While Hu Jintao is not required, as George Bush is, to deliver a State of the Union address each year, his deputy Wen Jiabao fired off the modern Chinese equivalent over the weekend.

While Bush, as the president of a democracy, has to contend with the public reaction to the unpopular war in Iraq, Wen has the luxury of knowing that even though his words have influence - and he must be careful not to disturb the markets - he and his comrades are not in danger of losing power anytime soon. And so he could safely assure everyone that, yes, even though the economy is busting loose and the banks are stuffed with greenbacks, all is well.

The market certainly thought so. Traders were happy simply to have no more legislation restricting this or that kind of investment, and the Shanghai Composite nearly hit 3,000. One wonders, however, how they will interpret today’s news that preferential tax status may be stripped from foreign firms this year. My guess is they won’t be that phased if it happens.

This is just priceless. The Financial Times (subscription required) has a story today on draft rules for free information, the details of which the government is not disclosing to the public:

A meeting of China’s State Council, or cabinet, on Wednesday granted approval in principle to draft regulations on government information openness, the latest in a series of moves by leaders intended to make the communist state more transparent.

However, in a reflection of the likely limitations of the new regime, State Council officials on Thursday declined to offer any details of the draft rules or to say when such information might be made available.

… “There is a need for specialized regulation . . . to further promote and standardize work on information openness throughout the nation’s government,” the announcement said.

However, while the new rules may encourage bureaucrats to share more data with the public, there is little chance they will give citizens significant access to anything officials would prefer to keep private.

Have you heard enough on the RMB revaluation debate? Well what do you know about the QQ revaluation debate?

Actually, there is no such debate, but there is a thread of concern running through the PBOC about this QQ stuff - what is it? QQ is a virtual currency - it exists only online, but it has a value in the real world: roughly 1 QQ = 1 RMB.

This from the Asia Times, via China Net Investor:

The so-called “QQ” coin - issued by Tencent, China’s largest instant-messaging service provider - has become so popular that the country’s central bank is worried that it could affect the value of the yuan. Li Chao, spokesman and director of the General Office of the People’s Bank of China (PBOC), has expressed his concern in the Chinese media and announced that the central bank will draft regulations next year governing virtual transactions.

Public prosecutor Yang Tao issued this warning: “The QQ coin is challenging the status of the renminbi [yuan] as the only legitimate currency in China.”

Some of us may recognize QQ as the popular Chinese instant-messaging software. I had no idea they have some kind of currency, which was created to facilitate legitimate online business transactions but has since moved into gambling … and perhaps e-prostitution? The article says that QQ coins to pay for “QQ girls” in “private chats”.

I wonder if Hank Paulson is going to bring this up in Beijing this week?

There was an interesting article in the South China Morning Post today (sorry, subscription required) about China’s securities regulator extending a ban on foreign investors buying into the country’s securities brokerage sector.

In a typical example of the tenuous link between law and actuality in China, the ban was enacted in September this year. However, everybody knew the ban has been in place since the end of 2005, although it was never formally acknowledged.

Regardless, Swiss Investment bank UBS has been ploughing ahead with its attempt to take a 20% stake, and de facto management control, in troubled domestic brokerage Beijing Securities, although the regulator is forcing it to jump through hoops in the process.

Goldman Sachs has also made inroads through a complex (or perhaps simple) financing arrangement with Beijing Gao Hua Securities Company Limited. The securities firm, which is fully licensed to engage in the domestic securities brokerage and proprietary trading businesses, is owned by a group of investors led by Fang Fenglei, a well-known China investment banker. However, the brokerage was basically paid for by the secretive US investment bank.

When regulatory conditions allow, Goldman will, by all accounts, exercise its option to take formal ownership of the brokerage, and its valuable domestic securities brokerage and proprietary trading licenses. In the meantime, it has full run of the place anyway. (The two firms are partners in the joint venture Goldman Sachs Gao Hua Securities Company Limited, but Goldman Sachs has access to secondary trading in the domestic markets through its JV partner, not the JV itself, hence commonplace confusion over the legal and operational status of the arrangement).

How long it is until regulatory conditions allow for official foreign entry remains up in the air, but it is certain the sector will not be reopened until the China Securities Regulatory Commission finishes recapitalising and restructuring the country’s 108 remaining brokerages, and consolidating them through mergers and acquisitions. The SCMP reckons that could be next August, although my money says that will be the absolute earliest.

