Week in China. Going ballistic

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1 Talking Point 7 Week in 60 Seconds 8 Economy

9 Internet and Tech 11 Auto Industry 13 Q&A

16 Media

17 Society and Culture 20 And Finally

21 The Back Page

10 March

2017

Issue 357

www.weekinchina.com

Week in China

Going ballistic

R eu te rs

The Lotte conglomerate and pop stars like Girls’ Generation are among those China

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S

oft power comes in all shapes and forms but “Hey, sexy lady” must count as one of its more un-likely manifestations.

Boomed out five years ago in the irritatingly catchy Gangnam

Style, probably the best-known

song in South Korean pop history, the lyrical loop is part of the stun-ning success of the “Korean cul-tural wave” – known as hallyu – that has swept Asia.

Pop stars have played a key part in the push to promote South Ko-rean culture overseas, which now extends from music and entertain-ment into fashion, cosmetics, fried chicken and other consumer goods.

Firms in the firing line

Yet for months the stars have found themselves at the forefront of a major row as the Chinese have thwarted Seoul’s soft power with a show of economic might.

The basis of the dispute is the construction of a missile shield on South Korean soil that has enraged China’s defence chiefs. The byprod-uct is that Korea’s hallyu wave has been facing bans and boycotts within China as Beijing mounts a commercial counter-offensive against Seoul’s companies.

The entertainment industry was first to feel the impact, but firms from sectors including retail and tourism are starting to feel it too.

What’s the reason for the row?

The Chinese have been protesting about the Terminal High Altitude Area Defense (THAAD) missile sys-tem since it first became clear that it was going to be installed in South Korea last year.

While officials from Seoul and Washington have stressed that the US-built and US-operated system has no offensive capability and that it will focus solely on threats from North Korea, the Chinese are con-cerned that the shield will disrupt “the strategic equilibrium in the re-gion”. In particular Beijing fears that its powerful radar could be used to collect tracking data and other

mil-US missile shield causes a commercial crisis for Korean brands in China

Soon to operate from South Korea: the THAAD system’s radar worries Beijing

P ho to : R eu te rs

Talking Point

Week in China 10 March 2017

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Talking Point

itary secrets from within China’s own territory.

Beijing stepped up its opposition when the decision to deploy the missiles was confirmed last July and the mood soured further late last month when Lotte Group, one of the Korean chaebol, signed a land swap deal delivering the golf course where THAAD will be installed.

Following the news that the first THAAD components have already reached South Korea this week, Chi-nese foreign ministry spokesman Geng Shuang reiterated immedi-ately that China “will definitely take security measures to safeguard its security interests” and warned that “all the consequences entailed shall be borne by the US and the ROK.”

What steps has Beijing taken?

Initially the response targeted mu-sic and entertainment exports – K-pop and K-drama, in industry parl-ance.

Korean celebrities started to feel the pressure with bans on appear-ances in China (see WiC316), where many make more money from en-dorsements than in their home market. Actors like Lee Kwang-soo and Kim Ji-won “haven’t earned a penny” in China since the middle of last year, the head of their manage-ment agency told Yonhap, a South Korean news agency. Concerts have been cancelled and older material has also been censored, Yonhap says, with stars like Psy (of

Gang-nam Style fame) getting their faces

blurred out of the footage.

China’s video streaming firms have also started to purge their plat-forms of soap operas and historical dramas, with companies like NetEase, one of the leading content providers (see WiC356), getting rid of its K-pop music charts too.

This kind of content normally ac-cumulates billions of hits in China, although there hasn’t been any ob-vious sign of a consumer backlash.

Indeed, Xinhua reported a poll from last summer in which 80% of re-spondents were supportive of the bans on South Korean stars. “It re-flects Chinese placing love for their home country before popularity of entertainment stars,” the state news agency explained.

The ratcheting up of the pressure in the travel sector has been similar. Measures began in January with re-fusals to confirm charter flights by South Korean airlines and last week the campaign escalated, with indica-tions that travel agencies were being instructed to drop Korean tours.

Tuniu, an online travel firm, was the first to react, making plain the link to the tension over THAAD by putting out a statement that it was opposed to the missile deploy-ment. Searches for Korean package tours on its website stopped gener-ating any results and it was the same on Ctrip, the market leader, despite South Korea’s ranking as one of the most popular destina-tions for Chinese visitors.

The restrictions will have a chas-tening effect if they are fully imple-mented. Eight million Chinese visited South Korea last year, making

up a little less than half of its total visitors but accounting for more than two-thirds of the spending.

Which companies are most ex-posed to Chinese retaliation?

Foremost Lotte Group has been sin-gled out because of its ownership of the land designated for the missile launch site, with Xinhua threaten-ing that the shoppthreaten-ing mall and ho-tel operator will lose “a very large slice out of their business pie” in ig-noring Chinese concerns.

In the same week that the land deal was confirmed a cyber raid brought down the website for Lotte’s duty-free businesses. Sales at its duty-free empire in Korea (more than two-thirds of its income comes from Chinese tourists) have been falling fast and Lotte is also a target inside China, where its su-permarkets have been falling foul of local regulators.

We reported previously how offi-cials in Shenyang stopped construc-tion at a massive Lotte shopping and entertainment complex, citing fire-safety concerns (see WiC354), and the company confirmed on Tuesday that at least 39 of its stores Lotte’s China business is the worst impacted thanks to its THAAD role

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Talking Point

have been closed after inspections by local authorities.

Chinese brand Weilong, which produces ‘hot stick’ snacks, then scored a marketing coup by an-nouncing that it would no longer supply its products to Lotte stores. This prompted thousands of mes-sages of support from excited neti-zens and a rush of photos showing people smashing their Lotte cus-tomer cards into pieces. Other footage on social media showed scenes from Zhengzhou in Henan, where heavy equipment was used to crush bottles of soju (Korean liquor) and Lotte products. Chinese flags were waved and the national an-them played in the background.

Other companies fed from the fervour, announcing they were cut-ting ties with Lotte as well. “Brother Weilong has set the right example for us,” posted electronics brand Pisen. “As another national busi-ness, Pisen salutes you!”

The onslaught has moved online, where both of China’s largest e-com-merce sites have disabled their Lotte storefronts. Tmall dropped Lotte in January and JD.com did the same last week after pressure from netizens. Jumei, China’s largest e-commerce website for cosmetics, has announced plans for a boycott of Lotte’s products.

“We have completely scrubbed the name of Lotte from our website,” Chen Ou, its founder (see WiC239), declared. “We would rather die than carry its goods in the future.”

In a showing of “rational patriot-ism”, some employers have even put up classified ads on social media platforms, offering to hire Chinese workers affected by the boycott on Lotte.

Is it a coordinated campaign?

Investors in the South Korean stock market think so and they took fright at news of the unofficial travel re-strictions, with share prices for

ho-Week in China 10 March 2017

tels and tourism-related companies selling off heavily last Friday and at the start of this week.

