FT SPECIAL REPORT ChinaWednesday December 12 2012 www.ft.com/reports | twitter.com/ftreportsNew leaders pulling in their direction. This is Inside » partly because the Hu Jintao adminis- tration, despite overseeing what was perhaps the greatest period of pros- perity in centuries, did not seriously attempt to enact economic and politi-face tough cal reforms that could have put the Growth on track country on a more sustainable path. “Hu [Jintao] and friends will be Beijing needs to remembered for transitioning the rebalance its [People’s Republic of China] from a regional to a global power, but they policy towards actually deserve little credit for that; consumptionchallenges it was going to happen no matter who helmed the country,” write Derek Page 2 Scissors and Dean Cheng at the Wash- ington DC-based Heritage Foundation. “Their decade leading the PRC should Crowded auto be viewed largely as one of lost oppor- tunities, even failure.” market struggles They argue that, in 2002, when Mr Manufacturers vie Hu and his colleagues took power, China boasted sustainable growth with global rivals of more than 8 per cent, income to gain tractionSuccessfully navigating Beijing’s difficult Page 2political environment could result in an era of ‘In the next 10 years the biggest crisis for the Stopping the rotradical social change, says Jamil Anderlini Vice-premier has government will be a the daunting taskW hen the man anointed to led the world’s most populous nation crisis of legitimacy’ rule China for the next since 1949. In a clear attempt to differ- of rooting out decade addressed his new subjects for the first entiate himself from his technocratic predecessor, Mr Xi said the party inequality appeared at least to be illegal payments time on November 15 his must make “great efforts” to avoid manage-able, investment and con- Page 4speech was refreshingly free of the placing “undue emphasis on formality sumption were roughly balanced andstale political slogans favoured by and bureaucracy”. the banking system had been over-outgoing Chinese president Hu Jintao. He stressed the need to crack down hauled after teetering on the edge of Cross-strait In his booming, accentless Manda- on rampant corruption and bribe- insolvency five years earlier.rin, Xi Jinping mentioned the word taking within the party and govern- This year the economy is expected investment rises“socialism” only once and used a sig- ment and to improve social services to grow just over 7.5 per cent, its Trade pacts helpnificant portion of his short address to and environmental protection. slowest pace since 1999, and invest-criticise the Communist party he Since the madness of Mao Zedong’s ment far outstrips household con- thaw onceleads. “Our party faces many severe chal- Cultural Revolution ended with his death in 1976 the country has wit- sumption as a share of GDP. In response to the 2008 global finan- frosty relationslenges and there are many pressing nessed one of the most impressive cial crisis, Beijing ordered state- Page 4problems within the party that need periods of economic growth in history. owned banks to flood the economyto be resolved,” Mr Xi told the nation The past decade in particular saw with cheap loans to prop up flaggingin a live televised address. The new China’s economy grow rapidly, in- growth, prompting an enormous Celestial capitalleadership must “effectively deal with creasing from the world’s sixth larg- expansion of credit that economiststhe prominent issues within the party; est to the second largest, accompanied worry will ultimately not be repaid. Architecture,earnestly improve the party’s work by low inflation and a benign interna- Thanks to huge overuse of water, exhibitions andstyle and maintain close ties with the tional environment, at least from Bei- coal and other resources, and blatantpeople”. jing’s perspective. disregard for environmental laws cuisine attract As speeches by Chinese leaders go,this one was a remarkably frank Most Chinese academics and gov- ernment officials agree Mr Xi and his and regulations, China is arguably the most polluted place on earth, the inquisitiveadmission of the huge problems fac- incoming administration will not have with environmental concerns an Page 4ing the authoritarian party that has the luxury of such powerful forces Xi Jinping, incoming president, left, and Li Keqiang, the incoming premier Reuters Continued on Page 2Battle to balance urbanisationwith ecological sustainability resources into account.” “eco-cities” built from the unwalkable for pedestrians.Environment Urban migration is drasti- ground up and based on Chinese officials point out cally changing patterns of conservation principles. that another challenge isCities are a key front consumption and behav- Despite the myriad efforts who will pay for policiesin the fight against iour: China’s city dwellers to make cities greener, pro- that lessen a city’s environ- use three times as much gress has been slow because mental impact. Sewagepollution, writes electricity as rural resi- China’s broader economic treatment, efficient rubbishLeslie Hook dents, eat 10 times as much sugar, and require vastly and political structure still rewards local officials for disposal, and clean energy sources can all be costly. more infrastructure as they high investment and fast “Someone might build aBy the time you finish read- go about their daily