Posts of the Week: 8/25 - 8/31

China Forms Committee to Review Foreign Acquisitions, Citing Security

The Longlife Trademark for Taiwan's Cigarettes is still not dead at IP Dragon
Related commentary at IP Thinktank.

China Adopts Circular Economy Law at China Environmental Law

Project Kaleidoscope Report on Complaince in China at Crossroads

How the hell does anyone do business over here?! (or China vs. Thailand, pt.274) at Silk Road International

Steve Dickinson on the AML:
China's Anti-Monopoly Law. People, We've Got The Rules. at China Law Blog
China's merger control laws - an event of Olympic proportions - 22 August 2008 at Mallesons Stephens Jaques
National Security Review Under China's New Anti-Monopoly Law at CLB

Some Culture:
Excellent gallery of late '50s Chinese political cartoons at Imagethief

An addition from last week:
Gold in China; Mother wins round 1 of YouTube dancing baby case at IPKat

Noncompetition Agreements in China

I'm just sitting in the library killing some time, and I picked up the latest issue of The China Business Review. The focus is on human resources, and there was one article that caught my particular attention, Noncompete Agreements: Clarity amid Uncertainty by K. Lesli Ligorner (available from the link above, but subscriber access only). Following a short intro to noncompetes in the US, I'll jump into Ms. Ligorner's analysis.

In the US noncompete agreements (NCAs) are governed by State law, and differ widely depending upon your jurisdiction. The general rule in the US is that NCAs are allowed if they are reasonable in scope (both subject matter and geographic area), and reasonable in duration. California's a bit different, though. In California VCs and tech firms lobbied strongly, and judges agreed, that NCAs were bad for business. NCAs lock up ideas, and if you get rid of NCAs, then it forces companies and individuals to compete on the basis of newer faster ideas. California eliminated NCAs, except where ancillary to the sale of a business, and even prevented legal workarounds by disregarding choice of law provisions in employment contracts.

In China, the Labor Contract Law includes restrictions on NCAs, but similar to the States the law is different in every district, city, and province and province depending on the local regulations.

Ms. Ligorner outlines the 6 restrictions on NCAs imposed by the LCL:

1. "[O]nly senior managers ... , senior technicians and other employees who have access to business secrets may be subject to noncompetes."
2. "[L]imits noncompete restrictions to employees engaged in business activities identical to those of the former employer, whether on their own behalf or that of a competitor."
3. "[L]imits the maximum duration of a noncompete to two years."
4. "[L]eaves the definition of the noncompete's scope to the contracting parties--the employer and the employee--as a matter of negotiation."
5. "[W]hen the employment contract is terminated, the employer must pay financial cosideration [money] to the former employee monthly within the non-competition period for the noncompete to remain enforceable."
6. A "former employee who violates the noncompete may be liable to pay the employer a penalty for the breach."

The key issue is the consideration paid to the employee. The minimum amount that must be paid to the employee per year is outlined in the relevant regulation for the area of employment. Ms. Ligorner outlines three questions that the courts are going to inquire about if a case ends up in court or arbitration:

1. "[I]s consideration stipulated in the employment contract?"
2. "[I]s the amount reasonable given the interests of the employee?"
3. "[D]id the employee receive separate financial consideration?"

There is a lot of other great stuff in this article including info on strategy, damages, enforcement, and specific differences between China's jurisdictions.

Obama's Acceptance Speech & China

Great acceptance speech preceded by a week full of inspiring speeches from Nancy Pelosi, Michelle Obama, Hillary Clinton, John Kerry, Bill Clinton, and Joe Biden. Unfortunately, the 4 references to China were negative. Here they are in order of most transparently about China to most opaquely about China, and oddly in the order they were delivered in the speech:

1. "We're a better country than one where a man in Indiana has to pack up the equipment he's worked on for 20 years and watch it shipped off to China, and then chokes up as he explains how he felt like a failure when he went home to tell his family the news."
2. "Ours is a promise that says government cannot solve all our problems, but what it should do is that which we cannot do for ourselves -- protect us from harm and provide every child a decent education; keep our water clean and our toys safe; invest in new schools and new roads and science and technology."
3. "You know, unlike John McCain, I will stop giving tax breaks to corporations that ship jobs overseas, and I will start giving them to companies that create good jobs right here in America."
4. "And I'll invest $150 billion over the next decade in affordable, renewable sources of energy -- wind power and solar power and the next generation of biofuels; an investment that will lead to new industries and 5 million new jobs that pay well and can't be outsourced."