Amorepacific, the cosmetics giant, was another major loser. Ana-lysts were reporting on Monday that its market cap had fallen by a fifth (about $2.6 billion) since Lotte agreed to supply land for the mis-sile shield the week before.

The Chinese media was deter-mined that the South Korean firms must feel the economic pain, how-ever. “Chinese consumers should be-come the main force in teaching Seoul a lesson, punishing the nation through the power of the market,” the People’s Daily crowed, warning that brands like Samsung and Hyundai “will suffer sooner or later.” Lotte executives met on Sunday to discuss their response, calling for “active help” from their govern-ment and asking that it be made clear that they provided the land for the missile launchers at the request of the state, says Yonhap.

The Chinese government is being coy about the orchestration of the campaign, however, refusing to link it explicitly to the clash over the new missile programme. There was initial confusion when the appear-ances of the Korean celebrities were

blocked, as it wasn’t clear that the refusals were linked to the missile row. But Fang Kun, a Korean special-ist at the Chinese foreign minspecial-istry, then broke cover telling reporters “that it is hard for Beijing to adopt a policy supportive of Korean pop culture unless the THAAD issue is resolved first”.

The situation seems similar with the new round of travel restrictions. The Korean press is reporting that Chinese travel agencies have been told to stop selling tour packages from the middle of March, although Geng Shuang, the spokesman for China’s foreign ministry, has denied that the Chinese government is be-hind the embargo.

But then he made it clear what the Koreans need to do for the situ-ation to return to normal. “Instead of chasing shadows that don’t exist, we hope the South Korean side will heed the voice of the people and take concrete actions to avoid caus-ing further damage to bilateral rela-tions,” he advised.

How damaging is the dispute for the South Koreans?

Officials in Seoul have tried to downplay the disruption for months, fearing that a more con-On a side note: will Samsung be next on China’s boycott list?

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Talking Point

frontational response is counter-productive. But by last weekend the protests were getting louder, with Foreign Minister Yun Byung-se warning that the measures could breach China’s World Trade Organ-isation obligations and that they ran counter to the China-South Ko-rea Free Trade Agreement signed in 2012. “It is against Chinese Presi-dent Xi Jinping’s opposition toward trade protectionism,” he added, rather forlornly.

Seoul may have a problem chal-lenging the Chinese directly be-cause none of the restrictions have been tabled formally. “It appears to me that there have been such [re-taliatory] measures, but Chinese authorities have officially denied it,” Yun told Korean broadcaster KBS, complaining that it wasn’t “ap-propriate” to curtail trade “on a civilian level”.

The Korean newspapers agree that evidence of official instruc-tions is needed to make a case against the Chinese. And there was further evidence of the more subtle approach when the China National Tourism Administration advised Chinese travellers to “choose [their] destinations carefully” rather than telling them not to travel outright, the Korea Herald said.

Hankyoreh, another Korean newspaper, made the same point about the government meetings with the travel agencies. “We can even sense some slipperiness at work in the way it issued orders ver-bally so as not to leave a paper trail,” it claimed.

The Korean media was also frustrated that its government has looked unprepared for the com-mercial crunch. The Chinese re-sponse was predictable, it argues, because the Korean economy is heavily exposed, with China tak-ing a quarter of its exports ($124 billion) last year.

For Chosun Ilbo, another of the

local newspapers, a broader rethink is required: “If we do not decrease the dependence, China’s conde-scending tyrannies against South Korea will continue.”

The countervailing argument is that some of China’s other efforts to punish its trading partners haven’t been crippling over the longer term. Five years ago the squabble over the Japanese-controlled Senkaku is-lands (the Chinese call them the Diaoyu) saw Beijing pressure its cit-izens to stop travelling to Japan. But the impact was short-lived and visi-tor numbers to Japan have grown strongly since then, from 1.31 mil-lion people in 2013 to 6.37 milmil-lion last year.

Patriotic Chinese are quick to pil-lory Japan in political terms. But as we reported in WiC309, this hasn’t discouraged many of them from spending heavily on bakugai tours (literally “buying explosions” in Japanese).

Taiwan is also being punished by an edict from Beijing after its

presi-dent Tsai Ing-wen refused to ac-knowledge the ‘One China’ policy last year (see WiC326). The unoffi-cial travel restrictions have seen ar-rivals from mainland China drop by almost a fifth. But the Taiwanese have more than coped with the re-duction, reporting record-breaking numbers over the last year based on growth in visitors from elsewhere.

How far will the Chinese take this?

It is difficult to see how Seoul can back down on a decision about de-fending itself from being attacked; using a missile system stationed on sovereign soil. It is already frus-trated that the Chinese haven’t done more to bring Kim Jong-un to heel (see WiC355), especially as the threat from Pyongyang is growing. Earlier this week Kim launched four more ballistic missiles, three of which fell into Japanese waters.

Bowing to Beijing could also cre-ate a rift with Washington at a time in which the Trump administration

TRUMP CAR.WiC doubts that the White House would consider switching

its presidential fleet to a Chinese car brand, even if its name echoes that of the commander-in-chief. The Financial Times reported this week that Guangzhou Automobile Group (GAC) plans to sell its Trumpchi sedan in the US – a car that’s been on sale in China (and popular) since 2010. In January the Trumpchi became the first Chinese brand to feature on the main floor of the Detroit Auto Show, and general manager Yu Jun told the FT: “If we want to become a global leading brand and enter the global market, we must enter the US market.” The company says it came up with the name long before Donald Trump entered the political scene and it has no connection to the former reality star and real estate tycoon. Instead it says the name’s two Chinese characters mean to ‘to excel’ or ‘surpass’, as well as the first syllable of the word “cheerful” respectively. Yu says GAC now has a dilemma whether to use the same Trumpchi name in America, where the Trump brand is now proving divisive.

“We were debating whether to use this name even before Trump was elected,” he admits. He also says American customers will have to wait till at least 2019 before they are able to buy a Trumpchi. (For more on Guangzhou Auto’s global plans, see our Sinopolis guide to Guangzhou – downloadable from the Books section of our website.)

Planet China

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Talking Point

is threatening to reconsider its mil-itary commitments in the region.

For the Chinese, the decision not to formalise the sanctions allows more room for maneouvre at a later date. But firing up their consumers as the weapon of choice could turn out to be dangerous if sentiment turns too aggressive. In the case of the clash with Japan in 2012, the government was forced to rein in tensions after street protests turned violent and there were attacks on shops and factories associated with Japanese brands (see WiC165).

Anti-Japanese sentiment is much closer to the surface in China than bad feeling towards the Koreans, al-though local media has reported that cars made by Hyundai have al-ready been vandalised in Jiangsu, prompting the public security bu-reau to call for “rational patriotism”.

Another risk is that the dispute

starts to damage China’s manufac-turing base. More than three quar-ters of its imports from Korea last year by value were shipments of in-termediate goods. If the row wors-ens, the Koreans could retaliate by holding back items like semicon-ductors and high-end chemicals. That would cripple the Korean pro-ducers but it would hurt Chinese manufacturers too, putting intense pressure on global supply chains.