lives. growth, rather than for sus- new sewage plant to meeting this article, more than One official estimates that tainability. The economic regulatory requirements,400 Chinese people will have for every person who moves boom of the past three dec- but then they might shut itleft the countryside and put to a city, the government ades was fuelled by high down when the bosses aredown new roots in a city. spends Rmb100,000 ($16,000) investment in fixed assets, not around to save on costs China’s cities, which to build additional roads, a model that birthed sprawl- and energy,” says Xiaalready house a tenth of the bridges, utilities and other ing, inefficient cities full of Guang, head of policyworld’s population, are public goods – which all buildings built so poorly research at the Ministry ofswelling every minute. It is require energy-intensive they barely last for 20 years. Environmental Protection.the largest migration in hu- inputs like steel or cement. “Think about who For this reason, achievingman history, and is a driv- Policy makers have tried China’s cities are built for,” urban sustainability – anding force behind China’s to guide cities toward a muses a municipal official succeeding in broader envi-demand for everything from more sustainable path based in Fujian province. ronmental efforts – dependsteel to sugar to electricity. using policies that range “They aren’t built for on transforming the eco- Perhaps more surpris- from carbon emission tar- people. They are built as nomic growth model andingly, cities have become a gets and incentives for political accomplishments.” rewarding officials for sus-key front in the country’s localised solar power, to One result of this is the tainability as well as GDPfight against pollution and caps on energy use and giant street grids that make growth, according to offi-efforts to shift toward more huge investments in public all Chinese cities feel eerily cials and academics.sustainable growth. transportation. Last month similar – and make them Henry M Paulson, foun- China’s rapid economic Hu Jintao, then China’s top der of the Paulson Institutedevelopment has been leader, pledged to launch a and former US Treasuryaccompanied by chronic “revolution in energy pro- Secretary, says buildingenvironmental degradation duction and consumption,” sustainable cities in Chinaand worsening pollution – and said that urbanisation will require a “new modelwhich now poses a serious must be balanced with “eco- of municipal finance” andthreat to human health and logical security”. that the urbanisation proc-social stability, according to China’s biggest cities, like ess can only be managedofficials. As China’s leaders Beijing and Shanghai, have well if it is accompanied bywork to change that growth taken the lead in many of economic reform.model, cities are at the fore- these efforts. To reduce air “There needs to be anfront of their efforts. pollution and carbon emis- effort to build sound, long- “We should not follow the sions, Beijing (pop. 20m) is term economic frameworkshigh-intensity model of phasing out coal-fired that really recognise thewestern cities,” says Han power plants within the scarcity of our naturalWenke, director of the city’s urban core, replacing resources,” he says.Energy Research Institute them with cleaner-burning Whether in the US or inunder China’s economic natural gas power plants. China, what is needed, heplanning agency, referring In central and western says, is “a growth modelmainly to energy consump- China, taxi fleets run on that lets us increase pros-tion. “The faster we urban- natural gas instead of petrol perity without exhaustingise, the faster we consume because it is cheaper and our natural resources or. . . We have to take the con- cleaner. And many munici- Cities need energy-intensive undermining the environ-straints of energy and palities are sponsoring inputs such as steel ment”.On FT.com »Military machine Quality of life Labour shortagesLearning to use Discovering the Double-digitnew equipment joys of free time wage increasesChina is expanding Spending on leisure Productivity mustthe deployment and tourism is rise or factoriesof its hardware, on the rise, reports risk closing, writessays Kathrin Hille Patti Waldmeir Rahul Jacob
2 ★ FINANCIAL TIMES WEDNESDAY DECEMBER 12 2012 ChinaEconomy is Risk increases in alternativeon track but finance sectorreform remains Loan financing equivalent in developedin the sidings economies in the run-up to the global financial crisis. A tipping point has But exposure to the shadow been reached, says assets in China is very broad because banks them- Simon Rabinovitch selves have become the main channel for their distribution. China’s biggest banking Banks have been fighting problem has long been a for customers by marketing lack of risk taking. Bankers what are known as wealth have lavished loans on management products – state-owned enterprises, deposit-like instruments believing the government that offer yields about will back them up, and 150 basis points higherGrowth Beijing needs to rebalance policy shied away from the hurly- burly of the private sector. than ordinary savings accounts. These returns aretowards consumption, says Simon Rabinovitch But a tipping point of sorts has been reached this achieved in large part by directing the customers’ year, showing risk is on the funds into the shadowC rise in