Doing business in China: May 2009 Archives

By Jessica L. Weinstein | FOX news
May 28, 2009

Even if an American company goes to court and beats a Chinese manufacturer for providing faulty products, it's virtually impossible to get the overseas company to make good on its legal debt.

It was a David and Goliath battle from the beginning: a small American photo paper distributor suing the largest national photosensitive materials manufacturer in China. Only this time, David may come up short.

In 2006, California-based Royal Marketing Inc. made a deal to distribute photographic paper made by China Lucky Film Corp. It wasn't long before Royal Marketing's customers started to complain that the paper was junk, and the company's vice president, Farshid Ourian, learned it did not meet U.S. quality standards.

So Royal Marketing sued China Lucky for negligent misrepresentation, breach of warranty and breach of the implied covenant of good faith and fair dealing -- seeking an award of over $135 million.

In March, China Lucky got lucky. Royal Marketing won its lawsuit, but a California jury awarded it only $3 million. And, so far, that's $3 million more than China Lucky has paid.

Ourian's 27-year-old business is now on the ropes -- its reputation damaged, its staff shrunk from 26 employees to five.

Meanwhile, China Lucky, which is nearly 50 percent owned by the Chinese government, continues to thrive.

"These people have come here, totally ruined our company and get away with that? Where is the fairness in that?" Ourian asks.

And Royal Marketing is not alone. Even if an American company goes to court and beats a Chinese manufacturer, it's virtually impossible to get the overseas company to make good on its legal debt.

"It's a great accomplishment, but you're not even half-way there. You have a piece of paper, what's that worth? You've got to collect it," says Stephen Ching, an attorney who represents both American and Chinese companies in lawsuits.

Experts agree that the only path to success is to put a lien on a Chinese company's American assets -- "But if it's an exporter from China, without any presence in the U.S. beyond its exports, then it's harder to attach the lien to anything, therefore harder to collect," says Gary Hufbauer, a China expert at the Peterson Institute for International Economics.

"They feel and act untouchable," says Jeffrey Killino, a product-liability attorney who's filed lawsuits against Chinese manufacturers of defective toys, tires and pharmaceuticals.

"They will tell me in meetings to my face, 'Look, my client's in China. You can't collect this judgment anyway.' They know there's no treaty."

So after investing hundreds of thousands of dollars in legal fees, and after winning its case in California Superior Court, Royal Marketing is unlikely to see a dime of the $3 million it won in damages. What's more galling is that China Lucky can continue to do business here.

"There should be a mechanism to force companies who have a judgment against them to pay it before doing business in the U.S.," said Daniel Krishel, Royal Marketing's attorney. "What's wrong is that they're allowed to continue selling their products in the U.S."

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By Agence France Presse (AFP) | via UNCENSORED Yahoo! News
May 26, 2009

Exiled Chinese dissidents who survived the 1989 crackdown on the Tiananmen Square demonstration said on Tuesday that, after 20 years, China should be held to account for the bloodshed.

Speaking at a Paris news conference organised by late designer Yves Saint Laurent's businessman partner Pierre Berge, former protester Zhou Qing said: "The government owes us the truth, and owes it to Chinese society."

The call came as Chinese dissidents prepared to mark the 20th anniversary of the Beijing protest, during which hundreds, possibly thousands, of students and workers at a pro-democracy rally were killed by security forces.

China's Communist government defends the June 4, 1989 crackdown, saying it had been necessary to quash a "counter-revolutionary" rebellion, and the state has so far released no official death toll for the repression.

Berge, a wealthy investor, has been a long-standing critic of China and most recently clashed with Beijing over the sale of two antique bronzes from Saint Laurent's collection, which the regime said were stolen goods.

Zhou was among the protesters who mounted a peaceful six-week protest in the square, a major landmark in the heart of Beijing, before government tanks and troops rolled in and launched a broad crackdown on dissident groups.

"The events of June 4 are a wound on the body of China," said Zhou, who now lives in Germany. "We must recognise the truth. If we hide this wound, the situation will only get worse.

"We the survivors must speak for those who died in Tiananmen Square, and also for those who were jailed," he said. "There were minors aged less than 17 who were locked up with me who were raped by common law criminals."

