Today’s China Readings May 29, 2012

Yesterday’s note opened with the claim from a Weibo user that big news was coming. It came, sort of, though it was not about the Wang Lijun or Bo Xilai cases.

Xinhua first announced that CPC Central Committee Politburo met and urged the country to “deepen the reform of its technological system and accelerate the building of a national innovative mechanism.” There had been some concern that the apparent lack of a Politburo meeting since February 20 could be an indication of  turmoil at the top of the Party. Just the fact that a Politburo meeting was held, regardless of the officially acknowledged agenda, is possibly a sign things are back to “business as usual”. For reference, the People’s Daily maintains a list of Politburo meetings here, though it is not yet updated with the recent one.

Xinhua then announced that Former railways minister Liu Zhijun was expelled from Party for corruption. The official statement labeled him “morally corrupted” and said he “had taken a huge amount of bribes and bore the major responsibility for severe corruption in the railways system.” (Oh to see the salacious details of his case. The Viagra bill alone must have been huge..) Liu’s case is extremely complicated and involves many powerful people, so progression to the criminal stage is an interesting development.

Economic Observer wrote a good backgrounder on the Liu case in 2011–What Brought China’s Railway Minister Down?. Other railway officials have been detained, including one whose US home cost over 7m yuan. Naked officials, those whose families have gone overseas while they remain in China, appear in many corruption cases, as the Economist explains in Officials, looking for an exit strategy, send family and cash overseas.  Yesterday Bloomberg reported on new moves to deal with runaway Mandarins in China Tightens Officials’ Overseas Travel to Prevent Flight, though these rules seem a bit too little too late.

On Monday an M4.8 earthquake hit north China near Tangshan, then another M3.2 earthquake hit at 5 AM this morning. I did not feel either one, unlike the 2008 Wenchuan quake when our apartment swayed so much that we thought it was a Beijing earthquake. Tangshan of course was the epicenter of one of the deadliest quakes in history, in 1976, during a year of turmoil in China. Let’s hope this is not a sign of something bigger to come…

Credit Suisse Says a new China Stimulus May Be 2 Trillion Yuan and Bloomberg reports that China is Poised to Revive Cash-for-Clunkers Program. 2 trillion RMB a far cry from the 20 Trillion or so in fiscal and monetary stimulus in response to the 2008 financial crisis, but the government’s move indicates both how much the economy is deteriorating as well as the likelihood that the leadership has worked through the thorniest Bo Xilai distractions and is now functioning “normally”.

The Financial Times tells us that “over the last two weeks, Chinese consumers of thermal coal and iron ore have been defaulting on their contracts, sending prices sharply down” and offers two explanations. One is bearish, that a drop in demand means the Chinese buyers no need the commodities. The other is not so bearish, that they are just trying to negotiate better prices. Given how government policies leak here, I would bet that the buyers had a good idea a stimulus was coming, knew that prices might spike when that news hit, and decided to frontrun the stimulus and cut better deals.

I heard from someone familiar with the Macao casino scene that several of the major casinos are having a hard time collecting from the China junket operators because those operators are having trouble getting paid in China. Everyone seems to have “cash flow issues”, and according to my source it has gotten so bad at one of the big casinos that it has fired its entire China marketing team, blaming it for extending too much credit here. Perhaps the new stimulus will improve cash flows enough that the casinos can get paid.

In the “he probably wishes he had not said it” department, Army Brig. Gen. Neil Tolley, commander of U.S. Special Operations Forces in South Korea, made a strange disclosure at a recent conference, revealing that in order to learn more about North Korea’s underground tunnels “we send [Republic of Korea] soldiers and U.S. soldiers to the North to do special reconnaissance.” Tolley said the commandos parachute in with minimal supplies in order to watch the tunnels without being detected themselves. The recent book The Command disclosed that at some point in the past, no date given, “Operators from Delta Force and SEAL Team Six infiltrated China with the CIA and mapped the locations of Chinese satellite transmission facilities in the even that the United States ever needed to disable them.” What is Chinese for “badasses”?

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