Archives for category: Economist-China

ONE hundred years ago on October 10th, a mutiny in the central Chinese city of Wuhan triggered the collapse of China’s last imperial dynasty. In Taiwan, which separated from the mainland in 1949 after a civil war and still claims to be the rightful heir of the republic founded in 1911, the anniversary will be celebrated with a parade, including a display of air power. But in China there are mixed feelings. The country is spending lavishly on festivities, too. But its ruling Communist Party is busily stifling debate about the revolutionaries’ dream of democracy, which has been realised on Taiwan but not on the mainland.

China and Taiwan have long disputed each others’ claims to be the heir of the 1911 revolution. Sun Yat-sen, regarded as the revolution’s leader, is officially revered on both sides of the Taiwan Strait. As usual around the time of the anniversary, a giant portrait of him was erected on October 1st in Tiananmen Square, opposite that of Mao Zedong (both wearing Sun suits, as they were known before their rebranding in Mao’s day). But the Communist Party’s efforts to play up the occasion have revealed its nervousness.

In late September, a film about the revolution, “1911”, starring Jackie Chan, a kung-fu actor from Hong Kong, was released. Officials trumpeted the movie but ticket sales have been lacklustre. The film carefully avoids dwelling on the sweeping political reforms initiated by the final imperial dynasty, the Qing, which precipitated its own overthrow. A popular television series, “Advance toward the Republic”, that focused on those reforms and was aired in 2003, was cut by censors before the series finished, and banned from rebroadcast. One scene showed Sun addressing politicians six years after the 1911 revolution with a lament that “only powerful people have liberty”. Echoes of China today were clearly too unsettling for the censors.

In the past year, officials have tried to stop discussion of the 1911 revolution straying into such realms. In November 2010 the Xiaoxiang Morning Herald, a newspaper in south China’s Hunan Province, got into trouble with the censors after publishing a supplement on the revolution. It quoted from a letter written by Vaclav Havel in 1975, when he was still a Czech dissident, to the country’s communist president, Gustav Husak: “history again demands to be heard”. The newspaper did not explain the context, which was Mr Havel’s lament about the Communist Party’s sanitisation of history. It did not need to. Its clear message was that the democratic demands of 1911 could not be repressed forever.

In recent months, upheaval in the Arab world has made officials even more nervous. In April they banned a symposium on the revolution planned by students at several leading universities in Beijing. A website advertising the event said that it aimed to look not only at “inspirational revolutionary victories” but also at things “hidden deeper” concerning democracy.

Two weeks ago the authorities suddenly cancelled the world premier of an opera, “Dr Sun Yat-sen”, which was due to be performed by a Hong Kong troupe at the National Centre for the Performing Arts close to Tiananmen Square in Beijing. “Logistical reasons” were cited, but Hong Kong media speculated that some of its content—including its portrayal of Sun’s love life—was deemed to be out of line.

But the authorities are not letting their political worries spoil a spending opportunity. In Wuhan, where the revolution began, they announced plans to splurge 20 billion yuan ($3.1 billion) on 1911-related exhibitions and on a makeover for the city. The Manchu emperor abdicated in February 1912, ending over 2,000 years of dynastic rule. Officials in Wuhan, and elsewhere, have been keeping quiet about the orgy of violence against Manchus that accompanied the upheaval (see article).

Some Chinese scholars say the revolution did little for China except to usher in chaotic warlordism, followed by authoritarian government. Such accusations have some merit. China did indeed slide into disarray, warlordism and insurrection after 1911. Any hopes of a democratic republic were overwhelmed by efforts to bring the country under control, which the Communist Party achieved in 1949. Li Zehou, a Chinese intellectual, has stirred debate in recent years by arguing that China should have given the Qing reforms more of a chance.

The Communist Party maintains that the 1911 revolution was justified, but finds itself in a quandary. Another star-studded film released earlier this year to mark its own 90th birthday stirred audiences in an unintended way. The film, covering the period from the revolution of 1911 to the Communist Party’s founding in 1921, prompted numerous comments on Chinese internet forums about the lessons it offered for rebelling against bad government. Interesting idea.


SOME international observers have concluded that the Queensway syndicate is a front for the Chinese government. The argument goes that Sam Pa and his partners help China to purchase much-prized resources while keeping official hands clean. Indeed, there are some links. Mr Pa has military contacts in China from selling arms to Angola during the Cold War. The Chinese ambassador in Venezuela appeared alongside him on “Aló Presidente”. The China International Fund office in Angola is run by a former Chinese colonel. And in a company filling, a Beijing address for Wu Yang, one of the syndicate’s original members, matches an address associated with the ministry of state security.

Yet it would be wrong to assume that the syndicate is controlled from Beijing. The Chinese government has made at least three strongly worded statements denying any link with the Queensway syndicate. It has repeated them to Western diplomats in private. China was so wary of corruption surrounding oil deals that in 2004 its secret service supposedly gave the Angolan president a list of 20 top officials who were trying to skim off money.

China’s protestations appear to be mostly genuine. There are at least four pieces of evidence in its favour. First, the Angolans, including Mr Vicente, seem to have gained a significant hold on the syndicate. Recent company fillings in Singapore show that China Sonangol now owns China International Fund, the original vehicle.