A prolonged confrontation might turn Korean investment away from China over the longer term in the same way that Japanese firms have tried to respond to the attacks on their factories five years ago with the “China Plus One” strat-egy, diversifying their production across other parts of Asia.

In the meantime Pyongyang’s provocations mean that the trou-ble over THAAD is likely to rumtrou-ble

on. Indeed, Hwang Kyo-ahn, South Korea’s acting president, re-sponded to Kim Jong-un’s latest missile tests on Monday by saying that he would be “doubling down” on his country’s defence capabili-ties, including the installation of the new missile shield.

News of a fuller deployment might see Beijing push for a broader boycott. But the South Ko-reans seem steeled to proceed, in spite of domestic political turmoil (a court today confirmed the im-peachment of Park Geun-hye with new presidential elections set for May).

Meanwhile North Korea has taken umbrage at THAAD too, with its am-bassador to the UN, Ja Song-nam dra-matically declaring late this week: “The situation on the Korean penin-sula is once again inching to the brink of nuclear war.” n

Illu str at io n: w w w .b en ita ep ste in .c om

“Where we’re going, we don’t need roads,” Dr Emmett Brown told Marty McFly as they prepared to blast into the year 2015 in the film Back to the Future. Perhaps that destination in time would have been more appropriately set for July 2017, when Dubai says it will be launching the world’s first pilotless, flying taxi service.

In February the Dubai authorities announced a plan to employ drones to complete short passenger trips. The company making the drones is a Chinese one, called Ehang.

Ehang unveiled its Ehang 184 passenger drone at the CES tech show in Las Vegas last January as the world’s first electric, self-piloted drone, claiming it had already completed 100 passenger-laden test flights.

The drone carries a single passenger weighing up to 100kg, and has room for a small suitcase. Fully

charged, it can travel up to 50km per hour, to an altitude of 3.5km and for a duration of 30 minutes – meaning it is viable only for journeys within cities as opposed to between them. One feature of Ehang 184 that might cause some concern is, of course, that it has no pilot. Passengers use a tablet inside the “cockpit” to enter their destination and the drone does the rest. The drone

Pilotless scheme

also has no manual override but is designed to land in the closest “safe location” in the event of any problems.

However, tech portal The Verge is “extremely sceptical” that the idea will ever get off the ground, noting that Dubai has a history of announcing outlandish tech partnerships – such as jetpacks for fire-fighters tackling skyscraper blazes. It also believes the Ehang 184 is simply a publicity gimmick for the company’s other commercial drones. Time will tell.

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The Week in 60 Seconds

1

Chinese telecoms manufacturer ZTE has agreed to plead guilty to violating US sanctions on Iran and North Korea and pay up to $1.2 billion in fines. “ZTE ac-knowledges the mistakes it made, takes responsibility for them and remains committed to positive change in the company,” said Zhao Xianming, its chairman and chief executive. ZTE has been under investigation since 2010. The settlement announced this week comes after a year of negotiations.

2

Jack Ma sent the National People’s Congress an open letter asking for harsher punishments to deter coun-terfeiters. “We need to fight counterfeits the same way we fight drunk driving,” he wrote. “No one company can do it alone. The existing laws are lagging, failing to im-pose actual threats on the behaviour of counterfeiters and leave far too much room for cheating.”

3

Baidu boss Robin Li called on the government to ease visa restrictions and bring in tech expertise from overseas at a time when President Trump’s policies might be dissuading emigration to America, reports the South China Morning Post. Li said Trump’s election was a “great opportunity” for China to attract talent.

4

Sina Weibo has reached a deal with the NBA for its social media broadcasting rights in China. The deal will see Weibo deliver daily game highlights, player in-terviews, live events, statistics and other content. The microblog company will also co-produce programmes to be broadcast on NBA China’s official account.

Forex reserves rise

5

China’s forex reserves rose to $3.005 trillion at the end of February, having earlier sparked concerns when they dropped below $3 trillion earlier in the year. The $6.9 billion rise was a surprise to analysts, most of whom were anticipating a $20 billion fall, according to the South China Morning Post.

6

China’s foreign minister warned that North Korea and the US were racing towards a “head-on collision” as Beijing continues to object to the US deployment of THAAD in South Korea. Wang Yi also demanded that North Korea stop its nuclear tests urging, “Nuclear weapons will not bring security. The use of force is no so-lution. Talks deserve another chance. Peace is still within our grasp.”

7

A conflict near the Chinese border with Myanmar has forced thousands of refugees into China, Reuters reports. An attack inside Myanmar on Monday, led by members of an ethnic Chinese group, left 30 dead. For-eign Ministry spokesperson Geng Shuang called for “an immediate ceasefire”.

8

A good week for US President Donald Trump’s in-tellectual property interests in China, with the As-sociated Press reporting that provisional approval has been granted for 38 new trademarks that the Trump Organisation applied for last April. This follows the de-cision last month to grant Trump’s company a trade-mark for construction services in China after a 10-year legal battle. n

The major news items from China this week were...

Robin Li wants to take advantage of Trump policies

ZTE: heavily fined

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Economy

F

ormer British prime minister Tony Blair is a politician known for his perspiration. Such was his sheen during one conference speech that his PR team tried to spin it as a sign of manliness. And asked a few years later about his re-lationship with Wendi Deng, former wife of Rupert Murdoch, Blair melted once more. “A large, dark pool of sweat has suddenly ap-peared under his armpit, spreading across an expensive blue shirt,” The Economist’s reporter noted.

The latest leader to moisten un-der the media glare is China’s Pre-mier, Li Keqiang. Delivering the State Council’s government work re-port last Sunday to a 3,000-strong delegation of lawmakers, he per-spired so profusely that beads of sweat were dripping onto his spec-tacles. Naturally, none of the Chi-nese media felt it was appropriate to comment, leaving it to onlookers from Hong Kong to wonder what had happened.

“Li Keqiang should not have stage fright, although the challenging [economic] situation in China and overseas has put him under pres-sure,” a commentator concluded in Hong Kong’s Ming Pao, adding that when Li was reiterating that the anti-graft crackdown would con-tinue, delegates were seen taking selfies with their mobile phones.

“This [lack of respect] would in-deed have cold sweat seeping down his back,” the same expert opined.

Political analysts have long thought that Li’s influence in lead-ership circles has waned and his tepid delivery on Sunday did little

In the hot seat

to quell speculation that he has been sidelined by Xi Jinping, the Chinese president and Party boss.

The content of his presentation didn’t seem to inspire delegates ei-ther. Hong Kong’s Apple Daily news-paper noted that Li earned just a few rounds of applause and the loudest clapping came only after he had an-nounced the scrapping of mobile phone roaming charges. (In 2014, he won more than 50 rounds of ap-plause, a record. The state media de-clined to join in, describing the “clapping culture” as disruptive.)

The Apple Daily spent more of its time watching the Chinese presi-dent than his subordinate. “Xi Jin-ping put on a stone face through-out,” it noted. “He has not touched the report in front of him once.”

Of course, the president would have had a fair idea of what the pre-mier was going to say, especially the repeated mentions of the primacy of the Party, and of Xi himself.

