Not a day goes by without a glittering news report about China’s attractiveness to foreign investment. China is always eager to harp on its favorable investment climate, and many foreign investors are reinforcing this idea. However, whether foreign investors can truly profit in China remains a big question mark.

At the Fortune Global Forum held in Beijing on May 18, China’s Minister of Commerce Bo Xilai enumerated the achievements of profitability by foreign investors in China, and claimed that out of the 280,000 enterprises with foreign investment, two-thirds of them are profitable. Bo cited a 2004 survey by the American Chamber of Commerce in China: three-quarters of the American firms in China surveyed are profitable, with 42 percent reporting higher profit margins in China compared with the rest of the world. In particular, Bo indicated that the profits of Germany’s Volkswagen joint venture in China accounted for one quarter of Volkswagen’s total profits.

Recently the Chinese version of Fortune magazine published the "2005 Survey of Foreign Investments in China." Once again, it stressed, "Doing business in China is not as unprofitable as rumors may indicate. Another result of our survey indicates that by expanding their existing businesses or establishing their new businesses in China, 56 percent of foreign businessmen believe that they can be profitable within three years, and 90 percent think it is achievable within five years."

However, is the picture so rosy? As a matter of fact, foreign capital flowing into China is near the turning point of a declining curve.

Half of the Foreign Investments Have Been Withdrawn, with Barely More than Half of the Remaining Firms Profitable

The fervent official portrayal of high profitability of foreign investments in China is a warning sign in and of itself. In his report, Mr. Bo omitted two important facts: 1. The retreat of foreign capital in China as a result of investment losses accounts for half of the total foreign investments in China; 2. Out of the remaining half million firms in China with foreign investments, about 220,000 are currently not operational.

These are considered "state secrets" by China, so how did they get leaked? It turns out to be a coincidence. Last year, a fight among high-level officials took place with regard to merging the tax codes of Chinese and foreign enterprises. The State Development and Reform Committee indicated in a report that there is currently so much foreign investment in China that it is threatening the domestic economy. As a result, they proposed to eliminate tax benefits for foreign investors. To counter that, the officials of the Ministry of Commerce in charge of foreign investments disclosed the following data in December of 2004: The foreign investments in China that had been actually used, totaled US$559.023 billion, with nearly half of those funds already withdrawn from China; and 504,568 foreign companies have registered in China, though less than two-thirds of them were actually operational.
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Huang Hai, the Assistant to the Minister of Commerce who disclosed the data, said publicly that because of the lack of statistical data in China for direct foreign investments, the widely used metric of "cumulative actual usage of foreign investments" does not reflect the termination of the operations of foreign enterprises or the retreat of foreign capital. So, as of the end of 2004, the net usage of foreign investments was approximately US$250 billion, which was only about half of the US$501.4 billion—the cumulative usage of foreign investments. [1]

So how is the profitability of these foreign enterprises? The data tells the story.

In July of 2004, Su Xiaolu, an anti-tax-evasion official at the State Bureau General of Taxation of China, publicly disclosed that 55 percent of the foreign enterprises reported losses, although he believed that many of them tried to avoid taxes by doing so. [2]

The local statistics also demonstrate that the profitability of foreign investments in China is not that good either. According to a survey of 696 major foreign enterprises in Guangdong Province, by the provincial Bureau of Statistics, over half of the enterprises on the east and west side of Guangdong and in the northern mountain area had suffered losses. [3]

For the sake of convenience, let me summarize the above statistics:

• As of the end of 2004, US$501.4 billion of foreign investment had flowed into China, with half of it already retreated. The net investment is actually US$250 billion.

• Currently there are 504,500 foreign enterprises registered in China, with approximately 280,000 being actually operational. In addition, only two-thirds of the operational foreign firms are profitable.

So can China still be called the "Land of Fortune" for foreign investments?

It is not exactly true that foreign investors are unaware of the truth. In a February 17, 2005, article published in the Financial Times, entitled "China: the Land of Fortune or Tomb for Foreign Investors?" Geoff Dyer enumerated the data that contradicted Mr. Bo’s conclusion: In 2003, the 1.3 billion people of China provided US$4.4 billion in profit for American firms in China, while the 19 million people in Australia helped American firms to pocket US$4.9 billion, and the 95 million people of Mexico provided US$5.75 billion to American firms.
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China Is Facing the Second Wave of Foreign Investment Retreat

Currently there are flows of foreign investments both into and out of China. In April of 2005, a number of international giants such as General Electric, Alstom, and Siemens retreated from the Chinese market. If the wave of retreat of foreign investment in China’s power industry between 2000 and 2001 is called the first wave, the current one can be named the "second wave of retreat." [4]

Peak Pacific (China) Investment Ltd., a foreign enterprise in China, is ranked No.5 in China’s power industry. It is mostly owned by U.S. company Alliant Energy Corporation. As of the end of 2004, this company has invested US$247.28 million in the seven thermo-electric power plants that have a capacity of 400,000 kilowatts. In 2004, four out of the seven power plants of Peak Pacific in China suffered a loss, while the remaining three plants had meager profits. Overall, the company will report a loss.

Siemens also acknowledged at the end of 2004 that together with a German company called HAW—a subsidiary of Sweden’s Vattenfall, it had sold 40 percent of the stock ownership of the Hanfeng Power Plant of Hebei Province.

For the power plants in China that received foreign investment, 2004 was a year of loss, or a barely profitable year. Currently the remaining foreign investment in China’s power industry totals US$14.86 billion. It is questionable if they can still survive in China. The retreat of many of the investments in China is the result of foreign companies wishing to cut their losses.

The automobile industry is another area that foreign investors have had a hard time with in the Chinese market. As Goldman Sachs predicts, the future of Volkswagen in China is not pretty, with a possible loss of 400 million Euros—the biggest loss in the company’s history. While the performance of Volkswagen in the U.S. and European markets is depressed, the company has been on the declining trend in China, an important strategic overseas market for Volkswagen, as a result of its strategic missteps in its products. Since Volkswagen’s auto sales in China peaked at 690,000 in 2003, this number slipped to 640,000. More importantly, Volkswagen’s profits in China have been declining rapidly. According to the Financial Times, in the first quarter of 2005, Volkswagen’s businesses in China were stuck in operational loss. The company is currently striving to keep themselves from a loss on a yearly basis. As Volkswagen’s CFO pointed out, in the very competitive Chinese market, there are still risks in inventory and pricing. The profitability of Volkswagen’s two joint ventures in China has rapidly changed from the 106 million Euros of profit a year earlier to the 17 million Euros of loss in the first quarter of 2005. In response to such rapid deterioration, Volkswagen is being forced to shuffle their top management in China. [5] It appears that the Chinese Minister of Commerce’s report at the Fortune Global Forum in May was either highly inflated or had grafted Volkswagen’s 2003 profit number to the current one.
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How Much "Cost Advantage" Does China Still Have?

The major reason for China’s attractiveness to foreign investments is its cheap labor and low cost of land and rental properties. In addition, the yuan, the undervalued Chinese currency, also makes it possible for cheap Chinese products to compete in the world market.

Since last year, however, China’s advantages have been challenged. Some foreign businessmen complained that in the past ten years, the three categories of costs including operational, management, and external costs have been too high. This has depressed their business development in China, and negatively affected even the foreign businesses in the special economic zones, where foreign businesses enjoy various tax breaks.

The operational costs certainly rise along with the rise of the cost of energy and raw materials. While the import expenses of these two key manufacturing elements are far higher than the cost of land or labor, China’s reliance on the import of energy and raw materials continues to accelerate. As the cost rises, the over-capacity, the lowering of the barrier for imports, and the official stance of high tolerance for widespread low-return investments in China continue to squeeze the profit margin. As many foreign manufacturers estimated, the domestic manufacturers in China spend a lot more on energy and raw materials than their counterparts in other countries, because they have to bear the shipping costs, the import tariffs, and the 17 percent value-added tax.

The most painful problem facing foreign investors in China comes from the overly high management costs as a result of government behavior. Because of the uncertainty of government policies in the eyes of businessmen, many foreign companies are forced to spend a lot of money to lobby the Chinese government. In addition, taxation and other miscellaneous fees by the government are never transparent, which makes it harder for foreign businesses to adapt or predict. In terms of "external costs," protecting intellectual property is one good example. In the past few years, the United States has had more complaints over the breaching of intellectual property than any other and has been forced to spend the most energy and capital. In spite of tremendous efforts, they have still not solved the problem of intellectual property violations by Chinese companies.

These various problems have made the competitive advantage in investing in China a mirage. While China proudly enumerates the annual foreign investments, they are actually in decline.
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Foreign Investors Begin to Wait and See

On June 13, the Ministry of Commerce of China disclosed that both the number of foreign invested enterprises and the actual dollar amount of foreign investments declined. Between January and May, 16,437 new foreign companies were approved, a 4.75 percent drop from the same period last year; contractual foreign investments totaled US$64.971 billion, a 14.88 percent increase from the same period last year; the actual usage of foreign capital, however, was US$22.366 billion, a 0.79 percent drop from last year. [6]

The trend is also reflected in another major example. At the beginning of this year, Jiangsu Province, the Chinese province with the highest level of foreign investment, saw a slight decline in this area as compared to the year before.

