Posts of the Week: 2/16 - 2/22

The Successful SOE Leader + More on Protectionism at ChinaBizGov

U.S.-China WTO IP Dispute IV - final thoughts at China Hearsay

Cutting edge in the Middle Ages at IPKat
Not about China. I just think Viking swords are pretty neato.

What the MOC plans to do about China's falling exports at The China Sourcing Blog

Q&A about Importing into China at Silk Road International Blog

More SPVs are Being Challenged: China Brings the General Anti-Avoidance Rules from Concept to Reality at asiatax blog
Missed it a few weeks ago, but it is good.

Training, Indoctrination, Think Tanks: The CCP's Party Schools

Today I came across an interesting article in The China Quarterly on a subject I've never given much practical thought to: Training China's Elite: The Party School System by David Shambaugh. It appears that you can download a pdf of the article for free, but I'm not sure how long that lasts. Mr. Shambaugh doesn't have a thesis, rather the article is an illumination of China's party schools, a topic that he writes has only been briefly covered in one other published work. Mr. Shambaugh's focus in on the Central Party School (CPS), and its provincial level affiliates.

The CPS in Beijing plays three roles for mid-level Party cadres: 1) training; 2) indoctrination; and 3) think-tank. Reform and policy ideas generated in its think-tank capacity are either implemented across the country or are tested out in the provincial schools. The provincial schools also generate their own reform ideas which tend to be suited to the local traditions. The CCP has also setup education and training programs for its cadres with Cambridge University, Copenhagen Business School, and the Kennedy School of Government at Harvard.

In a 2006 Directive, the CCP ordered that all cadres must attend at least 3 months of training at a part school every 5 years. The training focuses on the Three Basics of Marxism-Leninism, Mao Zedong Thought, and Deng Xiaoping Theory, and on the Five Contemporaries of world economy, world science and technology, world legal system, world military and China's national defense, and world ideational trends. CPS also offers a number of electives, and upper division courses for MA and PhD students. Maybe if we gave our Representatives some of this basic education our House Financial Services Committee members could come across at least as well as "your average mid-level mortgage broker" when discussing banking.

In 2001, CPS began a program to bring in entrepreneurs and businessmen for Party training. They claim a total participation of 10,000 since 2001. Mr. Shambaugh points out that these training programs serve two functions: 1) "political protection for the business elite," and 2) "political co-optation by the CCP." And there's the RMB 6,800 per class, of course...

The article's scope is wide and includes further details on the history of Party schools from their origin in 1933 through to the present, the life of a CPS student, details on the curriculum, and closer looks at a handful of the schools including the schools in Guangdong and Pudong. And, the article does not gloss over the corruption scandals that have hit some of the Party schools.

MOFCOM's 30 Years of FDI Retrospective

One of the agencies that MOFCOM oversees, Invest in China, recently published a website full of stories and pictures chronicling and celebrating the past 30 years of FDI in China. It is a nice historical look at FDI for those who like that sort of thing.

Interestingly, the report celebrates the positive influence that FDI has had in developing China's economy. That's refreshing no matter which government it's coming from.

Carnegie's Look at US-China Foreign Policy for the Obama Administration

Gotta hand it to President Obama's administration. Choosing Asia for Hilary Clinton's first overseas trip is brilliant. Or it at least satisfies the importance I attach to the region. The most important leg of her trip is the final leg, Beijing. Mrs. Clinton has her work cut out for her in erasing campaign rhetoric and in assuring the CCP that the US is not going to slide into some Smoot-Hawley madness.

President Bush's administration set the bar high in US-China foreign policy emphasizing bilateral concerns and strengthening our economic ties through the Strategic Economic Dialogue (SED). Recently, the Carnegie Endowment for International Peace wrote a policy brief with foreign policy suggestions for the Obama administration: Avoiding Mutual Misunderstanding: Sino-U.S. Relations and the New Administration by Tianjian Shi with Meredith Wen.

The official summary from the document itself:

• "China policy should be crafted with an understanding of what motivates the Chinese Communist Party's actions and reactions."
• "China expects the United States to lead during the financial crisis and sees its own role as limited to its domestic affairs."
• "The United States would have more success in its political and economic agenda with Beijing if it developed high-level relationships with Chinese leaders and avoided aggressive public language on hot-button issues."
• "The United States should pursue multilateral policies that include China as a responsible stakeholders, especially in regional initiatives."
• "Developing a positive image with Chinese leaders and the public will give the United States valuable political capital in US-China relations."

The three parts of the brief that I found the most interesting are the parts about currency concerns, our weak relationship with Russia, and the importance and utility of the SED.