“Xi, who is also the Party’s leader,

was name-checked eight times, more than any serving leader since Mao Zedong racked up 17 work-re-port mentions in 1975,” the Wall Street Journal calculated.

“This year’s report also contains 11 mentions of the word ‘core’, most of them in reference to Xi’s latest ac-colade: his designation last year as the core of the Party leadership.”

So apart from the political sub-text, what were the policy highlights in Li’s latest blueprint?

This year’s growth target has been cut to around 6.5%, down from 6.5% to 7% for 2016. That means that the economy is likely to expand at its slowest percentage rate in 27 years, although Li is confident that it will create more than 11 million urban jobs, holding the unemployment rates in major cities below 4.5%.

Otherwise much of the message was the same as last year, with a fo-cus on further cuts in coal and steel capacity, more supply side reforms and more work on reducing real es-tate overhang in cities where there has been over-building.

All of that will be hard work. But the real focus of power clearly rests on Xi as State President and Com-mander-in Chief of the PLA, as well as Chair of the Central Military mission, Economic Reform Com-mission, National Security Council, Cyber Security Commission and Military Modernisation Commis-sion. Add to that his chairing of the various ‘central leading groups’ that now shape policy across key areas of government, and it’s clear that Xi is the man in the spotlight, not his perspiring premier. n

What were the takeaways from Li Keqiang’s 2017 policy address?

Li: mentioned Xi eight times

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Internet and Tech

I

n Only the Paranoid Survive, Intel founder Andy Grove argues that the key to success in the commer-cial world is being able to spot and respond to inflection points which signify major structural shifts.

The title of his book is a rhetorical allusion to the competitive land-scape of the semiconductor indus-try, where Intel (computers) and more recently Qualcomm (mobile phones) have dominated the world of application processor design – and shunned complacency so as to stay ahead (in Intel’s case since the early 1970s, with The Economist pointing out the US giant still has a market share of “about 80%” for the PC processors known as CPUs).

But their grip is now being called into question by Chinese ambitions to foster homegrown rivals. In Grove’s reasoning, this could turn out to be the moment when the fun-damentals change forever as the Chinese move forward from mak-ing products containmak-ing the all-im-portant chips to manufacturing the chips themselves.

In the first of a two-part series WiC looks at China’s progress in manufacturing semiconductor chips for the two products that have dominated the chip industry over the past two decades: computers and mobile phones.

In the second, we will examine its position in products likely to dominate the coming decade such as self-driving cars and deep-learn-ing machines.

To build China’s chip capacity, government guidelines drawn up in 2014 envisaged $150 billion of

in-Week in China 10 March 2017

Forging ahead

vestment through state subsidies and a raft of newly-created private equity funds under the provincial and municipal governments.

The plans were refined in 2015 with specific targets to boost do-mestic semiconductor output to 40% of the global total by 2020 and 70% by 2025 (the Chinese consume about 60% of the world’s semicon-ductors, but make just 10% of them).

Until three or four years ago, most of the expansion in home-grown production centred on chip assembly and packaging. A key problem was that the country’s lead-ing producers Semiconductor Man-ufacturing International Corp (SMIC) and Hua Hong Semi weren’t challenging the industry leaders in technical terms, manufacturing chips using ‘trailing-edge’ technol-ogy. But that situation is starting to change. Analysts say SMIC is less than two years behind one of Taiwan’s leading producers, United Microelec-tronics Corp (UMC), although it is still about five years back on global leader Taiwan Semiconductor Manufactur-ing Corp (TSMC).

Domestic companies are also the drivers of new foundry investment in China rather than the foreign firms. SEMI, an industry associa-tion, believes they will account for over two-thirds of foundry invest-ment by 2019.

One of Barack Obama’s final acts as US president was commission-ing a report on the magnitude of the Chinese challenge. Earlier this year, the President’s Council of Ad-visors on Science and Technology published its conclusion: China is already undercutting the American position. That view was reinforced this week with the publication of a report by the European Union Chamber of Commerce in China that complains that the Chinese are closing the technology gap by unfair means (primarily through subsidies and guided investment funds). The study sees this as a state-driven strategy, describing China’s ‘Made in 2025’ programme as a “large scale import substitu-tion plan aimed at nasubstitu-tionalising key industries, or at least severely curtailing the position of foreign

Chinese chipmakers are boosting capacity, but lack the top technology

Tsinghua Unigroup is at the vanguard of China’s chip revolution

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Internet and Tech

businesses in them, both as sup-pliers of key components and fin-ished goods”.

Added to the list of complaints by the foreign foundries is that they are being forced into technol-ogy transfer in exchange for mar-ket access but then finding that Chinese customers are being com-pelled to source chips from domes-tic suppliers.

Part of the American response: to defend its know-how on national security grounds. Washington’s Committee on Foreign Investment (CFIUS) has blocked Chinese com-panies in a number of their at-tempts to acquire US technology. In 2016, this resulted in failed bids from the omnipresent Tsinghua Unigroup, whose Unisplendour off-shoot wanted to buy a 15% stake in hard disk manufacturer Western Digital for $3.78 billion.

In another case, CFIUS effectively blocked Fujian Grand Chip Invest-ment Fund’s €670 million acquisi-tion of Aixtron, which deploys gal-lium nitride technology for semiconductors utilised in the de-fence industry.

Fear of regulatory intervention also prompted Fairchild Semicon-ductor to reject a bid from China Re-sources Microelectronics and Hua Capital Management (an integrated circuit fund backed by Beijing’s local government) in favour of a lower of-fer from an American competitor.

Finding it harder to acquire for-eign technology, China has resorted to hiring more of the industry’s formative talent, particularly from Taiwan. This recruitment policy (sometimes of retirees, admittedly) has stung the Taiwanese, leading to talk about the hollowing out of its own chip sector. Chief among the hires are TSMC’s former COO Jiang Shangyi who has gone to SMIC and Charles Kau (known locally as the godfather of the DRAM industry) who has joined Tsinghua Unigroup.

Tsinghua Unigroup is leading the campaign to boost Chinese output. Having failed to buy DRAM manu-facturer Micron in 2015, it has been focusing more on homegrown M&A, ploughing $70 billion into the construction of foundries in Wuhan, Chengdu and Nanjing. In Wuhan it is building a $24 billion plant via its offshoot Changjiang Storage (also known as Yangtze River Storage), formed last year through a merger of Unigroup’s chip-making opera-tions with XMC (Xinxin Semicon-ductor Manufacturing). Much of the capital is coming from state-backed investment funds.

After the success in boosting the potential volume of their chip pro-duction, the Chinese still need to de-velop the capacity to make the high-est-performing products.

Mastering 3D NAND – the most powerful flash memory technol-ogy – is one of the key tasks ahead in meeting demand from makers of mobile devices and computer servers.

