receive and it almost seems that they are now trying to hook the entire region on a synthetically manufactured product that has a made in China stamp on it.

The newest craze is something called “ice”. It is a stimulant, it is cheap and it is addictive as hell. Interestingly enough, the same economics that allow China to mass produce quality products for global markets allows them to undercut other producers in the illicit drug trafficking. However, this really is not as important as it would seem. The Chinese gangs are viscous and if they don’t take over an area based on price or quality they will take it over by force. It was as that great philosopher Al Capone once said, “While you can make a lot of friends with a smile and a kind word, you can do even better with a smile, a kind word and a gun.” The Chinese seem to have learned his credo well.

Formerly Myanmar was the country with the highest illicit drug production in the region, but China, not to be outdone by their neighbors is going for total dominance in everything that it touches and drugs have become no exception to the rule. Myanmar has already slipped to a very poor second to China and totally lacks the delivery system and heavy handed backup to impress its cliental in the proper fashion. However, this is not to say that this illicit production is sanctioned by government officials. Many say that Chinese police are probably doing everything within their power to put a stop to at least a portion of this traffic but so far they have had little success. Moreover, they probably wouldn’t care so much if the indigenous population wasn’t becoming themselves the best client of the drug dealers. Whole villages have succumbed to “ice” and more often than not everyone in the local village can be walking around in a daze while mumbling mysterious inanities at the same time.  Previously highly productive areas in China have seen the both the quality and quantity of their production dip drastically as a result of drugs.

Some of the recent arrests have produced scary results for the Chinese, the Wall Street Journal report in an article entitle “Chinese Criminals Gain Ground in Asian Drug Trade” on February 4, 2002: “…In October 2000, Chinese authorities arrestee former employees of a pharmaceuticals factory, for acting as “technology advisers” to ice production in three different provinces according to the government’s 2000 annual report on drug control in China. Some companies licensed to trade chemicals are illegally selling them to meth labs. Authorities seized 20 tons of methamphetamine in 2000, up from just 1.6 tons two years before. “

According to the same report, China now supplies the Philippines with 95% of their methamphetamine supply and rakes in a total of over $6 billion a year. Moreover, it was reported how effortless it was for the Chinese dealers to get into the Philippines and from their, initiate their nefarious career as drug dealers. The Philippines is an extremely lenient place to set down roots as it allows new residents special visas available if you have the necessary $70,000 required to invest in the country.  Criminals from the Mainland customarily deposit the requisite amount in a local Philippine Bank and then for a while enter into a high-profile legit business such as becoming a food vendor on street corners. After a socially correct period of time, the remaining money in the bank is used to import “street drugs” disguised as just about anything. Many street vendors were able to disguise drugs as food toppings and were thus able to bring massive drug quantities in with great success. Obviously customs agents in Manila are not too swift at best and very little of the processed material is ever caught.  High level payoffs are also helpful to the bad guys.

The street vending business also offers and excellent platform for moving product however, the Chinese gangs have recently become more interested in the wholesale end of the business than hawking their wares on local street corners. As they become more wealthy and powerful, for the most part they had taken to using employee “locals” to assume the risks in moving the illicit materials down the food chain. Many of the major Philippine cities have literally become overwhelmed with overzealous drug traffickers and they are polluting an already injured economy that is suffering from series governmental mistakes and political disruptions. In the meantime, the indigenous population now borders on something between euphoria and hypertension as drug fever approaches the boiling point.

Chinese labor and production sophistication is capable of triggering a result that a good part of the entire country could well become drug dependent. Tensions have become high between Chinese officials who are acquiesced of not doing enough to stem the flow and Philippine officials who are worried that they will soon be governing a nation of addicts if drug use continues to grow much longer at the same pace.

Speaking of Drugs

Globally, everyone that was anyone was getting really annoyed at China for their policy of putting people to death with a bullet deftly administered to the head. I for one happen to think that it is easily as humane as the electric chair so I am not sure what all of the fuse is about. I mean, it isn’t like these people aren’t going to be put to death one way or the other and a bullet to the head administered by a pro is just about as quick and clean as it can get. However, it was thought of as inhuman and more than that, it was sloppy many people were muttering. They said that one of the problems with these types of executions was the fact that it was difficult for the bereaved family to identify the corpse and when the execution required more than one shot, it became virtually impossible. Facial features literally became obliterated.