the Chinese banking banking sector, though with hina took one step forward product in 2010, a level never seen sector – for the better and only the most minimal of over the past year in before in any leading economy in for the worse. disclosures. rebalancing its economy peacetime. The other side of the Since July, for the first A reminder of the risks towards a more sustainable coin is that personal consumption time ever on a consistent inherent in such activity growth model. But, in the accounts for just about 35 per cent of basis, non-bank institutions came in early Decemberpast few months it has also taken one GDP, down from 46 per cent in the have been as big a source of when Hua Xia bank, one ofstep back. 1990s and far below the norm in other financing as banks them- the country’s most aggres- Building on a trend that began last fast-growing countries. selves. That has ensured sive distributors of wealthyear, consumption was a bigger A recent working paper by the that credit growth in China management products,contributor than investment to International Monetary Fund assessed has remained strong even blamed an employee forgrowth in the first three quarters of the extent of China’s over-investment. though the government has issuing a product thatthis year, a crucial shift for an Its conclusion was that investment in put a cap on lending by might not be able to repayeconomy which has long been China had been running at a level banks. The ratio of total investors.excessively reliant on investment. about 10 per cent higher than would credit-to-gross domestic Hua Xia said the products Nevertheless, faced with a deepen- be considered optimal for an economy Welfare state: that will allow people to spend more “If we do not do it, then we will not product in China has risen were backed by assets froming slowdown, the Chinese govern- at its stage of development. babies are money. More than 430m Chinese are make mistakes, but we will bear his- this year to more than 190 a pawn shop and a car salesment has undone some of that The deviation is “larger and [more] vaccinated covered by basic health insurance, up toric responsibility,” he said in a per cent from roughly 175 company in the poor cen-progress by reaching for a persistent than the implied over- en masse at a from just 40m a decade ago. speech in late November. per cent in 2010 and 2011. tral province of Henan.familiar solution: it has cranked up investment in other Asian economies hospital in Aksu Cautiously, the government has Ha Jiming, vice-chairman of the “This development is a That, however, is an iso-spending, especially on infrastructure leading up to the Asian crisis [of Reuters begun to introduce interest rate dereg- investment management division of double-edged sword,” says lated case and regulatorsprojects. 1997-98] or in Japan in 1980 before the ulation. As of June this year, commer- Goldman Sachs in China, believes Simon Ho, a banking ana- say they are confident that As a result, the Chinese economy is onset of its lost decade,” the authors cial banks are able to set deposit rates that, among other issues, Mr Li will lyst with Citi. they have a handle on thepoised to end 2012 on a relatively of the IMF paper wrote. 10 per cent above benchmark rates. concentrate on making it easier for “Ample credit growth risks. “Unlike in some for-strong note, but data are likely to Based on that comparison alone, it This seemingly small move is helping rural residents to settle in cities and means a non-performing eign countries, most finan-show that it was thanks to invest- would seem that a miserable fate pave the way to greater competition will also push for service industries to loan shock is unlikely cial activities by non-bankment, not consumption. awaits the Chinese economy. There for funding among banks, raising the be opened more widely to private [because companies can financial institutions in A surge in spending on railways has are, however, two crucial distinctions cost of capital for borrowers and investors. But these ideas have all access financing], but the China come under supervi-been emblematic of this. Investment between China and its previously hence discouraging investment. been talked about for a while and new rapid growth of credit [is sion,” Zhou Xiaochuan, cen-in rail projects increased 82 per cent over-invested Asian peers. The cause of rebalancing is being policies are likely to be implemented coming] through less regu- tral bank governor, said inyear on year in October, up from a The first is that the funding for furthered by structural changes in the only slowly. lated and opaque products.” November.37 per cent pace in August. China’s investment has been almost economy. Mr Ha says: “Gradualism, instead of The biggest alternative But with the shadow Such backsliding has been seen entirely domestic in origin. This Most important of these is the cold turkey, is still the tone of future provider of credit has been banking sector expandingbefore. As early as 2007 Wen Jiabao, means that the country should be pending decline of that part of the reforms. This is manifested by the trust companies – a corpo- so quickly in China, regula-the departing premier, pronounced safe from the sort of external debt population that is of working age. emphasis on the importance of intro- rate structure which com- tors have their work cut outthat China’s