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The Shenzhou 6 Spacecraft Mission: a Show of Ego?

On October 12, 2005, China launched its second manned spacecraft, "Shenzhou 6." Its first spacecraft mission was two years ago. For the Chinese government, it’s another opportunity to inspire nationalistic sentiment. Through the state media, the government claimed that the Shenzhou 6 mission was a great achievement in the history of manned space exploration and that it improved China’s overall national strength and global reputation. According to reports from the Chinese media, the whole country appeared to be wildly enthusiastic about the event.

According to an October 16 report from Voice of America (VOA), a U.S.-based foreign language broadcast station, however, ordinary Chinese people didn’t seem excited about the event at all. In fact, they seem to have more complaints than compliments. Following are comments from the VOA audience on China’s spacecraft missions.

Life Here Is Too Difficult to Care About Missions in Outer Space

A gentleman from Jilin Province said that what Chinese people care most about nowadays is not the manned space mission but about the tribulations of daily life, "A spacecraft was launched into the sky, but human rights have fallen to new lows. The state media’s propaganda just tries to inspire greater patriotic passion. As a man who lived through the craze of the first Chinese satellite launch in 1970, I’m not pumped up at all over this latest achievement. What do ordinary people care about now? There are so many difficulties in every day life: going to school, being able to afford medical care, employment, appealing to the government for help, protecting basic civil rights, and staying well informed on what’s happening in China. These are the things people care about. That is why I say, ‘A spacecraft was launched into the sky, but human rights have fallen to new lows.’"

In the opinion of Mr. Zhao, who is from Shandong Province, the government’s top priority should be to ensure that no one has to worry about the essentials of living. "I think there’s too much media coverage of Shenzhou 6," Mr. Zhao said. "Obviously they’re trying to make us forget that our lives are full of bad news, but it’s not working. The grassroots are merely struggling to survive; their biggest concerns are food, clothing, and shelter."

Aircraft Carrier or Space Army?

Mr. Cui from Jiangxi Province believes that it would be better to develop an aircraft carrier instead of launching manned spacecraft, " I think Shenzhou 6 is just to show off and is not of practical use. It would be better to build an aircraft carrier to improve our national defense capability."
Ordinary People’s Lives Versus a Show of National Strength

Mr. Wu from Zhejiang Province said that the money should be spent on people’s welfare instead of developing space programs, "The Shenzhou 6 program is extremely expensive. In China, many people do not have the money to see a doctor or for education. Isn’t it much better to spend the money on people’s welfare? Some people have said that the success of the Shenzhou 6 mission would improve China’s strength as a nation and help to mobilize people around the Chinese Communist Party. These are more likely the decision makers true motives."

A Great Achievement but Not Very Useful in Winning People’s Hearts

Mr. He from Zhejiang Province pointed out that the success of the Shenzhou 6 mission is not a solution to China’s political and social conflicts, "I think it is a great achievement that the Shenzhou 6 mission is successful. However, it is ‘Mission Impossible’ if the Chinese Communist Party thinks it can use this achievement to placate people. China has too many deep-rooted political and social conflicts, and this achievement is too trivial to resolve those conflicts."

A Necessity or a Luxury?

Mr. Huang from Shanghai believes that China has not reached a level appropriate for the development of space technology, "For the last day or two, the state-run media has spread propaganda on the Shenzhou 6 achievement, obviously for the purpose of increasing the credibility of the Chinese Communist Party and to inspire the patriotic passion of the Chinese people. If China’s economy were advanced and the Chinese people had stable and happy lives, it would be fine to develop a small space program. But right now China is underdeveloped and poor. It is crazy to spend money on space programs."

Mr. Feng from Tianjing believes that China’s current situation does not justify developing space technology, "Manned spacecraft programs are not in accordance with China’s situation or the will of the Chinese people. There is no need (for China) to develop manned space technology. China is a poor, developing country, and there are far more practical endeavors that need to be funded."

On the other hand, Mr. Zhang from Zhejiang Province says that China should develop space technology, "I think it is necessary to develop space technology because China is a big country."

Cristine Chen is a correspondent for Chinascope.

Unpaid Worker’s Desperate Appeal Escalates into a Tragic Killing

At the age of 17, Wang Bingyu, a peasant from a small mountain village in Kangu County, Gansu Province, went to the nearby city to find a job. He joined the nearly 100 million migrant workers, peasants from across the country, who hope to find a better life in the city. Unfortunately, he struggled and suffered a hard life, being constantly exploited and cheated. He ended up in jail facing the death penalty after killing four people and seriously injuring another in a fit of rage over unpaid wages.
According to Xinhua News Agency, an intermediate people’s court in the Ningxia Hui Autonomous Region sentenced Wang Bingyu to death on June 29, 2005. Wang later appealed to the Ningxia High People’s Court, but the court has yet to make a decision. Wang is currently detained in Shi Zhui Shan Number One Detention Center in Gansu Province.

