Monthly Archives: July 2010

Dalian Oil Spill Bigger Than Said, But Big Enough For A Minamata Moment?

The pipeline explosion at a PetroChina oil terminal outside Dalian two weeks ago that sent crude oil gushing  in to the Yellow Sea is reckoned to be China’s worst known oil spill. The worst by quite how much is now the question.

Official figures put the size of the spill at 1,500 tons of oil, which would be 11,000 barrels or half a million gallons. Rick Steiner, an American marine conservation specialist consulting for Greenpeace and who has seen the spill, told the BBC that the spill was lager than that caused by the Exxon Valdez, the tanker that hit a reef off Alaska in 1989 spilling an estimated 260,000 to 750,000 barrels of crude into Prince William Sound. At the time it was the largest oil spill in U.S. waters and is still regarded as one of the worst man-made environmental disasters.

[picapp align=”left” wrap=”true” link=”term=dalian%2c+oil&iid=9419277″ src=”″ width=”234″ height=”349″ /]Steiner guesstimates that at least 440,000 barrels of oil have spilled into the Yellow Sea from the Dalian explosion creating a slick covering some 1,000 square kilometers (400 square miles). Despite the massive clean-up now underway (left), the environmental damage is likely to persist for years and it is uncertain what lasting effect it will have on nearby fishing grounds.

China’s oil companies and officials were already reviewing their contingency plans in the light of the BP oil spill in the Gulf of Mexico, though reports of the clean-up operation in the Yellow Sea suggest it mainly involves throwing thousands of people at scooping up the oil from boats and off the beaches, some with their bare hands, and spraying chemical dispersants on the water.

Environmentally damaging industrial accidents are commonplace in China. Just earlier this week some 7,000 barrels of toxic chemicals were swept into the Songhua River in Jilin, a source of drinking water for several million people. But such accidents haven’t yet triggered the political backlash that seems inevitable. John Foley of Reuters Breakingviews suggested that was because China “has not yet reached its ‘Minamata moment'”, a reference to the death of nearly 3,000 residents of a Japanese town caused by the dumping in the early 1970s of mercury into Minamata Bay. The case became the poster child for  the unacceptable environmental costs of rapid industrialization, and made controlling pollution a national political priority in Japan.

In 2007, the World Bank estimated that pollution was responsible for the deaths of 460,000 Chinese a year. Authorities have been trying to curb the worst excess of industrial pollution, but it is a Sisyphean task at this stage of China’s economic development. The Party is well aware of the potential challenge to its power that could come from the emergence of single-issue pressure groups such as environmentalists campaigning for water fit to drink and air fit to breathe. Whether the Dalian oil spill turns out to be big enough to create China’s Minamata moment or not, at some point it will arrive.



Filed under Energy, Environment, Politics & Society

China’s Ambivalent Relationship With Corruption In Business

In an emerging economy like China where who you know matters so greatly to business relationships, the line between connections and corruption is simultaneously a broad and a fine one. The latest annual report by the anti-corruption group Transparency International illustrates that well, and also China’s rather ambiguous relationship with corruption.

China is a signatory to the UN Convention Against Corruption, but has not enacted the consequent required domestic legislation prohibiting foreign bribery. Where Chinese companies and individuals have been charged and convicted of bribery and corruption, it has been under other countries’ law. Even multinationals operating in China such as Siemens, UTStarcom, Lucent Technologies and Daimler, to name five over the past five years, have been involved in China-related bribery cases brought under U.S. law.

However, China does have provisions in a range of domestic legislation relating from accountancy to taxation designed to reduce corruption at home, and it has generally been tightening the reins on domestic corruption, resulting in some high-profile cases such as the one in Chongqing as well as regulations aimed at preventing senior officials in  state-owned companies enriching themselves at their companies’ expense. And accepting bribes was one of the charges brought against the Rio 4, of course.

What is missing, Transparency International suggests, is a centralized legal framework and enforcement system that embraces corruption at home and abroad. For example, China does not require companies to show that they have effective anti-bribery compliance programs or to report on compensation for agents as a condition for export credit eligibility. Nor does China have mutual legal assistance treaties and other cooperation with OECD countries in anti-bribery matters. Beijing’s periodic anti-corruption drives shows it recognizes the corrosive effects of bribery and corruption in politics; dong the same for business is part of the necessary development of the economy.


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China’s Downpours Continue, Flood Levels Critical

The death toll from this year’s rainstorms and floods has now passed 800 with 333 deaths occurring since July 14, Xinhua reports. The human toll is thankfully not as devastating as in the great floods of 1998, when more than 4,000 died, but the numbers affected, estimated to be more than 100 million, the extent of the flooding (see map) and the widespread destruction of farmland, crops and homes may exceed them. Water levels in rivers and dams remain at danger levels, with rivers surging. More rain is in the forecast, especially for Shaanxi, Sichuan and Henan, offering little prospect for relief.

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More military (above, reinforcing the banks of the Changhe River in Jiangxi) have been thrown into the flood prevention effort, while civilians have been drafted to monitor and shore up embankments along the length of the Yangtze and Yellow rivers and their many tributaries. Officials remain on high alert at places like the Three Gorges Dam which is again edging ever nearer to capacity.