I've already got a pony in this race. Despite the negativity on China, this political race has greater implications than trade with China and I'm mostly willing to overlook what Obama is currently saying about China, and hope that it is still just campaign rhetoric.

Also see Tom Chow on Joe Biden's China views during the primaries.
And see me on views espoused by the Democratic candidates during the NPR primary debate.

Spheres of Influence: Not This Again...

Interesting Comment & Analysis today by the Financial Times' Beijing bureau chief, Geoff Dyer, Russia could push China closer to the west. Yeah, that's right, an article about whether China will opt to cozy into the sphere of influence of the West or the Sovi..., uh, Russia. I focused on the origins and early years of the Cold War in undergrad, and I thought I was majoring in history. As Mr. Dyer makes exceedingly clear, the implications of Russia's actions in Georgia on US-China relations are fraught with nuance:

Russia takes US eyes off China as bad guy:

With the US economy slumping and China becoming the world’s biggest emitter of carbon dioxide, Chinese diplomats are worried that different groups in the US will join forces to slam China. So if Russia returns to being the US’s pin-up villain, that suits Beijing just fine.

But, China doesn't care for President Mikheil Saakashvili:

Mr Saakashvili is the western-educated product of a colour revolution who is lauded by Washington neo-conservatives as a warrior in the battle for democracy. If he is toppled, Beijing will not mourn his departure.

That doesn't mean China would welcome the recognition of tiny breakaway states (think T!b3t, Taiwan, Xinjiang, plus the many border disputes with Bhutan, India, Japan, Malaysia, North Korea, Pakistan, Philippines, Tajikistan, Vietnam, and maybe Brunei):

The biggest problem for China, however, is Russia’s recognition of South Ossetia and Abkhazia as independent states. Independence for small break-away provinces is one of the few subjects that turn Chinese diplomats from cool-headed calculators of national self-interest into brittle ideologues.

Western states like to avoid too much controversy:

Europe has long been eyeing more oil and gas deals with Turkmenistan and Kazakhstan, where China also has significant investments. If instability in the Caucasus scares off European investors, that could create more space for the Chinese.

But, things can't get too hot:

China’s economic success is increasingly fuelled by huge imports of oil and gas that are only going to get larger. Beijing, therefore, does not want to see Russian aggression browbeat a region that is an important energy provider.

Dyer's Conclusion:

China has moved closer to Russia in recent years, but there are clear limits to the alliance that Washington could exploit.

Why The Olympics Was a Success

Okay, okay, this is way too late, but I gotta tell you about it.

A couple of days after the Opening Ceremony I was talking to my mom (and here), and what she said to me made me realize that just the Opening Ceremony made the Olympics a huge success for China. Here's the paraphrase:

It was so beautiful. It made me and your father, people who grew up in a time thinking that China was some mysterious, scary, dangerous Communist place, realize that it is no longer so. I want to travel there now, I want to see China and its people.

If this sort of thinking was widespread, then I think it would be hard for China to ask for more of the Olympics than completely reshaping the image that a couple of reasonable middle-aged American held of China.

The Type of Gamer I Am (and the Gaming Market in China)

This intro will be short and I promise not to go too George Washington on ya.

This morning I ran across a Wired blog post on the personalities we adopt when we play video games. I'm kind of the opposite of the author of the post, and I was inspired to write something. Then I figured that I should probably bring China into it, so I searched around for some China video game stuff and found a cool report on China's evolving video game market which should justify me nerding out for a few paragraphs.

The Kind of Gamer I Am
The title of Clive Thompson's post gives you a pretty good idea of the type of gamer he is, Games Give Free Rein to the Douchebag Within. If that was too obtuse, here are a couple of excerpts:

What the hell is wrong with me? There are a lot of ways to win at Civilization Revolution that do not involve taking a happy, peaceful city and reducing it to a smoldering gravesite filled with radioactive trinitite. I could, for example, train my country in brilliant artistry, building Wonders of the World -- a "cultural victory," as it's called. Or I could win by becoming a great economic power, enriching my citizens and the global community.