Second, when two Chinese state oil firms had a chance three years ago to buy their first stakes in an Angolan oilfield, Sonangol intervened to scupper the $1.3 billion deal, making sure the field went to China Sonangol instead—a strategic loss to China, which is dependent on Angolan oil.

Third, when Mr Vicente and China Sonangol signed their vast deal with the junta in Guinea they shut out a range Chinese state-owned firms from future concessions, even though some of them were already entrenched. Why would China sponsor a private company to undermine its national champions?

Fourth, the syndicate’s founder Mr Wu, who may have had a link with the ministry of state security, no long has any influence in the syndicate—last year Mr Wu sued the other founders, saying they no longer allowed him access to company documents. This year he failed to appear in official records as a director. He was pushed out.

The syndicate looks as if it is a private enterprise. The Chinese state may see it as a necessary evil, letting it operate in Angola and thus insulating Chinese state companies from the corruption that sometimes surrounds large resource deals.

China’s oil trade with Africa is dominated by an opaque syndicate. Ordinary Africans appear to do badly out of its hugely lucrative deals.


WHEN the man likely to become China’s next president meets an African oil executive, you would expect the dauphin to dominate the dealmaker. Not, though, with Manuel Vicente. On April 15th this year the chairman and chief executive of Sonangol, Angola’s state oil firm, strode into a room decorated with extravagant flowers in central Beijing and shook hands with Xi Jinping, the Chinese vice-president and probable next general secretary of the Communist Party. Mr Vicente holds no official rank in the Angolan government and yet, as if he were conferring with a head of state, Mr Xi reassured his guest that China wants to “strengthen mutual political trust”.

Angola—along with Saudi Arabia—is China’s largest oil supplier and that alone makes Mr Vicente an important man in Beijing. But he is also a partner in a syndicate founded by well-connected Cantonese entrepreneurs who, with their African partners, have taken control of one of China’s most important trade channels. Operating out of offices in Hong Kong’s Queensway, the syndicate calls itself China International Fund or China Sonangol. Over the past seven years it has signed contracts worth billions of dollars for oil, minerals and diamonds from Africa.

These deals are shrouded in secrecy. However, they appear to grant the Queensway syndicate remarkably profitable terms. If that is right, then they would be depriving some of the world’s poorest people of desperately needed wealth. Because the syndicate has done deals with the regimes in strife-torn places, such as Zimbabwe and Guinea, it may also have indirectly helped sustain violent conflicts.

The Economist repeatedly put these accusations to the people who feature in this article, asking for their side of the story. But—with one exception, noted below—we heard nothing. In short, it looks as if the fortunes of entire African countries depend to a significant degree on the actions of a little-known, opaque and unaccountable business syndicate. “Buccaneers are cutting themselves a large slice of Africa’s resource cake,” says Gavin Hayman of Global Witness, a watchdog that mapped the syndicate’s deals.

The Queensway rules

The syndicate is built on links forged during the cold war. It is largely the creation of a man known as Sam Pa. Though he uses several names, he was born Xu Jinghua. After attending a Soviet academy in Baku four decades ago, say people who have looked into his career, he traded with Angola during its civil war, which lasted from 1975 to 2002 and over the years was a proxy battleground for several outside powers, including China, America, Cuba, the Soviet Union and South Africa. Mr Pa is a private and rarely photographed person. His name appears in few syndicate documents. He is believed to exert control through Veronica Fung, who may be a member of his family. She controls 70% of a core company, Newbright International. The two frequently travel in Africa, using the syndicate’s fleet of Airbus jets. They are said sometimes to bypass customs.

Mr Pa has several Chinese partners, according to a 2009 American congressional report. The daughter of a Chinese general, Lo Fong Hung, married to Wang Xiangfei, a well-connected banker, controls 30% of Newbright. Mrs Lo is the public face of China International Fund and China Sonangol. She is listed as a director of dozens of interconnected companies. The business’s operations were initially entrusted to the head of a privatised engineering firm from the mainland, Wu Yang. Later, African partners took over.

Although the Queensway syndicate has sometimes been suspected of being an arm of the Chinese government, there is little evidence of that. Indeed, it has often been the butt of criticism from Chinese officials. More likely it was set up to take advantage of a new strategy by the Chinese government, known as the “going out” policy. In 2002, after decades of commercial isolation, China started encouraging entrepreneurs to venture abroad. Short of contacts, Mr Pa teamed up with Hélder Bataglia, a Portuguese trader who had grown up in Angola and had links to Latin America. Together in 2004 they visited Néstor Kirchner, the president of Argentina, and Hugo Chávez, the president of Venezuela. Mr Chávez welcomed them on his weekly television show “Aló Presidente”, where Mr Pa grandiloquently declared: “This is an historic day because we are taking part in your programme.”

The syndicate initialled several deals in Latin America but none of them came to much. The idea was to trade minerals for infrastructure—in return for commodities, Chinese contractors would build housing and highways. But Argentina and Venezuela already had a fair amount of both, so the syndicate turned to new markets.