economy was danger- crisis that plagued South Korea and With the labour force already growing ducing pilot programmes when carry- bines aspects of private in staying on top of it.ously out of kilter: growth had Thailand. more slowly, employers must compete ing out major reforms.” equity firms and hedgebecome “unsteady, unbalanced, unco- The second is that, despite the for workers more than ever and wages These are all positive omens. But, funds. Trust company lend-ordinated and unsustainable”. But recent backsliding, the government have been rising by about 10 per cent as this year has shown, the shift in ing rose by more thanwhen the global financial crisis appears to be acutely aware of the a year – an important spur for China’s economic model is far from 40 per cent this year, com- ‘In the end, socialerupted in late 2008, China unleashed dangers of over-investment and has consumption. preordained. pared with just a 15 per pressure may forcea Rmb4tn ($585bn) stimulus package started to take a series of steps to Li Keqiang, who is all but guaran- Officials were all too willing to put cent increase in formalto avoid falling into a recession. change the underpinnings of growth. teed to be appointed premier in the objective of rebalancing to one bank lending. banks to shoulder That pushed investment up tonearly 50 per cent of gross domestic It has made progress in building a welfare state, a necessary backstop March, has so far made many of the right noises about economic reform. side when confronted with the alter- native of a sharp growth slowdown. The corporate bond mar- ket has also grown very any losses’ quickly, emerging as another key alternative source of financing. It is When regulators took steps, possible to put a positive for instance, to slow theCarmakers compete in a crowded market gloss on this – it heralds an growth of trust companies important change from the in recent months, financing traditional pattern of about flowed instead to securities three-quarters of China’s brokerages. financing coming through It turned out that securi- the bank sector. ties brokerages, stung by a “The booming bond mar- weak stock market, were ket reflects the govern- only too eager to follow the Co, the global consultancy. to the US, European, Japa- “I don’t think it’s a per- domestic carmakers are ment’s promotion of direct trust model by packagingAuto industry But the new slower nese and even Korean car- manent issue,” he says, but turning to overseas markets financing, which should high-yielding loans into growth model is not going makers that dominate the notes that a recovery will to take up the slack. reduce the reliance on the investment products. As aLocal manufacturers away any time soon, auto Chinese market. depend on resolution of the They have responded by banking system, diversify result, assets under man-vie with global rivals market experts say. However, in recent years, underlying political dispute cranking out exports to risks and improve the agement in the securities China’s 46 per cent domestic automakers have and will take years rather some of the world’s less efficiency of resource allo- sector have more than tri-to gain traction on growth in 2009 and 32 per lost, rather than gained, than months. sought-after markets – such cation,” Jian Chang, an pled from Rmb282bn at thethe mainland, writes cent in 2010 catapulted the mainland into position as market share in China and now hold less than 30 per While foreigners carve up the market territory ceded as Iran and Iraq – with year--to-date exports up economist with Barclays, wrote in a recent note. start of the year to Rmb930bn at the end of thePatti Waldmeir the world’s largest automo- cent of the market. Previ- by the Japanese, domestic 27 per cent and China But the International third quarter. bile market, several years ously, they dominated the automakers are still viewed expected to sell 1m vehicles Monetary Fund said in its The fact banks them- ahead of expectations. hypercompetitive, slim- as competing mainly on overseas this year. global financial stability selves are the main inter-Only in China could growth By last year, however, margin low end of the mar- price, despite their recent But to become global report in October that the mediary between investorsof nearly 7 per cent a year passenger car sales rose ket but western automakers efforts to move upmarket in players in the auto industry corporate bond market in and non-bank institutionsbe considered a collapse in only 5.2 per cent, while the have even broken into that a hurry. – as Beijing has long China bore some of the raises the question of justthe market. But when it pace of car sales so far this stronghold, with attractive Lin Huaibin of IHS Auto- wanted them to be – same characteristics as the how many of the shadowcomes to Chinese passenger year has quickened only new small models. motive in Shanghai says China’s carmakers must murkier shadow banks: products might eventuallycar sales – which rose 6.9 slightly to 6.9 per cent. Japanese carmakers have the market’s relatively poor still find a way to crack the high returns and artificially wend their way back on toper cent in the year to Octo- China still sold a total of recently lost market share perception of Chinese largest car market in the suppressed default risk. bank balance sheets.ber – growth levels that 18.5m vehicles last