The case has received a lot of attention in the press and the Internet and has opened a spirited discussion. In an interview with reporters from Xinhua News Agency in mid-August, Wang talked about his life. Wang lost his mother at the age of six. He lived with his father and a younger brother in a house built of mud, where they shared one bed. Besides attending school, he had to work on the farm and take care of the house and his younger brother. He dropped out of school when he was in fourth grade. His younger brother dropped out when he was only in the second grade.

The area where they live is experiencing a drought; the farmland is barren. As a result, many villagers migrate to the nearby city to earn a living. With such a hard life at home, Wang saw no future in staying, so he was determined to find a better life in the city.

Wang’s first job was in Tianshui City, where he worked at a construction site and earned 7.5 yuan (US$0.93) a day after the meal deduction. Soon his 14-year-old brother joined him and began earning five yuan (US$0.62) a day. They ate the least expensive food, shared a room with dozens of others, and slept on a wooden board. Since then, Wang worked at several other construction sites in the Ningxia area. He also worked in shipping and delivery, peddling around on a tricycle.

He and the other laborers worked at their own risk without workman’s compensation. In the spring of one year, Wang fell off a two-meter tower into a well that was more than seven meters deep. He almost drowned. After his coworkers pulled him out, his boss wouldn’t let him go to the doctor and only gave him a couple cold medicine pills.

From August 2003, Wang started to work for Chen Jiwei, a sub-contractor from Henan Province. Chen had a contract for the heating insulation work at a factory in Ningxia. Wang Binyu and his co-workers had to apply rock wool and iron sheet around steel pipes. Rock wool is a type of chemical that irritates the skin. Working without any protection, Wang and his co-workers often suffered from reactions to the chemical. They worked mostly over 12 hours a day, from 7:00 a.m. until 7:00 p.m. or longer, as long as there was daylight. The workers were paid a lump sum at the end of the year but were subject to 300 yuan (US$37) deduction in personal bond and 1,000 yuan (US$124) for room and board. Soon, Wang became the team leader and earned 35 yuan (US$4.33) a day.
Even though the labor contract stated that the workers were covered under medical insurance, none of them received any coverage. Wang said last year he spent over 1,000 yuan (US$122) in medical treatment for his stomach illness, but he was not reimbursed. Another co-worker was required to work despite a leg injury but eventually had to quit and return home.

The Wang brothers struggled as hard as they could and managed to send some savings home for adding a few brick rooms to their mud house. Both young men, Wang Binyu, now 28, and his brother, now 26, (earlier it was mentioned that Wang was 17 and his brother was 14) were still unmarried because it costs 20,000 to 30,000 yuan (US$2,440-3,660) to find a wife. (The village girls all leave the village to find a better life.)

In May, Wang’s father urgently needed some money to treat his broken legs. Wang’s health condition was also very poor at the time, so he decided to quit his job and get the wages he had earned for the year, a total of 5,000 yuan (US$619). But all he got was 50 yuan (US$6). He went to the local labor department for a resolution. The person in charge called Chen Jiwei immediately and demanded that he pay Wang the wages he had earned.

On May 11, Wu Xinguo, the foreman of the construction site, promised the labor department that he would pay Wang’s wages within the next five days. However when Wang and his brother returned to their living quarters, they found that their keys had been taken away and they were no longer allowed to sleep there. They went to Wu’s home and asked for money for hotel rooms, but Wu refused to open the door. In the meantime, several co-workers living nearby came to tell the Wang brothers to leave. Some called them "dogs." They slapped the brothers’ faces and kicked them. Wang Bingyu couldn’t stand it anymore. He brought out a folding knife and began stabbing. He killed four people at the scene and seriously injured another. Some bystanders heard him shouting during the attack, "There is no point to live any more…"

Afterwards, Wang’s father came to see him at the detention center. At the sight of his father, Wang felt deep regret for what he had done. What made the whole thing worse was that none of the people who died were responsible for withholding his wages. They were migrant workers just like Wang.

Wang told the reporters, "I don’t have much time left. My father said that he supports my giving interviews. When you interview me and publish the story, more people will pay attention to migrant laborers. When the government officials visit the construction site, they only see the buildings. We work on top of the buildings, and we could fall down dead if we are not careful. Do you know how many migrant workers die when a building is constructed? …. I do not ask much. I just hope that my father and grandparents can have a good life."
After the Wang Bingyu murder case was publicized, there was a tremendous outpouring on the Internet. The general sentiments are overwhelmingly sympathetic toward Wang. Many believe that Wang is a victim himself; the true criminal is the foreman and the system behind him. Some even called for a campaign to "Save Wang Binyu" in the name of justice.

In the meantime, there is a heated debate about whether Wang Binyu should receive the death sentence. Zhou Guangquan, Associate Professor at the Law Department of Qinghua University, stated that Wang should not have resorted to killing and argued that if this case, with such serious consequences, does not result in the death penalty, it will send a dangerous signal and encourage others to follow. Professor Zhou also disagrees with the "self-defense" argument in this case as there was no ground for Wang to kill for revenge.