In late 2004 Mr Pa travelled to Angola. He knew President José Eduardo dos Santos, having first met him as a student in Baku and later traded with his guerrilla army. Mr Pa’s new partner, Mr Bataglia, also knew the guerrillas from having supplied them with food during the civil war. They were joined by a third trader, Pierre Falcone, a French Algerian who has long enjoyed close links with the Angolan elite and particularly the president.

Together the men persuaded the Angolan elite to channel their fast-expanding oil exports to China through a new joint venture, called China Sonangol. Mr Vicente, boss of Angola’s Sonangol, became its chairman. Contracts, signed in 2005, gave the company the right to export Angolan oil and act as middleman between Sonangol and Sinopec, one of China’s oil majors.

China Sonangol threw itself into the business, according to Angolan oil ministry records and applications for bank loans backed by oil shipments. The official statistics are incomplete, but good sources have concluded that almost all of China’s imports of oil from Angola—worth more than $20 billion last year—come from China Sonangol. By contrast, China’s state-owned oil companies have no direct interest in Angolan oilfields, one of their two biggest sources of crude. Their names do not show up on the map of concessions.

To Guinea and Zimbabwe

By 2009 the syndicate was trading a lot of Angolan oil and decided to expand to other African countries. Mr Vicente, both head of the Angolan state oil company and of China Sonangol, flew to Guinea in 2009 to arrange a deal for the syndicate. One of the people he met was Mahmoud Thiam, Guinea’s minister of mines, whose government had come to power the same year in a coup. Mr Thiam is an American citizen who studied at Cornell University and had previously worked as a Wall Street banker at Merrill Lynch and UBS.

With Mr Thiam’s support, the syndicate won the chance to become a partner in a new national mining company. This would control the state’s share of existing projects and, much more important, gain control of future projects in what is a relatively undeveloped mineral territory. Guinea contains the world’s largest reserves of bauxite and its largest untapped reserves of high-grade iron ore. Under a contract signed by Mr Vicente, the syndicate got an 85% share in a venture called the African Development Corporation. The government received the other 15%. The venture won exclusive rights to new mineral concessions in Guinea, including the right to negotiate oil-production contracts in the Gulf of Guinea. In return, the syndicate promised to invest “up to $7 billion” in housing, transport and public utilities, according to the government of Guinea (GDP $4.5 billion).

Ultimately this deal foundered on a Guinean election, but at the time the Queensway syndicate was so pleased that it reportedly gave Guinea’s military ruler a helicopter as a present. Mr Thiam began to travel with representatives for the syndicate—though in a response to our questions (and as the only person to reply to us) he says he was representing the Guinean government’s shareholding in the joint venture and he denies ever having become one of its employees. Mr Thiam went to Madagascar for the negotiation of a deal modelled on the one he made on Guinea’s behalf. Simultaneously, he carried on as mines minister for another year.

Around the same time, Zimbabwe also caught the syndicate’s eye. Mr Pa met Happyton Bonyongwe, the head of the Central Intelligence Organisation (CIO), the country’s notorious secret police, which helps to keep Robert Mugabe in power. Mr Pa’s plane frequently showed up at the Harare airport and he bought properties in the capital, including the 20-storey Livingstone House. His two original partners, Mrs Fong and Mrs Lo, became directors in a new company, called Sino-Zimbabwe Development Limited, which received rights to extract oil and gas, and to mine gold, platinum and chromium. In return, the company publicly promised to build railways, airports and public housing. These pledges were valued at $8 billion by Mr Mugabe’s government.

By 2009 the Queensway syndicate spanned the globe from Tanzania and Côte d’Ivoire to Russia and North Korea and on to Indonesia, Malaysia and America. It had bought the JPMorgan Chase building at 23 Wall Street in New York.

A sad, sad Songangol

Nobody should begrudge an entrepreneur commercial success. And China needs the raw materials that the Queensway syndicate can supply. However, there are three worries about the syndicate’s conduct.

The first is personal gain. The terms under which China Sonangol buys oil from Angola have never been made public. However, several informed observers say that the syndicate gets the oil from the Angolan state at a low price that was fixed in 2005 and sells it on to China at today’s market prices. The price at which the contract was fixed is confidential, but Brent crude stood at just under $55 a barrel in 2005; today it is trading above $100. In other words, the syndicate’s mark up could be substantial. Over the years, considering the volume of oil that is being sold to China, its profit could amount to tens of billions of dollars. The Economist s requests for comment have gone unanswered. No public statement suggests the terms have been renegotiated since 2005.


Sonangol’s skyscraping ambitions

In return for Angolan oil, the syndicate promised to build infrastructure, including low-cost housing, public water-mains, hydroelectric plants, cross-country roads and railways, according to the government. The country desperately needs such things, to be sure. But their value is unlikely to exceed several billion dollars. That looks like a poor deal for the Angolan people.

In Angola accusations of personal enrichment percolate up towards the top of the state structure. In 2006 the head of the external intelligence service, General Fernando Miala, alleged that $2 billion of Chinese money intended for infrastructure projects had disappeared. He claimed that the funds had been transferred to private accounts in Hong Kong by senior officials, though without naming people mentioned in this article. The general was swiftly sacked, tried and imprisoned (he may, however, now be about to make a comeback to government).