More often than not, most of the body’s insides had been removed for “charitable and humanitarian” purposes; which included the transfer of the now unneeded organs to those with big money who were fighting for life and could pay the price of a transplant. Between trying to identify a body that often had been skinned to provide cover for burn victims the bereaved family members could not even be sure at what they were looking at. Headless and without any skin or organs, the family had little left with to identify their kin. This process often made them hysterical and between the family’s complaints and world criticism, China eventually had to make a concession. Human beings had become what Steinberg had once said of the giant meatpackers in Chicago, “When they were done with a pig they had removed everything but the oink.” However, the Chinese people that received capital punishment for the crimes hardly cared and for the most part, their relatives never even knew what happened to them and why.

The uproar continued unabated and eventually China was able to create drug that would preserve organs even if a lethal injection was used on the victim. This great move forward was trumpeted in the press as the humanitarian thing to do and China was highly lauded for their great leap forward. However, as we have pointed out in the past, China, an unwieldy giant is like a giant ocean liner that once headed in a direction has some trouble turning but is almost impossible to stop. Its mass does not allow it to slow down quickly and in spite of an article in the China Daily which talks about this accommodation to human dignity (lethal injection), “This change proves the country’s respect for the dignity of human beings, even those who committed serious offenses.”

However the press does not point out the fact that less than 100 lethal injections have been used out of the now possibly 10,000 executions of criminals that occur each year in this country. Moreover, most Chinese newspapers talk about the fact that injection is cheaper than wasting money on bullets to dispense with criminals. They know full well that this is not the fact, the families of the dead victims are forced to pay for the bullets, and they are obliged to pay a retail price, not wholesale. So when push really comes to shove, the provincial government and the army are actually making money on the transactions. In spite of this seeming cost saving if you are serious about your cost accounting it would be necessary to include the cost of the executioner who is normally paid $85 to carry out the act. Moreover, added to this number must also be the cost of the cleanup after the execution. In addition, there is not much question that the cost soars and especially during periods when the government is conducting an anti-crime campaign, more often than not, there are not enough trained executioners to go around. The various districts often get into a price war during these periods offering premium dollars to executioners that do not leave a substantial mess and can get the job done with the requisite one bulled. Those districts that can’t afford the price increases brought about by the numerical increase in executions and the necessary overtime payments are forced to bring in trainees who usually mess up the place and leave the officials responsible for the execution highly embarrassed.

There are other advantages to the new-found execution methodology brought about by extensive technology research in China’s laboratories. Because the new formula is so effective, prisoners can now be given the narcotic-poison mix that does not damage the organs in situ which allows the body parts removal operation to be conducted in hospital rooms. After all, it is highly distracting for sick people in hospital rooms to a gun shot followed by screams of anguish so that historically the executions have been concluded out of doors and the organs stripped in ambulances. Hardly the best of conditions and every once in awhile the already mourning family can be in the neighborhood and that makes for unnecessary trauma to everybody involved.  Entire wings of Chinese hospitals are being outfitted for this new methodology which allows more sterile conditions and a higher degree of professionalism.

Moreover, even the executioners are not happy about anything more than the money that they receive. Many of these criminals have all sorts of diseases or are on drugs. Shooting someone in the head at close range causes body parts to fly on every direction including right at the executioner who usually has to bath for hours after finishing a day’s work. Even the most perfectly aimed shots cause organs to be splattered all over the site. More than one executioner has died from the effects of the bullet-in-the-head death penalty when executed in this manner and now, because of a bad history, the person carrying out the execution is forced to wear surgical masks and gloves.

In the United States, it is the doomed person that is palliated before the execution with drugs to calm him down. Conversely, in China the execution is so grisly that traditionally in some areas; the sentencing judge takes the executioner out drinking the night before the event to calm his nerves.  We are not sure what the overall effect on this new mode of execution will be on the convicted, but we are certain that the man pulling the trigger is going to sleep a lot better at night not thinking about the grisly act that is brought on by the execution, however, in China, a living is a living and $85 per is a lot of money.