While some argue from legal, technical terms, Gao Zhicheng, a famous human rights lawyer in China, together with dozens of rights advocates, are urging that Wang Bingyu be saved. Attorney Gao stresses that saving Wang Bingyu is a way to demonstrate that the legal system can still serve justice. When Wang Bingyu was weighing his options, enforcement of the law didn’t seem to be one of them. Wang chose violence because he did not trust the legal system. For failing to perform the role of justice, the legal system and all related departments should bear some responsibility for the tragedy.

Wage disputes involving migrant workers have become common in recent years. Many migrant workers have had no other recourse than desperate measures to receive what is owed them. Some have threatened to jump from the top of the building they helped construct. Others have committed self-immolation.

In 2003, Premier Wen Jiabao personally resolved a wage default case for a woman farmer. However, his action was widely viewed as a political show. No improvements in the wage problems faced by migrant workers followed the Premier’s gesture. No matter how one views the desperate act of Wang Bingyu or the political act of Premier Wen Jiabao, one thing is clear-the law for protecting the rights of migrant workers doesn’t work.

Lukun Yu is a writer based in New York.

East Meets West: A Cup of Tea

The origins of tea are steeped in legend and date back over 5,000 years to ancient China. One tale tells of the great monk Boddhidarma, who once fell asleep while meditating. To resolve this problem, he sliced off his eyelids and cast them to the ground. It was from this place on the ground that the tea tree was born, and from its leaves came a drink to conquer sleep.

According to another myth, the discovery of tea was by accident. In 2737 B.C. the Chinese emperor Shen Nung was in the forest boiling drinking water. A wayward leaf was said to have drifted through the air and landed in the boiling pot. A brown liquid infused into the water. With curiosity, he drank the liquid and found it refreshing.

Although myth, the tales above hold some truth. For instance, the history of tea does begin in ancient China, probably somewhere near the Vietnamese border. Around 800 A.D., a man named Lu Yu wrote the Ch’a Ching, the first true book on tea. Because of his lifelong observations and expertise on the subject of tea cultivation, he was later patronized by the emperor and considered a near-saint.
The Buddhist monk Yeisei, later known as the "Father of Tea," brought the leaf to Japan. Over time, drinking tea evolved into an art form known as the Japanese Tea Ceremony. This tea culture spread from monasteries and the imperial society to the rest of secular Japan.

In 1560 the Portuguese Father De Cruz first encountered tea. It is said that tea made its way to Europe during the era of Elizabeth I and Rembrandt. The Marquise de Seven first mentioned that milk be added to tea in 1680.

In 1650 Peter Stuyvesant introduced tea to New Amsterdam, later recognized as New York. Before long the city was drinking more tea than all of London. To this day, although popular in North America and Europe, these two continents are the only ones in which tea is not abundantly grown.

Tea Types

All tea comes from the evergreen tea tree, Camellia sinensis. Many other drinks that are considered teas are actually herbal infusions, named after the plants they come from.

There are five types of tea: white, green, oolong, black and pu-erhs. The differences between them lie mainly in the ways in which they are processed. For example, white tea is minimally processed and is usually picked and air-dried; green tea is picked and heated by steaming or pan firing. In contrast to oolong and black teas, green tea is not oxidized. Pu-erhs is aged and post-fermented and gets its name from the town Pu-erh in Southwest China.
Even among green teas there is much variation. Some green teas from Japan often have a seaweed-like flavor, while others have grassy notes. Other teas, like Lapsong Suchong (a black tea), are smoked, giving an altogether new character to the beverage. Sometimes green teas are mixed with roasted rice or barley for a unique flavor, as well as being a digestive aid.

Experience and Preparation

The experience of tea drinking is delicate and comparable to that of enjoying a glass of fine wine. It is a sort of art and culture based on various factors: from the tea-ware to the quality of leaf used, from the brewing method to the length of time each cup is steeped. In addition, the whole atmosphere really matters. To maximize the taste in each cup, there are a few brewing guidelines to follow. First, it is recommended to begin with cool, filtered water. With black and oolong teas, bring the water to a slow, rolling boil and then pour it over the leaves. Because white and green teas easily burn and turn bitter, use water just under the boiling point. Steep to the desired taste. Usually green tea is only steeped for up to three minutes, while the others can be steeped up to five or eight minutes.

Tea and Health

The Executive Director of the Tea Council, Mr. Bill Gorman says that there is a huge body of scientific evidence showing that tea can make a significant contribution to a healthy lifestyle. Of teas, three main substances — antioxidants, nutrients and caffeine — antioxidants are often first looked at when considering health benefits. Antioxidants, mainly consisting of polyphones and falconoid, inhibit substances called free radicals in their ability to damage the molecules in our bodies. Major nutrients in tea included carotene, vitamins B1, B2, B6, C, as well as the minerals potassium and fluoride.