Unigroup’s investment trajectory shows that the Chinese chip makers are moving away from trailing edge technology towards leading edge de-sign. At February’s Mobile World Congress in Barcelona, it unveiled a processor called the SC9861G-A, the third SoC (system on chip) from its design unit RDA Spreadtrum. Devel-oped for mid-range smartphones, the integrated circuit has a 14nm 8-core 64-bit SoC with a CAT7 LTE mo-dem (able to download up to 300 megabits per second and upload 100Mbps). The chips will go into mass production in the second quarter of this year. But they rely heavily on Intel technology and they are being contract manufac-tured at an Intel foundry in China on Spreadtrum’s behalf.

(Intel’s 2014 purchase of a 20% stake in RDA Spreadtrum was a highly strategic move to make sure it remains a case of ‘Intel inside’

where China is concerned).

Chinese companies may be taking the lead in building new foundries, but the global leaders are trying to stay in the game. California-based Global Foundries recently unveiled a $10 billion investment at a facility in Chengdu, for instance. As the Eco-nomic Observer reports, the plant will take advantage of local subsidies and stay cost-competitive by locat-ing close to smartphone manufac-turers, which use its chips.

A few of the mobile phone brands are chipmaking themselves, includ-ing Xiaomi which has moved up the value chain with its first self-de-signed processor called Pengpai 1. The progress makes Xiaomi the sec-ond Chinese manufacturer with chip-making capacity, alongside Huawei. Lei Jun, Xiaomi’s founder, tells CBN that developing in-house technology is the only way to avoid being knocked out in the fiercely competitive mobile phone market. “If you want to become a great com-pany you need autonomy in the core technology,” he says.

But as Digitimes notes, while Huawei has also developed its own SoC, it uses it more as a “bargaining chip” to get better prices from its main suppliers, Qualcomm and Me-diatek. Xiaomi may try the same.

The R&D costs to make semicon-ductors at ever-smaller nodes are prohibitively expensive, rendering it unaffordable for all but the largest players. Telecom equipment maker ZTE failed to commission application processors in-house, for instance, and Lei Jun says that it cost Rmb1 bil-lion for Xiaomi to make the leap. But as well as giving their developers more bargaining power, the pioneers could provide a leg-up for the sector as semiconductor firms push for the next round of breakthroughs needed to deliver the advances in process-ing power required for self-drivprocess-ing cars and the artificial intelligence of deep-learning machines. n

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Auto Industry

C

ars that don’t run on petrol would seem to be less of a fire risk. That should count in Tesla’s favour over the longer term, al-though the American automaker was red-faced this month after a Model S went up in flames in Shanghai. The electric vehicle was parked at a Supercharger station in the city and the conflagration de-stroyed another Tesla nearby.

But for Tesla, a change in policy in China poses the bigger risk. Take the rules in major Chinese cities that exempt electric vehicles (EV) from restrictions on obtaining new li-cence plates. At the moment, Tesla imports also enjoy free licencing but there is no guarantee the policy will last, especially if the policy mood darkens towards American brands. “Policy changes can and do come suddenly in China, and a ‘Trump ef-fect’ could derail Tesla’s resurrected China business. It would be very easy to exclude imported EVs from the plate exemption, as they have been in years before,” a contributor wrote in Forbes this month.

Just ask Samsung and LG, which know a thing or two about damaging policy changes in China’s EV market. The South Korean firms control about a third of the world’s EV bat-tery market but when China’s Min-istry of Industry and Information Technology (MIIT) renewed its certi-fied vendor list last year, the two Ko-rean giants were shocked to be ex-cluded. The 60 or so MIIT-approved vendors – all of which are eligible to receive government subsidies – are predominately Chinese-owned (see WiC334).

Power struggle

The Financial Times noted this week that China’s battery firms are beginning to feature in an industry that has been led for decades by South Korean and Japanese brands such as Panasonic. According to Sina Auto, new energy vehicles are an in-evitable replacement for China’s hy-drocarbon-powered cars, particularly as the government is keen to tackle chronic air pollution. “Setting the in-dustry standard for EVs could be as important as securing oil resources in the past,” the news portal suggests.

In fact, the government has just published another policy directive calling for EV makers to double their production capacity by 2020. It took a similar approach on solar power about a decade ago, although WiC readers are familiar with the stories of fallen giants such as Suntech So-lar (for more on the topic see Fran-cois Perrin’s essay in WiC333 for his comparison of China’s solar strat-egy with that for EV batteries).

Many of China’s industry leaders in EV batteries will be unfamiliar to foreign investors. For instance, Con-temporary Amperex Technology, or CATL, was established as late as 2011 in Ningde, a third-tier city in the coastal province of Fujian. A capital raising in October last year, how-ever, valued the private sector firm at Rmb80 billion ($11.5 billion).

“It [CATL] is set to become China’s Panasonic,” the Financial Times sug-gested this week.

Last year the Fujianese firm had the capacity to produce 7.6 gigawatts hours (GWh) of batteries but that number could expand to 50GWh by 2020, some 40% greater than

planned output at the Gigafactory, the US-based joint venture between Tesla and Panasonic.

Third on the FT’s list of top battery producers is Lishen, another fast-growing EV-related firm based in Tianjin.

The Warren Buffett-backed BYD has also been in the battery market for more than 10 years. But BYD is also a major producer of electric ve-hicles, Sina Auto points out, meaning that many car makers prefer to give their contracts to independent bat-tery makers such as CATL (that may change: in February CATL agreed to buy a 22% stake in Finnish au-tomaker Valmet Automotive).

OptimumNano Energy, whose Shenzhen headquarters is neigh-bour to BYD’s, could also emerge as a dark horse. It is relatively ancient in Chinese terms, having been founded in 2002, but in recent years it has come up with a much more flexible growth model.

The OptimumNano Innovation Alliance was set up in 2013 to pro-mote demand for EVs in China. The alliance is, in fact, an open platform to match potential clients such as lo-cal governments and municipal transportation firms with auto part makers, electrical engineers and even carmakers. OptimumNano’s role is to offer the EV power solutions and

Less heralded battery firms mount a challenge

R&D centre of CATL in Ningde

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Auto Industry

provide the after-sales services. Most of the vehicles produced un-der these kinds of arrangements aren’t flash rides in the Tesla style but more functional beasts (such as shuttle buses and garbage trucks). But according to the Economic Ob-server, OptimumNano’s platform has signed up more than 1,000 com-panies nationwide. Most of partici-pants are small- and medium-sized enterprises (only 70 of the compa-nies have listed on the stock mar-ket) but the aggregation of demand is driving sales. OptimumNano bat-teries have been integrated into more than 20,000 EVs as a result.

BYD is also wooing cross-sector al-lies in order to safeguard its status as China’s leading maker of electric cars. It still uses its proprietary lithium-iron phosphate batteries, a type used by few of its peers. However, it said this week that it will cooperate with 13 other firms including China Mo-bile and Didi Chuxing to promote the use of EVs in the public sector.

BYD has about 25% of China’s EV market and last year more than 500,000 vehicles were sold (up by half year-on-year).