year, because of anti-Japan dem- brands is no longer merited. world, right on their door- “Underpinning demand is “Wealth managementwould be welcome else- compared to 12.8m light Generational change onstrations in several “A lot of people are pessi- step. a record of zero bond products and trusts sold viawhere are seen as disap- vehicles sold in the US. Chinese cities in September, mistic about Chinese OEMs Auto industry executives defaults matched by banks may be perceived aspointing. Mr Russo forecasts that sparked by a territorial dis- [original equipment manu- estimate domestic car- remarkably high credit rat- having little more risk than With foreign automakers passenger car annual sales with a population of at least pute between Beijing and facturers] but the quality of makers will not have even ings,” the IMF wrote. It bank deposits as it is gener-depending more and more growth will fall from the 25 1m, and the bulk of the Tokyo which appears far Chinese OEMs is improving half of that market in the noted that 98 per cent of ally believed that every-on Asian sales to bolster per cent average of the dec- Chinese population living from resolution. and the gap is shrinking near future. But, then rate bonds are AA or thing will be taken care oflong-term weakness in their ade before 2010, to 5 to 8 per in cities outside developed The main beneficiaries of with foreign brands,” he again, no one would have higher. by banks and/or the govern-home markets, anything cent for the coming decade. coastal areas, auto market Japan’s decline appear to be told a recent auto industry predicted five years ago The Chinese onshore cor- ment,” Wang Tao, an econo-short of stratospheric Like the Beijing govern- experts expect at least western and Korean auto- conference in Shanghai. that China would so porate bond market has yet mist with UBS, wrote in agrowth from China would ment, which thinks less fre- single digit growth for the makers, whose products are “But they have a poor quickly top the world in to experience a default, recent note. “In the end,probably qualify as netic growth is good for the foreseeable future. The seen as better substitutes brand image and it will auto sales. The Chinese with local government bail- social pressure may indeedbad news. In the past five Chinese economy overall, question is not, who will be because of their reputation take time for consumers to market has confounded the outs protecting companies force banks to shoulder theyears, China contributed most auto executives wel- the buyers, but who will be for higher quality. understand that quality best forecasters in recent such as LDK Solar which risk and any losses.”one-third of total global come lower growth – and the sellers? “It will take a long time improvement,” he notes. years, and this time may be were on the brink of trou- So, while credit flows ingrowth in vehicle sales, stress there are still plenty Homegrown automakers to establish the consumer Meanwhile, as mainland no different. ble. The shadow banking China are more diversifiedsays Bill Russo, former of Chinese consumers eager have spent three decades belief that Japanese cars car sales growth slows and sector, though growing than in the past, the buck ishead of Chrysler in China to buy their first car. trying (with Beijing’s help) are once again fashionable,” competition with foreign With additional reporting by quickly in China, is still still likely to stop with theand an advisor to Booz & With more than 150 cities to become true global rivals says Mr Russo. automakers intensifies, Yan Zhang much smaller than its banks.New leaders face tough challengesContinued from Page 1 growth is already reaching science, education, health heightened repression and within itself or will it be say in who governs them sise the “great revival of military are exerting influ- its limits so we need to con- and solving housing prob- short-term policies to keep overthrown by an external and how. In the brief the Chinese nation” and the ence over China’s foreignincreasingly common cause centrate on the develop- lems; this is what we call a the economy humming. force? That is the biggest address there was also no need for China to “stand policy there,” says Zhuof demonstrations and riots. ment of core services in- lack of software.” In recent years the question it faces.” direct mention of how Mr more firmly and powerfully Feng, a professor of interna- The rising consensus stead.” While the Hu administra- domestic security budget, Some analysts and even Xi intends to deal with the among all nations”. tional relations at Pekingamong economists is that He says that one of the tion at least attempted to which includes money for some government officials rest of the world at a time This kind of language University. “The biggestthe export-oriented, invest- first priorities of the new redress the paradox of things like police, secret believe Mr Xi has the desire when China appears plays well to a populace challenge for China in thement-led growth model that government will be to im- being a socialist nation that police, courts and para- and possibly the authority increasingly assertive and raised on a steady diet of next decade will be whetherhas sustained China for prove social services, a task struggles to provide basic military troops, has to introduce sweeping polit- even threatening to many nationalism