Studies show tea aids in enhancing immune functions, lowering high blood pressure, reducing the risk of strokes, heart attacks and various forms of cancer, aiding in digestion, boosting connectivity, and preventing dental cavities as well as certain forms of plaque and gingivitis.

Shoe-Nots and Shoe-Haves

A Chinese saying, "the barefooted are never afraid of those wearing shoes" (guang jiao de bu pa chuan xie de) captures very well the standoff between the West and some states. Traditionally, China, an agrarian nation, has largely been populated by farmers who, for the convenience of working in the fields and saving some hard-earned money, are barefooted throughout most of the production seasons. The tradition was well-kept at least until the Cultural Revolution, when the "barefooted doctors" system — where farmers working in the field received some basic medical training to serve the community — won wide acclaim at the United Nations, a distinction easily recognizable when China was writhing in one of its most tumultuous historical periods.

Now, I can see the puzzlement in your eyes: Does this historical fact about Chinese farmers’ footwear — or lack thereof — go any further? The relation between the West and the axis-of-evil countries are defined by nukes, not shoes, right? I agree; yet, I still believe the Chinese proverb about shoes is penetrating in capturing the essence of the relationship. If you were a poor farmer in China, a barefooted "ni tui zi," (literally, "mud-covered legs,") as you would be called, you have little, if not nothing, to lose in your fight with someone rich enough to buy himself a pair of shoes. Since you don’t have shoes, you don’t need to worry about the stains to your shoes, and may care less about the bruises to your body or mind in case of a fight. Moreover, if you can’t afford shoes or prefer going without them, you may not have much property to start with, while the shoe-haves may have to worry about broken windows or other property damage — so, in the jargon of economics, it is about asymmetrical loss functions. Perhaps, the shoe-haves would warn you that you could be put in jail if you make too much trouble for them, but isn’t that a hilarious proposition? You would be fed punctually while lying on the bed watching TV, no longer having to do the tedious work to earn your take. Speaking of any damages you have to pay, you don’t even have shoes…

Actually, the Chinese proverb became a proletarian formula that released forces more powerful than what Einstein could have imagined in response to his famous energy equation. In China’s most impoverished quarters, Mao Zedong and his comrades led the mob of shoe-nots to rob those shoe-haves. "Farmer friends, you have nothing to fear; you shall go to the beautifully decorated harems of the landlords’ daughters and jump and roll to your whims in their beds on ivory frames," he famously exhorted in one of his many incendiary works, which only set me dreaming about the good times I had missed when I studied it as a mandatory political reading in elementary school. As it turned out, it took Mao and his small farmers’ army less than 20 years (excluding the time to fight the Japanese) to conquer the vast countryside and drive out the rich from the cities for good, to be the creator and leader of the "New China." He called it the strategy of "taking the countryside first and then encircling the cities," a theory that has since mesmerized numerous Maoist guerrillas, including Fidel Castro, Pol Pot, and Bin Laden.
"Aha, I got it now." Your strained face is loosening into a smile — "It is quite an analogy; the shoe-haves are the ones that have nukes, and those ‘shoe-nots’ are the ones without nukes but wanting to get their hands on them." You’re only half right, though. Because the proverb is more about a mentality — those with nuking power can still use it if they have the same mentality.

The Chinese general Zhu Chengwu made it clear to the world that China planned to use nuclear weapons to attack America at the expense of two thirds of its population and all the prosperous areas. His words suggest that China, as one of the five declared nuke powers and the fastest-growing economy, still falls into the trap of the "shoe-less" mindset, which has been so successful for the communist regime to take over the country. Indeed, as in the wars against the Nationalist government and the United States in Korea, the Chinese Communists refuse to see the Chinese people as the rightful recipient of their service and beneficiary of their protection. Rather, they would see themselves as "barefooted," devoid of attachment to anyone or any physical object, including land, so that maximum benefits and concessions can be extracted when dealing with the West, the "shoe-haves."

Now, let’s swap the positions. Suppose you are the one who wears shoes. When someone in the street threatens you, what do you want to do? If it is about your personal security, you probably have to relocate to somewhere else, leaving behind your beautiful house and other properties. That was exactly what happened to the rich in China in the face of the encroachment of the communist-led "shoe-less" revolution — they fled the mainland and stayed on the island of Formosa, until now. Well, if the threat is less serious and you don’t want to leave your home, what do you want to do? You will negotiate. That is right; you want to talk to that "barefooted" guy and cut a deal with him.