However, sales slowed markedly in January, when BYD managed to sell just 605 EVs, or less than a tenth

of its monthly average last year. The slowdown, CBN has reported, has been prompted by expectations that the government is going to roll out new incentives for buyers of electric cars, which has triggered a wait-and-see approach among consumers.

There are rumours that produc-ers might get another round of new subsidies too, although they proba-bly won’t apply to foreign battery firms. And with the THAAD missile defence controversy raging (see this week’s Talking Point), there’s scant chance that the new policies will bring much commercial comfort to Samsung or LG. n P ho to : Im ag in e C hin a

Who’s Hu:

Cheung Chung-kiu

Profiles of China’s business leaders

Hong Kong tycoon Li Ka-shing is the largest foreign investor in the UK. He may soon have some competition. Step forward Cheung Chung-kiu (nicknamed “Chongqing’s Li Ka-shing”) who has just smashed the record for the biggest Chinese purchase of British real estate.

Getting started

Cheung was born in 1964 in Chongqing and educated there until 1980, when he was given Hong Kong residency (with the help of his father, a government official who dealt with overseas affairs). At the time a permit to live in the British colony was a valuable asset as China had just opened the door to economic reforms. Cheung began trading electronic goods, umbrellas, watches and cassettes, which he would buy in Hong Kong and then resell in the mainland. After making some investment capital, he ventured into real estate, buying a large number of agricultural plots in the northern part of Chongqing and developing the city’s first large-scale residential project (known as California Garden).

Big break

The 29 year-old Cheung became one of the youngest listed company chairmen in 1993 when he floated one of his trading companies Yugang International – which translates into ‘Chongqing-Hong Kong’ – on Hong Kong’s stock exchange. Serving as a bridge between the two cities had become his key selling point. “In Hong Kong Cheung introduces himself as a Chongqing native who knows a lot of government officials, and he has the guanxi to get plenty of business opportunities. In Chongqing he says he is a Hongkonger who knows a lot of tycoons, and he can help bring in capital,” Next magazine once wrote of his networking skills.

Cheung’s reputation as the “Chongqing Li Ka-shing” began to

grow and in 1999 Cheung took over a packaging firm controlled by Li’s brother-in-law. He renamed it CC Land and he began to expand into Hong Kong’s property market.

Trophy purchases

Cheung has a special taste for high-profile properties. In 2007 he invested $55 million in a Chinese-style mansion in Hong Kong with plans to demolish it to make way for luxury homes. Facing opposition from heritage activists, the government swapped the mansion for a larger piece of adjacent land. In 2015 Cheung spent HK$5.1 billion ($655 million) on an even more iconic piece of heritage: the Hotung Garden, formerly the home of Robert Hotung, Hong Kong’s richest man in the early twentieth century. Again, he plans to tear it down. More recently, he seems to be following Li’s strategy in moving more of his investment to the UK. Earlier this month he agreed to buy the Leadenhall Building in London, the Square Mile’s tallest tower (better known to Londoners as the “Cheesegrater”) for £1.135 billion ($1.4 billion).

Need to know

In February 2012 Chongqing was the political hotspot of China: the city’s former police chief Wang Lijun made a dash to the US consulate in Chengdu and the shocking incident was one of the key events in leading to the high profile Chongqing Party boss Bo Xilai’s arrest a month later.

Ironically the shockwaves seemed to have rippled to Hong Kong via Cheung as well. A week after Wang’s arrest, the then Hong Kong chief executive Donald Tsang was spotted by media boarding Cheung’s private jet for a luxury “holiday treat”. The scandal led to an anti-graft investigation into Tsang too, who was recently sentenced to 20 months in jail (see WiC355).

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Q&A

I

n his long career in the diamond business Nissan Perla has met his fair share of celebrities. Wealth-X, an intelligence network on the wealthy, even describes him as the “Diamond King”, and points out he has a roster of famous clients from Hollywood and the music world.

Much longer ago, Perla remem-bers that he was once invited to an event held by famed American jew-eller Lorraine Schwartz in which he was introduced to Elizabeth Taylor.

At a subsequent dinner the jew-ellery-loving Taylor told Perla how much she liked the bangle that Schwartz was wearing. To everyone’s surprise, he took it off her wrist and gave it to the movie icon.

“Something great happened, she placed me in her memory,” he recalls.

Delivering the punchline, Perla says that he and Schwartz – with whom he worked closely for many years – were invited by Taylor to a subsequent dinner and when he asked Schwartz if Taylor remem-bered him, he was told the Holly-wood star exclaimed: “Well, Nissan – all he has to do is come waving a di-amond bangle!”

These days Perla says he spends more of his time with Chinese clients. Speaking to WiC at the Hong Kong office of his firm Diamond Registry the CEO discusses the huge influence Chinese customers now exert on the diamond market.

How long have you been in the di-amond business?

Almost 40 years. My first trip from New York to the Far East in the early eighties was to Tokyo. At that time

Nothing but the best

China wasn’t on our map yet. Even Hong Kong wasn’t active till the late eighties.

When did demand from main-land China start to impact dia-mond sales?

It was around the new millennium, roughly 20 years after China started opening up, that the early birds be-gan to appear and buy.

From that point on Chinese buy-ing power became stronger and stronger. After 2005 we noticed China becoming a more dominant source of demand. The top people

were really doing well, and we started to note the scale.

I like to say that if someone has a factory with 300 staff anywhere else in the world they are doing well; but at that size they would have been bankrupted in China. To do well there you need to have 10,000 employees. And when you have this sort of scale, your success also multiplies. That creates a group of people wealthy enough to be major buyers of anything, in-cluding diamonds.

How much of your time do you

An industry expert explains how China is now driving diamond sales

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Q&A

spend here in China and Hong Kong?

I would say 70-80% of my time. The Chinese people want our product. They want to show that they are do-ing well and for that they want to buy the best.

The beauty about the Chinese is they like very high-standard things. I call them “the umbrella of the world”. They are keeping the world alive. A few weeks ago I was in Paris for Fashion Week and in every store I walked into – Hermès, Chanel or Louis Vuitton – the customer base was 99.99% Chinese.

I say that figure because I was the only non-Chinese!

Yesterday my son in New York got a call from a client looking for a 5-carat, D colour, VVS clarity diamond. That’s top colour and top quality. He gave me the telephone number of the caller, and I felt something was off based on the New York area code. When I called up the lady, she told me her client was in China and everything then made perfect sense.

The order was the sort of lan-guage they use in China; it is not the same in America where the conver-sation focuses more on how much a customer wants to spend. For the wealthy Chinese, they specify their requirements in such a way that means they only want the best.

A lot of the Swiss watch compa-nies have seen a slowdown in sales because of China’s anti-graft clampdown. Has that hurt dia-mond sales as well?

I would say it is changing how busi-ness is conducted; it has definitely had an impact. The super-expen-sive segment of the diamond mar-ket is growing less. The growth is coming more from the middle-class market. They are the new blood, the new buyers. But this gives us the chance to grow. If somebody already has 10 dia-monds, they might buy one more.

But if someone is new to diamonds, they may buy many. They are the new generation coming into play.