Mental Illness and Foot in Mouth Disease

All governments have their share of people that are citizens that don’t like what is going on and while most of the time, these folks are quiet in the complaints, once in awhile you get someone much more vociferous in their views than others. When a loudmouth nut-case just won’t fold his tent in spite of numerous strong indications that they are going nowhere with their particular line of rationale, it has become somewhat of a tradition in China to lock the troublemaker up in a psychiatric hospital until the urge to complain is channeled into more acceptable pursuits. After several visits to the nut-house, even the toughest advocates of change seemingly become capable of seeing the light as it shown to them by political bureaucrats. While the situation in China has been historically effective, it still remains far more benevolent than the Russian garden variety of Siberian Gulag psychiatric wards which were really prison camps in disguises. While most Russian’s that had “mental problems” that were brought on by government abuses were never seen again, the Chinese psychiatric wards are more or less holding pens for angry citizens to be used until they permanently  re-adjust their thinking.

One form of dissent that is looked upon here as having roots in mental problems would be becoming religiously and vocally attracted to a religion such as the Falun Gong, which is hardly in high favor in China. The followers of this religion tend to congregate in public places, bringing world attention to the lack of religious freedoms in China. While various religious practices are tolerated here, there is a point that when the fanatics, as these people are known as here, get a little too boisterous, the government believes that it has to step in. The really hard core dissidents which are not deemed to be re-trainable are either executed or thrown into prison but the government believes that many of the loudmouthed followers of the religion are nuts and should be put into the country’s psychiatric hospitals until their mental bout with organized religion has ended. At last count there were over one-thousand Falun Gong sympathizers locked up in crazy-houses throughout the country[1].

Almost as bad as religion is to Chinese bureaucrats are what are called the “infernal petitions”. The Chinese are an organized lot and while they are not often given to rioting, they do meander in an out of crowds looking for someone to sign what are called by government officials the nomenclature of “infernal petitions.” A petition can be written for just about any purpose, but when it hits the government where it hurts, the writer as well as possibly the petition’s signers had better run for the hills.

Particularly offensive to Chinese officials are those that ask for the officials removal from office for incompetence or bribery. These are the kinds of nonphysical offenses that tend to get the Chinese officials unnecessary riled up. Should the person be jailed or executed for their feelings it would probably lend credibility to their position, so that officials here have taken the high road. The party line in this payoff oriented country has become that any one that thinks that the bribe taking Chinese officials are being paid off could set a bad example for the rest of the people and therefore the offenders are deemed “nuts” and carted off to the loony bin in a straight jacket.

Once out of sight, adjustments can readily be made to the offender’s personality by a series of electric shock treatments and or  padded cells with little or no light. In addition, medications and injections are extensively utilized to palliate even the most vociferous of these rabble rousers. International civil liberties groups have made a big-deal about these abuses and have asked the Chinese Government for answers. Whenever officials are backed into a corner regarding this subject, bureaucrats historically have trotted out a real mental case just to show the world that everyone locked in an asylum in this country is not just a political prisoner. Some of these folks that have been trotted out in front of the international news media are so off the wall that they would have to adjudged insane even if they lived in “Wonderland” with Alice and her strange assortment of bedfellows and that by any standards is about as far off the beaten-path as you can go.

However, every country has their share of weirdoes and China is no different. Obviously there are people here that are over-the-wall mentally and just as logically there are people that have been placed in these institutions to keep them permanently out of the public eye. Where China seems to be totally out-of-step with reality, it is their policy of allowing many of these nut-jobs to be retested in legitimate mental hospitals in the bigger cities where more often than not they really get a fair shake. Upon re-testing many of these folks that were originally determined on a local level to be hopelessly insane are determined to be every bit as normal as you or I. In addition they are given a certificate of normalcy by some of China’s world-class psychiatrists.