But no. Every time I plunge into a game, I inevitably choose the most Cro-Magnon, "Hulk smash, Hulk destroy" strategy possible.

...

I repeat: What's wrong with me? One of the classic highbrow defenses of videogames is that they allow you to experience new personalities -- to, in the words of Sherry Turkle, create a "second self." This is considered supremely healthy, because self-exploration is generally a good thing.

But what happens if the second self you create inside videogames turns out to be a total dick?

He then writes that studies find that he's probably just "using games to see life from a different perspective."

If this is the healthy and normal thing that people usually do, then I'm really afraid of what my game preferences say about me. I'm the kind of gamer who thinks that Civilization is lacking in complexity, and that Europa Universalis III could use a few more options to tweak tax collection. First-person shooters? The key to online success better be strong teamwork that requires voice-chatting or I'm bored as hell after a few matches

If we're going with Clive's analogy and the life from a different perspective psychoanalysis, I guess that means I'm well on my my way to becoming just another Unfrozen Caveman Lawyer in "meatspace."

Gaming in China
In my quest for justifying what I just wrote I found a great 2007 report compiled by KPMG, The video games market in China: Moving Online. The main focus of the long report is the environment for foreign investment in Chinese game companies. Along the way are plenty of sidebars containing charts and case studies of both Chinese game companies such as Shanda, and global game companies such as Microsoft, Nintendo, Sega, and Sony. What I want to comment briefly on is the author's suggestion of where the Chinese pricing model for online multiplayer games is going.

Back in Q4 2005, Shanda (盛大) introduced a new pricing model that swept China, and later the world. Shanda dubbed it "Come-Stay-Pay," and others have called it the pay for free model. Under this pricing model you can play for free but you are charged for fancier weapons, armor, clothes, gadgets, and even experience points. This model worked well in China because it created a low entry barrier for players, and software piracy would not have an opportunity to ravage Shanda's revenues in a country with a piracy rate of ~82%. Shanda experienced problems when this model was first adopted, but the stock market responded when they figured out what Shanda had done. We've also seen this model spread to America. The most notable examples are additional content purchases for the single-player TES: Oblivion (along with some consumer backlash), and song purchases for Rock Band.

The KPMG authors argue that the Come-Stay-Pay model will not endure by analogizing to Hollywood:

The development costs required for online gaming will increasingly necessitate a predictable and foreseeable income stream. The film industry, by comparison, has three such streams: (i) cable rights (ie, syndication) and international sales; (ii) advertising, whether in-film or banner advertising (ie, delivering demographics); and (iii) merchandise. Hollywood may aim for the blockbuster, but production companies have covered their costs by the time a movie is released. Any game company not in the same position should be assessed carefully.

I agree, but I'd make a simpler analogy: to the early days of the internet.

The internet in the late-'90s was pretty cool. Just about everything was free. Sure, you might have to pay for a couple of extra features or the removal of screens asking for donations with shareware programs, or maybe send a donation to freeware developers to make yourself feel generous. I loved that internet -- I'm gonna be telling my grandkids stories about that internet. It was the Wild West, and it was vast. If you search hard enough, you can still find that internet, but much of it and the companies providing mostly free service disappeared with the dotcom crash beginning in 2000.

And really, that internet couldn't hold a candle to the internet of today. Sure, you have to pay for stuff, but the quality of programs and services now available on the internet are superior to anything you got when anything went. I've seen the quality of Chinese games, and they're not on par with what we have in America. But, the settings and pricing make sense for China now. As a gamer, I look forward to the day when I can play a Chinese developed Journey to the West game with the production qualities of an American game financed by pricing models that allow higher development costs.

Posts of the Week: 8/18 - 8/24

The Olympics are over, and not a moment too soon. School starts tomorrow and I must stop staying awake all night watching obscure sports.

Chinese Litigation: This Is The Way (Uh Huh) We Like It at China Law Blog

Is China No Longer Competitive? at All Roads Lead to China
Plus, related commentary at CLB.

China’s NDRC Shakeup: Energy & Environment Implications at China Environmental Law

Parade of Horribles (China Law edition) at China Hearsay
Oh boy! I ♥ wonky law posts.