Do some Chinese buy diamonds for similar reasons to gold i.e. as a secure alternative currency?

One lady asked me to buy an im-portant diamond that cost her $1.5 million. When I asked what made her buy it, she told me that her hus-band wanted to get her something for their 10-year anniversary. But she has a child and in her mind, it was all about security. If you want to spend a lot of money on gold, there are big issues with physical storage. But even if you want to buy a $5 mil-lion diamond, it isn’t a big item.

In the woman’s case, she thought it would be nice to wear as a piece of jewellery, but more importantly it was security for her daughter’s fu-ture. If the daughter needs some-thing in the future – an apartment

or a house – she can sell it.

Another lady called me up and wanted to sell a diamond. I asked for the details and she sent me the GIA certificate. She told me she had bought it from a shop in Sin-gapore, whose owner had just passed away. It turned out that I had sold it to him 12 years ago, but I asked her how she knew what to buy. She told me every time she made some money she went to this jeweller, who was a very hon-ourable man, and asked him to make something nice.

He had made the most gorgeous diamond ring for her from the stone I sold him. She bought it for $200,000 and I ended up paying her over $700,000.

I asked her what she did with it over the years and she said she had been wearing it. Then she explained she was selling it because her daughter was moving to San Fran-Perla with Elizabeth Taylor, one of his celebrity clientele

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Q&A

cisco and she wanted to buy her an apartment.

What a beautiful story: she en-joyed the diamond for 12 years and then sold it for a gain of $500,000.

Unfortunately this is not always the case. I had the opposite story with a Chinese lady who bought a diamond 20 years ago for $300,000 and wanted to sell it. I had difficulty getting her what she paid originally because the person who sold it to her took advantage of the fact that she knew little about diamonds.

If she had bought it correctly, there is no reason why she couldn’t have gotten $2 million for it 20 years later.

There are so many details in the GIA certificate and you really need to know what to look for besides the size, the colour and the clarity. It’s like when you buy a car and you don’t realise that there is a dent in it. Or a car that has been flooded and the previous owner has vacuumed out all the water. Inside, the car is al-ready rusted, but you don’t see it. It’s the same with diamonds, their cuts and so forth.

I felt so bad for this Chinese lady that she went to the wrong place and somebody took full advantage. This is my business, by the way. I educate people about diamonds even if they don’t end up buying from me.

Does this put some buyers off in China – that they don’t have the knowledge?

No doubt in my mind. It is 100% what puts them off. But diamonds are not too complicated when you purchase them with GIA certifica-tion with laser inscripcertifica-tion and you buy from an honourable person. If you do that, they have two big ad-vantages: they are very easy to maintain and to move around. And if you buy correctly, in a cycle of 10 years you will always make money out of them.

So how much do diamonds tend to increase in price each year?

It is very hard to say per year, be-cause there can be three or four years of downturn, but then six or seven years of upturn. But I make a calculation that if you hold a dia-mond for a period of 10 years, prices generally double or triple.

Right now we are not in a big up-cycle because of how business is be-ing done in China. I’d say prices are still going up but in a safer, more stable way.

Is the client base mostly female?

I’d say it is fifty-fifty. When it comes to pure jewellery there are more fe-male customers. When it is more about investment, a very strong man can make the decision to pur-chase the diamond and then make it into fine jewellery afterwards.

There are two markets. One is completely fashion where you have garbage and you pay for the name. It has nothing to do with future mon-etary value.

The other type is investment-with-fashion, when you buy a beau-tiful diamond and you turn it into fine jewellery also.

In my 40 years of experience, al-most everyone who buys a diamond needs to sell it at some point in the future. A reason always comes up. Sometimes to buy an apartment, sometimes to upgrade to a more ex-pensive diamond. If you aren’t care-ful on the day you buy, it can be very painful many years later.

How do you get clients?

A lot come through the internet. If you go to Google and say you want to buy a 5 carat or 10 carat dia-mond, hopefully Google will recog-nise Diamond Registry as a very important information source and send you to me.

Unlike Blue Nile, I don’t sell any-thing online. I only give informa-tion online about things like dia-mond values and what should you look for. Then if you want me to look around the world and see what’s available for your budget, I can ad-vise you what to buy.

Do Chinese customers prefer yel-low over white diamonds?

Number one is white, because it is typically the first diamond you buy. Very rarely does someone buy a yel-low diamond if they don’t already have a white diamond.

What size, colour and clarity are preferred in China?

The three top colours are D, E, F and the top clarities are IF, VVS1 and VVS2.

If someone wants security, it is usually a round-shape diamond as it is very safe shape and nobody can argue as long as the measurements are correct.

In other shapes, if the diamond is not 100% the way it should be, you may like it but someone else may not be so keen. A 5-carat, D colour, flawless diamond could cost around $500,000, and a 10-carat in the same colour and clarity could cost up to $2 million. n

Hong Kong tycoon Joseph Lau paid $48.5 million for this blue diamond in 2015

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Media

T

wo of China’s ‘Four Great Inven-tions’ pertain to the written word: the creation of paper, and the advent of printing. But in the mod-ern day, there have been concmod-erns that the Chinese are losing interest in literature, something that Pre-mier Li Keqiang mentioned in his annual report to the National Peo-ple’s Congress three years ago.

In fact, it’s more the case that there are huge changes in how the Chinese read, spurred by the ubiq-uity of mobile devices and the surge in consumption of e-books.

Indeed, demand for digital books is such that original works are often appearing online before they reach print publishing.

One company betting on the trend is China Reading, which sells electronic books similar to Ama-zon’s Kindle Store. In February it an-nounced that it will be raising $800 million via an IPO this year, proba-bly in Hong Kong. Also known as Yuewen Group, it was formed in 2015 when tech giant Tencent took control of Shanda Cloudary, creat-ing China’s largest publisher of on-line literature by merging it with Tencent Literature.

Cloudary was launched in 2008 as Shanda Literature, comprising the various digital platforms that Shanda Interactive had acquired over the years (see WiC49).

The logic of the original merger with Tencent was to consolidate around a platform that could at-tract Tencent's huge customer base in mobile messaging and social me-dia. And according to company data, China Reading had over 600

The next chapter

million users across its nine plat-forms by March last year and a cat-alogue of about 10 million books. Every day about 30 million people access content from its catalogue, says China Daily.

Another four million people are writing for the platform on a wide range of topics, and China Reading paid about Rmb100 million to its writers last year.

The primary platform Qidian.com is regarded as the pioneer of the pric-ing model that has become the main-stay of sales, says Technode, a blog. Qidian started out by charging Rmb0.03 per 1,000 words read (see WiC11). The meagre unit fee has much greater potential amid the huge readership numbers in the Chi-nese market, and today China Read-ing makes 90% of its profits from its sales to readers, HK01 reports. The

remaining 10% comes from copy-right licencing.

Revenues would be greater if the industry wasn’t plagued by piracy. According to New Business Daily, online literature firms lose Rmb10 billion a year to the counterfeiters who copy texts and print them else-where online. But the government’s “Strike the Net” campaign (which has sought to tackle “illegal publi-cations” along with other online misbehaviour, see WiC352) and the formation of the China Online Lit-erature Copyright Alliance, led by China Reading, has seen a reduction in pilfered content.