and lessons on or not it can co-ordinatemore than three decades is that the Hu administration social services, in the more exceeded the official mili- ical reforms in the coming of its neighbours. historical “humiliations” the many domestic interestrunning out of steam and attempted with varying fundamental area of politi- tary budget. China spends years, but so far there is He did repeatedly empha- inflicted on China by foreign groups to come up withmajor reforms are needed degrees of success. cal reform they did not more on repressing internal little solid evidence to invaders. Many Chinese aca- a more effective foreignfor growth to continue. “The government is basi- even try to shake up the threats than guarding support that theory. demics, however, argue that policy.” “Ensuring the sustaina- cally absent from providing status quo. against external enemies. Mr Xi’s inaugural speech Beijing’s foreign policy The world should hopebility of growth is an enor- public goods and the In response to rising “In the next 10 years the focused on the importance ‘The government is apparatus is a mess and Mr Xi and his team are upmous challenge,” says laws and regulations [that demands for more transpar- biggest crisis for the gov- of improving his subjects’ basically absent needs an urgent overhaul. to navigating that journeyZhang Bin, an economics govern social services] ent government from an ernment will be a crisis of lives with higher incomes, “If we take the South and carrying out the urgentresearcher at the Chinese are defective. The govern- increasingly wealthy and legitimacy,” says Wu Qiang, better social services and from providing China Sea as an example, political, economic and for-Academy of Social Sciences. “The contribution of man- ment needs to put far more investment into well-informed public, the party mostly responded a politics professor at Tsing- hua University. “Can the better living conditions, but there was no mention of public goods’ we can see that oil compa- nies, maritime surveillance eign policy reforms needed to address the bafflingufacturing to economic things like food safety, with a combination of party introduce democracy giving the people a greater authorities and even the array of problems they face.
4 ★ FINANCIAL TIMES WEDNESDAY DECEMBER 12 2012 ChinaWang takes Taiwan Cross-strait investment slowly picks up as political relations improveresponsibility It is a mark of how the relationship between Taiwan and China has strengthened over the past few years that Taiwan’s flagging economy and a stock market that has underperformed much of the region.for stopping rot even the former head of The signs are positive. In Taiwan’s opposition party – November, the largest which historically has been investment yet by a Chinese hostile to the mainland and company in a Taiwanese in favour of Taiwanese one was unveiled, whenin public office independence – recently Sanan Optoelectronics visited Beijing to meet announced plans to buy an officials and academics. $81m stake in Formosa Since Taiwan’s President Epitaxy, an LED maker, Ma Ying-jeou took office in although the deal awaits 2008, Taiwan’s relationship regulatory approval. with China has warmed Overall investment from significantly. The two have China into Taiwan had risen signed nearly 20 trade and 309 per cent year on yearCorruption The vice-premier’s brief is to root investment pacts, started direct flights between to $156.7m by October of this year. Most of that cameout increasingly sophisticated forms of illegal Taiwan and the mainland and made Taipei the first from two Chinese banks that opened branches inpayments, reports Kathrin Hille market outside Hong Kong able to clear renminbi Taipei this summer. Yet analysts and transactions. businesspeople forecast thatW But with those key mainland Chinese hen the seven men who This is despite untiring efforts to agreements sealed, the pace investment in Taiwan will, will rule China for the better supervise officials and block of change in the relationship for now, remain limited. next 10 years presented their chances of siphoning off funds will likely begin to slow, Although Japanese themselves last month, and building networks. Over the past businesspeople and political companies are increasingly six of them wore red half decade, China’s criminal code has analysts say. interested in partnershipsties. Wang Qishan, the vice-premier been overhauled and the party’s inter- Many of the regulations with Taiwanese companieswell known to foreign investors as nal rules updated to outlaw methods that limited Chinese to work on the mainland,one of China’s most capable economic of self-enrichment, such as receiving investment in Taiwan or the new cross-strait tradepolicymakers, came in a blue one. salaries for roles that involve no work imposed tariffs on agreements have yet to Mr Wang will need to separate him- or having family members amass Taiwanese goods shipped to spark similar interest fromself from the rest of the political elite riches using official privilege. China have been loosened western companies, saysto some extent if he is to succeed in But, although thousands of officials or are under negotiation. Christoph Nettesheim, headhis most challenging task yet: battling are found guilty of corruption every Remaining restrictions, such of Boston Consulting Groupcorruption. year, the constant tweaks to the