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China’s Ancient Embrace Of Africa

More than 600 years ago, Chinese merchant marines sailed the seas, extending the Ming dynasty’s influence through trade for three decades before the country shut itself off from the world. Admiral Zheng He led a massive and well armed fleet of giant (for the time) and technologically advanced “treasure ships” a century before Europeans embarked on their great voyages of exploration. Some naval historians speculate that Zheng He both circumnavigated the globe and reached America before Columbus and Australia before Tasman and Cook during seven epic voyages. He certainly reached East Africa, sailing into the Sultanate of Malindi in modern northern Kenya in 1418. Archeological evidence on land is abundant and DNA testing of local Swahili families has found traces of Chinese ancestry. Now a team of 11 Chinese archeologists are arriving to search for the remains of one of Zheng He’s ships believed to be shipwrecked off the northern Kenyan coast. China’s economic embrace of Africa is really nothing new.

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China Open For Business, But That Business Is Changing

There is a turning point in the development of emerging economies at which the supply of surplus rural labor available to low-cost export manufacturers dries up and real wages start to rise. At that point industrial production becomes more capital and IP intensive, exports move up the value chain and domestic demand becomes more important for the economy overall as the society urbanizes. Japan and South Korea passed through that turning point; now China, too, is reaching it. Another way of putting it is that the era of manufacturing in China for export is coming to a close, and the era of manufacturing in China for Chinese consumers is getting underway.

For foreign multinationals, it marks a sea change in the reasons for them to be operating in the country. Change can always be uncomfortable, both for those that see it and those that don’t. To this Bystander that explains some of the concerns being voiced by executives at foreign multinationals about what they see as growing barriers to market entry and unfair treatment, intended to give domestic companies an edge as the economy changes.

Most of this criticism has been made privately, as is the custom, but the heads of companies like General Electric, BASF and Siemens have stuck their heads above the parapets of if briefly. All three companies have been working cooperatively in China for at least two decades so may have a degree of seniority that allows them to express frankly the wider view, but the level of concern has been sufficient for Chen Deming, China’s Minister of Commerce, to defend China’s foreign investment environment in a signed piece in the Financial Times.

Foreign direct investment in China was up 19.6% in the first half of this year compared to the same period a year earlier, but last year’s number was low so don’t set too much store by that. National tax breaks and provincial incentives for multinationals to invest have been significantly reduced. Wages have risen and employment regulations become tougher. Furthermore, China is upgrading its own industries in areas such as high-end manufacturing and environmental goods and services. To do this, as Chen pointed out, “China wants to make better use of the knowledge and expertise of multinationals.” That sounds more take than give, to foreign ears.

At the same time export markets in Europe and the U.S. have cooled whereas China’s domestic market has continued to expand, even though consumption rates in China are still far below those in Europe and the U.S. That doubles the vexation for foreign multinationals. A potentially huge and increasingly important market is in sight for but it remains frustratingly out of reach.

Changing that will require policy decisions in Beijing to raise the consumption rate further and to allow the greater internationalization of the economy, which will mean making the currency convertible. Meeting both those challenges are part of the rite of passage of economic development. Smart multinationals will align themselves with helping Beijing push forward change on those two fronts.

Smart multinationals will also realize that they will eventually change in the light of all this and will become more Chinese as the proportion of their sales, employees and assets in China increases, just as Sony is no longer a Japanese multinational in anything but name.

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Three Gorges Dam Water Level Rising To Critical Height

The death toll from the flooding that has swept across southern and central China this year has passed 750 with at least a further 367 people missing. Xinhua reported 742 deaths as of Friday morning and another 34 over the past two days. The severity of the current situation was highlighted by Prime Minister Wen Jiabao, who warned that more serious floods and disasters were in the offing. The International Red Cross notes that water levels in more than 230 rivers have risen above the danger mark and that some areas along the Yangtze River are experiencing their worst flooding in 30 years. In Shaanxi, one of the worst-hit of the 28 affected provinces, the Luofu River, a tributary of the Weihe, burst its banks Saturday, forcing more than 9,000 people to flee their homes. (Map of affected provinces.)

Much attention is now focused on the Three Gorges Dam (below, showing water being discharged on July 21 to lower the level of its reservoir). The dam, built in part to control the seasonal flooding of the Yangtze River, is facing its most severe test since being completed four years ago. With water levels in the upper reaches of the rain-swollen river at their highest since 1987, the dam set a record level of 158 meters on Friday, just 17 meters below capacity. Though the level fell slightly, the flood control authority says it expects that to reverse as torrential rain continues to fall upstream.

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Death Toll From China’s Deadly Rains Passes 700

The death toll from the torrential rains that have inundated many of the southern and central provinces has now passed 700 for the year to date, Xinhua reports. Another 347 people are  reported still missing in what are the worst floods in a decade. (Map of affected provinces.) Beyond the human toll, direct economic losses are now put at 142.2 billion yuan ($21 billion). The State Council, after a meeting presided over by Prime Minister Wen Jiabao, warned that the situation remains critical; the rain-swollen Yangtze (below) and Huaihe Rivers and Taihu Lake are above safety levels and the third typhoon of the season, Chanthu, has just made landfall on the south coast.

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The floods have caused fears of a repeat of the devastating 1998 floods when embankments burst along a similarly rain-swollen Yangtze, leaving more than 4,000 people dead. The Three Gorges Dam was built partly to act as a flood control to prevent that happening again. The shipping locks at the dam were closed for three days earlier this week, though have now been reopened.

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