A slightly macabre post today. The news of toy company boss Zhang Shuhong’s suicide in the wake of Mattel’s first global product recall brought to mind another recent suicide, also apparently caused by external pressures. On June 3, Song Pingshun, formerly Tianjin’s representative to the Chinese People’s Political Consultative Conference, was found dead in an apparent suicide as he was being questioned for corruption.

The 61-year-old Song’s rank was equivalent to that of a cabinet minister, because of Tianjin’s economic clout, according to Reuters. Song had held a number of powerful positions in the city over the course of his career, having been vice mayor, chief of police and party official in charge of the judiciary and law enforcement.

Song was expelled from the party posthumously in July, a rare disgrace. From China Daily:

The CPC Central Commission for Discipline Inspection decided to take the rare step of posthumous expulsion after finding that Song had “abused his public power to seek benefits for his mistress, seriously violating CPC discipline.”

“Song, morally degenerate, kept a mistress and helped her obtain money through illegal means,” the discipline watchdog said.

Talk about flogging a dead horse!

Cheeky feline blogger Black and White Cat makes some excellent points about the mysterious circumstances surrounding Song’s death, including the fact that mainland media took nearly a month to report it, and that initial reports couldn’t even determine whether he had suffocated himself or leaped out of a building.

Whether it’s business or politics, it seems suicide is a new way out.

As far as my email inbox is concerned, the words “DLA Piper news flash” usually spell some impending trouble in venture capital paradise.

I’m not suggesting bad karma, just that the law firm’s updates are not a once-a-week event and, when they do come, I tend to set aside a few minutes to read them. And then re-read them. Legal terminology is not easy to digest.

The July 1 bulletin contained updates on new rules implemented by the State Administration of Foreign Exchange (SAFE) that could complicate venture capital (VC) and private equity (PE) deals in China.

Basically, the offshore special purpose vehicles (SPV) used by venture capitalists to take money in and out of China are coming under closer scrutiny. If they set up an onshore subsidiary or make any cross-border M&A deals, approval is now required from both the Ministry of Commerce and SAFE. To get this approval, the SPV must submit evidence of a three-year track record of investments. It must also disclose assorted financial information and meet shareholder structuring requirements.

Further tightening measures are expected and more foreign VC and PE deals are likely to run into trouble for not dotting all the ‘i’s and crossing the ‘t’s.

The end goal for Beijing is to encourage more emerging Chinese companies to list on domestic exchanges. It is part of the widely-reported effort to reduce liquidity and improve governance in the markets by bringing in well-run companies – Hong Kong red chips become Chinese blue chips while strong start-ups provide solid growth opportunities.

This isn’t good news for the typical foreign VC/PE fund. The domestic market is volatile, a far cry from the reliable, well-informed valuations on NASDAQ. With Chinese stocks currently overpriced and analysts struggling to predict if and when the cards will come tumbling down, what investor would want to risk an A-share exit?

And even if a fund settles for a domestic IPO, the proceeds are in renminbi, which poses further problems in terms of getting back into US dollars and out of the country. The long-term solution is to set up a renminbi-denominated fund, but that means making a commitment to China that might not suit overall strategy.

DLA Piper’s verdict is not an optimistic one: “We believe that the [new rules], together with the government’s unwritten policy to encourage onshore listings, may herald another dry period for offshore investments into China and offshore listings of PRC companies.”

Highlights from the last week of business news in China: A-share action, laws under review and the National Audit Office’s latest findings (more…)

Danone’s strategy of pursuing high growth through joint ventures with local partners is looking increasingly foolhardy. Even as it is in the midst of vicious legal battles with its Chinese local partner, Wahaha, its relationship in India is crumbling.

Its Indian partner, Britannia Industries, controlled by the Wadia family, are understandably unhappy that Danone wants to sell its own products in the country, which would break the terms of their agreement.

According to the Wall Street Journal on June 22:

Now, Danone and the Wadias are in talks that could lead to an exit by Danone from the venture, according to people familiar with the situation. One of those people says an agreement could be reached within a month. A possibility is that Danone will pay the Wadias a fee to leave the venture.