Parts of the Angola-China oil trade appear to be contaminated by conflicts of interest. The Angolan president’s son is said to be a director of China Sonangol, the main trading partner of the state oil company. The Economist’s requests for comment to the companies went unanswered. As well as running both the state oil company and its main customer, Mr Vicente is a director of private shell companies linked to the syndicate. Although these may exist for tax purposes, a report on foreign corruption, prepared last year by the American Senate, reveals that Sonangol was deemed so corrupt in 2003 that Citibank closed all its accounts. The report also says that Mr Vicente personally owns 5% of Sonangol’s house bank which has assets worth $8.2 billion. According to the IMF and the World Bank, billions of dollars have disappeared from Sonangol’s accounts. At one point, Sonangol awarded Mr Vicente a 1% ownership stake in the company he chairs. He was forced to give it back after a public outcry in Angola.

In Guinea criticism is focused on the former mines minister. An unpublished 2009 WikiLeaks cable quotes an American mining executive, whose company stood to lose business in Guinea because of the syndicate, complaining that Mr Thiam has “personally benefited from promoting [the] China International Fund”. Mr Thiam denies this. As a former Wall Street banker, he already had money before he returned to the country of his birth.

The deserted railway

The second complaint about the Queensway syndicate is that in Africa it has failed to meet many of the obligations it took on to win mining licences. Zimbabwe is still awaiting even a fraction of its promised infrastructure. Guinea never received the 100 public buses that were meant to arrive within 45 days of the 2009 deal.

The situation in Angola is more complicated, though also disappointing. Chinese contractors have built some housing and railway lines and the projects were at first financed by the syndicate. Signs saying “China International Fund” appeared on construction sites. But in recent years they have been replaced by those of other Chinese companies. According to Western diplomats and Chinese businessmen, the syndicate stopped paying bills for more than eight months in 2007. All work stopped, 2,000 Angolan day labourers were fired on the Benguela railway project and only a Chinese cook remained on duty. Western diplomats suspected the syndicate was banking on being bailed out by the Angolan government, which had staked its legitimacy on infrastructure development. Soon enough, the government issued treasury bonds worth $3.5 billion to finance the projects. Subcontractors are now paid directly by the Angolan state.


Angola’s wealth isn’t trickling down

Six years after the syndicate arrived more than 90% of the residents of the capital, Luanda, remain without running water. Meanwhile, the syndicate has continued to prosper.

The third complaint against the Queensway syndicate is that its cash props up certain political leaders and thereby fuels violent conflicts. For instance, in Guinea the syndicate came to the rescue of the junta. In September 2009 government men went on the rampage, raping women by the score and massacring more than 150 protesters in a sports stadium, which triggered EU and African Union sanctions. A month later, the syndicate signed its minerals deal, transferring $100m to the cash-strapped junta. Bashir Bah, a member of the opposition, condemned the deal. “First of all it is immoral, and second of all it is illegal,” he said.

The deal caused outrage even inside the government. The prime minister, Kabine Komara, a relatively powerless figure, protested about ministers’ conduct to other officials. A memo from the prime minister’s office, dated November 26th and leaked to Global Witness, declared: “The council of ministers did not discuss or bring up the question of creating a national mining company. What’s more it is not acceptable that a foreign company could become a shareholder in such a company, as it would grant the company, ipso facto, the ownership of all the current and future wealth of the country.” Mr Thiam denies any knowledge of Mr Komara’s complaint.

According to international institutions, the military leaders, who backed Mr Thiam, needed the syndicate’s money if they were to hold on to power. A World Bank official told Western diplomats the junta would “sell the country short on mining revenues and tell the international donors to get lost”. The junta eventually fell and, following elections last year, the minerals deal is now in limbo.

In Zimbabwe the situation is even more egregious. The finance minister, an opposition member of the governing coalition, has blocked extra funding for the CIO, presumably because it backs Mr Mugabe. And yet, it is suddenly flush with cash. In recent months it has reportedly doubled the salaries of agents, acquired hundreds of new off-road vehicles and trained thousands of militiamen who are now in a position to intimidate voters during next year’s elections. Several sources who have looked at the deal concluded that the money came from Mr Pa. They say he struck a side deal with the CIO that gives him access to Zimbabwe’s vast diamond wealth—controlled in part by the CIO. The diamonds were for some years banned from reaching international markets because of global industry prohibitions over violence routinely inflicted on Zimbabwean miners. Yet, Mr Pa is said to buy them and apparently makes payments directly to the CIO, bypassing government coffers.

Little is certain about China Sonangol and China International Fund. Our repeated questions to the companies and their representatives went unanswered. The documents and witnesses we tracked down around the world paint an incomplete picture. But they raise questions of immense public interest.

Who benefits?

Oversight of the Queensway syndicate’s businesses is almost non-existent. A decade ago Mr Vicente forbade foreign oil companies in Angola to publish even routine data, on threat of ejection. Since then Sonangol has published some information on its operations. But oil contracts are treated as state secrets. Revenues from deals with the syndicate go to an opaque agency controlled by the president whose accounts are off-limits even to government ministers. Although Sonangol scores reasonably for some criteria, such as revenue, in rankings by Transparency International and Revenue Watch, two lobbies for corporate openness, it still receives bottom rankings for safeguards against corruption.