The authors argue that pressuring China to appreciate the RMB is a waste of political capital. They say that appreciating the RMB will 1) reduce the competiveness of the Chinese economy during economic criss, and 2) force China to purchase less American debt. 1 is bad for China and 2 is bad for the US, thus China's currency stability is best for both at the moment.

US-Russian ties are at a low point. Russia shares a border with China. Russia carries considerable influence in the Middle East, and could be a stronger partner in the 6 Party Talks. The authors argue that if we can repair our relationship with Russia, we can further open the door to success in our bilateral objectives with China.

The SED's importance is that it brings high-level officials together to carry on private discussions to further our mutual economic goals. Too often China is used by US politicians as a target in the mainstream media. The authors argue that US politicians need to cool it, and rely on processes that truly work in dealing with China, and won't encourage China to respond in the war of words:

While the CCP views growing nationalism among its people as a potential threat to stability, to retain the popular mandate it claims the people have granted, the CCP must satisfy the demands of national pride. Confronting China publicly may score points in U.S. domestic politics, but to achieve positive results, officials at the highest level must engage each other and attempt to stay above the domestic fray. Political posturing by both sides has undoubtedly damaged relations between the United States and China in the past and has made measured responses by China difficult. Chinese leaders will be more open to concessions when their legitimacy at home is not at stake.

The report is only 8 pages, and I recommend checking it out!


Sort of unrelated note:
I'm thinking that Mrs. Clinton's trip to Indonesia might prove the most interesting. Lots of Muslim's. President Obama has some history there.

Posts of the Week: 2/9 - 2/15

On the US-China WTO Dispute:
Customs Issue and Criminal Thresholds at China Hearsay
On losing the serious issue at China Law Blog

What Motivates SOE Chief Executives? at ChinaBizGov

Sanlu's Lessons For Foreign Managers In China....Because Jail Is Probably Not Where You Want To Be at China Law Blog

The celebrity that ate my brand at Imagethief

Managing Your China Business Through The Downturn at China Law Blog

Condom Chic

I was just sitting here mulling over excuses to not study corporate tax when this popped up in my RSS reader from Free exchange:

A Biden-esque statement from a Chinese official

Free exchange's RSS feed is frustratingly wonderful. The first line is always a snide response to the post title, yet that first line never appears in the actual post itself. In this case the post was a response to a quote in the Financial Times from Luo Ping, director-general at the China Banking Regulatory Commission:

Mr Luo, whose English tends toward the colloquial, added: “We hate you guys. Once you start issuing $1 trillion-$2 trillion [$1,000bn-$2,000bn] . . .we know the dollar is going to depreciate, so we hate you guys but there is nothing much we can do.”

Colloquial? When a Chinese official endearingly uses a phrase, "I hate you guys," popularized by Eric Cartman in a Churchill on democracy kinda way to describe the relative stability of US bonds, I'd say he's a comic genius.

The good news: the Chinese will keep buying our debt. Hey, we can't be expected to start increasing our savings rate over night. And if we did do something so drastic as increase our savings rate to, oh say, 5%, US consumer spending would plunge by $500 billion. Then we'd see just how deep a global recession could get.

Where was I? Ah yes! The first comment at that Free exchange post links to a story about condom recycling in China. 25 分/3 cents, is a pretty good deal for 10 hairbands, unless they're the base of used condoms. This naturally led me to a photo gallery of a Beijing fashion show to promote the use of condoms where all the clothes were made from, yes, condoms. I don't know if this is hilarious or disgusting:

The Economist on China in 2009

In comparison to the substantial coverage of China in last year's The World In, there are only couple of serious articles in this year's edition. Though interesting, I don't find ornithology and Ferris wheel size anxiety the most serious of topics.

Riders on the storm by Pam Woodall
With exports to America only making up 8% of China's GDP, Ms. Woodall predicts that China will break on through to 2010 in good shape. She thinks that 9% growth was unsustainable, and that China's budget surplus will allow infrastructure investments to offset weak exports.

Ms. Woodall does note that despite China manufacturing wages remaining at less than 10% of America's, low-value manufacturers in the Pearl River Delta will continue to close. She draws the proper conclusion from this observation:

This is forcing Chinese manufacturers to move up the value chain, just as those in South Korea and Taiwan did year ago. But this is evidence of success as countries grow richer, not a sign of dwindling competitiveness.