But if your attempt to come up with a deal fails, do you still have an option? Yes, you want to get more people involved: your friends, the friends of that "shoe-less" guy — and some people who you thought should be your friends but turned out otherwise. Now, welcome to the six-party talk to resolve the nuclear tension on the Korean peninsula. The North Koreans, the shoe-nots, won again, just as they did in 1994, when they waited until President Carter came to the rescue. This time, it took the Bush administration much longer to blink, but the smile on the face of Condoleezza Rice reminded us of the same one worn by President Carter, suggesting that the North was destined to win from the very beginning. This is a fact that dictated by the different way the United States goes about its business than the North, something even a seemingly hard-nosed Bush with steely resolve can’t change. The good thing about being an unfortunate "shoeless" is that he is somehow the privileged party in any negotiation who can turn the table upside down anytime he needs money, attention, or "formal recognition," just like a three-year-old’s tantrum, as no rules apply to him. If you are not convinced, consider this, the compromising North backtracked only several hours after the handshaking and champagne drinking that celebrated the success of the talk in Beijing.
The terrorists, or "insurgents" as they are more often called in the press, in Iraq are betting on the same strategy. No one, including themselves, would believe they can defeat the Americans on the battlefield. But they believe as long as they endure, they will succeed, because someone will help them out — not necessarily in the fights but maybe in the editorial pages. Indeed, they are the ones without shoes, and when they win, they will get everything; it is always the "advantaged" party that is more eager to cut a deal. Call it a "superiority complex."

Karl Marx proclaimed in the Communist (Communist Manifesto) that "all that the proletariats will lose (in their fight) is their shackles; what they gain will be the entire world." Since then, when Pandora’s Box was opened, a cataclysmic force was gathered to crush the old paradigm, traditions, values, and systems that humankind had respected for thousands of years. They almost won, with the non-proletariats, the ones with shoes, retreating and accommodating as a way of strategy, until 1989, when the Berlin Wall fell and the tide turned, with no foreboding at all. None of this, however, would give us the peace of mind that the lethal maelstrom of this unorthodox thinking has receded once and for all, because if you discount the few bastions it still has today, there will always be people who feel "unfairly disadvantaged" as they don’t have "shoes," and who will find it inspirational to read Karl Marx to make it even. Now, ask yourself — am I going to blink?

How Far Away Are China’s State Banks From Wall Street?

The Royal Bank of Scotland (RBS) just invested US$1.6 billion in the Bank of China (BoC), becoming its major "strategic investor." The initial public offering (IPO) of China’s state banks on overseas stock markets has caught the attention of international economic circles.

Bank of China Finally Married to a Foreign Bank

In the eyes of foreign investors, in the past few years, China’s state banks have experienced both ups and downs, from "princesses" to "foundlings." In December of 2003, eleven international investment banks, including Citigroup, JP Morgan, Goldman Sachs, UBS-Warburg, and Morgan Stanley, all enthusiastically purchased China’s bad loans. The bidding war spurred the Chinese government’s unlimited imagination. Since investment banks found purchasing the state bank’s bad loans so attractive, they figured out that listing the state banks in an IPO would bring them even more interest and more money.

Although the government tried hard to raise capital in foreign markets, the results were unexpectedly disappointing. China’s Big Four state banks even became "foundlings." Not one investment bank, including those of China’s long-time partners, wanted to invest. It seems that, during the process of purchasing bad loans, the investment banks uncovered the reality of China’s banking system. Realizing it was a black hole that could never be filled, these banks backed off.

After extensive fishing, BoC finally managed to hook RBS, ending its two-year-long effort of seeking "strategic investors." Thus it was able to go public on the Hong Kong market in the first half of 2006. China’s propaganda organs quickly spread and even greatly exaggerated this piece of good news. The Xinhua News Agency, China’s popular state-owned media, reported the news on August 19 with the headline, "RBS spends US$3.1 billion to purchase a 10 percent ownership of Bank of China." Of course, examining the details reveals that it was not RBS alone that invested the US$3.1 billion. Led by RBS, the group included Merrill Lynch and Hong Kong tycoon Lee Kashing.

Here’s how the stock was allocated. RBS spent US$1.6 billion to purchase 5.16 percent of the ownership of BoC and to get one seat on the board of directors; Merrill Lynch and Lee Ka-shing, on the other hand, invested US$1.5 billion for the remaining 4.84 percent of ownership. What few people know is that the investment banking group only promised three years of stock ownership under an unprecedented bargaining condition that the Chinese government guarantee that their investments will not be affected by any sudden deterioration of BoC’s financial situation or other risks.

The official reports did not disclose Merrill Lynch’s ownership percentage. They purposely mingled Merrill’s ownership with that of the Chinese government’s "family member," Lee Kashing. Since Merrill Lynch was competing for the underwriting business for this transaction, it is unlikely that it would put up a lot of money. Most likely Merrill Lynch simply loaned its prestigious name to BoC to help the latter demonstrate to the rest of the world that BoC is hot. Regarding Lee Kashing’s involvement in the transaction, it would be too obvious to the public that the Chinese government used its own "relative" to decorate the transaction, which would not be a glorious thing for the government. No wonder Xinhua‘s headline shrewdly let RBS take the honor for all of the US$3.1 billion investment.
The Plans of China’s State Banks to List on the International Markets

The year 2005 is key to China’s reform of its financial industry. In the first half of this year, China’s banking industry tried its best to implement five strategic tasks: raising the overall competitiveness of its banks, pushing for IPOs on the overseas markets, seeking strategic investors, cleaning up major corruption in the banking system, and implementing a system of accountability and asset capitalization. Their main goal is to sew a few "beautiful new clothes" to cover up the gaping holes in order to raise much needed overseas money.