From January to November of 2004, there were US$34.591 billion of foreign investments contractually registered in Jiangsu Province, an increase of 31.17 percent from that of 2003. However, only US$10.172 billion actually registered, reflecting a 1.65 percent increase from the same period in 2003.

Despite the No.1 position that it still maintains in attracting foreign investments, Jiangsu Province witnessed a dramatic decline in the growth of foreign capital inflow. What worries the government of Jiangsu the most is: while the actual utilization of foreign investments totaled US$15.8 billion in 2003, that number dropped to US$10.172 billion during the first eleven months of 2004. In order to keep up with the 2003 number on an annual basis, it needs US$5.6 billion more of tangible foreign investments in the last month of 2004. This is almost impossible. To put it another way, the absolute value of foreign investments that arrived in 2004 actually declined tremendously. No matter how the government of Jiangsu explained the gap, the drop in the inflow of foreign capital is an undisputable fact. [7]

Out of the foreign investment in China, a high proportion is speculative investment. Three agreements have been signed recently between the Chinese and U.S. governments, which will have a profound impact on the flow of speculative investments into China.

The two official documents on the Chinese side include:

1. The No. 11 Document, or "Notices regarding perfecting the administration of foreign investors purchasing foreign currencies," published on January 24, 2005, by the Bureau of Foreign Currency Administration. The main purpose of the document lies in preventing capital from leaving China.
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2. The No. 29 document, titled "Notices on registration of overseas investments by Chinese residents and of foreign investors purchasing foreign currencies in China," was issued on April 8 by the central government because the No. 11 document was not detailed enough and too hard to enforce. In the eyes of international venture capital investors, this document signals a trend of policies to tighten the capital markets.

The two official documents have the same goal, namely, to make it harder for speculative investments to exit.

The "Homeland Investment Act" initiated by the U.S. government back in October of 2003 became effective on May 1, 2004. This act dramatically lowered the income tax of overseas profit by American firms from 35 percent to 5.25 percent within a one-year period, provided that the overseas income is re-invested back to the U.S. According to Morgan Stanley, this will bring over US$400 billion back into the U.S.

It is said that after being broadly impacted by the No. 11 and No. 29 documents, speculative investments are currently stalled. According to people familiar with the industry, the ultimate goal of the speculative investments is to profit from the potential initial public offering (IPO) or the Merger and Acquisition (M&A) of the invested companies in the international markets. Such investments rely on a mechanism of utilizing foreign capital and safely exiting in the overseas markets.

The operational model of speculative investments is described as follows: First invest in a domestic company in China; register an offshore holding company at British Virgin Islands (BVI) in the name of a subsidiary; then let the holding company purchase the operating company in China, and finally push it to the IPO market by the well-financed holding company. For such investments to succeed, the exit channel is critical. Without the exit channel such as IPO or M&A, speculative capital will not flow in at nearly the same rate.

As indicated in the "2004 Investigation and Analysis of the Speculative Capital Industry in China," out of 123 venture capital investments that exited in 2004, 40 percent or 49 investments exited in the form of purchasing domestic firms, while only 3 percent, or four projects, exited in the form of IPO. In 2004, speculative capital in China totaled US$43.9 billion, an increase of 34.93 percent over those of 2003. 8

With both exit routes blocked, the venture capital investments are stalled. This is certainly not the original intent of the two official documents, but they have indeed negatively affected how Chinese firms can be capitalized in the overseas markets.
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Based on the above analysis, the trend is clear: The frenzy in China is fading. Many managers in the investment banking industry admit that the global interest in the IPOs of Chinese companies is declining, and the investment funds are shifting to other markets. The decline of the direct foreign investments in Jiangsu Province and the retreat of foreign investments in the manufacturing sectors are only the beginning of this wave of retreat.

Footnotes:
[1] "Local governments need foreign investment, suspension of the merger of two taxation system," http://finance.sina.com.cn, December 18, 2004
[2] "Foreign companies evade taxes of 30 billion Yuan every year," Global Times, July 7, 2004
[3] "Half of foreign companies in the east and west side of Guangdong and its northern mountain area have losses," Private Economy, May 25, 2005
[4] "Hundreds of billions Yuan of foreign capital retreats, the cause of second wave of retreat," http://finance.sina.com.cn, May 13, 2005
[5] http://www.ouline.com/business/story.php4?story_id=6968
[6] Ke Zhixiong, "Dramatic drop of foreign investment, understand the reasons behind the retreat of foreign investment," 21 Century Economic Report, June 15, 2005
[7] "Will Latin America phenomena appear in South Jiangsu and Guangdong," http://www.sina.com.cn January 12, 2005
[8] "International speculative capital starts to wait and see", http://www.eobserver.com.cn/

Mrs. He Qinglian is a prominent economist and journalist from China.

[Editor’s note: Chinese General Zhu Chenghu’s statement that China would launch a nuclear war against the United States on conflict over Taiwan on July 15, 2005, sent a shockwave to the whole world. Although Zhu’s claim is the first of its kind in public, he is not alone in voicing such a threat. Two transcripts of a top Chinese military official’s speeches published on Chinese websites prior to Zhu’s public statement echoed the same view. The two related speeches, “The War Is Approaching Us” and “The War Is Not Far from Us and Is the Midwife of the Chinese Century,” were believed to be given by Chi Haotian, former Vice Chairman of China’s Central Military Committee and Defense Minister. The speeches argued for the necessity of a biological and nuclear war to destroy Japan and cripple the United States and prepare it for a future massive Chinese colonization.

Independently verifying the authorship of the speech is not possible. However, it is worth reading because it indeed represents the general mentality of the military officials in the hawkish camp in China and is believed to set out the CCP’s strategy for the development of China.

“The War Is Approaching Us” was first posted in January 2003 on websites such as www.mwjx.com and then on www.chinaren.com on October 11. It was most recently published on April 23, 2005, on www.boxun.com. “The War Is Not Far from Us and Is the Midwife of the Chinese Century” was published on February 15, 2005, on www.peacehall.com. Below are the transcripts of the two speeches by Chi Haotian.]

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Mr. Chen Yonglin met us for coffee in a suburban hotel outside of Washington, D.C. "Now I don’t have to worry about being sent back to China," he told us. Chen is a former Chinese diplomat who recently defected to Australia. This Chinese insider caused an uproar in the Australian media when he exposed the extensive Chinese spy network in Australia and the Australian administration’s policy of appeasing China. The Chinese communist regime was so angry at being exposed that it sent a hit squad to Australia to assassinate him. He was here in Washington to testify before a House of Representatives International Relations Subcommittee hearing on Human Rights. Chen shared with Chinascope his inner struggle as a Chinese diplomat and the reason why he decided to leave his post and his country.

From a Red Diplomat to a Defector

Growing Up Under the Red Flag

Like most of those who were born in the 1960s in China, Chen had a simple life trajectory. In 1968, he was born into an intellectual family in Zhejiang Province. Scoring high in the national college-entrance exam, he was admitted in 1985 to the China University of Foreign Affairs. He graduated in 1991 with a double bachelor’s degree in Foreign Affairs and in English. In his 14-year diplomatic career in the Ministry of Foreign Affairs, he worked on political analysis and twice went on a mission to Australia. Before defecting to Australia last May, he was the First Secretary and Consul for Political Affairs in the Chinese Consulate General in Sydney.

Chen grew up during the Cultural Revolution, a period of chaos and tragedy that the Chinese Communist Party (CCP) and its leader Mao Zedong brought upon China. In 1966 Chairman Mao, out of his need to solidify his power and forever change China, started the Cultural Revolution that brought the Chinese populace into revolutionary, feverish, political struggles. Law and order were trampled in Chen’s hometown, just like everywhere else in China. His father, a graduate from the elite Tsinghua University, was put in a vocational home in 1971. Later, when the village leaders brought cases against some villagers, the villagers asked him to write out their appeals. When he did, the village leaders arrested him and tortured him to death. Chen was only three years old when his father died. His brother was five and his sister was two. His mother earned 24 yuan (~US$3.00) per month as an elementary school teacher in the village, and the family of four could barely survive. The tragic death of his father cast a shadow on Chen; it made him study harder and think more deeply.
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In Beijing Foreign Affairs College

Upon entering the University of Foreign Affairs in 1985, at the age of 15, Chen began to read Western philosophy books. China’s economic reform at the time led to an intellectual opening to the West. Non-communist books and ideas became selectively available in the universities and pro-democratic thinking was gaining support among students. At that point, he realized the cause of his father’s tragic death: It was not just due to a few bad individuals; it was caused by the inhumane political system itself.