Despite Asia's inflation rate climbing to 8%, Ms. Woodall also predicts that Asia's average inflation rate will drop below 4% for two reasons:

1. Food and energy prices might stabilize at their lower levels.
2. Slower growth will help keep wages under control.

After the Olypmics by James Miles
Mr. Miles predicts greater unrest in China this year. It is the 20th anniversary of one event, the 50th of another, and the Confucianally important 60th anniversary of the founding the PRC. Despite this, the author predicts that the unrest won't be "directed explicitly at one-party rule." Rather, he thinks that unrest was unusually restrained in the lead up to the Olympics, and that the "loosening of the political fetters" will lead to "greater social turbulence." Here's hoping the nation's stability can duck protest like a well flung shoe.

Posts of the Week: 2/2 - 2/8

China's Stimulus Package: Energy & the Environment (II) at China Environmental Law

US-China WTO Case I - copyright claim at China Hearsay

Economists React: Sign of of Stabilization in China? at China Journal
Quotes from several economists on what's going on with China's economy.

Chinalco Discusses Raising Its Stake In Rio Tintoat Managing the Dragon
Nice summary of the issues involved in a possible purchase of Rio Tinto's shares by Chinalco. Of particular interest is the observation that the rise of China can help combat the emergence of a powerful CVRD - BHP duopoly if Rio Tinto fails.

China Law For Foreigners. Slip Sliding Away. at China Law Blog
Does apparently relaxing legal enforcement mean that you should start playing faster and looser with the rules? No.

Basics about Setting up Shop in China at China Business Law Blog

Bringing the State Back In (and Driving Private Capital Out) at ChinaBizGov

"Distribution of Capital" NOT "Excessive Savings" Is The Issue in China at Managing the Dragon

Reviewing The Economist's Predictions for China in 2008

Yesterday, as I grabbed The World in 2009 from my mailbox, I recalled a blog post I wrote last November summarizing The Economist's predictions for China in 2008. I think it would be good fun to evaluate those predictions.

Editor Daniel Franklin's China Predictions
Mr. Franklin predicted that Taiwan's elections could lead to geopolitical crisis, and he predicted that China would win more gold metals than the US in the Summer Games. I wrote that Mr. Franklin got "a little carried away" with the Olympic prediction.

The election of Ma Ying-jeou has warmed relations between the PRC and the ROC, which is nice.

China skunked us on golds, but, uh, we still got more overall.

Charles Lee's China Predictions
Mr. Lee predicted that the Olympics would expose the world to several major Chinese businesses, but that none of them would join the "global A-list." Instead, those companies would focus on "their booming home market." He also made special mention of Nine Dragons Paper.

The severity of the financial crisis seemed to have a negative impact on the exposure that Chinese brands received during the Olympics. Or maybe I was paying too much attention to former Soviet satellite states. The China telecom industry has taken a bit of an image hit with the telecom dispute over 3G neutrality. Overall, he was right, though "booming" is probably not the right word to describe any consumer market right now.

Nine Dragons and Zhang Yin have taken an unfortunately significant hit over the past year.

Steven Xu's Predictions
Mr. Xu predicted that China would face two easily overcome economic problems in 2008: inflation and faltering export markets. If only these were the only economic problems.

Thomas Easton's Predictions
He was definitely right: the Shanghai stock exchange has performed horribly over the past year. China is trying to fix some of the corporate transparency problems with the Basic Standard for Enterprise Internal Control which becomes effective on July 1, 2009.

Jack Ma's Prediction
"A million internet entrepreneurs will bloom." Maybe next year.

Conclusion
The unpredictability of 2008 makes 2008 a pretty crappy year to use to stick it to predictor's.

Harold Koh: A Possible Supreme Court Justice

Today I attended a talk by Ilya Shapiro, editor-in-chief of the Cato Institute's Supreme Court Review, on federal judicial appointments. The first half of the talk covered federal judicial nominations under Presidents Reagan, H.W. Bush, Clinton, and Bush. Of all the statistics he gave us, Mr. Shapiro thought the most interesting was that of all federal judges currently serving, the majority were appointed by President Clinton. But this isn't what I want to talk about.

The second half of the talk was about possible nominations President Obama will make if vacancies occur on the SCOTUS. Mr. Shapiro is not one to mince words, and he said that chances are the nominee will be some combination of female and minority. Of the candidates on the short list, I found Harold Koh, the Dean of Yale Law School, to be the most intriguing; not 'intriguing' as a matter of, "Yeah, I want this guy on the SCOTUS," but more 'intriguing' as a candidate worthy of discussion in this forum.