Another Journal article, by James Areddy, outlines the hits and misses of Danone’s piggybacking strategy:

But the case is a blow to Danone’s strategy of piggybacking into new markets. Partnering with a local business promises a foreign entrant like Danone a quicker and less costly way to penetrate a market. With Wahaha, Danone claimed 23% of China’s bottled-water market last year and was the biggest beverage maker by volume overall in the country, beating out competitors like Coca-Cola Co. Rival consumer-product companies have traditionally employed the slower, more expensive go-it-alone route.

For more background and commentary on the ever deepening Danone-Wahaha case, check out China Law Blog, which is doing an excellent job of tracking the case.

Very few people noticed but China’s new bankruptcy law took effect today, June 1.

The law was passed last year after more than a decade of preparation. Most observers will tell you that it is a good law. On par with international standards.

Basically, it creates a system for companies that cannot pay their debts to go into bankruptcy. The process will mostly be managed by the courts. Secured creditors get first dibs on any assets that can be found. Employees are next. All other creditors come after that.

Up until now, going into bankruptcy or securing defaulted payments from a business partner was a complex process, particularly for foreign companies. It should be easier now.

As usual with new laws, there are still a few questions. The law puts an inordinate amount of responsibility on the hands of local courts to manage the process of bankruptcy. It’s up to them to accept a case or stop the process cold in its tracks. Also, it’s up to the courts to appoint administrators who then manage whatever assets are available to be managed.

Putting such a big onus on single individuals who are often poorly trained and may put a priority on local interests above the spirit – if not the letter – of the law, may open the door to corruption and abuses.

But China is training more judges on an ongoing basis and, in fairness, developing a legislative system takes time and requires a balancing of multiple efforts on different fronts.

Students in Guangdong province that have to work to support themselves are not protected by labor laws.

New legislation that kicked in earlier this year sets minimum wages for part-time workers at a less-than-princely US$0.95 or RMB7.5 per hour but, as it turns out, these rules can be really more like guidelines or suggestions as far as students as concerned. Reporters from a local newspaper in Guangzhou, the Kuai Xin Bao, reported in March that McDonald’s and Yum! Brands (owner of Pizza Hut and KFC) pay their part-time student employees about US$0.52 or RMB4 per hour.

The scoop prompted much discussion and comments of abuse while the companies maintained they had done nothing legally wrong.

As it turns out, they were right. The labor protection bureau in Guangdong cleared them last week, Forbes reported. Provincial officials declared that the relationship between employer and student worker is not a formal working relationship.

Let’s see. One imagines that said student must have to show up on time. He or she is probably expected to work while at the restaurant that employs him. He or she supposedly receives a salary for his or her work. Yup, can’t see how that is an official working relationship. The students in question are probably flipping burgers in between long study sessions because it’s fun, a distraction from physics, engineering or arts.

At the end of the day, most of these guys don’t need the work, not really. They put on those stylish red KFC caps because they look cool. They could just as easily finance their silly hobbies like the (very) occasional night on the town, eating and sleeping under a roof through myriad other activities like… well… hang on… something will come to me.

My 92-year-old grandmother’s house rests in one of the most convenient areas of Shanghai, as well as one of the most expensive. Each month, she pays a mere RMB77 to the government for her cozy French concession home near Xiangyang Park. Two years ago, a Western couple who wanted buy the house from the city for a temptingly high price nearly forced her and my grandfather to move from their home of almost 70 years. Thankfully, the deal was not completed.

My grandmother’s experience magnified my sympathy for the recent events of the “nail house” in Chongqing, which was a far worse situation. The condemned house, occupied by a man named Yang Wu, was destroyed Monday night after Yang had held out against plans for demolition as. Though the government called Yang’s protest a display of stubbornness and inflexibility, I view it as an act of bravery to protect personal rights. The actions of Yang and his wife, Wu Ping have attracted national and international attention, since local media have been forbidden to cover the story. Today, land seizures and people being dumped from their homes in the name of commercial development are commonplace in China. In this case, the Chongqing nail house represents a larger group of historical buildings to be destroyed in China within the next 50 years. This includes those who have been relocated during the construction of the Three Gorges Dam in the past and also the destruction of more than half of Beijing’s hutongs to pave way for a green Olympics. The couple’s defiance gives hope for the many in David-and-Goliath battles for not only private property rights but also personal rights.

