Posts of the Week: 12/22 - 12/28

Keeping the Lights on (Part 1): Costing in China At All Roads Lead to China
The link isn't working in my browser, but I'm getting it through my RSS. I'm just assuming that the site is temporarily down.

Sanlu Group Co. Bankrupt: Morally & Financially at China Business Law Blog

In Defense of Due Diligence at China Hearsay

Risks to China's Economy in 2009 at Managing the Dragon

What is going on with China's reserves? by Brad Setser

A glut at fault at Free Exchange

Posts of the Week 12/15 - 12/21

Drafting An Anti-Counterfeiting Trade Agreement: Where is China? at IP Dragon

A Verdict in the Case of the 'Human Flesh Search Engine' at China Journal

Chinese Banks in Trouble? Over Overstated Statistics? You Decide at All Roads Lead to China

China Cleantech: 2008 in Review at China Comment

There Are The Laws When Times Are Good And There Are The Laws When Times Are Bad. Are China's Bureucrats Shock Troops Against Foreign Business? at China Law Blog

"China Heavy" and What It Means for Investors at Managing the Dragon

Posts of the Week 12/8 - 12/14

China's New Labor Contract Law. Harmonized Out of Existence? at China Law Blog
Careful what you hear.

Jerome Cohen on China's legal reforms at CER: The Editors' Journal
A look at comments out of a November Politburo meeting on judicial reform.

Global trade is shrinking fast by Brad Setser

Thomson Reuters Report - China Patents Looking Good at China Hearsay

A Couple More Good Stories From Dan at China Law Blog:
"My China Business Has Just Fallen Off A F--king Cliff And You Want To Tell Me What I Should Do Next Time!?"
China: It Ain't The Business, It's The Pot Of Cash.

An Intimate Evening With John Bolton

This evening I attended an informal sit down with former US Ambassador John Bolton, the one who brought Marxisms to the highest international governing body in the world, to discuss US foreign policy for the next president (and, by "informal" I mean there were about 15 of us; by "sit down" I mean standing around; and by "Marxisms" I mean Groucho, of course). Us card carrying members of the Vast Right Wing Conspiracy were offered this special opportunity to ask Mr. Bolton some questions and absorb his wisdom.

There were two general topics I wanted Mr. Bolton's opinion on: 1) sovereign wealth funds, and CIC in particular; and 2) China's participation in the Six-Party Talks. As the tenor of the talk was nuclear proliferation, I chose to ask a question about whether China was fulfilling its obligations in the Six-Party Talks.

His answer was that China is fulfilling its obligations, but he insinuated that the Six-Party Talks appear to be more of a dog and pony show for two reasons: 1) "The whole concept [that talks among the interested Parties will get nukes out of North Korea] is flawed" because North Korea will not give up its weapons; and 2) the Talks give the US and China a high profile opportunity to agree with each other on something and say look how good we're all doing working together towards a common goal.

His primary concern with China is that the US has simply failed to properly engage China on issues of true consequence with the proper tone. The issues and tone he had in mind, I don't know... In this vein I replied that my colleagues, by which I opaquely meant my Chinese colleagues, appreciated President Bush 43's free trade hands-offish approach to China, and I asked what we could expect in regards to China from our 44th President. His response was well-reasoned: we simply don't know because Barack Obama has at various times, and as the audience warrants, embraced and denigrated free trade. Mr. Bolton believes that the determining factor is how much President Obama will want to reward the unions for their support during the elections.

All-in-all, that was probably the best 45 minutes of procrastination that I've engaged in all week (though, as I type a valiant battle wages between pirates and great cats for control of the NFC South).

ANOTHER TAKE ON THE EVENING: From my friend, Chuck Billinger.

OFF TOPIC NOTE: I was expecting someone much more angry and red-faced than the calm and composed man that showed up, but I'm pretty sure that my brain has been washed by media sources that Americans don't like.

WAY OFF TOPIC NOTE: The school needs a new salami supplier, and a new chicken supplier. The salami was slightly plasticky, and the flavor was tame, characterized not by a spicy greasiness, but a simple greasiness. The chicken smelled like tuna, and the last I checked chicken is not the tuna of land.

