Fan Faces Fine

FAN BINGBING, THE film star not seen in public since June, has been fined 883 million yuan ($130 million) for tax evasion and other offences, state media says. She will avoid criminal charges and prison time if she pays up by a year-end deadline.

Unconfirmed reports in Hong Kong said she has also been banned from working as an actress for three years. It would be unusually for such a ban to be announced by authorities in the absence of a conviction.

A contrite posting appeared on Fan’s Weibo account today, although there is still no indication of her whereabouts.

Her agent remains in detention as a broad investigation into entertainment celebrities’ tax affairs continues. Fan was the highest earning Chinese celebrity last year with an income of 300 million yuan, according to Forbes magazine’s reckoning.

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China’s Film Industry Loses A Fan

IT WOULD NOT be too idle speculation to connect the non-appearance in public of the film star Fan Bingbing these many weeks to the suggestion that the anti-corruption crackdown has reached the heart of the media and entertainment industries.

Her studio as denied the accusation that Fan was using what is known in the trade as ‘yin-and-yang’ contracts — two versions of the contract for an engagement of which the one showing the lower fee is the one intended for the taxman. Their use has been widespread in real estate transactions for at least a decade, not that that makes them any less illegal.

There is, it should be said, no hard evidence either way on which to judge the scuttlebutt that tax evasion was Fan’s ‘crime’, for which, some reports say, she has been arrested, while others suggest, less credibly, that she has fled to the United States to seek asylum. Fan’s public silence would, however, seem to tell its own story.

China’s highest-paid actress did, however, score zero on a recently released ranking of entertainers based on their social responsibility scores. Those can be regarded as a precursor to the ‘social credit’ system now being trialled with the aim of introducing it nationwide by 2020. Low scores could mean for an actor denial of the state licenses they need to work, and provide an easy excuse to film and TV programme makers not to offer parts.

Fan has already been dropped by sponsors, a sure sign she has fallen out of favour with authorities.

Catching tigers as well as flies is a characteristic of President Xi Jinping’s anti-corruption campaign. In June, authorities put limits on the pay of star actors, in part to crack down on tax evasion but also as part of the broader campaign against conspicuous wealth. The pay of actors in Chinese films and TV programmes was capped at 40% of the total production costs, with lead actors limited to 70% of the actors’ pool.

Authorities are also worried about the impact of stars on young Chinese, who are at risk, they fear, of chasing celebrity and “distorted social values” — for which read Western values — rather than following the Party endorsed pursuit Chinese values.

TV dramas last year were instructed to ‘enhance people’s cultural taste’ and ‘strengthen spiritual civilisation’ — strictures that came with a new set of rules governing the programmes’ content.

Reviving Chinese culture is a core strand of President Xi Jinping’s vision of ‘’the Chinese dream’, as is a very particular view of how China will project itself abroad through Chinese values.

The arts have long been seen as a part of the Party’s ideological leadership, with artists, in all realms of the arts, expected to create works that are not only artistic but also politically inspiring. Those are to serve to promote socialist values in line with the Party’s agenda.

Artistic dissent can have no place in that, much as dissent is being cracked down on in a variety of areas from the social sciences to civil society.

The Beijing Trade Association for Performances, which in 2014 took a leading role in the authorities’ crackdown on performing artists alleged to be involved with drug-taking and prostitution, now says it will ‘purify’ the city’s entertainment and performance sector and guide artists towards ‘core socialist values’.

The entertainment industry poses a particular problem in that fandom around TV, movie and music stars creates a potential point of political power that is youth-based, unpredictable and weakly subject to Party control, all characteristics for which the Party does not care.

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China-Malaysia Relations Pass Into A Chilly Phase

RELATIONS BETWEEN MALAYSIA and China have a history of blowing hot and cold. Malaysia’s new prime minister, if new is an appropriate adjective for the 93-year old Mahathir Mohamad, has brought a renewed chill, even though he has been a longtime friend of China by dint mainly of his criticisms of the West.

Mahathir has halted several high-profile, big-ticket infrastructure projects involving Chinese firms for review, including:

  • the $20 billion East Coast Rail Link under construction by China Communications Construction Co. and mostly financed by Export-Import Bank of China;
  • the $10 billion Melaka Gateway project , which involves three artificial islands and a cruise ship terminal, being developed by PowerChina International; and
  • the $2.5 billion trans-Sabah natural gas pipeline led by a subsidiary of China National Petroleum Corp.

Restrictions have also been imposed on the sales of units in Forest City, a $100 million real estate development on four artificial islands aimed at buyers from China.

There is also a report that three pipeline projects suspended in July have been cancelled outright, an oil and gas pipeline in peninsula Malaysia and another on Borneo, and a pipeline linking a Petronas refinery and petrochemical plant in Johor to Malacca. They had a combined cost of $2.8 billion.

Mahathir has several reasons for applying the brake.

One is purely financial. The first three are expensive projects that saddle the country with even more debt. Malaysia can just about manage its foreign-currency debt, but only just about. It cannot afford to let its financial position deteriorate, which, if the troubles of Argentina’s peso and Turkey’s lira spillover into other emerging market currencies, it could do quickly. Furthermore, Mahathir had long held that the country’s debt holds back its development. Nor does he want to risk Malaysia going the way of Sri Lanka, which had to yield control of a new port to China to settle debt it could not repay.