On June 23, having failed to recruit its "strategic investors," the Construction Bank of China was forced to go IPO on the Hong Kong Exchange. On the first day, the stock closed at HK$2.825, 13 percent higher than its IPO price of HK$2.5 per share. The value of the stock reached HK$5.158 billion, the highest of the day. According to the investment banking industry, however, this "great" news was widely circulated to be related to the anticipated appreciation of the Renminbi.

The rest of the four major state banks are also warming up to go public. In chronological order, they are:

The Bank of China

In the past few years, BoC has expanded its businesses in Hong Kong. In the meantime, it has implemented shareholder reform. On August 26, 2205, the Bank of China Ltd. was formally founded, setting the timetable for its IPO in the first half of 2006.

The China Construction Bank

The China Construction Bank Ltd. was formed on September 21, 2004. Its initial public offering time could be as early as this year.

The Industrial and Commercial Bank of China

Reform has been formally initiated, and the plan to raise capital is taking shape. It was reportedly to register the limited share corporation at the end of September. Currently, it is contacting American and European financial firms to negotiate how to introduce strategic foreign investments into the bank.

The Agricultural Bank of China

The Agricultural Bank of China has the highest rate of bad loans and the lowest capital adequacy ratio of all four major state banks of China. Therefore it is facing the most difficult challenge of reform in preparation for an IPO. Currently it is reorganizing its financial structure.

Although it is a relatively small bank, the Construction Bank of China will probably have no problem selling its ~US$700 million worth of shares on the Hong Kong stock market. However, expecting Hong Kong’s stock market to bring in as much as US$15 billion for shares of both the China Construction Bank (CCB) and BoC is most likely too optimistic. Instead these two banks may have to look for capital outside of Hong Kong.
The Road to Finding Strategic Investors Is Not Smooth

Because of the current condition of China’s state banks, it would be nearly impossible to go public overseas without the involvement and assistance of foreign banks. Therefore, the most important step for them to go public overseas is is to invite overseas "strategic investors." An official from China’s financial administration pointed out three things that foreign strategic investors will provide: strong capital, advanced corporate structures and management experience to run the companies, and help with elevating the quality of financial services in China’s banking industry. The last two are companions of the first, since any single foreign bank is officially prohibited from owning over 20 percent of the total shares. With such a low involvement, it would be difficult for foreign investors to be effective in the bank’s management.

Early in July of 2005, BoC tried to get underwriting for its overseas IPO by interviewing seven investment banks that are qualified to bid for the business. These investment banks include Citigroup, the Bank of Germany, Goldman Sachs, Morgan Stanley, Solomon Brothers, Merrill Lynch, and the Bank of Switzerland. It has been estimated that the IPO of BoC will raise as much as US$5 billion, which means 3 percent, or US$150 million of underwriting fees to the three or four underwriters. Experts in the investment banking industry believe that Bank of China International, Bank of Switzerland, and Goldman Sachs will likely earn most of the US$150 million of underwriting fees. As a close partner with Bank of China International, Merrill Lynch will also likely be able to share the profit.

As the second largest bank in China, BoC has over 11,000 subsidiaries and branches. Together they own 12 percent of China’s credit market, and 14 percent of residential savings. To support BoC’s reform, the Chinese government injected US$22.5 billion into it at the end of 2003 to clean up its bad loans and to prepare it for its IPO in the first quarter of 2006. Despite their competition for the underwriting rights for BoC’s IPO, none of the 11 investment banks showed any interest in becoming its "strategic investors." They even failed to keep their promise of purchasing shares prior to the IPO of China Construction Bank. Citigroup was crossed off the list of underwriters and lost about US$87 million as a result.

As a "strategic investor" this time, however, Merrill Lynch is reluctant to make public its actual investment amount. Given the rumor that Merrill Lynch will become the underwriter, one has to suspect that the intention of Merrill’s investment is to establish a good relationship for further cooperation.

From the process of RBS’s investment, it is clear how important it is for China to find this "strategic investor." Right after it made public its intention to buy shares of BoC at the end of July, RBS’s stock price dropped 5 percent. The Wall Street Journal reported that, according to people familiar with the bank, due to the resulting pressure, the management of RBS would, at its next board meeting, propose reducing the amount of its stock ownership in BoC. Based on the final investment ratio, this news seems to have proved true.
Which Banks Are Willing to Become the "Strategic Investors" in China’s State Banks?