Howard French has an interesting article up on Beijing News’s continuing lawsuit against the internet portal Tom.com for posting some 25,000 of its articles and photos without permission over the last few years. He puts the suit in the larger context of the “war” between print and online media: while newspapers have proliferated wildly in China over the last 10 years, internet news services have grown faster, are cheaper and can steal content with ease in an intellectual property “no-man’s land” like China, as he puts it (although, to be fair, Chinese newspapers themselves are far from innocent when it comes to pinching others’ articles).
And so, in honor of this landmark case, I’d like to reproduce the article (but only part of it) in this space without Mr French or the New York Times’ express written consent:

Now, as has happened in the United States and many other countries, with computer usage and broadband access both booming here, newspapers are losing readers — especially among young, prosperous city dwellers — to large corporate-owned Web sites. What set China apart from much of the rest of the world, until recently, was that these Web sites faced no legal obstacles in copying material from newspapers, often wholesale.

“There is a very brutal competition between newspapers, with seven or eight big ones just in Beijing, and now a big new player, the Internet, wants to wipe them all out, to change the landscape,” said Yu Guofu, a lawyer who specializes in intellectual property matters.

“The press is leading a hard life and facing an unpleasant future, but it has decided it is better to protect its rights than just sit and wait to die,” Yu said.

According to one recent academic study, newspaper readership in China has declined sharply in the past three years, with the proportion of people who say they read a newspaper at least once a week falling to 22 percent from 26 percent since 2003.

There is a skyscraper in Beijing, in the corner of Sanlitun bar street, that stood unfinished for many years. The tall gray cement skeleton was a constant reminder of the spotty nature of Beijing’s economic growth.

The unfinished skeleton always seemed to symbolize that Beijing – and China – is very much a work in progress.

There is a lot in China that is a work in progress – from its economic foundations to its social mores that incorporate old traditions with new trends. It is still an open question what the ultimate shape will look like but it’s worth watching.

China’s legal system is also a work in progress but one that will have to be defined by Chinese people and based on their own values, beliefs and needs. The world is watching, and often issuing value judgements.

On Friday, courts upheld the convictions of a famous blind activist (on charges with tenuous links to his legal activisim) and a researcher for the New York Times (on bizarre fraud charges). Earlier last week, a conviction against Ching Cheong, a former reporter for Singapore’s Straits Times newspaper accused of spying for a Taiwan, was also upheld.

These cases have generated much publicity around the world and offer a view of China’s legal system.

The building in Beijing sat unfinished for years when the original developer ran out of money. When authorities and other developers started paying attention, the windows and doors quickly went up. Now it is almost finished on the outside, covered by the shiny and reflective windows that will transform it into yet another city center skyscraper.

China’s legal system has been the subject of similar attention for some time now. One question that remains is whether the developments last week are part of the old and bare legal structure or if they represent the finished product that will remain in place for years to come.

It took 2,500 years, but China finally made it illegal to deface the Great Wall. Fines for violating the ban can reach RMB500,000 and include such lewd behavior as “graffiti, carving, planting trees, plundering and driving vehicles”. Too bad they didn’t make plundering a felony back in Genghis Kahn’s time - paying that fine would have taken all the horses in Mongolia!

Seriously (sort of) the authorities are worried about the erosion of the Wall’s integrity, as well as the structure itself. The occasional all-night rave parties that gather at the Wall are a likely target for shutdown. Apparently, some party-goers were (horror!) peeing on the Wall, no doubt in the fits of drug-induced madness.

Well, at least American skateboarding legend Danny Way already jumped the Wall last year. Such stunts may now join the ranks of the Mongol Empire in the dustbin of history.