Olympic Pollution- Comparisons at China Comment

joe biden’s china stances at China Esquire
Obama made a good choice with Biden. Biden can cover a lot of Obama's weaknesses. Let's hope Obama makes another good choice in his China people.

China's Financial Markets: The Same Old OLD Problems

In China and the World Financial markets 18701-1939: Modern Lessons from Historical Globalization by William Goetzmann, Audrey Ukhov and Ning Zhu, the authors use a historical narrative of China's financial markets to show how China can improve its modern financial markets (h/t to The Economist, and good luck finding the article if you don't have access to an academic library database). The authors identify two "key financial motivations," and argue that they are necessary to the health of a capital market which contributes to the health of the global capital market: diversification, and corporate governance. The bad news is that China is still restricting diversification and corporate governance, and the authors argue that both of these contributed heavily to the downfall of Imperial China. The good news is that China is making huge strides to correct its problems these two areas, and preventing a modern collapse of China's financial markets.

Diversification
The authors identify a beneficial result of diversification from R. Stulz's paper Globalization of Equity Markets and the Cost of Capital:

The general conclusions reached by these and other researchers studying world capital market liberalizations is that the cost of capital drops as outside investors are given access to local investment projects. There are obviously positive features of this drop in the cost of capital--capital projects previously unattractive because of low rates of return become attractive. Lower interest rates can be an extraordinary boom to the economy ... However, the other side of the coin is that, in the competition for control of domestic assets, the undiversified local investor is at a relative disadvantage.

While Chinese investors were heavily invested in private enterprise in the late 19th and early 20th century, they were not major investors in government projects or in Chinese sovereign debt. The authors argue that this was because of a lack of a liquid capital market for Chinese, and little to no diversification into international finance by Chinese investors preventing steadier returns.

The Economist article cited to earlier heralds the opening of the Shanghai Stock Market to the world. On August 6th, China changed its securities laws to allow foreign companies to list on Shanghai's stock market. This will increase diversification by allowing Chinese to diversify their investments into foreign companies, and allow foreign companies a new source of capital. The article argues by way of Goetzmann et al, that by diversifying into foreign companies Chinese investors should have lower portfolio risk there by allowing them to allocate more capital to the riskier Chinese shares. Thus, theoretically, more capital and less risk for everybody.

Goetzmann et al, offer a few more suggestions for how to improve diversification in the Chinese market, but this is a great start.

Corporate Governance
A sentence from Goetzmann et al's article is just as applicable today as it was a century ago:

[T]he trajectory of Chinese financial history is the relative ineffectiveness of legal protection and governance structures for enterprise in China, compared to the extraordinary protections negotiated by foreign investors.

They argue that 100 years ago there were two major obstacles to effective legal protection and governance structures: 1) "stake-holders of various kinds--from local gentry to provincial government officials--wielded considereable power and influence over commercial enterprise;" and 2) concessions extracted from the Chinese government "included near-complete autonomy from Chinese law and taxation, and freedom from local competition--even the right in some cases to issue a separate currency. The first is still prevalent, especially considering the size and power of many SOEs. The second "created severe political problems," and China has been wise in recently eliminating similar concessions today. According to the authors, the best expression of when corporate governance is set within the proper legal framework is when there is equal protection of property rights for both foreign and domestic investors.

The good news is that China is working towards limiting the power and influence of stake-holders through its own version of Sarbanes-Oxley, the Standard Basic for Enterprise Internal Control. This was covered more extensively with plenty of links in a previous post. The gist is that corporate governance standards should be fixed in law when the Standard Basic becomes effective on July 1, 2009.

Conclusion
Apparently history repeated itself with the two same problems surfacing each time capital markets have risen in China. However, this should not come as a surprise. As the authors of the article make clear, these same problems existed in just about every capital market including Japan and the US. The difference is that the chaos in China during and after the fall of the Qing dynasty prevented its capital markets from making extensive reforms. Fortunately China is implementing extensive reforms now to prevent the instability that Goetzmann et al argue "led ultimately to a rejection of the international financial system." However, they also argue that the reforms can't be implemented too quickly, or else foreign investors will again have too great of an advantage in China resulting in dire human and political consequences. I'll leave you with their final words:

Given the potential for further integration versus the threat of reversal of recent gains, the lessons of history at this crucial juncture may be doubly important."