A second is political. In the wake of the 1MDB scandal. Mahathir is cracking down on what it believes is a whole raft of corruption-tainted deals struck during the previous administration of Najib Razak. The three deals mentioned above were all made within Najib’s time, and Mahathir has criticised them for being opaque.

A third is geopolitical. Mahathir is concerned about China’s increasing activity in the disputed waters of the South China Sea, where Malaysia has claims of its own over a dozen Spratly islands and a large acreage of oil and gas. Being in hock to China, which is also Malaysia’s largest trading partner, weakens Kuala Lumpur’s hand in pushing back against Beijing’s maritime assertiveness. Mahathir is strengthening relations with Japan and Australia to counterbalance China’s influence.

A fourth reason Malaysia’s relationship with its city-state neighbour, Singapore. The two nation’s relations with China tend to be the inverse of each other. Singapore’s relations with China are currently on the up.

Mahathir has said he will hand over the presidency to his deputy Anwar Ibrahim at some point, but may choose to make that point further into the future than he initially indicated (within two years). Anwar, though he has backed the review of the Chinese investments, would likely be more favourably disposed towards China. The further out the hand-over, the longer Malaysia-China relations will remain chilly.

Update: The Financial Times is reporting that Pakistan is initiating a similar review of the China-Pakistan Economic Corridor. That would have greater weight for Beijing than Malaysia’s review because of the corridor’s strategic importance, including its access to Gwadar, the port on Pakistan’s south coast on the Arabian Sea.

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China’s New Problems With Total Marginalisation Of Minorities

REPORTS SUBMITTED BY by Amnesty International and Human Rights Watch to the UN Committee on the Elimination of Racial Discrimination that up to 1 million Uighurs are being held in camps in Xinjiang ‘under the pretext’ of counterterrorism sent this Bystander to our archives. In April last year, we wrote:

China’s anti-terrorism policies are based on the same techniques as Beijing uses to crack down on political dissent, which may betray a fundamental misunderstanding of the problem being faced.

We have also noted the shortcomings of such an approach when it comes to winning hearts and minds. Religious restrictions only serve to feed a vicious cycle of repression and violence. If counter-terrorism policy aims to alleviate the conditions and reduce the underlying factors that give rise to radicalisation and recruitment among the domestic population, then characterising all Uighurs as being somewhere on the terrorist/separatist spectrum is not going to achieve that.

Beijing denies the allegations that Uighurs are held in detention camps and accused foreign media of distorting the Committee’s deliberations, but has made a rare admission that “those deceived by religious extremism… shall be assisted by resettlement and re-education”.

It could be in this particular case that an original accusation that the extensive state security presence in Xinjiang has turned the Uighur autonomous region into something that resembles a massive internment camp has morphed into an allegation of detention camps being set up. For the record, the UN committee’s published comment of concern was:

The arbitrary, prolonged and incommunicado mass detention of Uighurs under the pretext of countering terrorism and religious extremism, with estimates of the numbers of detained ranging from “tens of thousands to upwards of a million”.

Such accusations are long-standing. There is no denying the massive security operation and mass state surveillance in Xinjiang that reaches into every aspect of daily life and that Uighurs are detained for what authorities call ‘preventive security measures’. The lower end of the range cited by the UN committee could be accommodated without the need for special camps.

Authorities argue that their actions have prevented Xinjiang becoming ‘China’s Syria’ or ‘China’s Libya’,  That strikes this Bystander to be over-egging the pudding by the output of a battery farm.

True, Beijing has been fighting a low-level but increasingly violent insurgency in its natural-resources-rich western reaches for decades. Today, that self-evidently poses a threat to Xinjiang’s role as a critical logistics hub for the Belt and Road Initiative.

Yet, the 8.4 million-strong Uighur minority in Xinjiang, mostly Turkic Sunni Muslims, are far from universally supportive of the tiny separatist groups that would like to re-establish a republic of East Turkestan.

They do resent the growing Han dominance of the province, which was once more four-fifths Uighur but is now majority Han Chinese, and a majority that does not understand why the new minority does not feel more grateful for being forcibly made more Chinese.

 

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China’s CNPC Takes Advantage Of Total Retreat From Iran

WITH WASHINGTON AGAIN turning the financial screws on Iran, China stands to pick up a lot of the pieces that will get broken in the process.

The Iranian state news agency yesterday announced that China National Petroleum Corp. (CNPC) would take over Total’s 50.1% share of the $4.8 billion Phase 11 (of 24) development of the giant South Pars gas field, the world’s largest unitary gas reserve.

Terms, including financial ones, are unknown. Neither Total nor CNPC has made a public comment at this point. Confusingly, the Iranian oil ministry subsequently said that the terms of the contract remain formally unchanged, though that is not necessarily inconsistent with CNPC taking over.

Last year, in signing on, the French energy company became the first sizeable Western oil and gas company to invest in Iran following the lifting of sanctions on Tehran the previous year.