Posts of the Week: 12/1 - 12/7

Business Expenses and China's New Corporate Income Tax Law at China Briefing

Investigation Orders in IP Cases at China Hearsay

China is starting to sound like a normal creditor country by Brad Setser

How to Make a Good Enquiry Part 2 at The China Sourcing Blog

Thirty Years of Chinese Legal Reform at China Journal

Major Chinese Investor Loses Confidence in Paulson's Bailout Plan at Deal Journal

How Baidu can dig its way out at Imagethief

Ranking Creditors. China Comes In Dead Last. At China Law Blog

A Bunch of Currency Posts
Country stimulus at Free Exchange
Time for an adjustment at Free Exchange
Harping on the RMB by James Fallows
Should the currency of the country with a large and growing trade surplus and large and growing reserves depreciate against the dollar? by Brad Setser

• A response by Free Exchange

Rethinking Chinese FDI Round-Tripping

Last night, I started reading Yasheng Huang's Capitalism with Chinese Characteristics. Later, I'll post a real review, but for now here's an excerpt from a short review by Tyler Cowen which I agree with:

This very serious work reexamines the role of the state in the Chinese economy.
. . .
I do not have the detailed knowledge to evaluate all of these claims but in each case the author offers serious evidence and arguments. This book does not make for light reading (though it is clearly written), but it is quite possibly the most important economics so far this year.

The the evidence in the book is causing me to rethink issues that have arisen in past posts. The first is in regards to a post I did on a report by the US Small Business Administration which argued that ~50% of the $319.4 billion discrepancy between the values reported by China and her trade partners was due to the round-tripping of currency through Hong Kong to take advantage of Hong Kong's de facto tax haven status. Huang's case study of Lenovo has opened my eyes to the most powerful purpose for round-tripping money from China to Hong Kong and back into China as FDI: to take advantage of the more liberal Chinese laws and regulations afforded to foreign invested enterprises (FIEs).

Here is a condensed timeline of Huang's history of Lenovo:

• 1984 - Lenovo China is founded in Beijing with RMB 200,000 loan from Chinese Academy of Sciences
• 1988 - Lenovo China received HK$900,000 to invest in a JV in Hong Kong
• 1993 - Hong Kong Lenovo raises US$12 million in IPO Hong Kong Stock Exchange, and reinvests this in China operations
• Lenovo (Beijing) and Lenovo (Shanghai) become wholly owned foreign-invested enterprises by Hong Kong Lenovo
• By the end of 1997, every single one of Hong Kong Lenovo's Chinese subsidiaries was either a wholly foreign owned entity or a foreign JV

By off-shoring corporate ownership, Lenovo could operate in China as a foreign company which offered it three major advantages over domestic enterprises: 1) access to foreign capital markets; 2) substantial tax incentives; and 3) "highly biased" liberalized policy incentives. Conceptualizing the benefits of access to foreign capital markets and substantial tax incentives is easy. Conceptualizing the policy incentives afforded to Lenovo as an FIE can be simplified to a single point: as a domestically registered company Lenovo China "was denied a production license in computer manufacturing in China," and a production license was only granted to Lenovo after it had become an FIE.

Huang begins his book with the case study of Lenovo in order to show his readers that:

the Chinese economy is so complicated that what appears to be straightforward and obvious on the surface is not at all so once we dig into the details.

The purpose of round-tripping is no exception. To show just how pervasive FDI round-tripping to take advantage of incentives offered to foreign firms is, Huang uses INSEAD professor Donald Sull's book, Made in China: What Western Managers Can Learn from Trailbralzing Chinese Entrepreneurs. Professor Sull's book uses case studies of eight companies, Lenovo, Sina, UTStarcom, AsiaInfo, Haier, Galanz, Wahaha, and Ting Hsin, as "proof positive of China's fertile entrepreneurial environment and rising competiveness." These eight companies have something in common, but it is not that they are Chinese. No. Seven are registered as foreign firms in China, and one, Haier, has all of its main business and production units registered as FIEs in China. Huang's conclusion:

corporate success in China requires a combination of Chinese management and foreign legal status.

Huang is a master at highlighting complexity. I'm amazed.

There's No Competing With This AML Guide

DLA Publications just released the handiest and easiest to read primer on China's AML provisions that I've run across. It's also pretty dang pretty.

The subject matter is a little rough for a firm attorney; you're not going to be able to read this 18 page guide and be able to adequately assess whether your M&A deal will meet approval. But, this is a great jumping off point for student research and in house attorneys. It really makes you aware of the important articles in the AML, and can help you in deeper research.

To reiterate some points I've made in the past (in that post there are links to other folks' AML guides for comparison purposes), I think the AML is totally cool because you get some actual numbers to guide you on making sure your proposed merger won't be disqualified by MOFCOM. Legal certainty, vague and ambiguous is not.

Check this out for some info on the AML review of the In Bev - Anheuser Busch merger.

Because Voting is Fun

Sure, I haven't posted anything for a couple of weeks, but I blame it on the school. Nonetheless, that does not mean that I don't think that you should head on over to Chinalyst and vote for me in their annual China blog awards. To vote, click the picture below, and click the '+' button under my point tally.



Chinalyst is a wonderful resource for finding new China blogs, and I highly recommend checking them out for further China resources.

Post of the Week: 11/24 - 11//30

There was only one, but it was a doozy:

If you only read one thing on this this fall ... by Brad Setser