However, this is primarily where the system seems to break down. China seems to have its own agenda; the guy takes his certificate back to his hometown expecting all to be well but once again he begins his infernal petition making, churning them out like beers in good housekeeping certificate does him no good whatsoever.

It is apparent that stubbornness, unapproved speech making and ratting out corrupt civic officials are determined to be severe forms of insanity in this country. Those people that make too much trouble for officials here can be promptly carted off without any respect to their human rights and labeled as whacko's. Once back in the padded cell, no one else is going to become too excited about getting a petition together to get the offender out based on the simple fact that, should they do it, there is little question that they will soon be sharing the cell. This system works extremely well and is not subject to judges, juries or even for the most part, publicity. No one likes a nutcase, not even in China and they seem to have the system down pat.  

AIDS

The United Nations recently sent a private warning to the Chinese Government informing them that they were soon going to faced with an AIDS epidemic of inconceivable proportions if they did not do something about it now. The United Nations talked about China facing the unpleasant task of soon having to deal with the largest collection of AIDS sufferers in the world. “China is on the verge of a catastrophe that could result in unimaginable human suffering, economic loss and social devastation.” While China currently only officially has 600,000 cases, most experts on the subject scoff at that number and most confirm that the true cases of the disease are at least a number of orders of magnitude higher. Interestingly enough, in spite of facing a literally uncontrollable outbreak and substantially low-balling its dangers, most people living in China have still never heard of the disease.

The China State Family Planning Commission found that only 20% of the people in the country ever heard of the disease and of those, only half realized that it was sexually transmitted. And yet, the practice of selling blood without thoroughly  checking it goes on unabated with recipients often getting much more than they bargained for. Prostitution which flourishes all over the country to a degree that it almost seems legal, also adds dramatically to the spread of this disease. Many of the girls engaged in this profession are also drug users who share needles with others. They are then capable of infected countless numbers of their clients without even knowing that they are carriers because of a lack education by the health ministry on the subject.

Another method by which the disease is spread is rather interesting. There is the traditional taboo against homosexuality in this country but it only keeps people in the closet. Due to the fact that homosexuality is not practiced openly here, there are few support groups and the disease is transmitted from one person to another with unrelenting rapidity. . It has been estimated that fully one-third of the total cases of AIDS in this country are resident within the homosexual community. Moreover, in this country most homosexuals strangely live two lives. One with a wife and children because of the weight of family tradition which believes that homosexuality is unthinkable and the other is their underground participation in the secretive gay community where the worst of the AIDS spread takes place. Wives, who are not even aware of their husbands extra-curricular clandestine sexual proclivities are routinely infected by them and often carry the disease to their unborn children. Medical officials are usually unable to find the ultimate carriers because of the horrific shame that would come to the man who admitted homosexual relations. In China they believe that the man’s ancestors would stir in their graves it something like this ever was to come out.  However, many of the ancestors were in the closet as well so one never knows really how much stirring would really occur.

While there are methods of controlling the spread of AIDS such as condoms, knowledge about the disease is hard to come by in a country where the government would not even admit that it existed until very recently. If the truth were known, the Government has itself been in the closet on this subject and only now are they playing catch-up. However, the hour is late and the disease is already deeply embedded within an unrepentant and still ignorant society. For a country where blood selling is a way of life, prostitution is rampant (“Today, paid sex is common activity associated with business trips, official junkets and sometimes tour packages. Even small towns have businesses that function as brothels – normally in beauty salons, dance halls, saunas, massage parlors or karaoke bars”)[2] and homosexuality for traditional reasons has been pushed far underground, it will be impossible without major structural changes in the entire society to marshal the forces necessary to make China something other than a gigantic hospital for highly diseased people. Moreover, China is not accustomed to dealing with the fact that for the first time; literally in its history, there is substantial mobility in this country. At one time, no one ever ventured far from home for two reasons.