Chinese Basketball as Metaphor for Limits of Planning

Dan Harris at China Law Blog asks some tough questions about China's lack of a talented point guard:

Is it further evidence of the shortcomings of a planned economy? Does China pull out the great athletes for other sports, leaving only tall people for basketball?

Is it further evidence of a lack of innovation or take-chargedness (I know I am making up this word, but it works) in China? Great point guards have to be willing to innovate and take the heat. Is the coaching so tough that no player is willing to step up?

Seriously, why?

I was discussing this with some friends last night. They were telling me that at age 10 kids start to get pulled for sports like basketball. The problem is that an athletic kid with point guard style body type is typically pulled for soccer despite whatever skill and flair they show on the basketball court. "Six foot" Chris Paul might have been good at any sport, but his 5'10" frame would've relegated him to the soccer field despite his basketball genius. In American sports we don't lie about age, we just lie about height and weight. It typically starts in high school as a tool to intimidate the other teams, and continues for such reason, except maybe for college recruiting.

The planned athletic program seems to have done wonders at producing exceptional individual athletes as seen in shooting, weightlifting, and gymnastics (team gymnastics is not a team sport because it is merely the sum of individual performances). But, like in business, team sports depend less on individual prowess, and more on creativity and chemistry which is all but impossible to select for.

To address Dan's questions:
We can probably safely ignore the third question, as there is plenty of innovation in China considering the level of development the country has reached. We probably have to turn to the first question. The answer: Skills and techniques can be taught, innovation and creativity cannot. Innovation and creativity can be fostered through access to tools and instructors, but it can't be forced on anybody. Those with the greatest combination of skill and creativity will rise to the top in a free market system that rewards performance. The US system of competitive high school basketball, expensive required university attendance, and a professional system means that our basketball players need to receive approval for their skills on a wide market to make it to the next level. Creativity and not a player's physical attributes are going to mark the point guard, which can probably only reasonably be found in a large competitive market.

One further note: David Brooks' recent column on individualism v. collectivism has been getting slammed in the "blogosphere." James Fallows offers an interesting look at the column by way of the scientific Mark Liberman. Apropos to the discussion of basketball is John Pomfret's response to Mr. Brooks:

"It was part of China's assertion that development doesn't come only through Western, liberal means, but also through Eastern and collective ones," Brooks states. He then broadens this theory to say: "If Asia's success reopens the debate between individualism and collectivism (which seemed closed after the cold war), then it's unlikely that the forces of individualism will sweep the field or even gain an edge." Takeaway? China is a challenge. Not just because it's big and bad but because they think different over there and the Olympic Ceremony proves it.

I wonder if Brooks has ever seen American marching bands, or line dancing, or visited a high school where the coolest kids are always part of a group - say, the football or basketball teams. I would argue that in many way Americans bow more to the group than the Chinese, which explains why the Chinese party-state has been so intent on forcing comformity.

Even more, I wonder if Brooks has ever driven in China (look out for grandma!), or sharpened his elbows in the scrum that forms each time you try to get off an airplane, or tried to get Chinese co-workers to band together. Let's just say in the decade that I've lived in China (over the course of 30 years), I haven't seen or heard much collectivist impulse except when it was rammed down the throats of ordinary Chinese.

And...

Meyerson noted that during the parade of athletes China's flag bearer, Yao Ming, was accompanied by a 9-year-old boy who dug two classmates out of the rubble of the Sichuan earthquake. When asked by NBC why he did it, the boy said "he was a hall monitor and that it was his job to take care of his schoolmates," Meyerson wrote, adding "that answer may tell us more than we want to know."

The boy "was a responsible little part of a well-ordered hierarchy," said Meyerson.From that he concludes that the answer "works brilliantly as an advertisement for an authoritarian power bent on convincing the world that its social and political model is as benign as any democracy's."

What am I missing here? How is a sense of responsibility, instilled in any leader, no matter how small, in any society (ever hear of a class president?), taken as a sign of totalitarian brainwashing or a propaganda campaign? Don't we hear this kind of sentiment in the voices of Americans who go down into mines or back into fires to save their comrades? "I'm the fire chief, I couldn't leave my men behind." And so what if it's a 9-year-old? Bully for him. If anything, China's system discourages the type of initiative evidenced by pint-sized hero. Maybe that's the reason he was marching next to Yao.