There are two reasons that foreign investors do not want to be the shareholders of China’s state banks. One is that investors are cautious because of the lack of transparency about these banks’ financial information and various rumors about the bad loans and corruption in China’s banking industry. The other is that foreign banks can’t obtain sufficient shares for them to own the decision-making power in running the businesses.

So far there are three foreign banks that have become the "strategic investors" in China’s state banks. The most prominent among them is Bank of America, which is often interpreted in China’s reports as "United States Bank," or even mistakenly quoted as "Citigroup."

On June 17, 2005, in Beijing, CCB and Bank of America signed the final agreement of the latter’s strategic investment and collaboration with the former. Investing in CCB in multiple steps, Bank of America will eventually own 19.9 percent of the shares of CCB, which is close to the 20 percent limit that the Chinese government imposes on foreign investors in owning China’s banks. This transaction becomes the largest single investment of foreign companies in Chinese firms, which makes CCB the first of the Big Four state banks in reaching agreements with foreign strategic investors. On July 4, Singapore’s Temasek Holdings also signed a final agreement with CCB to become CCB’s second foreign strategic investor. By spending US$1 billion, Temasek bought one seat on CCB’s board of directors.

Like RBS, Bank of America does not have a lot of businesses in China. Both companies’ investment in China’s state banks is apparently an investment in relationship. Their purpose is to use their capital to gain advantage in expanding their businesses in China’s vast market, to take advantage of CCB’s existing sales channels in China in the name of collaboration, to sell various retail banking services, and to elevate their global status.

Nevertheless, experts in the industry do not expect good results from such strategic investment. Cameron Fagan, director of research at Straszheim Global Advisors in the United States, called RBS’s investment "not a strategic investment, but a relationship investment." With only 10 percent of stock ownership, RBS will hardly have any material impact on the management and reform of BoC. "To many foreign banks such as RBS, their Chinese partners remain structurally large, very inefficient, and heavily bureaucratic government branches that carry a lot of risks. With these risks, it is hard to expect normal investment returns. These are not strategic investments based on profit returns, but relationship investments to establish good connections with the Chinese government to facilitate their long-term development."
United States’ Concerns: The Wave of China’s Capital-Raising Effort May Negatively Affect the Security of the U.S. Economy

The United States, which China regards as the "heaven of capital raising," is cautious of China’s activities in the U.S. capital market. A number of China’s state-owned companies want to enter the U.S. capital market. BoC and CCB alone are planning to raise $15 billion in the U.S. capital market. To address the trend of China’s fundraising in the United States, the U.S.-China Economic and Security Review Commission (USCC) of the U.S. Congress held a hearing on August 11 to evaluate how this wave of Chinese fundraising will affect U.S. national security.

Two of the experts the committee invited have a business relationship with China. They believed that those reviewing China’s companies should not be too strict. Donald H. Straszheim, the former Chief Economist of Merrill Lynch, suggested that U.S. lawmakers should trust the ability of the market to distinguish winners and they should not create any obstacles to the IPOs of China’s state-owned firms. Having processed many IPO businesses of Chinese companies, Robert G. DeLaMater, a partner of Sullivan & Cromwell LLP, was concerned that if the United States starts to impose too high a requirement for the IPOs of foreign firms, the American capital market might lose its attractiveness.

The voice for strict review was much higher. Frank J. Gaffney Jr., the director of the Center for Security Policy in Washington, insisted that the massive IPOs of China’s state-owned institutions in the U.S. capital market would affect the national security of the United States. "I believe that it is neither in the interest of American investors nor of the country as a whole to be underwriting Communist China’s state-owned enterprises engaged in such activities as: the manufacture of intercontinental-range ballistic missiles and space-based weapons designed to blind our satellites; the proliferation of weapons of mass destruction; the suppression, in conjunction with police units and regional and national level governments, of human rights; the despoiling of the environment; the crushing of Tibetan freedom; and various business dealings with terrorist-sponsoring states," said Mr. Gaffney.

Richard D’Amato, Chairman of USCC, thinks that even from the perspective of economic interest, American investors should be cautious of the IPOs of China’s state-owned firms, "because we have just experienced the bubble burst of our stock market when millions of Americans incurred losses as a result of the bubbles of the technology shares. I don’t want to see millions of American investors trapped once again by the stock bubbles of Chinese companies." D’Amato expressed his special concern over the extent of China’s state banks’ bad loans and the opacity of its banking system. He cautioned investors to be alert for the risks of investing in Chinese companies. "As Chinese financial institutions prepare for an estimated combined US$15 billion in listings, questions need to be raised regarding the loan portfolios of these institutions. I am concerned that U.S. investors may not have sufficient information to make informed decisions about the risk of these investments. Furthermore, the possible links between listed state-run firms and banks and China’s military industrial complex has here-to-for lacked comprehensive examination."
Hearing Co-Chair Michael R. Wessel stressed concerns to the USCC about the lack of transparency of the Chinese firms.