"After 20 years, the events continue to weigh heavily on Chinese society. I saw 11 students crushed under tanks," said his French-based comrade, Cai Chongguo, author of "I was in Tiananmen", published for the anniversary.

Former protest organiser Zhang Jian, 39, said he had been shot in the leg when soldiers stormed the square, adding: "For as long as I live I will bear witness so that the young Chinese know what happened."

Zhang will appear in a new Tiananmen documentary to air June 4.

Berge said the international community should do more to pressure Beijing over its human rights record, and noted that he had personally broken off business ties in China following the crackdown.

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By Nick Zieminski | REUTERS | via UNCENSORED Yahoo! News
May 21, 2009

U.S. manufacturers and retailers that get products or components from China are increasingly concerned about quality, intellectual property and rising costs in China, and more are looking at alternate sites, according to a study published on Thursday.

Twenty-six percent said China contributes the most risk to their supply chain, up from 21 percent who said so three months ago, according to AMR Research Inc, a Boston-based market research firm. Other Asia-Pacific countries and the United States were seen as less risky in AMR's quarterly survey.

"The perception of risk has increased in China," said Kevin O'Marah, AMR's chief strategist.

The group works on supply chain issues with companies such as Boeing Co, Cisco Systems Inc, Intel Corp, Safeway Inc, Johnson & Johnson and Genzyme Corp.

More manufacturers are concerned about labor costs in China and 51 percent cited product quality as a risk, up from 45 percent in the first quarter. More of them are rethinking their China strategy, according to AMR.

O'Marah cited Samsung Electronics Co Ltd, sound systems maker Bose and Hewlett-Packard Co among companies favoring other Asian countries. German toymaker Steiff will shift production back to Germany and Portugal after outsourcing a fifth of it to China in 2003.

"People are rebalancing their portfolios," O'Marah said. "They will end up not looking at China as the be-all, end-all low-cost manufacturing location of the world."

CONCERNS OVER INTELLECTUAL PROPERTY

AMR's survey of 133 companies found 59 percent say China poses an intellectual property (IP) risk, compared with 8 percent who said so about India and 4 percent for Eastern and Central Europe.

A quarter said IP is a bigger risk than a year ago, reflecting the extent to which China has become an integral part of the supply chain. Where before Chinese factories merely assembled products, today they make them from scratch and have greater access to engineering and sourcing information.

As a result, auto, technology and drug companies cite IP as a growing risk, O'Marah said. Machinery makers such as Caterpillar Inc and Deere & Co are concerned about counterfeit parts. Such parts are also a "major issue" for aircraft makers, including Boeing.

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By Erik Eckholm | THE NEW YORK TIMES
May 15, 2009

In May 1989, as he feuded with hard-line party rivals over how to handle the students occupying Tiananmen Square, China's Communist Party chief requested a personal audience with Deng Xiaoping, the patriarch behind the scenes.

The party chief, Zhao Ziyang, was told to go to Mr. Deng's home on the afternoon of May 17 for what he thought would be a private talk. To his dismay, he arrived to find that Mr. Deng had assembled several key members of the Politburo, including Mr. Zhao's bitter foes.

"I realized that things had already taken a bad turn," Mr. Zhao recalls in a secretly recorded memoir only now coming to light -- a rare first-person account of crisis politics at the highest levels of the Chinese Communist Party.

From Mr. Deng's impatient body language and the scathing attacks he received from his rivals, Mr. Zhao says in the memoir, which is now being published in book form, it was obvious that Mr. Deng had already decided to overrule Mr. Zhao's proposal for dialogue with the students and impose martial law.

"It seems my mission in history has already ended," Mr. Zhao recalls telling a party elder later that day. "I told myself that no matter what, I would not be the general secretary who mobilized the military to crack down on students."

As Mr. Zhao anticipated, he was immediately sidelined and soon vilified for "splitting the party." He was purged and placed under house arrest until his death in 2005.

But in this long, enforced retirement, it turns out, Mr. Zhao secretly recorded his own account, on 30 musical cassette tapes that were spirited out of the country by former aides and supporters, of his rise to national power in the 1980s, his battles with the old guard, and his alliance and tussles with Mr. Deng as he loosened Soviet-style controls and helped put China on a path to the dynamic economic power it has become today.

Mr. Zhao also tells how he was outmaneuvered during the lengthy student-led pro-democracy demonstrations in the spring of 1989, setting up his ouster shortly before the military crackdown on June 4 of that year.