The first was that identity cards restricted them to the local area of their birth and the second was simply the fact that there was no way to get from here to there and more importantly, no money or reason to go there. Today, traveling salesman, bureaucrats, travelers are able to take planes, busses and trains the length and breadth of the a country that still has no uniform medical protocols. The women who a generation ago, would have been assigned work in factories or on the farms are no longer in demand and must “hustle” to find work. Without an adequate education and often living in a rural area, this is not always the easiest things to do. Prostitution is, for most of these women the only way out because the State has still not come to grips with the massive sociological shift that they have created. Under the strong arm of Mao, AIDS would have at least been restricted to a small area and the people living their would have already been quarantined so that the disease could not have spread. Prostitution did not exist simply because women had a better way of making a living and even as a last resort, the state would support them. 

Worst yet, and you may want to chalk it up to social tradition, but China does not like to show the world its weaknesses and as a result it has a hard time admitting that it is subject to the same vulnerabilities that humans throughout the world suffer.  Eventually this attitude can be their undoing as continually more resources are going to have to be channeled in direction of combating HIV as time goes on. A massive public relations campaign would still help but that would make this monolith appear fragile and that is not the message that China wants to convey at this point in time. Although China has made it mandatory this year that AIDS education be taught in clinics throughout the country, the clinics are under-funded and for the most part cannot even provide the services for which they were created, usually family planning let alone educate the population on a disease that even the medical people here know little about. And the beat goes on with Chinese authorities are erroneously trying to stamp out the disease with giving endless lectures on morality to starving prostitutes who couldn’t care less unless someone was going to support them. Moreover, condoms are seen as an advertisement for immorality and for the most part people in this country can not even advertise safe sex let alone birth control.  

War, a far Better Use of Money

Whatever their area of interest may be, China like the monolith that it is seldom changes course. Such is the case of Taiwan. There was little question in the minds of the British when the Chinese Government informed them that in 1997 they would be returning Hong Kong to its rightful owners that his was going to happen one way or the other. Rather than sacrifice the Empire they capitulated. There was even less question in the Portuguese mindset when they got the same kind of tap of the shoulder from the Chinese who told them that Macao would once again become part of China. Since China has started to flex their international muscles, there are few demands that they have made that go unanswered. Membership in the WTO was thought to be unthinkable when China made their pitch for membership. When you consider the fact that literally everything that the World Trade Organization stands for is literally the antithesis of the Chinese philosophy; however, when the chips were down, China made some mild compromises and the West caved in. Or what about the Olympics?  No one ever believed that China could ever host an event which is an exclamation of human rights and dignity, but tyrannical China with more criminal executions than the rest of the world combined not only got what they wanted but the committee gave it to them in spite of that fact that two far more qualified countries were putting a better deal on the table. Thus, when the Chinese indicate that they are desirous of becoming reunited with Taiwan, one way or the other, who are we to scoff.

The Chinese if anything know how to be extremely patient. However, they also know how to get what they want and are most careful in carefully picking their spots. Recently in certain circles their level of interest in this unification has picked up quietly but however, dramatically. In 1949 there were two forces in China, one representing the Communists headed by Mao and the other representing American interests led by Chiang Kai Sheik. In spite of being in charge of a rag-tag army, Mao easily dispensed with Chiang and sent him packing to Taiwan, then a Chinese possession. Chiang set up shop in Taiwan and in spite of some serious early overtures by Mao and his troops to seize control, they just didn’t have the necessary material in either trained men or equipment to cross the straits and grab the island.  Since those early years, the Chinese have never changed their tune, sometimes, it rises in crescendo and sometimes they talk of negotiation. However, their resignation drones on like an endless play.  

Recently, however, the price of this international game of chicken has quickened with the Chinese stockpiling armaments from all over the world totally geared to crossing the straits by and taking the island by force. During this recent period they have become the world’s largest arms purchaser in spite of having indigenous weapons production facilities capable of turning out prodigious quantities of military machinery. No less of an authority than the Stockholm International Peace Research Institute claims that China took delivery last year of over $3 billion of ships and combat aircraft primarily from Russia. The Chinese arms imports represented twice the total of any other country on earth.