Now the Trump administration has pulled out of the nuclear agreement that enabled those sanctions to be lifted, fresh US sanctions have been imposed that force companies to choose between trading with Iran and trading with the United States.

For most Western companies, it is no choice at all. Total had already indicated that it would have to walk away from the South Pars project in the new circumstances.

CNPC, which has had a presence in Iran since 2004, already had a 30% stake in Phase 11. Iranian state-owned Petropars owns the rest.

The project is intended to supply gas to the domestic Iranian market from 2021 with excess to that requirement being exported, now assuredly eastwards rather than westwards. That gas could either be shipped or sent to China via the network of pipelines existant, under construction or planned across Central Asia and Pakistan.

China is already the largest market for Iran’s exports of crude oil and condensates, taking 24% of the total last year.

In addition, Chinese banks have extended $25 billion in credit lines for infrastructure investment, suggesting Chinese firms will easily be able to slip into the spaces vacated by Western multinationals and be in a position to negotiate favourable terms now they will be the only game in town for Tehran.

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Trump’s 3-D Re-engagement with Asia: Development, Defence and Diplomacy

THE BELT AND Road Initiative and the United States’ vision for the Indo-Pacific have a common end if different means.

Both are critical components of establishing the two powers’ respective influence over a region that is already well on its way to becoming the world’s economic centre. The former uses state-led infrastructure; the latter seeks to unleash the commercial might of private business, primarily US private business.

The Trump administration’s withdrawal from the Trans-Pacific Partnership, one of its earliest acts, cemented regional fears among the United States’ allies that the ‘America First’ rhetoric of the Trump campaign in 2016 presaged US withdrawal from the region, leaving a vacuum that China would need little encouragement to fill.

Whatever the validity of that fear — and US commercial imperatives were always going to mitigate against significant disengagement — Washington has had a struggle to reassure its traditional regional allies, who, after all, still have to live cheek-by-jowl with their huge neighbour, regardless of the tweet-du-jour coming from Washington.

The uncertainty surrounding the outcome of both Trump’s putative trade war with Beijing and his intervention in North Korea through a summit with North Korean leader Kim Jong-un have kept nerves taught.

While the political scientists hijacked the term Indo-Pacific from the marine biologists and oceanographers slightly more than a decade ago, it has only been over the past five years than it has gained currency with political leaders in the four key Into-Pacific powers, the United States, India, Japan and Australia. In the past year, it has started to take shape as an economic entity.

Today, US Secretary of State, Mike Pompeo, put some more flesh on those bones by announcing $113 million of investment in technology, energy and infrastructure investments in the region. This was, he said, a ‘down payment’ on a new era of US economic commitment to peace and prosperity in the region.

US officials say that this commitment is not aimed at countering the Belt and Road Initiative, but the underlining of the transparent and commercially led nature of the investments and the choice of phrases such as ‘strategic partnerships, not strategic dependence’ speak for themselves, as does Pompeo’s assertion that the United States would oppose any country that sought to dominate the region.

The money will go to improving partner countries’ digital connectivity and expanding US technology exports to the region ($25 million), helping regional energy production and storage (some $50 million) and creating a US government agency to support infrastructure development ($30 million). Much of the remainder of the money will go to a fund to let regional nations access US private legal and financial advisory services.

There will not be, it seems, a return of the United States to TPP. Pompeo said that the Trump administration would only be doing bilateral trade deals in the region.

He did, though, trail a coming announcement by US President Donald Trump on regional security assistance, reaffirming the administration’s emerging three-D approach to the region: development, diplomacy and defence.

Compared to, say, the $62 billion that China is providing for the China-Pakistan Economic Corridor and the estimated $1 trillion of Belt and Road Initiative projects underway, $113 million looks like small beer, and especially as much of the money will end up delivering export sales of goods and services to US firms. An America First foreign policy is still an America First policy.

The question becomes then, can US business leverage that into a credible competitive alternative model for regional development. Washington’s traditional regional allies will still take some convincing as much as they would like to have a strong counterweight in the United States to China’s growing regional power and influence.

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China’s P2P Lenders Are Failing At An Accelerating Pace

REGARDLESS OF MEASURES to ease credit markets to offset any slowing of GDP growth, authorities continue to crack down on the more risky parts of the financial system.

Few pieces of it are as hazardous and ill-regulated as peer-to-peer (P2P) lending.

China has the world’s largest P2P lending industry, worth approaching $200 billion (assets, i.e. loans outstanding) flowing through (now) some 2,000 platforms with 50 million registered users.

The ranks of the P2P platforms are thinning fast, as individual operations fail — some 80 in June (a then monthly record) and around a further 120 so far this month, taking the cumulative number of failures since 2013 above 4,000 according to the Yingcan Group, a Shanghai-based research firm that tracks P2P finance.

Savers are pulling their money from many of the remainder and investors have little confidence many will survive, both factors compounding the accelerating pace of failures. Meanwhile, authorities will be worried about the pick up in the pace of failures over the past week.

Their challenge is to stop a so-far contained panic spilling over into other parts of the $10 trillion shadow banking industry and thence into the main financial system.

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