rules Battle lines: required officials at all levels to report social media expose them for owning as limits on mainland in greater China. Instead of putting him in charge of have not stopped scores more from people in the their income. But Chinese scholars watches, cars or houses worth far investment in Taiwan Mainland investors havethe economy, the Communist party continuing the same practices. The fishing village involved in training cadres say offi- more than their legal salary could pay property, are seen as too focused on a limited numbermade him head of the central reason, which even officials who do of Wukan cials lack even the most basic concept for. Every time that happens, the complicated or politically of sectors, particularlydiscipline inspection commission, the not support the idea of western-style protested of what constitutes illegal income, party’s propaganda machine asserts fraught to change for now. technology, where investorsparty organ that investigates cadres separation of powers acknowledge, is against official with a large majority regularly boost- such misbehaviour is being dealt with Clarification of the status want access to Taiwan’ssuspected of corruption. that the party itself is above the law. corruption and ing their meagre official salaries with “according to law”. of the political relationship intellectual property, says Almost everyone in China agrees “We have fine laws but they are illegal land grabs fees from “red envelopes” handed out Such assurances are often met with between Taipei and Beijing John Chen, a Taipei-basedthat corruption is endemic. The applied selectively,” says a retired offi- AFP on occasions such as ribbon-cuttings sarcasm, as the public increasingly remains too controversial for consultant on cross-straitCommunist party leadership has been cial who headed the anti-corruption at the opening of a road or a factory. understands how officials transfer Taiwan’s government to business.warning publicly for many years that unit in a regional prosecutor’s office. Moreover, the forms the cadres fill their wealth out of the country and open talks on, political Real estate is an area ofcorruption is the single largest threat “When we had a case, we would in every year stating their salary are how senior leaders’ families have analysts say. interest, although mainlandto its monopoly on power. When Hu always have to ask the party to decide normally just archived. “They are not amassed riches. “[Taiwan’s leaders] cannot buyers still face strict limitsJintao, outgoing party chief and whether to go ahead with an indict- audited nor published, but those are “Whereas corruption in Japan and do a political deal unless on purchasing property.president, presented his work report ment or even an investigation,” he exactly the steps that are necessary,” South Korea was ‘structural’ and they have a mandate from Chinese developer Vantoneat the party’s national congress last says. “If you don’t hear back, you had says Prof Lin. institutionalised, in China it was the people of Taiwan,” says has a partnership with amonth, he warned again that corrup- better back off.” For seven years in a row, Han anarchic and predatory,” Andrew Steve Tsang, an expert in local group to build luxurytion could see the party, or even the Another problem is that the anti-cor- Deyun, a Chongqing-based lawyer and Wedeman, an expert on Chinese cor- Chinese and Taiwanese flats on a mountain northnation, perish. ruption watchdogs are easily compro- delegate to the national people’s con- ruption, writes in his new book, Dou- politics at the university of of Taipei, the first big Yet the leadership has been unable mised. Since 2004, the party has been gress, has proposed draft legislation at ble Paradox. Nottingham. Chinese-backed developmentto stop the rot. An account of the fighting corruption in the discipline the annual session of China’s rubber “Corrupt officials were not, it The question for many is on the island.problem and the party’s counter- inspection units on all administrative stamp parliament requiring officials seemed to me, scraping off a share of to what extent the improved Beyond that, Mr Chenmeasures by Lin Zhe, a professor at levels. To ensure officials are not leni- to declare publicly their assets. But the gains companies earned from the relations and trade pacts hears from prospectivethe central party school, the party’s ent towards people they see as their the campaign has hit a brick wall as government’s pro-growth policies; in already signed will boost Chinese investors thatmain institution for training cadres, own, the unit’s cadres must serve out- such rules would put the most senior most cases they were simply preying cross-strait investment. “Taiwan’s market is toohighlights the high number of cases, side their home provinces. But the leaders in a bind. on companies, stealing a share of Many investors are hoping small – China invests inlarge amounts of money and high problem persists, says Prof Lin. Village or town officials are fre- their profits in return for not harming mainland investment in the Africa or southeast Asia.”degree of organisation and sophistica- One reason for this is that supervi- quently investigated for alleged cor- them or, in many other cases, stealing smaller market will boost Sarah Mishkintion that corrupt practices involve. sion is patchy at best. China has