Interestingly enough, almost every country on earth has joined China’s supply chain with, of course Russia and Israel leading the parade in spite of the fact that in 1989, Western Nations horrified by the Tiananmen massacre embargoed all weapons trade with that country. However, since that time, supplying China’s ravenous military appetitive has become a morsel too delicious to resist. Even the United States, the self anointed global moralist has supplied China with high-tech, sensitive computer parts during the decade since Tiananmen to the tune of unbelievable $15 billion.[3]  The Wall Street Journal gives a chronology of high-tech international weapons procurement being provided to China[4]:

‘…British engine maker Rolls-Royce PLC confirms that it recently supplied as many as 90 Spey jet engines and spares to China that defense analysts believe the People’s Liberation Army (PLA) intends to fit onto its JH-7 fighter-bombers – also being modified with modern and long-range missiles…Earlier British sales have also boosted PLA capabilities. In 1996, Racal Corp., now part of the French Thales Group, sold as many as eight Skymaster longer-range airborne radars to be fitted on PLA Navy Y-8 aircraft. Britain said the sales would help Beijing fight smuggling, but defense analysts say the aircraft are also helping Chinese missile warships locate targets. Should China go war to regain Taiwan in the near future, its air force will rely on Russian-designed strike aircraft alongside locally built fighters based on an Israeli design partially funded by the U.S. Other Chinese-made aircraft will carry Russian and Israeli missiles that will find their targets with British and Israeli radar and electronics. China’s navy will deploy powerful new Russian warships and submarines alongside locally built vessels fitter with U.S. and Ukrainian engines and Italian torpedoes. French companies have supplied air-warfare missiles, tactical command-and control systems and helicopters.

"On land, the PLA will field modern Russian tanks and artillery. Many armored vehicles will be protected with advanced Israeli-designed armor cladding. Older Chinese tanks have Israeli gun and gunsight systems. Overhead, satellites built with British and German help will keep watch on the battlefield, fix positions for ground forces and feed data to ships and aircraft. Meanwhile, China’s nuclear deterrent will be mounted on launchers improved with assistance supplied by the U.S."  

Does the purchase of all of this military equipment indicate that invasion of Taiwan is becoming imminent? Well, it may not be but it is sure enough to scare the daylights out of anyone living in Formosa and probably the rest of the world as well. There is some point at which the force that China can bring to bear may make the thought of outside intervention mute and force a non-military settlement on the Island country. China will not go away in this matter and at some time and some place, it will be dealt with, maybe sooner than later.

The Latest from Hong Kong

While China goes about its business with lumbering consistency never looking back after making a decision, some things here do change.  I remember being in Hong Kong in the middle 80s and was totally awestruck with the magnificent buildings along with the culture and the wealth. From downtown Hong Kong it was only a stone’s throw to the Chinese border and the city of Shenzhen.

Although crossing the border at that time was hardly an option, you could gaze from Hong Kong unto what appeared to be one of the most desolate spots on earth. One that reeked of both poverty and helpless despair and at the time, viewed this entire panorama as one gigantic open air jail. I thought at the time of how these miserable Chinese must have felt as they gazed back across their border and watched as their ethnic Chinese brothers drove around in Mercedes Limos, wore the latest of fashions and built monuments to modern society. The Mainland Chinese for their part were dressed in drab quasi-military green or grey uniforms with their peaked hats and military-like work ethic. They were marched everywhere, always seemingly headed for the next job.

My, times have certainly changed. While Hong Kong is suffering their second recession in four years sending many into unemployment lines and unemployment soaring to over an unheard of 6%, neighboring districts in China are making the country’s annualized 7% growth rate look pale.  Shenzhen in particular is doing spectacularly and are now holding job-fairs in Hong Kong in an attempt to attract their residents with remarkable job offers. Salaries begin at $3,000 per month and some as high as $10,000 are not unusual. 

This turnaround has literally been amazing but it cause is simple enough. Hong Kong high wages forced them to look elsewhere for production of the goods that they historically supplied the West along with the Pacific Rim. Where better to create these factories than in Shenzhen. Wages were low, the people well-educated and moving the finished goods through Hong Kong ports would be a simple matter. In addition, management of Hong Kong Companies using production from Shenzhen could visit the factory whenever they desired because of the proximity and add their know how to the mix.