What the CSRC is trying to avoid is a repeat of London’s Big Bang, which occurred when the LSE dropped barriers to foreign participation in 1986: it cemented London as the heart of European investment banking, but also devastated the city’s brokerages.

The Japanese coined the term the “Wimbledon Phenomenon” to describe the paradox: although Britain provide’s the world’s foremost tennis tournament, domestic players are poor, and the winners are all foreigners.

According to one financial sector official I spoke to a couple of months back, the CSRC has not even drawn up their strategy for opening up yet.
That’s why Goldman and UBS are allowed in. Their job is to import Wall Street principles and practices, preparing China’s players to win at home when the foreign invaders breach the gates. More importantly, they are also here to teach the CSRC how to officiate and interpret the rules. After all, you need to know the rules to bend the rules in favor of the home team.

But the job is a long way from being done. Until it is, China’s answer to Tim Henman, Britain’s best Wimbledon “hope” and perennial early round exiter, will continue to enjoy home court advantage. Now he is winning by ignoble default, and the CSRC is unlikely to change the entry criteria until it is sure its Henmans will win through a superior game.

Probably combined with a subtle home court advantage, courtesy of the court side officials.

The latest book from controversial Chinese author Yan Lianke has drawn a double hit from the censors according to an article in the Guardian.

The Dream of Ding Village uses the true story of the widespread HIV/Aids infection that has devastated a community in Yan’s native Henan province following unregulated blood-selling in the 1990s as a critique of China’s runaway development.

But where Yan has run into trouble with the censors in the past, this time he is blaming himself for censoring his own work.

“This is not the book I originally wanted to write,” Yan told the Guardian. “I censored myself very rigorously. I didn’t mention senior leaders. I reduced the scale. I thought my self-censorship was perfect.”

But evidently it was not perfect enough for the censors who issued a ban on distribution, sales and promotion of the book anyway.

Despite the ban, Yan tells the Guardian that here has been an improvement in the censorship climate since his first run in with the censors in 1994, when his first novel, Xia Riluo, was banned, and he was forced to write personal recriminations for four months.

Now there are no personal recriminations, and his books can still be published overseas, he said. “My work has caused more disputes than those of any other author in China. But the attacks on me have become fewer. I think this shows that in many respects, society is improving, reforming, developing”.

But Yan’s personal story is a lesson in how censorship should be left to the censors, with the author now the one serving up the recriminations. “My greatest worry is that self-censorship has drained my passion and dulled my sharpness,” he said.

As China attempts to lay claim to a seat at the top table of world affairs and commerce, China’s leadership should view this loss of passion and sharpness among the country’s brightest minds as a much greater threat than anything its “dissident” writers and activists can ever hope to throw up.

It is true the intellectual environment is improving, but Yan’s story shows the damage has already been done.

What is it about the People’s Bank of China and the number 27? I’ve been wondering for a while now why the central bank hiked interest rates twice this year, and both times settled for a 27 basis points rise. Today, researching a story on informal lending, I came across another 27 point hike, this time on October 28, 2004.

Maybe it’s a PR thing. Anything less than 25 basis points will be reported - possibly in a disparaging tone - as less than a quarter of a percentage point, which is hardly taking a hard line on a run-away economy. A quarter of a percentage point is simply to bland, while a 26 basis points increase runs the risk of being reported as a quarter anyway. Perhaps 27 is just the first reputable cab off the rank.

But it is also the product of 3 times 9, and 9 is the ultimate Chinese lucky number.

Third time lucky, good PR, or perhaps just a case of wishful thinking? Any insights appreciated.

Norson Telecom Consulting is now plugging China Mobile to receive the first 3G license in mid-2007. However, in a departure from typical analyst thinking, Norson is picking the company to receive a license to deploy the unproven homegrown TD-SCDMA.

Most pundits, including Norson in earlier reports, have speculated the dominant fixed-line provider, China Telecom, would receive the license to deploy the homegrown standard, with China Mobile picking up a license for the proven international standard WCDMA.

Perhaps Norson analysts have been reading China Economic Review’s April cover story on 3G, which predicted such a scenario. The article argued that China Mobile was in a better position to ensure a smooth transition to TD-SCDMA than China Telecom.