My Travels With Monkey

A few weeks ago Dan Harris at CLB had a post on the best way to go about developing your "guanxi network," F-ck China Culture Lessons. Give Me Anthony Bourdain With No Reservations. I totally agree with Dan's premise that "bon vivantness" is the best way to cross cultural divides. However, and in a later post Dan briefly covers this, some knowledge and demonstration of genuine appreciation for Chinese culture will go a long ways in developing strong relationships with your coworkers and other Chinese. I'm not talking about avoiding wearing green hats or handing over business cards with two hands, though. No, no, I'm talking about The Great Sage Equaling Heaven -- Sun Wukong.

I've been making my way through the classic novels of China, and I've only got A Dream of Red Mansions left on the list. About a quarter of the way through 3 Kingdoms when Liu Bei is shedding tears of appreciation for the man who fed him his wife when he couldn't catch a wolf I realized that I could never truly understand Chinese culture. But, the stories are intriguing and the culture, like any culture, is fun to learn about. The most fun is unarguably The Journey to the West, and its protagonist, Sun Wukong. To keep things easy, I'm just gonna call him by his name from the TV show, Monkey.

Monkey has proven a gold mine in my ability to build relationships. The most important reason is that Monkey is a lot of fun to talk about and I always enjoy chatting about Monkey. I try to talk to my American friends about Monkey, but I quickly see their eyes glaze over. The second most important reason is that you'll have a hard time finding a Chinese person that isn't also eager to talk about Monkey. What follows is my favorite interaction involving the Great Sage.

One day the husband of one of our attorneys brought a box of peaches to the office for us. I noticed on the side that there was a monkey. Sun Wukong got into a lot of trouble in Heaven by stealing the Heavenly Peaches from the Jade Emperor's Peach Orchard. I asked the Administrative Assistant, "So... Are there monkeys on all the boxes of peaches in China?" She replied in that tone Shanghai girls have when speaking English to Barbarians, and using words that may or may not be taught in elementary school to mean yes, "Of course." Then she added, much more softly and with a smile, "We call him _____ [three syllables, but I recognized Handsome and Monkey], I don't know exactly how to say...." "The Handsome Monkey King?" I offered. "Yes! Yes! Yes!" she said leaning up on her toes and waving her hands in great excitement. On a roll I kept going, "Sun Wukong? Protector of the Horses? Glorious Monkey King? The Great Sage Equaling Heaven?" "Yes! Yes! Yes! Yes!"

We each took a peach for washing. I returned to the break room first, and began paring my peach with a knife. She came back with her peach in both hands biting into it. She cocked her head and stared at my peach for a half-second, straightened her neck, looked at me and said, "You eat your peach so nice... I eat my peach like... Monkey." Much laughter ensued.

Guess What Else Won't Force Manufacturing From China: Rising Shipping Costs

In case you haven't heard, The Internet tells us that there's a mass exodus of manufacturing from China in the wake of rising labor costs, and appreciation of the RMB. In a time of rising, or is it falling [?], oil prices The Internet/Reputable Print Media is now telling us that rising shipping costs mean that China is no longer the place for manufacturing. But, The Internet tells us many many perplexing things. And Reputable Print Media? Well... Fortunately, somebody at The Economist decided to look at actual numbers and interview some people in China.

The findings? First off, manufacturing in China is not dropping, but the pace of growth in exports is dropping. So the sky has not yet fallen. For shipping it turns out, prices have increased:

The cost of shipping a standard 40-foot container from Shanghai to America’s east coast, for example, has jumped from $3,000 in 2000 to about $8,000 today.

The article quotes the executive of an American company in Shanghai that shipping costs accounts for 3-4% of the price of a shoe. The same executive says that this is just not a big deal.

There is also plenty of evidence that the Chinese government is taking affirmative steps to overcome these increased shipping costs by increasing the export tax rebates on low-value goods. Clothing products have had their tax rebates increased from 11% to 13%, and bamboo products have had their rebate increased from 5% to 11%.