The syndicate itself is even more opaque. Who ultimately benefits by how much from the lucrative deals is not clear from public records. The syndicate’s corporate structure is fiendishly complex. Individual companies are not vertically integrated—it is not a group in the usual sense. There is no holding company, though the same people keep cropping up as directors in the records of affiliated companies, which are often owned by shell companies registered in lightly regulated tax shelters. Final beneficial ownership is impossible for an outsider to establish.

All this means that the syndicate taints China’s “going out” policy, a cornerstone of the country’s rise in recent years. When the policy works, African resources are swapped for aid, commercial financing and payments in kind such as public infrastructure. But with the syndicate, billions of dollars meant for schools, roads and hospitals have apparently ended up in private accounts. Rather than fixing Africa’s lack of infrastructure, Chinese entrepreneurs and Africa’s governing elites look as if they are conspiring to use the development model as a pretext for plunder.

For more on this topic, see article

A Chinese development proposal causes disbelief


AFTER Prachanda, the leader of Nepal’s Maoists, stepped down as prime minister in 2009 he several times met representatives of the “Asia Pacific Exchange and Co-operation Foundation”. The Nepalese media speculated that this mysterious organisation was a front for either the Indian or the Chinese intelligence services, the two giant neighbours often accused of meddling in Nepal’s politics. The truth seems even stranger.

In July Chinese media reported that the Hong-Kong-based foundation—which is widely thought to have China’s backing—had signed an agreement with UNIDO, the UN’s industrial-development organisation, to invest $3 billion in Lumbini, a village in southern Nepal. Lumbini is the birthplace of the Buddha, which the project aimed to make a “Mecca for Buddhists”, with train links, an international airport, hotels and a Buddhist university.

The news caused uproar in Nepal. Neither the central government nor the local authorities responsible for Lumbini said they had been consulted about, or even heard of, the project. UNIDO’s officers say they will not comment on the affair while they try to discover how the organisation got involved. If this was an exercise in Chinese “soft power”, it was a disaster.

India is highly sensitive to Chinese activities in Nepal. It regards Nepal as part of the Indian sphere of influence, and it is easily Nepal’s biggest trading partner and source of investment. Nepal pegs its currency to the Indian rupee. Through close cultural and linguistic ties, and the machinations of its diplomats and spies, India has long exercised a strong influence on Nepal’s politics. It is widely believed that India helped topple Prachanda (whose real name is Pushpa Kamal Dahal) as prime minister in 2009 partly because he was thought to be too close to China.


Now the role of Nepal’s other giant neighbour is becoming more visible. Chinese interests were once limited to demanding support for their policies in Tibet. To that can now be added burgeoning commercial interests in hydro-electricity, construction and telecoms. This week China’s top security man, Zhou Yongkang, became the latest in a series of senior Chinese officials to visit Nepal, bearing loans and aid packages. Chinese diplomats have begun discreetly treating Nepalese journalists to whisky-fuelled dinners and offering them visits to China—blandishments that were once the preserve of India. Chinese hotels, restaurants and brothels have multiplied in Kathmandu.

How to interpret it all? Observers agree that security remains China’s top priority in Tibet, though it is undoubtedly looking to expand its economic influence, too. For Nepal, balancing India’s influence by engaging more with China is attractive. One of the poorest countries in Asia, Nepal should benefit greatly from improving economic ties with its booming neighbours. As for Lumbini, the Buddha scheme has been shot down, but attempts to revive it are already under way. If the would-be investors handle it better next time, such a huge project may prove irresistible.

An abrupt halt to rapprochement between two giant slices of humanity

ONLY a year ago, a great diplomatic breakthrough—the exchange of ambassadors between the world’s largest church and the world’s most populous country—seemed to be in the offing. Now the mood between China and the Holy See is as bad as it has been for half a century.

On July 14th China’s state-backed Catholic hierarchy, which the Vatican does not recognise, held a three-hour ceremony to consecrate a bishop in the city of Shantou. This was the third time in eight months that a hierarch had been elevated in defiance of the pope. What gave the latest rite a nasty taste was the reported abduction by police of four Rome-aligned bishops who were then pressed to take part in the ceremony. One dissident bishop was “seen sobbing as he was dragged” from home, according to AsiaNews, a Vatican-linked news service.

Chinese Catholics, who may number up to 12m, are split between adherents of a state-run church and those loyal to the Holy See. The big dispute is over who can name bishops. Recently, a grey area between the camps had emerged, with many prelates recognised by both sides. In 2007 Pope Benedict XVI offered an olive branch by recognising the legitimacy of the Chinese state and stopping the unilateral naming of bishops.

But the Vatican has reacted to this summer’s events by declaring that the new bishop and another promoted in similar circumstances in June were ipso facto excommunicated. China’s religious-affairs agency called the Vatican’s move “unreasonable and rude” given the “ardent Catholic faith” of the new bishops.