The pro-democratic student movement in 1989 marked Chen’s life. He was a fourth-year student at the University of Foreign Affairs in Beijing. He was also interning at NBC and guided its camera crew. One day, he saw a Western reporter jot down, "Communism is on the brink of collapse." Chen could not believe the prediction. The communist system had been the only political system he knew throughout his life. He couldn’t imagine any other political system emerging. Like many students, the life-long communist brainwashing shackled Chen’s mind. However, the Communist Bloc in Eastern Europe did indeed collapse within a few months, and Chen came to admire that Western journalist’s foresight. Chen believes that the journalist’s prediction is finally coming true in China; he thinks that the CCP is falling apart.

Like most of his classmates, in June 1989, Chen witnessed the People’s Liberation Army shooting the peaceful protestors and bystanders. He saw the bloody crackdown on the night of June 3 in Beijing. The PLA shot three students from the University of Foreign Affairs, severely wounding one. Afterward, the government denied that the PLA ever opened fire on the students. Instead they labeled the student movement a "riot." In order to get their graduation certificates from the University, Chen and his classmates had to write letters saying they regretted their participation in the Tiananmen Square uprising.

A Diplomat’s Contradiction

After graduation, Chen became a staff member in the Ministry of Foreign Affairs (MFA). It appeared he was a lucky man with a good future. Working in the government guaranteed him a decent salary and a chance to travel on missions to foreign countries. He was the envy of his peers. During the years of his mission to Fiji and later to Australia, he researched local political affairs and followed major elections in Oceanic countries. His research enabled him to make pretty accurate predictions. Although his future as a young diplomat looked bright, Chen found his life depressing.

First, freedom of thought is not allowed in the MFA. The Ministry tells its staff that even regarding trivial matters the diplomats have no right to decide anything. They have to seek instruction from the central leaders. The Ministry has a motto, "Nothing is trivial in foreign affairs." In the name of national interest, low-level personnel must act as mindless machines in the government apparatus.
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Second, distrust is the rule in the MFA. The MFA required all new staff members to participate in "political study" sessions for a year. Such long-term brainwashing was used on them because they were the "Tiananmen generation," the students who experienced the 1989 student movement. Actually, the MFA’s distrust of its own staff goes beyond the Tiananmen generation. Inside the Chinese foreign mission, every ordinary staff member is treated with suspicion. They have to live together in the dorms inside the Chinese mission. The senior staff randomly and arbitrarily searches their personal mail. At least two people must go together when attending any outside functions so that they can monitor each other. It is forbidden to make personal friends outside the Chinese Consulate. When a staff member goes outside the Consulate, he must first get approval from his supervisor and afterward he must report whom he has met.

Third, the performance of assignments may mean working against your own conscience. Chen’s promotion to the First Secretary for Political Affairs in the Consulate General in Sydney put him into a position where he often had to act against his conscience. He eventually realized that he had to defect in order to be true to himself and to secure his family’s safety.

In Charge of Suppressing Falun Gong

Chen reported to his new post in 2001. At that time, one of the central tasks in Chinese "political affairs" was the suppression of Falun Gong. Falun Gong is a form of personal cultivation, or qi-gong practice for mind and body that has its roots in traditional Chinese culture. It was the most popular qi-gong practice in the 1990s and many Chinese could be seen doing the exercises in the early morning. Because Falun Gong attained great popularity, however, in July 1999, the Chinese government decided to eliminate it. By 2001, by resorting to a variety of means including firing practitioners from their jobs, expelling them from school or subjecting them to detention, prison, brainwashing, and even torture and killing, the Chinese government severely abated Falun Gong practitioners’ protests in China. Outside of China, however, Falun Gong practitioners in many countries openly protested the persecution. Their public protests drew attention to China’s human rights violations and won international sympathy for the group. Consequently, the Chinese government ordered its diplomatic missions to make the suppression of overseas Falun Gong activities a top priority. Chen was assigned to take charge of the "struggle with Falun Gong" in the Consulate General.

Before he left for Australia, Chen was not familiar with Falun Gong and did not pay much attention to the persecution. People of his age had seen many political struggles and had become "numb." In a short time, his new assignment made him understand Falun Gong and the persecution very well.
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The department of Political Affairs in the Consulate General has the primary responsibility for monitoring Falun Gong and for coordinating with other departments in the Consulate. This monitoring is not limited to searching the Internet and reading newspapers. It also includes attending the Falun Gong activities to collect their handouts and to take pictures of the participating practitioners. The Political Affairs department was able to get a state-paid vehicle assigned to its division so that it could follow Falun Gong practitioners, which it did frequently. As part of his duties, Chen regularly compiled the information on Falun Gong collected by the Consulate and sent a report to the MFA in Beijing. In his contacts with Falun Gong practitioners, Chen gradually found out that these practitioners were in fact nice individuals who should not be labeled as "state enemies."

The Ministry of Foreign Affairs set up an Office of the Falun Gong Issue. It operates under the "610 Office" an agency so named because it was formed on June 10, 1999. The Chinese government vested the "610 Office" with absolute power over each level of administration in the Party and over all other political and judiciary systems in order to persecute Falun Gong. "The Central 610 Office" apparently has other channels to spy on Falun Gong. Chen regularly received briefs from the MFA on overseas activities of Falun Gong, including things happening in Australia. The central government created a database containing information on overseas Falun Gong practitioners. The Chinese consulates have access to the database for the purpose of identifying Falun Gong practitioners as well as dissidents and others it wants to monitor. This database is known as the "blacklist" inside the circle. When a person goes to the Chinese Consulate to apply for an entry visa or, in the case of a Chinese citizen, to apply for a passport renewal, his or her name will be searched in the database. If the person’s name appears on the blacklist, his case will be "specially treated." If a Falun Gong practitioner applies for a visa application or passport renewal, he or she will be interviewed and persuaded to give up practicing Falun Gong. He or she has to show evidence of being persuaded by submitting a written "guarantee" to the Consulate. If the applicant refuses to comply, then the visa application or passport renewal will be rejected.

Chen explained his experience with Falun Gong, saying, "I found two characteristics in those Falun Gong practitioners: one is honesty, the other is kindness. When I ask someone if he is a Falun Gong practitioner, it’s very easy to know the answer. A practitioner either will admit it or will simply keep silent, but he will not tell a lie. Taking advantage of their honesty, the Consulate can easily identify them from all the other applicants coming to the visa office, and put their names in a database. We call it the blacklist. The Consulate has a policy toward the practitioners. If they come to renew their passport, we confiscate it. Unless they agree to write a ‘guarantee’ to renounce Falun Gong, we do not give it back, in order to make their lives more difficult. Normally most Chinese will not hesitate to write such a non-binding statement just to get things done with the Consulate, but Falun Gong practitioners are different. They will not betray their conscience."
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Chen gradually changed his attitude toward Falun Gong practitioners, but at the same time he had to work on the assignment to suppress that same group of nice people. Chen saw a conflict between his career and his conscience.

Besides the "blacklist" that was centrally compiled and maintained by the Ministries of State Security and Public Security, each overseas consulate also created its internal blacklist of local Falun Gong practitioners. The difference between the two types of blacklists is how detailed and how accurate the information is. When sufficient information about a practitioner is reported to the State Security and Public Security Ministries, his or her information, including name, date of birth, passport number, address, and other personal information, is entered into the central blacklist. That central blacklist is accessible to all Chinese embassies and consulates around the world and to border checks in mainland China. The case will be immediately red-flagged if a person on that blacklist applies for entry to China.

The embassies and consulates in respective countries maintain their own local lists, which are normally not shared with other offices. Those local blacklists contain only incomplete information about the suspected Falun Gong practitioners. The Consulate needs to further complete the information. When Chen first arrived in Sydney, the Consulate’s blacklist had over 800 names of Falun Gong practitioners. Many of the entries contained just a name, and it was expected that Chen would complete the records. His conscience, however, led him to do the opposite.

Out of his sympathy for the practitioners and his discontent toward the persecution, Chen started to remove names from the internal blacklist. By the time Chen left his post, he had shrunk the blacklist to about 120 names. Chen’s successor planned to arrive in Sydney in early June and Chen would have to hand his files over to her. Chen realized that eventually the MFA would find out what he did to the blacklist. The Chinese communist government does not tolerate sympathy toward Falun Gong within its ranks. There had been reports that some government officials who helped Falun Gong practitioners ended up in forced labor camps.

Six Weeks of Hiding and Anxiety

Filled with fear and despair, Chen walked away from the Consulate General in Sydney on May 26 and asked the Australian government for asylum. Thus started his difficult path of breaking from the Chinese communist regime.
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Chen later publicly acknowledged that, "To break with the communist regime is the most joyful choice of my life and yet the most difficult to make." However, within 24 hours, the Australian government rejected his application for political asylum. Chen knew that some officials inside the Australian government were eager to appease the Chinese government. Yet he had confidence that, in a democratic system, human rights would not be traded for business. The reality however was disappointing.

Chen found out on May 26 that the Australian government informed the Chinese Consulate about his seeking protection. The immigration officials actually contacted the Chinese Consulate to "check identity." Chen believed that action put him in danger and he immediately went into hiding. On May 31, 2005, Chen met with an official from the Australian Department of Foreign Affairs and Trade (DFAT). He was told that his application for political asylum had been refused, but he could apply for a refugee protection visa instead. These Australian officials repeatedly told Chen that people at the Chinese Consulate were worried about him. They urged him to consider going back.