However, The Economist article fails on one account in that it barely hints at what the real hope behind this increased shipping cost as reason to no longer source from China argument. The real hope is that increased shipping costs would be high enough to force manufacturers to relocate their manufacturing in the US or Europe thus bringing back jobs that have since been rendered obsolete. This is terribly apparent in the Tesla discussion in the New York Times article linked to in the first paragraph. But, the manufacture of a Tesla Roadster is on a different order of manufacturing prowess than, say, a motorcycle helmet. The Economist article interviews the co-founder of one of the world's largest motorcycle helmet manufacturers, and he says that the only places in the world other than Guangdong that make sense for his factories are his two biggest markets, Europe and the USA. But, both of these places have substantially higher labor costs, and the economies of scale are more balanced. This means that he's not leaving for some time to come.

On another note, anybody else not surprised that China is not [yet] the largest market for helmets?

China's Sarbanes-Oxley

Nice article in today's Shanghai Daily discussing China's Basic Standard for Enterprise Internal Control, Companies face tougher oversight. The Basic Standard is supposed to bring stronger corporate governance to China's listed companies, and is often compared to Sarbanes-Oxley. The Basic Standard is currently in its public comment phase which lasts until September 30, 2008. The Basic Standard will then undergo revisions, and become effective on July 1, 2009. The SD article uses a survey by Protiviti to show why China is strongly in need of stronger corporate governance rules, Corporate Governance Assessment Summary Report on the Top 100 Chinese Listed Companies for 2008.

The report finds that the biggest problem with corporate governance in China's top 100 listed companies is that minority shareholders do not have adequate tools to protect their rights. This renders shareholder meetings a formality, and the decisions of directors and executives are often just a "rubber stamp" of the majority shareholders wishes.

The most startling conclusion of the report is that the overall corporate governance among the top 100 listed Chinese companies has not improved over the past 10 years. Improvement has only been witnessed in two cases: 1) H-share companies, and particularly H-share companies that were listed in the US and thus subject to regulation on several markets; and 2) companies that have taken it upon themselves to adopt stronger corporate governance rules. The report especially lauds those companies that fall into the second category, but finds that the discrepancy between companies with strong governance and lax governance rules is too great to overcome improvements by other companies. The only solution, Protiviti argues, is a legal standard. Come July 1, 2009, China will have just that.

The report also includes a list of Top 20 Chinese companies with the best corporate governance. Here's the top 5:

1. Ping An
2. ZTE Corp.
3. Aluminum Corp. of China Ltd.
4. Jiangsu Expressway Comp. Ltd.
5. Yunnan Copper Comp. Ltd.
   

Here are a couple articles on what it is going to take to for Chinese companies to implement the Basic Standard for Enterprise Internal Control: one from Protiviti; and another from Deolitte.

Posts of the Week: 7/4 - 7/10

PRC Trademark Practice Tip - use it or lose it at China Hearsay

“Wahaha” Ain’t French, and It Belongs to China. at China Business Law Blog
And commentary at China Law Blog.

Though it has nothing to do with China, it's really good:
South Ossetia and the Morality of Secession: at The Volokh Conspiracy

Sports Aren't About Wonders of Athletic Prowess

Think fast! Can you name the sport with the most expensive television rights in the world? With 34.4 billion hours of viewing time 2004, and even more projected in 2008 (and this being a blog with a focus on China) you'd expect that the answer would be the Olympics. But, the IOC is not purely focused on profit; there's also something about spreading the Olympic cheer. Despite this benevolent gesture, the IOC is bringing in $1.7 billion for the TV rights to the Summer Olympics in Beijing. By comparison, the NBA's new broadcast deal is $7.5 billion for 8 years, Major League Baseball is rumored to be ~$900 million, English Premier League is $2.6 billion, and the "big five" soccer leagues of Europe total $11.3 billion. The King of Broadcast Rights is the other football: CBS, ESPN, Fox and NBC paid $3.7 billion for the 2008 rights to broadcast the NFL. (Data from The Economist)

I like the Olympics, but I really like football. The NFL showcases a diverse mixture (of athletic body types) of the most naturally gifted and chemically/nutrionally enhanced athletes in the world, coached by America's most strategic and, arguably, hardest working minds into beating the pulp out of each other while 55,000 fans cheer them on. Football is deep and simple, beautiful and brutal, meticulously planned and spontaneously disrupted, a perfect metaphor for the war sport theoretically evolved to practice for.