To some people in, or close to, the Vatican, the mess will confirm reservations they already had about rushing into formal ties with China. George Weigel, an influential American Catholic, wants the pope to keep pressing for religious liberty, including the right to name bishops, before exchanging envoys with Beijing. In his view, cutting ties with democratic Taiwan could pose “grave questions” about the church’s stance on human rights. Among Vatican diplomats, too, there are hawks and doves on the China issue. What the church lacks, says Marco Ventura, an Italian writer on religion, is the strategic vision that guided its diplomacy in the cold war.

Three articles look at China and religion. First, a war of attrition over Tibet; next, China v the Vatican; third, a Chinese project at the Buddha’s birthplace


IT WAS never going to be easy. Installing the Chinese Communist Party’s chosen man as Tibet’s second-highest ranking religious leader has been an uphill struggle since 1995, when it declared him, at the ripe old age of six, to be the new Panchen Lama. But a recent attempt to introduce him to monastic life suggests that Tibetan resistance to China’s choice is still strong. Loyalty to the young man is brittle.

For China, this matters hugely. Tibetan Buddhism has a religious hierarchy with the Dalai Lama at the top, followed by the Panchen Lama. The Dalai Lama is traditionally involved in recognising the Panchen Lama, and the Panchen Lama is part of the process by which each new Dalai Lama is chosen. China has its eyes on a complex struggle that will play out after the death of the current 76-year-old Dalai Lama, who lives in exile in India. With the endorsement of its own Panchen Lama, China wants to choose a successor to the current Dalai Lama and seek to control him. Hence it is believed to be keeping another young man, who was the Dalai Lama’s choice as Panchen Lama 16 years ago, incommunicado in an unknown location. China fears that Tibetan exiles will appoint their own Dalai Lama and it does not want any authoritative Tibetan figure to show him support. Both China and the exiles have recently been stepping up preparations for a coming dispute.

On China’s side, this has involved an effort to burnish its Panchen Lama’s credentials by getting him some monastic training. Gyaltsen Norbu, as he is named, has spent most of his 21 years in Beijing. His outings have been few and secretive. Across Tibet, images of the Dalai Lama’s choice of Panchen Lama, Gedhun Choekyi Nyima, can sometimes be seen on furtive display in monasteries, his face frozen in time as a little boy. Chinese officials probably hoped that installing Gyaltsen Norbu in a big-name monastery might win him more supporters. With some parts of Tibet roiled by unrest—a protesting monk burned himself to death on August 15th in Daofu, a Tibetan-dominated county of Sichuan Province—this was always bound to be tricky.

The monastery they chose was Labrang in southern Gansu province, on the edge of the Tibetan plateau. It is not clear why. Historically, the Panchen Lama’s seat was Tashilhunpo Monastery in Shigatse in central Tibet. Robert Barnett of Columbia University in New York says it is possible that even at Tashilhunpo some lamas do not accept China’s choice. In 1997, Tashilhunpo’s then abbot, Chadrel Rinpoche, was sentenced to six years in prison (he has not resurfaced since) for helping the Dalai Lama make his choice of Panchen Lama. In 1998, Chinese officials tried to give their Panchen Lama a monastic start at Kumbum in Qinghai Province, a monastery that has usually acquiesced to Chinese rule. Its abbot, Arjia Rinpoche, fled to America to avoid the duty.

Labrang has no reputation for tameness. Its monks joined a wave of protests that swept Tibet and neighbouring Tibetan regions in 2008 after an outbreak of rioting in Lhasa, Tibet’s capital. In recent days, Labrang has again proved stubborn. Locals gave China’s Panchen Lama, who arrived on August 11th, nothing like the rapturous reception his predecessor, the tenth Panchen Lama, received during visits to Tibetan areas. Large numbers of police prevented any protests, and foreigners were ushered out of town. Tibetan exile groups quoted sources at Labrang saying that Gyaltsen Norbu was expected to stay for weeks or months. A local official, however, says he left on August 16th. His cool welcome, it seems, hastened him on his way.

In Dharamsala in India’s Himalayan foothills, Tibet’s government-in-exile has been busy manoeuvring, too. On August 8th it swore in a new prime minister, Lobsang Sangay. This is touted by the exiles as an historic event, with the new man taking over all the Dalai Lama’s political functions. Mr Sangay, who has never been to Tibet, struck an ambiguous tone in his inaugural speech, referring to Tibet as “occupied” but also expressing his wish for “genuine autonomy” under Chinese rule.

The Dalai Lama’s decision to give up his political role appears aimed at bolstering the post of prime minister before his death. A new Dalai Lama chosen by the exiles is likely to be a small boy who will need many years of tutelage before taking up his duties. It also presents a challenge to China, which has always refused to recognise the Dalai Lama’s political mantle. Now that he no longer has it, China has a face-saving opportunity to engage with him properly. Chinese officials have held several rounds of talks with the Dalai Lama’s representatives in recent years, the latest in January 2010, but have not moved beyond finger-wagging.

Few see any sign of change. The man likely to become China’s next president, Xi Jinping, visited Lhasa in July for official celebrations of the Communist Party’s takeover of the territory 60 years ago. He praised the fight against “separatist and sabotage activities staged by the Dalai group and foreign hostile forces”. But there have been some positive signals, too. A meeting between President Barack Obama and the Dalai Lama at the White House in July elicited the usual sharp criticism from China. But it did not derail subsequent exchanges between China and America, including a visit to Beijing this week by the vice-president, Joe Biden.