However, there is a danger from this Shenzhen production to Hong Kong’s economic recovery because it is only a matter of time until their Chinese brethren will also learn where the buyers for these products are located and no longer need Hong Kong middlemen. Hong Kong has literally become a service industry for both production and banking acting for others. While at one time when Mainland China was not part of the global business network this was necessary, but since their entry into the World Trade Organization, paying for this service is redundant and redundant while being costly to the end users as well. Unless Hong Kong finds another use for their cadre of five-percenters, they are going to have a recession that is going to last for some time.

The Bank of China

However, in spite of the apparent prosperity of Mainland China, Hong Kong can still teach them a thing or two when it comes to banking. The Chinese Banking System is riddled with systemic fraud and they folks in charge don’t seem to be able to get their arms around it. Moreover, the system is Mammoth  and it contains almost $900 billion in deposits[5]. Most of China’s banking tribulations stem from the fact that their antiquated system of checks and balances leaves a great deal to be desired. There is no system of checks and balances leaving one person is usually totally in charge of a division without mandatory reporting requirements. Moreover, that is the very same system that allowed Nicky Leeson to bring down a 200-year old English Bank (Bearings) because no one was watching his store. The same thing is happening with The Bank of China over and over and over again. And guess what; these folks that run Chinese banks are not even necessarily bankers; for the most part they are people that have some economics background but are party loyalists and political hacks. The Organization Department of the Communist Party is in charge of appointing the bank presidents and this creates an immediate conflict of interest because party officials become the first to stand in line for loans for their pet infrastructure projects.

More important even than that is the fact that Chinese laws on embezzlement leave a lot to be desired and seem to be widely interpreted so that if take goods not belonging to you but return them within a three-month window, no crime has occurred. Added fuel to that fire is the fact that senior banking executives in China are paid literally coolie wages and in order to present a typical banking demeanor they are forced to live substantially above their means. An article in the Huaxia Times, a Beijing newspaper was on the mark when it stated that “Chinese bank chiefs actually seek opportunities to be corrupted. They treat their power to grant loans as a tradable commodity to be used to benefit themselves.”

Moreover, oversight is strangely a perennial problem in the banking industry that has only four major players, Construction Bank of china, The Bank of China, Commercial Bank of China and the Agricultural Bank of China. Part of the problem is based on the fact that communications among bank employees, officers and customers are archaic to say the least that branches once created are almost never closed,[6] and employees, once hired seem to die at their posts or worse. The four banks previously mentioned employ almost 2-million people a statistic that graphically demonstrates how inefficient the industry is. Almost everything is done by hand and ATM machines only exist in the large cities and then only in restricted locations.

Loans are made because of political and social alliances and most often have little to do with sound banking practices. Letters of credit are written without even an inquiry into the underlying transactions and collateral is rarely if ever checked. Things became a disaster in the Bank of China branch located in the United States. It runs out that the U.S. Branch of the bank was literally doing business by feel rather than by any banking regulations. If they like the borrowers and could get something back in exchange, they would make the loan. If not, it did not matter how sound the transaction might be, they just weren’t going to consider it. This brought on an investigation by U.S. banking authorities which recently resulted in a $20 million fine.

The result of the indication revealed that the bank was literally operating out of control by facilitating fraudulent letters of credit, allowing borrowers to sell assets that were pledged as collateral for loans and by extending loans to people friendly with management without regard to their viability. When the loans were not repaid, the borrowers defended their actions by stating that the bank had put them up to the whole thing. The U.S. Office of the Comptroller of the Currency stated that the bank was totally out of control and was engaged in numerous nefarious dealings and they named them, chapter and verse.