And like great warriors, the NFL players bring great stories. Sure, the Olypmics have heartwarming stories and some national rivalry, but a compelling story has to have some drama. In the NFL you get drugs, sex, and (off the field) violence. The NFL also has its heroes, but the most beloved are only so because of their flaws. This is more than just sport, this is great TV.

Which is why American reporters complain about freedom of the press during the Olympics. The Olympics is not just about sports because that would be boring, and the ratings and advertising dollars that are supposed to realize a profit on top of that $1.7 billion would not materialize. This doesn't mean that the Olympics have to be about politics. But, the Olympics are supposed to be about the country hosting them. The reporters are there to tell the story of China, they're not there to tell us what happened during the 100m dash. China's reluctance to let reporters gather their stories is only telling me that the only thing that's going to be worth watching are the Opening and Closing Ceremonies. Compelling Olympic coverage should include the strengths and the flaws of China, we'd only end up liking China more for it, rather than wonder what is not being reported on.

China's Coal Culture

Despite what we've been hearing in the news, air pollution is not just about slower lap times. It's also not just about cancer. Nor is it just about asthma, or any other respiratory problem. And aesthetics are certainly not the main problem. Blue skies are beautiful, but not necessary. Slower lap times and respiratory problems just cause serious problems for career athletes. And cancer? Well if you're old enough you've already got it, and if you're young enough you assume there will be a cure when you get it. So what should air pollution be about? Check out the potential effects on fetal development. A more lengthy and scientific version of the study can be found here. So dirty energy might result in developmental problems that remain with a person for life. Sounds like it's time for a scrubbing.

There is an interesting short article at Scientific American on China and coal, Can Coal and Clean Air Coexist in China?

SciAm's basic answer: No.

The more nuanced answer is that technology has proven unable to cleanly produce energy from coal. GreenGen coal power plant should produce energy with a lot less clouds seeded for acid rain, but it is supposed to be a for-profit power plant and the article raises serious doubts as to whether a gassification and CO2 sequestering facility can run profitably. The other technology of turning coal into a liquid also runs afoul of producing twice as much CO2 as burning regular coal and consumes even more energy in the production of the liquid coal.

Li Jungfeng, director of the Chinese Renewable Energy Industries Association, also suggests that the government is unable to enforce the environmental laws thereby preventing China from making the progress against pollution that its laws should provide.

Sounds like something that really needs to be worked out at the Post-Kyoto meetings. My suggestion would be an IAEA like body authorized to conduct impromptu inspections of power facilities and issue penalties if certain amounts of toxins are being emitted from a plant. Penalties could be in the form of either money or decreases in a nation's allowed emissions. The second might be preferable because it would encourage nations to self-enforce the emissions of their countries plants. This then runs into two problems: 1) no inspection would ever be truly impromptu running into the same problem pointed out in the SciAm article where the clean tech is turned on when the local teams arrive; and 2) enforcement of penalties is tough.

Now enough with the fancy talk. When I was coming up with a title for this post, I was just looking for a segue into the following paragraph of historical tidbits from the SciAm article:

The Chinese have been burning coal for centuries. Venetian trader and explorer Marco Polo said that one of the most surprising sights during his travels through Asia in the 13th century was the Chinese practice of burning a strange, black rock for heat—and the mountains along the Silk Road that smoldered due to underground coal fires, like the ones burning throughout the country today. In fact, these underground blazes burn through an estimated 20 million tons of coal a year, the equivalent of the entire coal production of Germany last year.

Does this all mean something?

Posts of the Week: 7/28 - 8/3

Whoops... A little late... But all's well as China legal news seems to have dried up a bit in the lead up to whatever is happening on Friday.

China Stands Up at Trade Talks at All Roads Lead to China
Interesting discussion of Doha.

Stan Abrams of China Hearsay on Cyber-Litigation
Here, here, and here.

Summing up how the western world looks at China at Imagethief
Not the only one to look at this article, but the most succinct.

Bursting Enthusiasm on the AML
PRC AML - Sound & Fury, Signifying Nothing (yet) at China Hearsay
China's New Anti Monopoly Law. A Post About Nothing Cause Nothing From Nothing Means Nothing. at China Law Blog

Slow News Month at China Environmental Law
Beware Shanghai's Outer Ring Road by night, and keep your eyes open and ears shut in Beijing by day.