Harold Koh, if appointed, would be the first Asian Supreme Court Justice. If I were Asian then I might care about this in some sort of show of solidarity for my brethren. But I'm not, so I don't. Besides, I thought Ms. Themis was blind (or was that Dike? Or was it actually Astraea? Maybe Plato's representation of Socrates shouldn't have been executed for impiety because it's a lot easier to keep track of a single Demiurge then an ever evolving Pantheon? Sure, the Romans cleared this problem up, but going with Justitia would have given the game away too easily).

Getting back on track, the interesting part about Mr. Koh is that Mr. Shapiro portrayed him as someone who believes in the "one world government of legal jurisprudence;" that Mr. Koh is of the opinion that international law is binding on US courts. My initial reaction was that maybe this Koh guy ain't so bad: one world government of legal jurisprudence would be awesome for predictability, one of the things that we (future) lawyers crave. I quickly retreated from this stance.

The most obvious problem is that we don't have one world government. One of the norms of international law is that there is supposed to be international comity, or respect for the laws of other nations. Last semester I was working on an extraterritorial antitrust problem and this concept of international comity was central to the discussion. Absent a treaty, it is not clear at all who is supposed to be respecting who's laws, which is why absent significant assets in the US the best result you're gonna get from an extraterritorial violator of the Sherman Act is a settlement.

But this isn't enough to disqualify him in my opinion. And in this age of meaningless plurality opinions handed down by the SCOTUS, it might be fun to have a liberal lion filing Scalia-like opinions to entertain future generations of law students. Did that last sentence just disqualify me from holding high office?

NERA On IP Litigation Trends in China

Just read a good short paper written by Kristina Sepetys and Alan Cox filled with plenty of data and tables, Intellectual Property Rights Protection in China: Trends in Litigation and Economic Damages (h/t to IPKat). Though the paper briefly discusses administrative remedies, and the differences in damage estimation methodologies between administrative and judicial remedies, the focus is on judicial damage awards. Here is the summary of the the key findings from a review of 179 cases filed from 2002-2008 as written by the authors of the report:

• "More than 90% of all IPR damages awarded in China are under $100,000."
• "The median damage awards across all IPR cases in China in 2006-2007 was approximately $15,000."
• "The median damages award is approximately 15% of the IP owner's damages claim."
• "In cases involving a Chinese plaintiff and a Chinese defendant, the plaintiff received a lower median award than when the plaintiff was foreign."
• "Companies based in the US, France, Japan, and Germany make up 50% of plaintiffs in the cases reviewed, but less than 5% of defendants."
• "Courts in Beijing and Shanghai hear the most IP cases tried in China."
• "The highest damage award in each of the last five calendar years are:"
• 2004: $50,000
• 2005: $1,100,000
• 2006: $210,226
• 2007: $44,300,000
• 2008: $2,780,000

The authors conclude that the damage awards in China are are significantly below the actual economic harm suffered, and this is imposing costs on China's economy because ineffective deterrence decreases R&D incentive. The authors argue that the most significant problem with China's damage awards is that they are often based on the infringer's unjust enrichment and not on the plaintiff's lost profits. Unjust enrichment damages are insufficient for the following reasons:

• Sales of infringing product are at a much lower price than legitimate copies.
• Infringer's tend to not maintain complete records of their sales.

When unjust enrichment is not used and lost profits are used, the Chinese courts typically use simple calculations based on the plaintiff's pre-infringement sales, which are a poor predictor of lost profits for a whole host of reasons.

If this kind of thing gets you going, I highly recommend you check out the rest of the report which has a bunch of nice tables and data. The authors even devised an econometric analysis of their data "to determine whether there was a difference in the size of awards when the plaintiff was Chinese or foreign."

I have two gripes with the report:

1. The dataset is too small relative to the time period it covers. A lot has changed in China's IPR regime between 2002 and 2008, and the pre-2006/'05 cases should look a lot different than the more recent cases which should result in a lower observed reform rate than the true reform rate. The court's decisions and damage awards in 2002 probably have little to no bearing on the damage awards being made in 2008, and might only serve to skew the averages and medians away from their true values.
   
2. As the authors note, there is selection bias in their sample. The cases were not taken from court documents, but were taken from "Chinese government agencies" and various media sources. These sources tend to cover the most exceptional cases, and one would caution against using the exceptions to write the rule.

Also of note: the paper cites a post from China Esquire, and that post was an analysis of a post from China Business Law Blog.

Posts of the Week: 1/26 - 2/1

Breaking news: WTO Panel Report on US-China IP dispute -- both sides win! at IPKat

China Pledges WTO Copyright, Trademark Cooperation at Wired: Threat Level