The refugee protection visa normally takes months to process. It appeared to Chen that it was a way for DFAT to win the Chinese Consulate time to get Chen back. It was later confirmed in an Australian Senate inquiry that the decision to reject Chen’s asylum application came from the Foreign Affairs Minister Alexander Downer. In addition, Downer told Parliament that he had spoken to the Chinese ambassador, Fu Ying, about the matter before Chen went public.

Chen went to the public for help. On June 4, 2005, he showed up at a public rally in Sydney commemorating the Tiananmen Square Massacre of 1989. Chen made a speech at the rally, announcing that he had left the Chinese Consulate and was seeking political asylum because he detested the Chinese government’s violation of human rights, and because he sympathized with the Falun Gong practitioners under persecution. He expressed fear for his life, as he was facing the risk of being sent back to China and jailed. Chen told reporters that he had discovered that Chinese agents were searching for him.

Chen also disclosed to the public that there were about 1,000 Chinese secret agents and informants in Australia, and that agents from China had committed acts of kidnapping on Australian soil. At the rally, Chen also saw faces from the Consulate.

On the same day, Chen submitted a public statement to the Chinese-language newspaper The Epoch Times‘ "Quitting the CCP" website to formally renounce his membership in the Chinese Communist Party.
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Chen’s story drew a lot of public attention. While Chen and his family continued to stay in hiding, Australians questioned whether their government sold out his human rights to the Chinese government. The Australian parliament became very concerned, holding inquiries and hearings to determine whether the administration handled Chen’s asylum case properly. At the same time, the Chinese Embassy tried hard to do damage control, both in the public media and behind closed doors, to discredit Chen and to make a deal with the Australian officials for Chen’s return. A former colleague of Chen’s from the Consulate told him that Chinese authorities were "100 percent sure" that they would be able to take him back to China.

Fortunately for Chen, the Australian media intensively covered Chen’s stories. They scrutinized what seemed to be suspicious dealings between the Australian and the Chinese governments. One security expert told Australia’s media that the administration’s handling of Chen’s asylum was a "monumental bungling, or there’s something more sinister." Chen’s case soon became a hot potato for both governments. Then, on July 8, Australia granted a permanent protection visa to Chen and his family. Six weeks previously, his asylum application was almost instantaneously rejected. Thanks to the publicity, the 24 hours it took for approval of his protection visa was one of the quickest in Australia’s history. Chen was relieved when he finally got the protection. He can now look to the future for a new life of freedom.

Communist China’s Strategy for Australia

In recent years, people have noticed a number of incidents of the Australian administration appearing to sell out human rights principles in order to appease the Chinese communist leaders:

From March 2002 to June 2005, Foreign Minster Downer issued 38 certificates in succession to prevent protesting Falun Gong practitioners from using banners and amplified music in front of the Chinese Embassy in Canberra. On June 8, 2005, practitioners filed a lawsuit against Downer in the Australian Capital Territory’s Supreme Court in Canberra, seeking an injunction to stop the ban.

In July 2004, political dissident Yuan Hongbing, the dean of a Chinese law school, and his assistant Ms. Zhao Jing applied for asylum when they arrived in Australia on an official tour. It was right before the Chinese foreign minister, Tang Jiaxuan, was to visit Australia. The Australian government, in an apparent act of appeasement, rejected Ms. Zhao’s asylum application in less than a week, leaving overseas Chinese dissidents stunned.
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In May 2005, almost 50 Chinese refugee applicants held in Australian immigration detention centers were put in isolation for up to two and a half weeks and interrogated by officials of the Chinese government. According to the Asylum Seeker Resource Center, "Basically, the Chinese officials were given carte blanche to interview anyone who was Chinese. That included those who were seeking asylum from the Chinese government. It’s unbelievable that the Australian government allowed their potential persecutors to interrogate them and get their details, including those of their families and children."

Chen knows the inside stories.

"Turn Australia into a Second France"

"China seeks to make Australia part of its ‘great border zone,’" Chen said. "They want to turn Australia into a second France that will not side with the United States."

In February of 2005, Zhou Wenzhong, the Chinese Vice Minister of Foreign Affairs at that time and now Beijing’s ambassador to Washington, held a meeting at the Chinese Embassy in Australia with the ambassadors and consul-generals to Australia and New Zealand, and consuls in charge of political affairs. Chen attended that meeting.

"The main focus was how to implement the decision that was made during the 10th Meeting of the Chinese Envoys in Foreign Counties held in mid-August of 2004, at the suggestion of Hu Jintao, to make Australia part of the ‘Great Border Zone’ of China. All the consulates were asked to present their view and ideas for the next step," said Chen.

During the meeting, Zhou Wenzhong shared information about the CCP central government’s strategic plan for Australia and the United States, worrying about the close ties between these two democratic countries. The Central Committee was determined to break the military alliance between them and turn Australia into a second France. Chen explained, "They hope to shape Australia into a country that dares to say, ‘No’ to the United States." He claimed that it was all part of Communist China’s global strategy.

The paramount Chinese communist leader Deng Xiaoping laid out a strategy for China: "Hide our capabilities, and bide our time." The communist regime, after 30 years of class struggle from 1949 to 1979, brought China to the brink of economic collapse. Deng wisely figured out that in order to save the regime it must halt political struggles and make economic development its top priority. The Chinese communist leaders fully believe that "sooner or later there will be an inevitable war between the United States and Communist China." The Party leadership recognizes the need to "bide time" to modernize and prepare China for that "inevitable" battle. According to Chen, "The Chinese Communist Party considers the United States to be its largest enemy, the major strategic rival." He pointed out how important it is to understand this U.S. factor in analyzing China’s diplomacy.
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By the end of the 20th century, China declared it had reached a milestone in its economic development: China became a well-off society. The CCP started to look to its next goal: By 2020, before the Party’s 100th birthday, China should be able to contend with the United States in overall strength. According to the CCP’s calculations, China will dominate the Asian and Pacific region, while Europe will continue forming its own union and move further away from the Atlantic Alliance; the United States will continue to dominate North and Central America. If things go this way, China will arise as a regional superpower within two decades. Australia is not within those regional blocks, but its abundant natural resources and strategic South Pacific location is very attractive to the ambitious CCP leaders, and the U.S.-Australia military alliance agreement is a concern for the Chinese invasion of Taiwan.

The Hot Sweet Business Deals

In 2002, China sensed that Australia was rethinking its business trade strategy, planning to give up ties with Asia in favor of stronger ties with the United States. At that time, the free trade negotiations between Australia and the United States were at a high point. Australia had high hopes of being included in the North America Free Trade Agreement. At the same time, Australia was bidding for a large deal with Guangdong Province in China.

The Chinese government sent its foreign minister Tang Jiaxuan to Australia in March 2002 to find out how China could be more attractive to Australia. In August, a few months after Tang’s visit, surprising news was published: China awarded a multi-billion-dollar contract to Australian consortiums to supply liquefied natural gas (LNG) to Guangdong Province for over 25 years. The contract, which was worth US$13.5 billion, had been open for bid for some time. Many analysts believed that the Indonesian company would win the contract. Out of its intention to win over Australia, the Chinese central government made sure the contract was awarded to Australia. To console Indonesia, it then offered an alternative not previously on the negotiation table.

Following that sweet treat, the Australian government became eager to promote business relations with China. According to a People’s Daily report, the overall annual trade value between the two countries has doubled in two years, reaching AUS$20.5 billion in 2004. Different from China-U.S. trade where China enjoys a big trade surplus, China imports more from Australia than it exports. Australia became a major metal supplier for China. Of all of the wheat China imports, the largest amount is from Australia. Close to 300,000 Chinese visited Australia on business travel between 2003 and 2004, and 163,000 more went as private tourists. Some Australian analysts estimate that up to 30 percent of Australia’s economic growth is due to increased export to China. At the same time, Chinese companies, many of which are state controlled, have started to invest directly in the Australian mining and energy industries. According to Chen, China is eager to get access to all of the mines in Australia.
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The Human Rights Sacrifice

The sweet deals from China came at a price. The first thing that the Australian government had to do was to sacrifice human rights.

During his visit in March 2002, Chinese Foreign Minister Tang Jaixuan raised questions on certain issues, including Falun Gong. The Australian officials responded eagerly. On the day before Tang arrived in Canberra, Alexander Downer, the Australian Minister for Foreign Affairs, signed an article banning Falun Gong practitioners from setting up signs and banners or using loud speakers to protest in front of the Chinese Embassy. "His move made the Chinese leadership very happy," noticed Chen.

In 2002, China held a 30-year anniversary celebration of the diplomatic relations between Australia and Communist China. The Chinese government sent many groups to Australia to promote Chinese culture and political ideology. Australia became a favored destination for high-level Chinese officials. It was understood that the host government would protect the "dignity of their mission."