“Two clients, John Chou and Sherry Liu, a Chinese-born New Jersey couple assert that the bank asked them to take out loans and put the proceeds into shell companies that the branch could count as new customers to impress bosses in Beijing. They also say they and others were solicited by the bank to help support the slipping value of the Hong Kong dollar in a scheme where they were loaned money specifically to buy Hong Kong dollar certificates of deposit in 1998 and 1999, said Steven L. Kessler, a lawyer representing the paid. Mr. Zhou invested over $50 million in the plan. The bank charged him 1 percent interest on the loans and he was guaranteed a 10 per cent return on the year.”[7] The Hong Kong and Macao branches of the bank became a money launderer's paradise, their Canadian branch was the receptacle for the Hong Kong underworld and the main office in Downtown Beijing was found to be loaning money to non-existent Corporations.

However, the worst news yet is the fact that the Bank of China is probably the best run of all of the banks in the country and yet their former president and CEO is awaiting a really healthy jail sentence for embezzling millions.  This is particularly strange when you discover that this was a man that never made much more than a $1000 a month and yet between him and his wife, they owned businesses throughout the Mainland, lived in luxurious style and had a cadre of servants along with a limousine and driver. The threat of a massive stench relative to the results of the Chinese Government’s investigation into the affairs of their former president, Wang Xuebing is so serious that a lid has been placed on the entire incident. Banking officials in China are concerned that when the people really find out what was going on in the Bank, there could be a run. For China this would be a most unusual event and without shoring up the banks could result in serious economic dislocations.

If you deducted the apparent losses from Chinese Banks that are caused by blatant fraud and subtracted that sum from the industry’s total net worth, the growth rate of China in terms of net assets would be a fraction of what is currently being reported. Bank theft in China is not done with a mask and a gun; it is simply accomplished from the inside with a pen and paper. While not unheard of elsewhere, the massive number of unrelated participants in this occupation is frightening to say the least. It almost seems that there is a unknown disease rampantly slithering through the Chinese Banking system that infects accountants, housewives and anyone else hired to do their bidding.

The basic problem arises from the fact that the heads of the main Chinese Banks are politically appointed by bureaucrats that often ask to be repaid for the job with hastily manufactured loans with little collateral or substance to back them up. Government officials sheepishly admit that fully 40 per cent of all loans made in this country are in default or have already been written off. One of the most prevalent problems though is that few of the loans are dealt with in any realistic manner. Rather than take the charge on their balance sheet by putting loans into a none-performing column, many borrowers are lent ever increasing amounts of money and the additional funds are partly used to pay back what has already been borrowed, a tactic that is against nearly every country’s bank policy. This naturally inflates the bubble dramatically and increases the long term problem while not fully reflecting the true health of the banking system here. We believe that the real situation in the Chinese banking industry is more realistically the fact that no less than 60 percent of bank loans in this country are in default, written off or have new loans that are paying them off.  

The New York Times wrote a story that puts the Chinese problem in perspective: “Before the mid-1990’s, the state banks merely extended credit to state enterprises on government order, and they had little experience with standard financial practices like risk assessment, due diligence and securing collateral. Today, Chinese economic officials, many with Western educations, feel a “sense of crisis” about the banking system, but are unsure how to solve the problem, financial experts here say.”[8] Any solution without changing the political nature of the system is literally impossible. Appoints to the major banks without any sense of the appointees ability or morality is not the way to run a Laundromat much less a major bank. But the problem extends far deeper; the cadre of people overseeing and auditing the banking system is few and far between. Reporting procedures are nebulous and loans are not double-checked. Quill pens predominate in an era that the systems should even be operating without computer generated controls. Unless China can get a better handle on the situation, for whatever their growth may be in the future, it is firmly placed on a three legged chair that can tip over the entire sector with little trouble and send the economy into a catatonic state of free fall. 

The Junk Yard Dog and His Masters

Some occupations in China are extremely dangerous to the country's health, others are dangerous to the people, but both can excess synergistically in this strange land. In spite of the fact that from an economic point of view China has made almost inconceivable strides over the last several decades, this hardly means that it is a nation of full employment. As a matter of fact, only about one-quarter of China’s population lives in economically vibrant zones, and the advent of capitalism has created a desperate situation for many rural peasants.

“New” occupations are few and far between, and can be risky. Take, for example, the job of collecting re-usable metal from electronic waste.  This job has kept residents of Chaoyang County in Guangdong Province, one of the wealthiest areas of