long ruption when users of China’s vibrant from the state itself.”Colonial architecture, exhibitionsand cuisine woo the inquisitive chicken, which need to beBeijing ordered in advance. Meals can comprise dishes fromCelestial capital all over China, finished offoffers an array of with ice cream flavoured with Chinese grain-liquorcultural attractions, or black sesame.says Jamil Anderlini No visit to Beijing is com- plete without a visit to the Great Wall and every hotelThe ancient celestial capital in town can arrange a tripof Beijing is the embodi- to one of the various accessment of the traditional points. The MutianyuChinese world-view. Towering presence: ‘Road of Rejuvenation’ Photoshot location has smaller crowds In the middle of Beijing and is more picturesquelies the Forbidden City, than other closer spots andfrom where the emperor lakes to the north of the hordes of tourists, the should still be less than aruled “tianxia” or “all Forbidden City are stun- former legation quarter for two-hour drive (includingunder heaven”. Here was ning, for those who like to foreign diplomatic missions long traffic delays) fromthe centre of the world, the explore and see how locals lies to the east of Tianan- central Beijing.Chinese empire and the var- spend their spare time. men Square. These leafy When it comes to night-ious Asian vassal and tribu- The national museum on streets of old colonial archi- life, Beijing is full oftary states and, beyond, the the east edge of Tiananmen tecture are Beijing’s answer options, but again the atro-wilds where the barbarians Square is worth a visit for to Shanghai’s French Con- cious traffic, particularly onlived. the “Road of Rejuvenation” cession and are filled with weekend evenings, often The city today is a – a permanent exhibition astonishing relics and rem- limits what you can do.sprawling gridlocked traffic that glosses over anything nants of European incur- The Nanluoguxiang andjam of concentric ring roads negative that occurred sions into 19th and 20th Drum and Bell Tower areasthat ripple out from the under Communist party century China. are filled with interestingForbidden City and the vast rule and focuses on the The compound that was little watering holes, includ-Tiananmen Square, where “national humiliation” once the US legation has ing the Great Leap brewerythe remains of former dicta- imposed on China by been renovated and trans- which serves its own home-tor Mao Zedong lie in state. foreign nations, particularly formed into a cluster of fine brewed beer. Try the oneHis portrait hangs on the the UK and Japan. dining establishments and infused with honey andTiananmen Gate. A visit to this exhibition is worth a visit for dinner Sichuan peppercorns. If you have been to see provides great insights into or brunch. The Sanlitun street areathe mummies of Lenin or how the party bends history Unfortunately, most of is a perennial favourite forHo Chi Minh in their crys- in order to build national- the other legations are used its bars and nearby there istal sarcophagi then there is ism in modern China. by secretive government a huge selection of thump-probably not much point in At the south end of agencies that do not allow ing nightclubs around thegoing to see Mao – the fig- Tiananmen Square stands a foreigners to enter. Worker’s Stadium complex.ure in the glass case is tacky Disneyesque replica Beijing is filled with One last piece of advicealmost certainly made of of the once-vibrant ancient excellent restaurants boast- for all visitors to the celes-wax and opening hours are neighbourhood of Qianmen ing cuisine from every tial capital: politely butnot very convenient. that is not really worth a corner of the empire, but firmly tell anyone who On the other hand, the visit. But tucked around the visitors who are short on comes up to you and saysForbidden City is essential corner and upstairs is Capi- time and lack the adventur- they want to practice theirfor all visitors to Beijing. tal M, an excellent place to ous spirit should head to English or show you anYou can enter from either get delicious western food Made In China at the Grand exhibition of their art orthe south, next to Tianan- and drink in a wonderful Hyatt just a couple of drink some tea with you inmen Square and head north atmosphere with a view blocks east from Tianan- a nearby teahouse that youor enter from the north gate north out over the square. men. This famous establish- are not interested, unlessnext to Jingshan Park and For those who feel like ment serves delicious you want to get caught in awalk south. The parks and exploring an area without Peking duck and beggar’s traditional Beijing scam.Contributors »Jamil Anderlini Leslie Hook Steve Bird All FT Reports are availableBeijing Bureau Chief Beijing Correspondent Designer on FT.com at ft.com/reports Follow us on Twitter atKathrin Hille Rahul Jacob Andy Mears twitter.com/ft.reportsBeijing Correspondent South China Correspondent Picture Editor All editorial content in thisPatti Waldmeir Sarah Mishkin For advertising details, supplement is produced byShanghai Correspondent Hong Kong Correspondent contact: Maralyn Ho on the FT. Our advertisers have +852 2905 5580; email no influence over, or priorSimon Rabinovitch Aban Contractor email@example.com or your sight of the articles or onlineBeijing Correspondent Commissioning Editor usual FT representative. material.