"When Hu Jintao visited Australia in 2003, he received unprecedented protection in Canberra," said Chen. "Bob Brown, a Congressman with the opposition party Greens, was not allowed to enter the building where Congress was being held. The idea was to stop dissidents and Falun Gong practitioners from attending as the Congressman’s guests. Hu Jintao was delighted and commented to his staff that this was a sign that the Australian government could be influenced."

In 2005, when Wu Bangguo, the head of the Chinese National Assembly, visited Australia, he requested the same treatment: not to see or hear any protestors or dissidents.

A Disturbing Trend

Chen’s defection has brought to light how the communist regime has transformed a democratic government into its lapdog. Under the cover of bilateral relations in business and trade and of cultural exchange, the communist regime is eroding fundamental human principles and gradually infiltrating the West. Stories of the Australian government’s work with the Chinese government are good examples of how the communist regime infiltrates and erodes Western democracy.

Chen stated in an interview, "I have witnessed in my past four years working with the Chinese Consulate that the Australian government, especially the Department of Foreign Affairs and Trade (DFAT), has made a lot of compromises on sensitive issues of human rights and Chinese democracy issues."
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For example, Chen claims the Australian government aided the Chinese authorities in quashing a lawsuit filed earlier this year in the Supreme Court of New South Wales by Australian citizens who practice Falun Gong. The lawsuit targeted the ex-president of China Jiang Zemin and the Gestapo-like "610 Office" for torture, genocide, and other crimes against humanity. According to Chen, the Downer Government offered legal assistance to China and worked in cooperation with Chinese authorities. If Chen’s claims are true, Downer is guilty not just of ignoring China’s abuses of human rights, but of actively condoning them.

On June 8, 2005, several Falun Gong practitioners launched legal action against Australian Foreign Minister Alexander Downer in the Australian Capital Territory’s Supreme Court, alleging that his department has unfairly limited their freedom of expression by banning their banners across the road from the Chinese Embassy. Downer first issued the certificates on March 16, 2002. The certificates indicate that the banners should be removed, because they "impair the dignity of the [Chinese] mission." On March 28, 2002, federal police confronted Falun Gong practitioners who were holding a peaceful appeal in front of the Chinese Embassy. According to eyewitnesses, police acting under the Foreign Minister’s orders, forcefully removed banners bearing messages that included, "Stop the killing" and "Truth, Compassion, Forbearance." The ban continues to this day because Downer continues to sign similar certificates every month. (Each signing is only valid for a maximum of 30 days.)

Falun Gong practitioners are seeking an injunction to prevent Downer from issuing certificates under the Diplomatic Privileges and Immunity Regulations, which prevent the use of banners in their human rights appeal outside the Chinese Embassy in Canberra.

The Australia Department of Foreign Affairs said that the rules are in line with an international agreement on the protection of the dignity and security of embassy staff.

Bernard Colleary, the lawyer representing the plaintiffs, said that this case is a test case for freedom of expression in Australia and urged Downer to fall in line with the pronouncements of the Australia Federal Court.
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"Explosive" Testimony in the U.S. Congress

Congressman Chris Smith, Chairman of the U.S. House of Representatives International Relations Subcommittee on Africa, Global Human Rights and International Operations, invited Chen to speak to this subcommittee. Chen flew to Washington, D.C., to testify in front of the subcommittee on July 21, on the subject of Falun Gong and China’s continuing war on human rights.

All of the Congressmen present at the hearing strongly supported Chen’s testimony. Similar hearings concerning the persecution of Falun Gong have been held in the U.S. House of Representatives. In previous years, Congress passed resolutions to condemn the persecution in China. Chen, however, is the first witness who had direct information and evidence from working inside the Chinese Consulate.

Chen told the subcommittee that the CCP’s persecution of Falun Gong is a systematic campaign. All the authorities, especially in the offices of Public Security, State Security, and Foreign Affairs are involved in the persecution. The directing center for the persecution is "The CCP Central Office of Handling the Falun Gong Issue," (the previously mentioned "610 Office"). The government later changed the name to "The Office of Preventing and Handling the Evil Cult Problem of the State Council," and the insiders always used the name, "The Central 610 Office." Massive and extremely harsh measures have been taken against Falun Gong practitioners in China.

The Ministry of Foreign Affairs set up the "Office of the Falun Gong Issue," operating under the general office of the Ministry of Foreign Affairs, as part of the "610 Office" system. In July 2004, it changed its name to the "Department of External Security Affairs." In each Chinese mission overseas, there must be at least one official in charge of Falun Gong affairs.

In February 2001, the Chinese Consulate General in Sydney set up the "Special Group for Struggling Against the Falun Gong." This group is part of the "610 Office" system. Its sole task is to monitor and suppress Falun Gong. Similar Special Groups have been established in the Chinese missions in the United States and other countries where Falun Gong is active.

According to Chen, besides the diplomatic system, there is an intelligence system working against Falun Gong as well. There are over 1,000 Chinese secret agents and informants in Australia, and the number in the United States is at least that many. The CCP’s foreign policy on Falun Gong is to "fight intensely and give no ground, to attack at will, and aggressively."

Chen ended his testimony by saying, "Obviously, there is no freedom of religion and beliefs under the dictatorship of the CCP. The CCP should be stopped from persecuting the Falun Gong and other religious groups."

After Chen’s testimony, Congressman Chris Smith, Chairman of the Human Rights Subcommittee, commented, "Thank you very, very much. I know members in the committee realize your testimony is absolutely explosive for a man who worked for the government of the People’s Republic of China to come before a House committee that deals with human rights, and to tell us in such clear and unambiguous words that there is a war on the Falun Gong going on in China that is not just within the confines of the People’s Republic of China, but it is worldwide."

Victor Gu and Stephen Tian are correspondents for Chinascope.

Chinese President Hu Jintao will attend the U.N. 60th anniversary summit in New York on September 13. Before his U.N. mission, he is scheduled to visit Canada, Mexico and Washington, D.C. and have meetings with the North American leaders.

The U.S. trip will be the first one for Hu Jintao since he came to power in March 2003. Publicly, the meeting between Hu and Bush is expected to focus on issues over trade, Taiwan relations and North Korea’s nuclear program, among other things.

But the Chinese President seems to be more concerned with the scale of his U.S. reception than what will be talked about in the meeting. After more than two years since his ascension to the top position in China, Hu is eager to break out of the shadow of his predecessors and establish his own legacy. The visit to North America, particularly the meeting with U.S. President Bush, is therefore a very significant event, designed to bolster his image back in China as a recognized world leader.

Initially, Bush offered his Texas ranch to accommodate Hu, a perfect opportunity to discuss bilateral relations in a more relaxed environment and make real progress. But in the Chinese leader’s mind, "barbecue at Bush’s ranch" would be too casual and not in keeping with his image. Hu prefers a formal "state visit," complete with red carpet, a 21-gun salute at the White House, a state banquet, and joint statements before the media.

Prior to the trip, China demonstrated its goodwill toward Washington in expectation of a "state visit." On July 21, Beijing announced for the first time that it would allow the Chinese yuan to appreciate by two percent; on July 26, it restarted the six-party talks on North Korea’s nuclear weapons; and on July 28, it announced the purchase of 50 airplanes from Boeing.

These gestures were not enough for Washington to grant him a "state visit." Instead, Hu was offered a "working visit" to meet with Bush for one hour at the White House on September 7. There will be no state banquet, either. White House spokesman Trent Duffy told reporters, "It is not an official state visit." Instead of a state dinner, Bush will host a luncheon for Hu at the White House.

To the Chinese leader, such an offer from Washington must be very disappointing. In order to save face, China’s state-run media continues to interpret it as a "state visit." In response to reporters’ questions, the spokesperson of Foreign Affairs Ministry Qing Gang stated, "Invited by President Bush, President Hu Jintao will make a state visit to the United States between September 5 and 8." Nevertheless, Hu should have gotten the message—the United States is wary of the course that China is taking.
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Before Hu took office, many people had high expectations for him, believing that he would loosen China’s political controls, which would lead to a more open society. But the signs so far indicate that Hu is continuing the communist tradition and assuming an even harder-line approach. Hu is particularly strict on media control and has even vowed to learn from Cuba and North Korea to govern the country.

On August 2, 2005, China issued new rules restricting foreign investment in cultural products and media in China. According to the new government regulations reported by China’s state media, Xinhuanet, China will not permit any more overseas satellite television channels to land on its mainland and will not allow any foreign investment in the country’s news media.

Hu is also applying greater pressure on Taiwan. At the 2005 National People’s Conference, China passed a secession law giving China the "right" to attack Taiwan at any perceived signs of Taiwan independence. Beginning on August 18, 2005, China held an unprecedented, joint military exercise with Russia on China’s Shandong Peninsula. The eight-day military exercise involved nearly 10,000 troops from the two armies, navies, and air forces as well as airborne units, marine corps and logistics units. Although China, which footed the bill for the joint exercise, stated that it was not aimed at any specific target, many viewed Taiwan and the United States as the imagined enemies. Following the exercise, China also signed a massive arms deal with Russia to further put pressure on Taiwan and the United States.