On August 13th the Dalai Lama told reporters in France that he would discuss the issue of his reincarnation at a meeting of Tibetan religious heads in September. He said that unlike China, he is in no hurry to make arrangements.


Online business in China is growing even faster than the offline sort. Local tastes and needs, as well as the state, are endowing it with distinctive features

Jul 30th 2011 | HANGZHOU | from the print edition


WHEN Huang Bing graduated from university in 2005, he promised himself he would make his first 1m yuan (about $155,000) within three years. It took him a bit longer, but no matter: if his business, a collection of online cosmetics stores, maintains its current trajectory, he will soon count his first billion. In a few years he expects annual revenues to reach 10 billion yuan.

Mr Huang’s company, United Cosmetics International, is only one of thousands on Taobao Mall, a huge online shopping centre. He spotted a demand from women in China’s hinterland for branded cosmetics—and advice on how to use them. “A lot of women in rural areas don’t have access to quality products,” he explains, guiding visitors through the firm’s headquarters in the outskirts of Hangzhou, two hours’ drive south-west of Shanghai. On several floors, at desk after desk, “beauty consultants” busily type answers for customers.

As goes United Cosmetics, so goes the Chinese internet. It is growing by leaps and bounds (see chart 1), as ever more people log on from phones, homes or offices, or in huge internet cafés (pictured). The China Internet Network Information Centre reckons that the online population, already the world’s biggest, has risen by 6% to 485m this year. And almost two-thirds of people are not yet online.

Just as striking, as the country’s internet grows larger it also grows more distinctly Chinese. “The beauty of the internet is that it easily adapts to local conditions,” says Paul Zwillenberg of the Boston Consulting Group (BCG). The Chinese internet is the best example of the argument that, far from creating uniformity, the global network is shaped by local forces.

Consumers, firms, economy and state

Those forces can be divided into four: the demands of Chinese consumers; the attitudes of Chinese entrepreneurs; China’s offline economic development; and the role of the state. Start with consumers. China’s internet users are younger than the Westerners who first logged on about 20 years ago. They are hungry for entertainment and mostly poor (but fast becoming richer). Foreign internet companies have struggled to replicate their success in China (though they have done quite well as investors, a current quarrel between Alibaba Group, one of China’s internet giants, and America’s Yahoo! notwithstanding). Chinese firms, most of which began by copying Western models, prospered when they devised clever adaptations.

Take Tencent, China’s second-biggest internet firm by market capitalisation. It started as a clone of ICQ, a chat service, but quickly outgrew the original by offering China’s youthful masses a cheap way to communicate and have fun. Tencent’s chat service, which boasts 674m user accounts, and most of its other offerings are free. The firm makes most of its money by selling virtual goods (a dress for an avatar, a weapon in an online game) for play money that users buy with real cash.

Similarly, Taobao, which is owned by Alibaba, was launched to compete with the Chinese service of eBay, an auction site. It quickly overtook its rival by not charging transaction fees. But its main achievement has been to overcome perhaps the biggest barrier to online shopping in China: lack of trust. Alibaba’s online payment system, Alipay, the world’s largest by value of transactions, has an escrow function that withholds payment until goods have been received (most deals are still cash on delivery). Taobao today boasts 370m registered users. It accounts for three out of four online sales in China and reportedly one out of two packages posted.

Vancl, a start-up that intends to go public soon, is satisfying both consumers’ desire for instant gratification and their growing brand-consciousness (or dislike of pirated goods). Its well designed but cheap clothes and shoes can only be ordered on its website. In the big coastal cities they are often delivered the same day—a service most big e-commerce sites now offer.

A recent addition to this innovative group is Sina Weibo. Run by Sina, another leading internet firm, it is often billed as the “Twitter of China”, but it allows users to attach comments, pictures and even videos to their messages. Sina has also recruited thousands of celebrities to use the service.

China’s internet entrepreneurs are different, too. There are lots of part-timers. Students have taken en masse to selling on Taobao: many university dormitories double as storerooms for goods awaiting orders. Full-time entrepreneurs may have less experience than their Western counterparts, but make up for that with sheer effort. “They do not want to miss their chance to make it big—which is why they work like crazy and practically abandon life,” explains Kai-Fu Lee, who used to run Google China but now heads Innovation Works, a start-up incubator in Beijing.

This drive to win explains why Chinese online entrepreneurs are often more pragmatic than Western ones and do not mind adapting something invented elsewhere, says Hans Tung of Qiming Ventures, a venture-capital firm. They tend to be less enamoured of technology. At Google in Silicon Valley, maths problems are pinned to some toilet doors, so that brains need never be idle. The headquarters in Beijing of Baidu, which has 75% of China’s search market, feels much less dominated by engineers. “We’re focusing more on products and satisfying our users’ needs,” says Robin Li, Baidu’s boss. He is making a big bet on what he calls “box computing”, which turns Baidu’s search box into a window to all kinds of applications and services.