Despite the big differences between the USCC leaders and their invited testimony experts with regard to whether to restrict Chinese firms’ listings in the U.S. equity market, the United States has at least been alerted about China’s listing strategies, as is demonstrated in the concerns raised by USCC. The swearing-in of Conservative Rep. Christopher Cox as the new chairman of the Securities and Exchange Commission (SEC) makes the Chinese government particularly uneasy. Back in 1999, Cox authored the "Cox Report" in which he accused China of stealing U.S. nuclear secrets in a planned way. He is therefore regarded in China as a "representative of the Anti-China and Anti-Communist force." As the U.S.-Sino relationship tends to be more and more distant, the nomination of Cox for the critical position on the SEC certainly has subtle implications. With Cox guarding the door of the U.S. equity market, the IPOs of the Chinese state-owned firms that have routinely deceived and robbed the Chinese equity market and are full of bad loans will surely face stricter examinations.

He Qinglian is an renowned Chinese economist currently residing in the United States as a guest researcher.

Recent Personnel Changes in China’s Military

August 1 is China’s Army Day, which is a time when new policies and personnel moves in the (Chinese) People’s Liberation Army (PLA) are announced. Rumors were swirling around for a while that there would be promotions from lieutenant generals to full rank generals, a common strategy for building military ties when a new generation of leaders gets into power. Although no such changes are reported so far, there are still quite a few PLA personnel changes at this unique time.

According to a report from Wenweipo on August 4, 2005, this year’s personnel moves involved several military regions: Langzhou, Shenyang, Nanjing; and Beijing; the moves also affected the General Staff Headquarters, General Logistics Department, and General Armament Department. Two nominations were eye catching:

1. Lieutenant General Sun Dafa, Deputy Political Commissar of Nanjing Military Region, became the Political Commissar of the General Logistics Department.

2. Zheng Baohua of Dalian Naval Vessel College is reported to have become Deputy Commander of the Navy.

This personnel move affected Shenyang Military Region the most. Shenyang Military Region Political Department Director Pan Ruiji succeeded the retiring Zhou Yongshun to become the Deputy Political Commissar of the Region. Pan’s old job was filled by Major General Zhang Tiejian, previously Director of the Political Department of a Group Army of the Shenyang Military Region and subsequently promoted to Director of Organization under the General Political Department. The former President of the Dalian Army Academy, Major General Gao Fenglou, was promoted to become Deputy Chief of Staff of the Shenyang Military Region. Wang Zixin, a staff member at Shenyang Military Region Headquarters, became Chief of Staff in the Liaoning Province Military Region.

In the Lanzhou Military Region, Major General Chang Guixiang, former Ningxia Province Military Region Commander, was recently moved to become Deputy Chief of Staff of the Lanzhou Military Region. Xinjiang Military Region Chief of Staff Major General Zhang Shiming was promoted to Deputy Commander of the Xinjiang Military Region. Zhang’s predecessor, former Deputy Commander Major General Li Xinguang, has become Deputy Commander of Xinjiang Production and Construction Corp.

The Beijing Military Region also has some minor changes. Major General Zheng Qin, Deputy Chief of the Staff of Beijing Military Region, was moved to become commander of a Group Army. General Zheng is the son of former Commander of the Beijing Military Region Lieutenant General Zheng Weishan. General Zheng’s predecessor, Feng Zhaoju, has become Director of the Armament Department for the Beijing Military Region.
In mid-July, Lieutenant General Sun Dafa, Deputy Political Commissar of the Nanjing Military Region, will become the Political Commissar of the General Logistics Department. But his name has not appeared as yet on the Chinese military’s official website "Leaders in four General Departments." But General Sun has made his inaugural appearance in a group activity by the General Logistic Department just before August 1.

Major General Zhang Chi was promoted to become Director of the Electronics Division in the General Armament Department.

In the General Staff Headquarters, Major General Qi Jianguo, former Commander of a Group Army, has become Director of the Combat Department. Former Director of the Electronic Division in the General Armament Department, Major General Yu Ancheng, has retired. Major General Zhang Chi succeeded General Yu. Prior to his current position, General Zhang was the Director of Foreign Affairs in the General Armament Department. Before that job, he was Deputy Director of Planning in the General Armament Department.

In the Navy, the Deputy Commander of the Navy and the Director of the Navy Armament Department, Jin Mao, recently retired. Zheng Baohua of the Dalian Naval Vessel College was promoted to Deputy Commander of the Navy. Zheng Baohua was born in 1948 in Fengnan County, Hebei Province; his status is at Army Commander rank; he is a Navy Major General. Major General Hou Jian, former Political Commissar of Zhanjiang Secure Navy Base, was promoted to Director of the Political Department for the South China Sea Fleet.

Lily Qu is a correspondent for Chinascope.

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