Amidst predictions of the 21st century being "China’s century," China has steadily gained prominence over the past decade. Few discussions about trade and the global economy go by without China getting involved. The upcoming attendance of China’s President Hu Jintao in the 60th U.N. Summit in New York and his visit to North America are drawing a new wave of attention to the already hot topic of China’s present and ongoing role in the world.

For each of the past 10 years, China has been claiming a close to double-digit economic expansion spurred by unbridled international investment and is looking to become one of the world’s largest economies. Many tend to believe that China will be the driving force for future economic development, so no country can afford not to engage with China. On the other hand, China’s communist leadership refuses to budge on its repressive political system. At the same time, Beijing’s government is spending extravagantly on military build-up and modernization, thanks to its newfound economic muscle. Many have asked themselves: Is China’s rise a blessing or a threat to the world?

There are certainly arguments for both. To counter the "China threat" theory, Hu Jintao introduced the concept of "peaceful rise" through his top think tank assistant Long Yongtu at an international forum in 2004. While Hu has won some believers, recent developments in China do not bode well for a benign outcome. One recently defected Chinese diplomat’s story, featured in this issue, is particularly disconcerting. The Chinese government has been following former Chinese leader Deng Xiaoping’s plan of "biding our time, building up our capabilities, and striking when the time is right." China is also using trade prospects to win over its neigboring countries and Western democracies such as France and Australia. Meanwhile, many view Beijing’s repeated saber-rattling toward Taiwan and related nuclear strike threats to the United States as warning signs of a belligerent, oppressive regime fueled by a powerful economy—a dicey proposition indeed.

Hu Jintao will likely continue to harp on China’s "peaceful rise" in his visit to North America. For sure, China needs a peaceful environment for it to prosper, and the world is hoping for the same. However, as long as China’s political landscape remains that of a totalitarian communist regime, the concept of such a peaceful rise is dubious, no matter how Hu spins it.

North Korea Exports Drugs to China

[Huaxiabao.org, Aug. 4, 2005] The number of drug smuggling cases has dramatically increased along the China-North Korea border within recent years. The more than 500-kilometer-long border (over 300 miles), home to one million ethnic Koreans, has become another drug zone along with southwest, southeast, and northwest China. Chinese police have seized drugs including crystal meth, solid heroin, ecstasy, yaba, and morphine. In just the first half of 2005, Chinese police in the northeast have had as many as 21 drug smuggling cases, involving more than 200 kilograms (about 440 lbs.) of drugs.

Top Kelon Heads Detained for Alleged Fraud

[Latelinenews.com, August 1, 2005] Gu Chujun, Chairman of the Board of Kelon, the well-known Chinese refrigerator and air-conditioner maker, was detained by police, along with Vice-President Yan Yousong, and Assistant to the President Jiang Yuan, for allegedly using 700 million yuan (US$43.4 million) of Kelon’s money fraudulently. The China Securities Regulatory Commission (CSRC) is currently continuing its investigation into Kelon.

Beijing Faces Population Crisis

[Beijing Evening News, Aug. 1, 2005] Beijing is facing a maximum capacity crisis. By 2008, the population will reach 15 million; by 2010, 15.55 million; and by 2025, 17 million. After 2025, the population will level out around 16 million. According to experts, by 2010 the elderly population (age 60 and over) will reach 2.17 million, accounting for 14 percent of the total population. The peak of the aging population will be in 2045, when senior citizens will make up 38 percent of the population.

Beijing’s International Students on the Rise

[Central News Agency, July 25, 2005] According to estimates, by 2008 Beijing will have 80,000 international students. Experts of Chinese language studies worry that, facing the global popularity of the Chinese language, there will be a severe shortage of Chinese language teachers in Beijing as well as in the rest of China.

Officials in Sichuan Province Change Vehicle Plates by Pressing a Button

[Chongqing Evening News, July 26, 2005] An electric license plate-changing system installed in some government officials’ vehicles in Sichuan Province enables an eye-catching government official’s license plate to suddenly become an ordinary license plate at the touch of a button. It is reported that this kind of vehicle can be easily found next to luxurious businesses such as famous restaurants, nightclubs, saunas, and spas. For those cars that cannot change plates, business owners will cover both front and back plates tightly with a "fig leaf." After installing this face-changing equipment, some officials only need to press a button to show off their power and prestige, or to do something forbidden while not exposing their official identities.{mospagebreak}

Chinese Vice-Premier Comforts Army Forces in Xinjiang to Prevent Rebellion

[Central News Agency, Aug. 3, 2005] According to reports from the East Turkistan Information Center, Vice-Premier Huang Ju traveled to Xinjiang recently to comfort army forces stationed in the region. The trip was made to prevent the army from rebelling against the Chinese government, and to ensure stability during the Oct. 1, 2005, 50-year anniversary celebration of the establishment of the Uyghur Autonomous Region of Xinjiang.

Hong Kong University Professor Upsets Beijing, Ordered to Stop Bird Flu Research

[Apple Daily, July 18, 2005] Professor Guan Zhi, a virologist from Hong Kong University, enraged Beijing by exposing the fact that the Qinghai Bird Flu came from southern China, which contradicts statements made by the Chinese government. On July 9, 2005, authorities came to his Flu Research Center in Shangtou University and demanded that researchers destroy or hand in all flu samples. According to officials from the Agricultural Department, an order had been given to stop the Flu Research Center from conducting further bird flu research.

China Jams Sound of Hope Radio Broadcasts

[The Epoch Times, Aug. 7, 2005] Many audiences of the Sound of Hope International Radio Network in all areas of mainland China recently gave feedback to the radio network saying that, the daily four-hour broadcast to China has suffered severe jamming from the Chinese Communist Party and hence they could not receive the radio network’s program at all. A non-profit organization, The Sound of Hope Radio Network was established in 2003 in San Francisco, and has gained rapid popularity in the Chinese community. During these two years, the radio network has accumulated close to 20,000 broadcasting programs and interviews across the network, and has established branch stations in more than 30 cities in four continents world wide, and has been broadcasting into mainland China for four hours daily through shortwave.

Serious Pollution Harms Yellow River

[Xinhuanet, July 10, 2005] "A stench assailing the nostrils from 100 yards away, and churning black water constantly producing white foam." This is what a reporter witnessed lately at Tongguan County, Shanxi Province, where the Wei River flows into the Yellow River. The Yellow River’s largest tributary, the Wei River has lost almost all its useful functions and has instead become a black, stinking "Waste River."

[Xinhuanet, July 8, 2005] In the Gansu Province section of the Yellow River, 65.22 percent of city sewage is directly dispersed into the Yellow River untreated, which has resulted in serious pollution. The issue of preventing and treating the pollution at the Gansu section of the Yellow River has been brought to the attention of the National Political Consultative Conference standing committee.{mospagebreak}

Chinese Communist Government Officials Gamble with Government Money

[The Epoch Times, July 17, 2005] A recent Chinese Communist Party internal communication revealed that Chinese communist government officials use government money for high-stakes gambling at overseas gambling establishments. The communication reports that individuals from mainland China, especially high-ranking government officials at every level, gamble in Las Vegas, and pointed out that, "Regardless of how conservative the estimate is, Chinese gamblers throw away no less than one billion U.S. dollars in Las Vegas every year."

Four Thousand Corrupt Chinese Officials Flee with US$50 Billion

[Central News Agency, August 7, 2005] According to an official Chinese government investigation report, since the reform and open policy, about 40,000 corrupted officials have fled China with an estimated US$50 billion of stolen money.

China Raises Limit on Carrying Foreign Currency Abroad

[Mingpaonews.com, August 3, 2005] The State Administration of Foreign Exchange has raised the limit on foreign currency obtainable through foreign exchange for citizens leaving the country on personal business. Those staying abroad for less than six months can now exchange up to US$5,000 before leaving the country, instead of the previous limit of US$3,000.

More Than 10,000 Farmers in Zhejiang Province Protest Against Local Factory’s Environmental Pollution

[Voice of America, July 19, 2005] The farmers in Xinchang County, Zhejiang Province held a protest against a local pharmaceutical factory, Jingxin Pharmaceutical, because of its serious environmental pollution, and fought with the police. Now this pharmaceutical factory has suspended its production. Jingxin Pharmaceutical was established in 1990, and is a key high-tech enterprise.

200,000 People Die of Adverse Drug Reactions Each Year in China

[Central News Agency, August 1, 2005] Of the 50 million people hospitalized every year, 2.5 million are related to the improper use of drug therapy (including self-medication, obtaining drugs without prescriptions, counterfeit drugs, etc.). Adverse drug reaction causes nealy 200,000 deaths each year. According to Du Wenmin, the deputy director of the Shanghai Adverse Drug Reaction Monitoring Center, people who use drug therapy improperly account for 11 to 26 percent of the total drug consumers in China.{mospagebreak}

Shenzhen’s Population Exceeds 10 Million, Approaches Limit

[Central News Agency, July 31, 2005] By the end of June 2005, Shenzhen City’s actual population reached 10.35 million, although only 1.71 million have been officially registered as residents. It is the only mainland Chinese city with such a large gap between the registered population and non-registered population. The Shenzhen City Police Department’s newly published data shows that Shenzhen City’s population is approaching the city’s limit. If the population inflation cannot be effectively controlled, the environmental capacity of resources such as land, energy, and water will be very difficult to sustain.