One striking claim in the memoir, scholars who have seen it said, is that Mr. Zhao presses the case that he pioneered the opening of China's economy to the world and the initial introduction of market forces in agriculture and industry -- steps he says were fiercely opposed by hard-liners and not always fully supported by Mr. Deng, the paramount leader, who is often credited with championing market-oriented policies.

In the late 1970s, as the party chief in Sichuan Province, Mr. Zhao had started dismantling Maoist-style collective farms. Mr. Deng, who had just consolidated power after Mao's death, brought him to Beijing in 1980 as prime minister with a mandate for change. Mr. Zhao, who like other Chinese leaders had little training in or experience of market economics, describes his political battles and missteps as he tried to give more rein to free enterprise.

Roderick MacFarquhar, a China expert at Harvard who wrote an introduction to the new book, said it had given him a new appreciation of Mr. Zhao's central role in devising economic strategies, including some, like promoting foreign trade in coastal provinces, that he had urged on Mr. Deng, rather than the other way around.

"Deng Xiaoping was the godfather, but on a day-to-day basis Zhao was the actual architect of the reforms," Mr. MacFarquhar said in an interview.

Recording over children's songs and Beijing Opera performances on the cassettes in his guarded compound just north of Tiananmen Square, Mr. Zhao describes in generally modest terms his tenure as prime minister and then party secretary.

Mr. Zhao had initially made written notes and then in around 2000 decided to tape them, spreading the cassettes among four visitors who were present during the recordings, said Bao Tong, a former close adviser to Mr. Zhao who remains under tight surveillance in Beijing.

Mr. Bao said in an interview this week that he learned about the tapes in 2007 and had helped assemble the complete set, calling the memoir "very rare historical material" that "belongs to all the people of China and to the world." He said the voice was unmistakably that of Mr. Zhao and that, given the presence of others at the tapings, their authenticity was not in doubt.

Nearly 20 years after the crackdown and Mr. Zhao's fall, the edited transcripts are being published in a book, "Prisoner of the State: The Secret Journal of Premier Zhao Ziyang" (Simon and Schuster) that will be formally released in the United States on May 19. A Chinese-language edition is being published in Hong Kong.

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By AFP - Agence France Presse - via UNCENSORED Yahoo! News
May 13, 2009

The United States voiced concern Wednesday over China's reported arrest of a student leader of the 1989 democracy protests.

"We are disturbed by reports that prominent Chinese human rights activist Zhou Yongjun has been charged with fraud after months of detention in China," State Department spokesman Ian Kelly told reporters.

"It is our understanding that contrary to Chinese legal procedure, Mr Zhou's family was not officially informed until May 13," Kelly added.

"The embassy in Beijing has raised our concerns with the ministry of foreign affairs."

"We are calling on the government to ensure that all legal and administrative decisions against him are conducted in a manner that is both transparent and consistent with Chinese law and international human rights norms," Kelly said.

Zhou's family was told of the charges against him Wednesday by police in southwestern China, more than seven months after he was reportedly seized trying to return after years in the United States, his brother Zhou Lin said.

Zhou was a leader of the Beijing Students' Autonomous Union, one of the most visible groups in the protests at Tiananmen Square, which ended on June 4, 1989 in an army crackdown that killed hundreds, possibly thousands.

"They told us the charges concerned fraud. But we are still unclear on the situation. We are waiting for more information," Zhou Lin told AFP by telephone.

Zhou was charged in the family's home city of Suining in Sichuan province.

He said Zhou had a US "green card" denoting permanent residence status there -- a fact likely to make his arrest a touchy issue with Washington.

A spokeswoman at the US embassy in Beijing said earlier it had raised Zhou's case with China's foreign ministry but she had no further comment.

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By Michael Bristow | BBC World News
May 08, 2009

China says it has found no evidence that human negligence caused schools to collapse during last year's earthquake.

Thousands of schools were damaged while buildings nearby remained intact in the massive quake in Sichuan Province.

Many parents of dead and injured pupils blamed poor construction. They demanded an investigation.

The government has looked into the issue, but has now rejected the accusation that anyone was responsible for the schools' collapse.

According to official figures released on Thursday, a total of 5,335 schoolchildren died when their classrooms collapsed.