China Mobile has an existing 2 to 2.5G GSM network and the world’s largest subscriber base. It would be a simple matter of maintaining and growing users on the existing network, and switching them at such time as its TD-SCDMA network was ready. Given that most existing 3G services can be run on 2G and 2.5 networks, it is unlikely to see a mass exodus of subscribers in the meantime.

If China Telecom received the homegrown license, it would be forced to build a network from scratch, and would be unlikely to ever close on China Mobile’s dominant mobile market share, effectively derailing the homegrown standard before it was launched:

“If China Telecom fails to establish a market for TD-SCDMA, as expected, the government’s 3G aspirations would take a major hit,” the cover story said.

“But even then, there is still a possibility that the homegrown standard will emerge with its reputation intact - China Telecom could get the WCDMA license and leave China Mobile stuck with TD-SCDMA. . . . . . For Beijing, handicapping its strongest mobile operator could be the only way to ensure the success of TD-SCDMA.”

But given that the government has set out its stall on having 3G available by the 2008 Beijing Olympics, a mid-2007 release is cutting things mighty fine. As the April cover story concluded:

“Reading newspaper and analyst reports from 2002 and 2004 gives an uncanny feeling of deja-vu. Analysts seem to make a living out of proclamations that 3G licenses are on the verge of being issued while the government is not slow to proclaim the commercial viability of TD-SCDMA. But as the rest of the world slowly turns its attention from 3G to fourth-generation mobile networks, China is in danger of getting left well and truly behind.

If the government is to honor its promise of 3G in time for the Olympics, it is time it stopped hedging its bets and announced some concrete plans. Failure to do so will be the surest sign yet that all is not well with Beijing’s 3G ambitions.”

Keep an eye on the analysts’ predictions or, better yet, watch this space.

While I wouldn’t want people to think that we at China Economic Review have an improper fascination with animals - we are animal-lovers, but in the socially-acceptable sense - I feel obliged to persevere with our dog-slaughtering thread.

We have established that dog-owners in Yunnan were offered US$0.63 a pooch to kill their pets as part of a provincial purge that saw 54,429 animals culled (here), and that China’s new breed of animal lovers were outraged by it (here).

Now we find that China has in fact grown rather rich from allowing foreigners to hunt animals far more endangered than the domestic dog. By the end of 2005, a total of US$36 million had been earned by granting 1,101 foreign nationals permission to hunt, the South China Morning Post reported at the weekend.

This emerged after an auction was planned - and subsequently cancelled in response to (you’ve guessed it) a public outcry - in Chengdu that would have allowed four Chinese agents to bid for permits to hunt 289 individual animals. The permits, which would then have been sold overseas, covered white-lipped deer, Tibetan antelopes, wild yak, argali (a sheep with spiritual horns, apparently) and wolves.

It appears these hunts have been taking place for 20 years - in remote parts of Sichuan, Gansu and Qinghai - with licenses awarded by “internal administrative approval” as opposed to auctions.

It’s difficult to know how to respond to this. In a way, the existence of such hunts isn’t at all surprising but it makes for an interesting parallel to the dead dogs situation.

I suppose the answer would be to convince the Western hunters that the potentially rabid dogs are in fact unique creatures prized by game shooters across China (having seen the condition of some dogs in the country’s less-developed areas, this might be deceptively easy). The hunters would then be persuaded to spend huge amounts of money on what is in fact a US$0.63-per-carcass killing, with the dog owners getting the difference.

But what is perhaps most interesting is the fact that the whole system was scuppered by its move to the auction format. Something that was previously decided in non-transparent and - probably - bribe-fueled circumstances was taken apart due to its entry into the public domain.

Dogs are still getting killed around China. And people around the world are still throwing up their arms in shock.

“My God, man, they are murdering pooches!”

On August 4, officials in Jining, Shandong province, said they would kill all dogs within five kilometres of any rabies outbreak. In the last eight months, 16 people have died of rabies in Jining. State media did not say how many pooches would be harmed in the making of this policy but the city has about 500,000 dogs.

The day before, the good folks in Yunnan province killed 54,429 dogs in five days after three people died of rabies. Officials were creative in their efforts. They lit firecrackers and followed the barks. Owners were offered US$0.63 to kill their own dogs.