2,672 People Died in Coal Mining Accidents in the First Half of 2005

[The Epoch Times, July 17, 2005] In the first half of 2005, there have been 2,672 deaths in China due to coal mining accidents, according to Chinese media reports on July 16, 2005. Official data shows that more than 5,000 people died in coal mining accidents last year. But according to independent observers, the real death toll is more likely approaching 20,000. In order to keep their coal mines from being shut down or fined, some coal mine authorities are deliberately falsifying death tolls.

Prime Minister Wen Jiabao’s plan of "reorganizing coal mines" in view of the frequent accidents and deaths has never truly been carried out due to pressure from tight electricity supplies as well as recently increasing oil prices.

Gas Shortage in Guangzhou City

[Central News Agency, August 13, 2005] As the oil prices around the globe skyrocket, Guangzhou has witnessed its first gasoline shortage in decades, which has affected normal social life in Guangzhou. In recent days, hunting for gasoline has become very common among drivers in Guangzhou. Many gas stations in Guangzhou are posting signs "out of gas" or "short of gas," signs, while there are often long lines at stations that do have gas. Some drivers say that they don’t care about picking the type of gasoline, as they would be content with being able to fill up their gas tanks during the gas shortage. Guangdong Province consumes 40,000-50,000 metric tons of gasoline every day, while daily consumption in Guangzhou alone reaches nearly 10,000 metric tons.

Infected Pork Seized in Sichuan Province

[Xinhuanet, August 10, 2005] Since the outbreak of streptococcus suis in pigs in Sichuan Province, Sichuan’s Department of Industry and Commerce formed an emergency response center to handle the crisis in an attempt to prevent the meat or meat products of dead pigs from circulating in the market. According to this report, 29,000 kilograms (approximately 64,000 lbs.) of pork from infected pigs were seized. According to statistics, 214 people have been infected with the disease, and 39 of them have died of the outbreak. Many local departments have begun investigating local officials for failing to fulfill their duties. At present, 17 officials have been punished.{mospagebreak}

New Wave of Competition Among China’s Youth for Hong Kong’s Colleges

[Central News Agency, August 10, 2005] Eight of Hong Kong’s colleges will accept over 1,000 students this year from mainland China by expanding their acceptance coverage to 17 provinces in China, a fact that has helped create a new wave of applications for Hong Kong’s colleges. While the University of Hong Kong plans to accept 250 undergraduates, nearly 5,000 students have applied-twice the number from last year, and pushing the acceptance ratio to as high as 20 to one. The number of applicants in China for other Hong Kong colleges, including the Hong Kong University of Science and Technology, Hong Kong Polytechnic University, Hong Kong Baptist University, and Lingnan University, has also doubled this year.

China’s National Security Bureau Rejects Imprisoned Reporter’s Attempt to Hire Lawyer

[Central News Agency, August 25, 2005] Mary Lau, wife of Ching Cheong, a Hong Kong-based top China correspondent for Singapore’s The Straits Times, said yesterday that she had received a written notice from officials of China’s National Security Bureau, denying the family’s application to hire a lawyer for Ching. According to the notice, the application was rejected because Ching was still under investigation for allegedly taking money from and spying for Taiwan.

In a report from Xin Bao, Lau was quoted as saying that the authorities at the National Security Bureau denied the application based on Article 96 in the Criminal Procedure Law of the People’s Republic of China. Article 96 states that Ching Leong has the right, while detained, to hire a lawyer to defend him, file a complaint, or obtain a guarantor pending trial, but such an application must be approved by the investigating authorities.

One Seventh of Shanxi Province’s Land Left Hanging After Aggressive Coal Mining

[Nanfang Daily, August 28, 2005] As much as 20,000 square kilometers (over 7,700 square miles) of land in Shanxi Province is devoted to mining. Given Shanxi’s total land area of 156,000 square kilometers (over 60,000 square miles), almost one-seventh of Shanxi’s land has been affected by the mines. The resulting land subsidence has cost 2.6 billion yuan (US$321 million) in the past ten years alone.

A study by the Shanxi Ministry of Land and Resources indicates that 6,000 square kilometers (over 2,300 square miles) of Shangxi’s mined land are undergoing geological disasters. There have been 1,842 cases of land subsidence because of coal mining, with 47,000 hectares of land damaged, including 18,000 hectares of farmlands. In particular, in New Road Village of Wanbolin District, Taiyuan City, there are many cracks dozens of centimeters wide in the walls of villagers’ homes. The sinking ground has made many buildings tilt, while some of them have already collapsed.{mospagebreak}

Appealers Outraged at False State-Run Media Reports

[The Epoch Times, August 21, 2005] Recently, newspapers such as the Beijing Daily, Beijing Evening, Jinhua Times, and New Beijing, have followed official state-run media in reporting that, for the people who go to Beijing to appeal, 94 percent of their issues are resolved in Beijing. CCTV also broadcasted scenes where the Director of the Beijing Police Department personally interviewed appealers.

People who have been appealing to the government for extended periods of time were outraged at these false reports: "We, hundreds of people appealing day and night, have never seen even the shadow of the director. Where did they get that video? We have only been received by low-level office assistants. Aren’t they falsifying the news?"

[Editor’s note: China pays close attention to the general election in Germany. The article below is an analysis of what the result of the German presidential election may mean to China. The article was first published in China’s state-run media China Youth Daily and republished in Xinhuanet.com on September 29, 2005.]

It Is Not Good News to China If the Age of Schroeder Is Over

"Please hurry to find a solution!" The chaos after German election on September 18 made Mr. Barroso, President of the E.U. Commission, anxious. The headquarters of the European Union was expecting the deadlock between two German major political parties to end soon. It was because the German election not only has a huge impact on Germany itself, but also affects European Union’s nerves.

On September 28, two major German parties held a second round of negotiation. Various signs have indicated that, after a deadlock for ten days, to form a "grand coalition government" by Christian Democrats/Christian Social Union (CDU/CSU) and the Social Democratic Party (SPD) would be more practical and popular. However, the two parties have not reached a clear compromise.

Outsiders need not to worry about complicated election and political struggles in Germany. Nonetheless, one has to pay attention to the impact of German election both on Germany and on other major powers in the world.

Which Direction Is European Political Situation Turning To?

As early as in May/June this year, referendums on "The treaty of European Constitution" held in France and Netherlands have failed one after another. After the July bombing in London, some politicians and analysts around the world believed that, having experienced these events, European countries will make a "right" turn in the future elections.

Germany is one of the largest member states of the European Union and it is also one of the "twin engines" for this giant ship of European Union. Not only has the German election served as a "wind cone" for the European politics but also has had a solid influence on the European political direction.

Prior to the election, CDU/CSU led the poll by 20 percent. It was believed in a lot of analyses and comments that right-wing Merkel would be the new Chancellor of Germany and the political trend in Germany would lead European politics to turn "right" altogether. However, the result of the election indicated that the left-wing has unexpectedly gained support from a large number of people. It was too early to have a "right-turn" conclusion. Even though two parties would reach a compromise that Merkel would take the position as Chancellor for the "grand coalition government," SPD would not easily give up its power in the coalition government. Merkel will not be able to follow her own agenda during her administration.
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The Guardian in the United Kingdom even believed that the European political trend is not turning "right" but "left." It reported that the German election has caused a strong reaction in France. The popularity of French right-wing political star Sarkozy faded. The right-wing government in Norway stepped down after a recent election. The British conservative party is unable to recover after a decline. Italian right wing and pro-U.S. government continues to lose people’s support and faces a risk of failure in the next year election. "In fact, the European political trend is not unclear."

European Union’s Foreign Policy Faces an Adjustment

Over the past several years, Germany led by Schroeder, and France led by Chirac, have been European Union’s "motors" and they are also two advocates for European Union’s independence in foreign relations and defense. It may be said that these two "brothers" have caused the United States endless headaches when dealing with Europe.

Schroeder and Chirac ganged up on Bush on the 2003 Iraq war, causing relations between Europe and the United States to slide to a new low since the end of the World War II. After Bush was re-elected, although both the United States and Europe have expressed their "good will" of "reconciliation," and Bush has had several meeting with Schroeder and Chirac to reconcile, the United States has taken a firm stance. Bush would oppose anything that is advantageous to Schroeder and Chirac. A good example is the United States’ stance against Germany to be "a permanent member the Security Council" in the reform of U.N. Security Council.

But after the German election, no matter who takes Chancellor’s office, the hard-line policy adopted in the age of Schroeder toward the United States would be gone forever. Whether in Germany or other European countries, it is believed that in the "post-Schroeder age" it is very important for Germany to fix its relations with the United States. Germany should show a positive attitude (advantageous to the United States) on the Iraq issue. Germany’s attitude on other issues, such as the nuclear problem in Iran, Syria and so on, would be more "flexible."