In some cases, schools were the only buildings to fall down during the magnitude-8 earthquake.

That led some parents to claim that they had been badly built by local governments eager to cut costs.

Beijing officials investigated the accusations, and initially suggested they could be true.

'Cover-up'

But Tang Kai, a senior planning official, said there was no evidence that human negligence led to the collapse of any school - or any other building.

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By Gillian Wong - Associated Press | HeraldNet, Everett, Washington
May 05, 2009

Mexican officials angry about China's decision to quarantine more than 70 Mexicans over swine flu fears sent a plane Monday to the communist country to bring its citizens back home. China sent its own plane to retrieve Chinese nationals stranded in Mexico.

Mexican President Felipe Calderon complained of a backlash against Mexicans abroad, and sent the chartered plane on Monday morning to fly to several cities and pick up Mexicans who wanted to leave China. In one case, the Mexican ambassador said, a family with three small children were rousted from their hotel by Chinese before dawn and taken to a hospital.

"I think it's unfair that because we have been honest and transparent with the world some countries and places are taking repressive and discriminatory measures because of ignorance and disinformation," Calderon said.

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By Jill Drew - Washington Post Foreign Service | THE WASHINGTON POST
May 03, 2009

JUYUAN, China -- After last May's massive earthquake buried her son under tons of shattered concrete at his collapsed school, Han Xuehua, numb and disbelieving, boiled spicy water every Friday for weeks to prepare hot pot, his favorite dish. "I didn't want to accept that my child wasn't coming home," she said softly. "I still cannot accept it."

Han and dozens of other parents have pressed their town government to acknowledge that the school was shoddily built, to prosecute those responsible for its construction and to allow families to grieve at the site. Their demands have been rejected. Officials and local police have warned them against speaking openly or petitioning at higher levels. The parents are under constant surveillance, their phone calls monitored and their movements restricted.

Xiong Yonghao, a wiry man with close-cropped hair and a quick, nervous laugh, also was consumed by grief and fury after his 11-year-old daughter died in a school collapse several miles away, in the city of Mianzhu. He led a parents' protest campaign in the months after the quake, but he decided in October to move on and began bidding for contracts to rebuild destroyed houses.

"I have to accept reality," Xiong said. "I cannot live just waiting to die."

These are the faces of the survivors of the Sichuan earthquake, which ripped through this mountainous province in southwestern China on May 12, killing about 80,000 people and leaving millions homeless. Although the central government is eager to rebuild and has spent huge amounts erecting new, soundly constructed neighborhoods throughout the quake zone, it has also flattened dissent. Thousands of police and public security officials from all over China have poured in to suppress any signs of anger and protest.

President Hu Jintao has praised the rebuilding efforts as proof of the superiority of China's socialist system, with its central command structure and enforced national unity. Indeed, money, materials and government volunteers from all over the country deluged Sichuan after the quake, and officials here say most projects can be completed within two years, much less time than they originally estimated it would take to restore normalcy to the 46 million people in the province affected by the disaster.

But normalcy seems a long way off, perhaps impossible, for people such as 37-year-old Han. On a recent day, her eyes, set in a round, sun-baked face, had a mournful, lost look. She tried to have another baby, she said, after China relaxed its one-child policy for parents who had lost a child in the earthquake. But she miscarried at five months.

"It's hopeless. I'm just getting older and older," she said, standing in front of the tarp-covered shack where she spent the winter. "What will happen to me?"

Enforcing Calm

On April 4, a holiday known in China as tomb-sweeping day, when people pay tribute to the dead, the tensions in Juyuan erupted into the open.

One parent, Li Shanfu, set out at 8:30 a.m. for the Juyuan Middle School grounds to publicly mourn his daughter, a 16-year-old student who had been pulled from the building's ruins and later died of her injuries.

Li, a 44-year-old construction worker who used to sell his blood plasma to raise money for his daughter's school fees, said nearly 2,000 special police officers had surrounded the site, now just a fenced-in field of weeds with four rusty basketball hoops. Before he reached the cordon, Wang Zhen, a town vice governor, approached him and asked him to stay calm. If Li would go home, Wang said, he would be given 1,000 yuan, or about $145. If he kept quiet until after the May 12 anniversary, he would get another thousand yuan.