More than a century ago, a similar policy paid residents to kill rats and avoid the bubonic plague. The Chinese, creative entrepreneurs that they are, started importing rats by the truckload.

But as I was saying, the year of the dog is not working out well for our canine friends. (For more on this, see the previous blog Dead Dogs.)

The practice is not entirely new. In the three years leading to 1991, Yunnan folks killed 10 million dogs, Canada’s Globe and Mail reported. But that was before China became trendy, so it didn’t matter as much.

Nowadays, though, even commentaries within China are dead set against the slaughters. A big change from the last year of the dog, 1994, when the Communist party was demanding an end to the “uncivilised and unhealthy” practice of keeping dogs as pets, as the Financial Times tells us.

However, almost 2,400 people died of rabies in China last year. More affluent Chinese are buying dogs by the millions but only 3% are vaccinated.

I don’t know if buying a dog is a right or a privilege. Just like I don’t know what is more important, 2,400 human lives or half a million dogs. Although, I would probably go for the people – much as I like dogs. I also don’t know how you force hundreds of millions to vaccinate their dogs overnight. The Humane Society of the United States said Wednesday it would cough up US$100,000 for vaccines if China stops the killings. That’s like offering to make the Yangtze smaller by taking a sip through a straw.

I do know that no viable alternative step has been put forward, beyond letting dogs live and whoever is careless enough to get bitten take his or her chances with the rabies.

The most ridiculous comment came from People for the Ethical Treatment of Animals, an organization with some practice at the ridiculous comment business.

The group led by Ingrid Newkirk was “urging everyone to actively boycott – not a word we use lightly – anything from China, given the bludgeoning killing of thousands of dogs.”

PETA itself cancelled US$300,000 worth of orders of Chinese products.

That will show’em.

I can’t remember PETA making any kind of stink about the culling of millions of chickens whenever a new case of bird flu appears. Granted, bird flu is unknown and scary while there is a rabies vaccine. Still, that’s probably not much consolation for the chickens.

Imagine the conversation across rural Chinese households if the world actually listened to PETA.

Xiao Meimei: “Baba, where is Spot?”

Father: “Spot had to be killed daughter. We beat him. The government said he could have had rabies.”

Xiao Meimei: “What is rabies, Baba?”

Father: “A bad disease.”

Xiao Meimei: “Baba… why aren’t you at work?”

Father: “We were punished for doing what the government told us to do. They shut down the factory. Nobody wants to buy our things any more.”

Xiao Meimei: “How will we eat?”

Father: “Well, we still have Spot.”

It may be the Year of the Dog, but this didn’t stop government-ordered slaughter of nearly 55,000 pooches in Yunnan Province last week in response to three human fatalities from rabies.

So is a person’s life roughly equal to that of 18,000 dogs? It appears that many Chinese people are asking the same question and their sympathies are on the side of the creature that we won’t heartlessly and inappropriately refer to as “Yunnan’s best friend”.

The torrent of complaint prompted by this indiscriminate slaughter reopens the debate over man’s relationship with domestic beast in China, one that I have always found somewhat perplexing.

Guangdong people’s weakness for a taste of anything with a pulse is well documented, although it never really struck home with me until a visit to the Guangzhou animal market a few years ago. On weirdness alone, this is trumped by a story once told to me by an American girl who studied in Kunming. She and her Chinese roommate were happily watching a documentary about dinosaurs when said roommate broke the silence with: “Dinosaur meat … I wonder what that would taste like … perhaps a little tough.”

I have nothing against people thinking with their stomach, but the increasing appetite for keeping - not eating - domestic pets among China’s urban residents seems to create something of a double standard.

One day in Qingdao last year, I spent the morning visiting a market in the city suburbs. There, hanging in the fresh meat section, were the carcasses of several dogs, shorn of both fur and internal organs. Fast forward to the afternoon and I was in the company of a friend who had set up a business selling flashy accessories to dog owners with a penchant for grooming and dressing their pets as they might do a pampered child.

Stepping into a pet shop which stocked collars, leashes, brushes, hats and booties supplied by my friend, I was greeted by the sight of a miserable dog lying on a surgical couch attached to a drip. The animal’s owner sat alongside, eyes moist, gently stroking her pet’s back.

“What’s wrong with your dog?” I asked. “He’s been ill for a week,” the distressed woman explained. “When I talk to him he doesn’t answer back.”