NBD suggests that progress on these two fronts encouraged Baidu to close forums on Tieba, its mes-saging board service, that were mar-ketplaces for contraband texts.

Another upside from the cam-paign against piracy over the longer term is that it has encouraged China Reading to look for growth from its copyright licencing arm. HK01 also sees positives in the market for book derivatives – such as spin-off TV shows – which has grown tenfold since 2010.

Langya Bang is one of the more

successful TV shows derived from a book of the same name and pub-lished online (see WiC314), as is

Can-dle in the Tomb (see WiC11).

And as Shanda Interactive began life in online games (it was the largest gamer in China by revenue before it was surpassed by Tencent), China Reading will hope to grow profits by licencing its library to gamemakers too, including its par-ent Tencpar-ent. n

China’s leading online publisher pushes ahead with e-books

Booking profit: Tencent’s Pony Ma

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Society and Culture

E

ven the star power of Ryan Gosling and multiple Oscar awards couldn’t bring Chinese au-diences to watch La La Land. Re-leased in the country on Valentine’s Day, the musical has so far made only Rmb203 million ($32.5 million) at the local box of-fice. The goal, according to the film’s distributors, was for the Chi-nese market to contribute half of the award-winning film’s global takings (now at $370 million).

It certainly wasn’t for a lack of trying. Along with writer-director Damian Chazelle, the Canadian heartthrob Gosling visited Beijing back in January to promote the film. Chazelle, who was named Best Director at the Academy Awards, also turned on the charm offensive: “To be able to open this film in China is a huge honour,” said the filmmaker, adding his film was “about love and dreams”.

What Chinese audiences wanted was less singing and more action. For instance, a pretty superwoman killing zombies. Even though the sixth – and probably final – instal-ment in the Resident Evil franchise, called The Final Chapter, received an approval rating of just 33% on Rot-ten Tomatoes, it dominated the Chi-nese box office last month. It opened to a near-record Rmb200 million in China the day it pre-miered in late February. Already, it has surpassed Rmb800 million in takings with industry observers say-ing that it won’t be long before reaching the Rmb1 billion mark.

“It’s been a long time since I have seen a film as exciting as Resident

No brainers

Evil 6,” one cinemagoer wrote on

Douban, the online film and TV re-view site. “It moves so fast it is im-possible to fall asleep.”

“Don’t expect too much from the story itself and whether the plotline makes sense. Just enjoy the action sequences and the thrill. As an ac-tion movie, I give it five stars,” an-other commented.

It’s been a similar outcome for another Hollywood import, xXx:

The Return of Xander Cage. It too

has been ripped apart by critics – Rolling Stone calls the film a “se-quel no one wanted” – but has sur-prised industry insiders with strong

results in the China market. The ac-tion flick, which stars Vin Diesel and actresses Deepika Padukone and Ruby Rose (who is also in Resident

Evil 6), took Rmb300 million in the

first two days it screened. In com-parison, Star Wars: Rogue One made only Rmb190 million in China on its opening weekend. So far, xXx has collected Rmb950 million at the Chinese box office.

The strong results have single-handedly turned these grade-B movies into genuine smash hits. And both films cost relatively little to make: Resident Evil 6 and xXx were respectively produced for just

Chinese moviegoers shun La La Land for zombie-killing action flick

India’s Deepika Padukone stars in the latest Triple X film franchise

P ho to : Im ag in e C hin a

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Society and Culture

$40 million and $85 million. “Has the Chinese market become a dumping ground for Hollywood’s trash?” asked Beijing Daily.

Southern Metropolis Daily reck-ons the success of the two films is not coincidental. Statistics show that second-tier cities were the biggest fans of Resident Evil 6, con-tributing over 42% of the ticket sales. For xXx, total box office tak-ings in third-tier cities have also

ex-Week in China 10 March 2017

ceeded those of first-tier cities. “In conclusion, these action-packed brainless films are more popular amongst young men in small vil-lages,” surmises the newspaper.

Critics reckon that American popcorn movies offer a kind of es-capism for Chinese moviegoers. “Ac-tion fight scenes: that’s the one thing Chinese audiences look for in Hollywood features. Just like com-edy is the genre that local audiences

associate domestic films with. When they are overworked, they just want to enjoy entertainment they know and love,” one critic told Beijing Daily.

Lanzhou Morning Post concurs: “One film is about one man taking down an evil organisation, the other is a goddess fighting zombies. Both films are high-octane action thrillers. Their only goal is to enter-tain. North American audiences

P ho to : Im ag in e C hin a

Red Star:

Chan Hoi-wan

To many people it might seem that Chan Hoi-wan became rich overnight: indeed, a sudden transfer of billions of dollars in assets made her the richest woman in Hong Kong. But of course her story is a little more complicated than that.

Among the stars

Kimbie, as she was then known, first came to the public’s attention as a young entertainment reporter for Hong Kong’s Apple Daily, where she was popular with her interviewees. It was through this role that she met real estate tycoon Joseph Lau in 2001. A year later she left journalism to join Lau’s listed property flagship Chinese Estates.

By 2007 the pair had started a relationship. She was not the only one: at the time the divorced mogul was also in a tryst with Yvonne Lui, a former Miss Hong Kong contestant.

And then there was one

Lau separated from Lui in 2014 (the two were never married) but only confirmed the dissolution two years later in very public fashion: he had a full-page

statement printed in several newspapers, detailing the circumstances between himself and Lui in five succinct points.

That was in November 2016. A month later, Lau married Chan. In February this year, Chan received control of a retail complex from her new husband. And on March 1, Lau transferred to her a 50.2% stake in Chinese Estates. This most recent gift brought Chan’s worth to approximately HK$50 billion, or $6.4 billion. (In 2015 Lau also set a world record buying two diamonds for his daughter with Chan, Josephine,

spending $48.4 million on a blue diamond – pictured on page 15 – and $28.5 million on a pink diamond.)

Why the generosity?

Lau has experienced failing health (he had a kidney transplant last year). When their intent to marry was announced last year, Lau said he had already given billions to Chan in case he died and his former girlfriend, Lui, sought to claim the right to his fortune.

Lau lambasted Lui at the time, calling her greedy and claiming that, “Even if I gave her HK$10 billion, she’d still betray me for [an extra] HK$1.” Chan, on the other hand, fares much better in Lau’s estimations.

He told Apple Daily, “I’ve known Chan for more than 10 years, and she has never asked me to buy her gifts or to give her money,” adding, “She isn’t greedy. She’s simple. She’s not a bad woman. She’s taken good care of me and my children. She has a kind heart.”

Tycoon dowager?

Chan’s story has become a hot topic on Chinese social media. “Who said journalism is a hopeless sunset industry?” one weibo user asked. Even ThePaper.cn joined the discussion. “Chan spent only 16 years to become Hong Kong’s richest woman,” the state-run internet newspaper proclaimed.