The will to win and the abundance of venture capital make China’s internet a “ferociously gladiatorial environment”, says Richard Robinson, an American who has founded several start-ups in Beijing. Rivals spring up literally overnight. There are 80 social networks, 200 online-video services and 2,000 online-coupon sites. Questionable business practices, such as kickbacks for online advertisements, add to the competitive frenzy.

The founders of companies that come out ahead in this battle often prefer to enjoy their new wealth rather than become serial entrepreneurs, as successful Silicon Valley folk are wont to do. Others set out to build sprawling online empires, which is one reason why China’s biggest internet companies, more than their Western counterparts, fight each other directly and on several fronts. Alibaba, Baidu and Tencent are becoming internet conglomerates offering similar sets of services.

Filling the void

China’s relatively underdeveloped economy also plays a role. In the West online companies often disrupted existing industries. In China they are more likely to fill a void. “The internet will be a much more robust force in China because offline businesses are much less efficient,” argues Duncan Clark of BDA, a telecoms consultancy in Beijing.

Except in big cities near the coast, conventional retailing is fragmented and underdeveloped. Yet much of the country has been covered by fast internet pipes. A basic broadband connection costs less than 100 yuan a month. The result will be a “huge leapfrog effect”, says David Michael of BCG. The consulting firm recently predicted that the annual value of China’s e-commerce market would quadruple by 2015, to $305 billion. It may then be the world’s largest (see chart 2).

The size of the market makes it possible to try new business models. Although Taobao and its sister site Taobao Mall, where only professional sellers are allowed, somewhat resemble eBay and Amazon, their executives have a grander ambition. They want to build an “operating system for e-commerce”, as Richard Wong, a Taobao executive, puts it. Taobao sells no goods, but supplies the services that make it easier for others to trade: payment, instant messaging and even logistics. In January Alibaba said it would invest up to 30 billion yuan in new warehouses.

The media industry, with its lumbering state giants and fragmented private sector, has created another opening: for online-video sites, such as Youku. It looks (and sounds) much like YouTube, but Victor Koo, its boss, likens it to Hulu and Netflix, American sites that deliver television programmes and films over the web. Since most Chinese are just discovering digital video, says Mr Koo, users generate only about a quarter of Youku’s content. The rest is made professionally, for instance by television stations or Youku itself.

Youku also illustrates the fourth feature of China’s internet: the role of the state. Until 2007 regulation was rather lax, allowing start-ups to dominate the industry, notes Bill Bishop, a longtime China-watcher. Yet as the internet’s economic and social importance has grown, so has political intervention. In June 2010 the government published a white paper outlining its regulatory plans. In May it said it had created a central agency to oversee the internet.

Regulation mostly involves licensing and self-censorship. Youku needs several licences. The rules on censorship are vague, and firms err on the side of caution. “You have to know what is sensitive,” says an executive at a big internet firm. Youku has developed a sophisticated monitoring system: dozens of editors watch new material and classify it, building a video database that can be used to find good content, but also to block undesirable clips.

Even though complying with such rules can be costly, hardly anyone complains, even in private. Regulation also makes life harder for would-be competitors, foreign or Chinese. “People take the government as a given,” says Mr Lee of Innovation Works. He adds that he had to think more about censorship at Google.

Some big internet firms even seek the government’s input before launching a service, in effect involving it in product development. When designing Weibo, Sina apparently worked closely with regulators. The service is capable of quickly stopping certain users from logging on and blocking posts containing certain terms. When protests broke out in Inner Mongolia in May, the name of the province could no longer be searched for. At the same time the state sees benefits in microblogging and social networks. They allow citizens to vent their grievances and give prompt warning if, say, corruption in a provincial city is getting out of hand. “Beijing has a political interest in keeping China’s internet commercially healthy,” Mr Bishop wrote in his blog, DigiCha, in February.

Will China’s internet continue to have distinctively Chinese characteristics? Some differences from the West’s will fade as the industry and China’s economy mature and the country’s internet population grows older and richer. Other features will probably persist, for example the dominance of three digital conglomerates, Alibaba, Baidu and Tencent.

The influence of the state is likely to reinforce these “three mountains”. They are well versed in dealing with state agencies and they can spread the costs of regulation over a broad revenue base. If anything, the three will probably become even more dominant. Rather than buying promising start-ups, they tend to build their own version of a popular new service. Western firms build too, but also buy. If Chinese start-ups are likely to be crushed, finance will be hard to come by. Sina, boosted by the success of its microblogging service, is considered a test case for whether smaller firms can catch up with the big three at all.

Abroad, China’s internet firms are largely untested. Tencent is the most daring: it owns a stake in Mail.Ru, a Russian portal, for instance. Baidu is planning to offer its services in a dozen other languages. “We are going to expand into many other markets,” Mr Li said recently.

Expanding abroad will not be easy. Being Chinese, a cultural advantage at home, may be a disadvantage elsewhere. Still, China’s internet will have global influence. In some ways it already has. Tencent has made money from virtual goods and currencies; Silicon Valley is following. Twitter has been looking at what Sina Weibo does. Some European e-commerce sites are said to be interested in Vancl’s model. Expect more of China’s online characteristics to be adopted in the West.