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By Michael Wines | THE NEW YORK TIMES
01 May 2009

Behind the west Beijing apartment building where Liu Xia keeps a fifth-floor flat, the police have built a guardhouse. Its purpose is not to protect Ms. Liu, who seeks no safeguarding. The house is for the guards who watch her.

Inside, they take notes to record her comings and goings. When she ventures out, a guard picks up the phone. Soon, a sedan with darkened windows carrying a man with a telephoto-lens camera is trailing her.

During a recent chat in a nearby teahouse, Ms. Liu wondered aloud why she unnerves China's rulers enough to merit her own guardhouse. She is not active in politics, she said, and does not even use a computer. "I take photos, paint paintings, write poems, read books, cook food," she said with a mirthless laugh. "And drink."

But, of course, she knows why. She is married to Liu Xiaobo, a writer, philosopher and democracy advocate. On Dec. 10, Mr. Liu and 302 others issued a manifesto, called Charter 08, that urged China's Communist Party to abandon monopoly rule and establish a multiparty system of government.

The police seized Mr. Liu two days before Charter 08 was released. He has been locked ever since in a windowless room about an hour's drive north of central Beijing. He is denied access to lawyers, to pen and paper and, except for two brief visits, to his wife.

He is allowed to ask for books. His latest request was for the works of Kafka.

Perhaps Mr. Liu sees himself in Gregor Samsa, the Kafka protagonist who, transformed into a giant pest, is locked in a room in the hope that "out of sight" will become "out of mind."

But his captors' plight is also surreal. Signed by leading intellectuals, including some with links to the Communist Party, Charter 08 has been called the most important political statement since the 1989 Tiananmen Square protests.

Increasingly, Liu Xiaobo is no ordinary dissident, but an international cause. And the crackdown on him and his wife shows signs of becoming a public-relations dilemma for Chinese leaders.

"If they don't suppress this matter, its influence will keep growing," said Zhang Zuhua, a political theorist who helped Mr. Liu and others draft the charter. "But the more they suppress it, the more its influence will grow."

Mr. Zhang also has a police guard, and a sedan that follows him. He has been warned that he is under investigation and should not make political waves.

Charter 08 concerns party rulers, some contend, because it posits an alternative to their monopoly just as China is integrating with an overwhelmingly democratic world.

Among the 20 largest economies, China is alone in enshrining single-party rule in its Constitution. Russia and China both persecute political opponents. But only China is visibly agitated by Charter 08's premises: that people should elect their leaders, divide power among government's branches and make the military answerable to civilians.

"Freedom is at the core of universal human values," the charter states. "The government exists for the protection of the human rights of its citizens." And, it states, "The most fundamental principles of democracy are that the people are sovereign, and the people select their government."

Mr. Liu and Mr. Zhang first drafted those phrases more than three years ago with about eight other friends. Their inspirations, Mr. Zhang said in an interview, were the Magna Carta, the Declaration of Independence, France's 1789 Declaration of the Rights of Man and of the Citizen and Taiwan's 1980s democracy movement.

Mr. Zhang says their goals are evolutionary, not revolutionary. Most of the signers witnessed the destruction of China's last pro-democracy movement in Tiananmen Square in 1989; some, including Mr. Liu, were participants in that movement. "Twenty years later," Mr. Zhang said, "we all think that China will head toward liberal democracy eventually. But the problem is that we cannot use such sacrificial means again. So how to find a better way toward democratization that's more suitable to China's situation?

"People must come up with a constructive view. That's the main idea behind Charter 08," he said.

Such manifestos are hardly new. In December 1978, the Fifth Modernization, a proposed liberalization of the political system to go with China's other moves toward modernity, was posted on Beijing's Democracy Wall -- and its author was handed a 15-year prison sentence. Evidence of the document was wiped from Chinese history.

Whether Charter 08 and Mr. Liu will meet similar fates remains unclear. Thirty years later, party leaders appear equally determined to retain power, but more cautious about how.

Censors have deleted Charter 08 from Chinese-language Internet pages and chat rooms, and some Web sites publishing pro-charter bloggers have been shut down. Without mentioning the charter, party leaders have railed against multiparty democracy and separation of powers as Western-imposed "erroneous ideological interferences."

Many of the charter's original signers have been interrogated; some have lost prominent positions or, in one case, been transferred from Beijing to remotest western China.

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