Since there is little hope for French President Chirac to be re-elected, the European Union, led by Germany, France and the United Kingdom, would be more cooperative with the United States in military and political integration.
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China-E.U. Relationship Would Enter a Phase of Adjustment

In recent years, China-E.U. relations have been heated up rapidly. Both sides established a strategic partnership and published "policy documents" toward each other. On the one hand, it is a natural result of the peaceful rising of China and the change of international environment. On the other hand, the friendly attitude toward China by Schroeder and Chirac is also a very important factor.

In the past two years, almost all of motions proposed to strengthen relations between the European Union and China have been strongly supported by France and Germany. On the issue of arms embargo against China, Schroeder and Chirac are part of the determined group to lift the ban.

From the perspective of realistic interests of both sides, it is a main trend that China and the European Union will continue to maintain close relationship. However, on some important issues that would bother China-E.U. relations, such as the arms embargo against China and the "position in the market economy," Merkel and next French President will not be as positive as in the age of Schroeder and Chirac. China-E.U. relations might enter a new phase of adjustment. Germany will take turn to be the Chairman State of the E.U. Commission in the first half of 2007. Then, we will see how Germany will further develop relations between China and the European Union.

http://news.xinhuanet.com/world/2005-09/29/content_3560177.htm

[Editor’s note: The article below is translated from an article published on People’s Daily, official media of the Chinese Communist Party, on November 29, 2004, reflecting the views of the Chinese government on GPS technology.]

According to the October 24 [2004] issue of (American) Business Week, the U.S. military has drafted a detailed operation plan, "when necessary," to destroy satellites of the Galileo global satellite navigation system of European Union. After publication, it immediately drew high attention from all over the world. AFP, Reuters, the British Financial Times and the U.S. Washington Post re-published the news. The BBC even had a feature report on this issue, analyzing how the United States would handle the satellites of the Galileo system. Several media said that the act by the United States thickened the smell of the gunpowder in the air space.

Repeatedly Threatens to Attack

Business Week reported that after long time preparation, U.S. Air Force released a confidential document last August. Under Secretary of U.S. Air Force Peter Teets was one of its authors. In the document, he first asked: "What will we do ten years from now when American lives are put at risk because an adversary chooses the Galileo constellation, such a Global Positioning System, to attack American forces with precision?" He himself answered the question by saying that the "most wise" way for the United States is to attack satellites of the system.

This is not the first time that the United States threatened to attack satellites of the Galileo system. Business Week also revealed that previously U.S. and European officials held a special meeting in London to discuss the issue about the Galileo system. At the conference, U.S. officials requested the European side to make a concession of "not damaging American interests," but were refused. They had a heated argument. U.S. representatives threatened to destroy the Galileo satellite positioning system when necessary. Upon hearing these words, European representatives rebutted in anger that if the Galileo system will be used for the military or for a war against the United States by some countries, Europe will not turn off or jam satellite signals. A senior official who attended the meeting revealed that, after listening to European representatives’ hard-line position, U.S. representatives reacted "cool-headed," yet implied that the United States has made a plan to handle satellites that may pose a threat to U.S. interest in the future.

Our reporter interviewed Sanches, spokesperson for Galileo program of the European Commission about the report of the U. S. threats to satellites of the Galileo system. He stated that if there were people in the United States threatening such, it would be "unwise" and "such opinion would not be worthy of any comment by the European Union." Specifically he told the reporter that the United States always had reservations about the cooperation between Europe and China in this field. However, related parties have signed agreements. "It seemed to make no sense in further commenting."
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Why It Fears the Galileo

Why did the United States threaten to attack European satellites? The United States worried that, when the Galileo system starts to operate, the United States would lose its dominance of space.

In 1973, the United States started to develop the Global Positioning System (GPS). Having continuously improved the system for 20 years at the cost of US$20 billion, it finally was completed in 1994. The GPS consists of 24 satellites that orbit about 17,000 km above the earth. By using signals transmitted from the satellites, receivers on the ground may position their own locations and precisely discover a target. For military purposes, the GPS can navigate military aircraft, ships and missiles as well as locking up targets of attack. For civilian purposes, it can navigate airplanes, vessels, and motor vehicles. Today countries around the world use the GPS and the United States has made a huge profit. However, to prevent the military in "some countries" from utilizing the GPS to threaten the United States, it provides satellite signals of lower precision to other countries and the most precise satellite signals to its own military. In doing so, the United States is able to get the precise position of any object on earth while other countries can only have a "rough idea." Worse still, the United State can, if needed, disrupt signals transmitting to certain countries to paralyze the aircraft and vessels of these countries.

E.U.’s Galileo satellite positioning system poses a challenge to America’s "dominance of space." Europe proposed the Galileo program in 1999. It prepared to invest 3.6 billion euros and to launch 30 satellites into space at an altitude of 24,000 km as the Galileo satellite positioning system. E.U. pointed out that the said system would mostly be used for civilian purposes to provide precise positioning service with error range of 1 meter. In comparison with the American GPS, the Galileo system is more advanced and more reliable. The signals that the United States provides to other countries could discover an object of only about 10 meters long on the ground. However, Galileo could find an object of one meter long. A military expert made a vivid analogy that the GPS can find a street while the Galileo can find a door of a house. If Galileo is to be used for military purposes, it would mean that other countries would be equipped with a "far-sighted eye" that only the United States currently has it. The Business Week article believed the reason why the United States threatened to destroy the Galileo satellites is to a large extent "targeting China." Not long before the United States made the threat, China and European Union held a ceremony to sign the technology agreement for the Galileo program that allowed the cooperation of both parties to enter the critical operation stage. China is the first non-E.U. country that has participated in the Galileo program and China will have a 20 percent ownership of the system and full rights to use it. At a press conference held by Chinese Foreign Affairs Ministry on October 26, a reporter raised the Business Week article. Zhang Qiyue, Spokesperson of Foreign Ministry, said that Galileo cooperation between China and Europe is completely for the purposes of civilian navigation technology and industry. There is no intent to target a third party in the cooperation between China and Europe. It is absurd and ridiculous that some reports or some people said that this cooperation would be devoted to military uses. "I would like to advise certain people to give up this cold war ideology," Zhang added.
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The United States Does Not Just Talk

In the early morning on October 26, British Broadcast Company carried a complete report on the threat by the United States. An expert said that it is not totally impossible for the United States to "destroy the satellites" as it threatened. In fact, U.S. military has already started preparation for a real-time operation in order to "cope with a threat from outer space."

According to U.S. media, soon after U.S. Defense Secretary Rumsfeld took office, he received a report from a confidential committee in the Pentagon. This committee is specifically responsible for the study of "the threat from outer space." Not long ago, the U.S. Missile Defense Agency made a highly classified proposal for weapon development, which started the process of "weapons entering the space." In the proposal, the Missile Defense Agency requested Congress to allocate $ 68 million in 2005 for the development of a satellite with offensive capabilities.

Then, how does the United States deal with the Galileo satellites? A British military expert thought that the "direct attack" would be the most effective measure for the U.S. military. According to U.S. media, U.S. Air Force is developing various space weapons. The "space bomber" draws most attention. It can fly beyond the atmosphere and launch missiles from 96 km above ground to attack enemy satellites. Moreover, the U.S. military is also developing anti-satellite missiles and space laser weapons. At the same time, the U.S. military has built space war troops, established a new "star war school" under the Air Force Command and set up two new troops for the attack and defense in a space war, respectively. U.S. military "space war" exercise has been carried out frequently. As early as 3 years ago, the U.S. military had held a five-day space war exercise titled "Schriever 2001," which brought back memories of the demonic "star war project" in the cold war. Since then, the U.S. military has carried on such space war exercise several times.

European Countries Will Not Compromise

Most European media held that European Union would not give in to U.S. threats. Firstly, this is European Union’s own need. At the launch of the Galileo program, Prodi, President of European Union Commission remarked that this is a matter of the future of Europe, a struggle between monopoly and anti-monopoly and a diplomatic struggle involving political, economic, military, and national interests. It brought back to the Europeans the pride no less than that of Airbus and Ariane rocket. French President Chirac refuted the United States that to give up the Galileo program would mean "to accept the present pitiful situation of a subordinate to the United States in the space sector." Nowadays, not only did the original 15 member countries of European Union but also the 10 countries that recently joined European Union participate in the development of Galileo system.
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Secondly, this is also the need of a lot of non-E.U. countries. Business Week believed that it is also possible for countries like Russia, Israel and others to join this program after China. A European scholar said that, taking China as an example, the overwhelming majority of its satellite navigation application is set up on the U.S. GPS. Once there is a war, the United States would turn off the application to China and consequence would be beyond prediction. Therefore, a big country such as China must have multiple satellite navigation systems.

Regarding this issue, the Business Week editorial warned that competition between Galileo and the GPS would cause the international community to have a new political split just as the Iraqi war, which would divide the international political arena into two big camps of pro-U.S. and anti-U.S. "In front of the conflict, all countries cannot help express their stance," said Business Week.

http://www.people.com.cn/GB/jingji/8215/41174/41178/3020351.html