It is very important to know the truth of a situation. Many of us have had
the experience of being cheated. This is because we did not know the truth;
as a result, we paid prices that were too high. Not knowing the truth will
cause us to erroneously evaluate the alternatives and make wrong decisions.

I recently went to dinner with students from the Taiwan Donghai University,
and met a former student who is in the import-export business. He disclosed
some facts to us that were quite shocking. He asked us if we knew why the
material costs around the globe were rising, yet product prices are falling.
It is because the supply is greater than the demand. Why is the supply
greater than the demand? This is because many less expensive products sold
all over the world are "Made in China." We thought that China's low labor
costs were the reason. As a matter of fact, this is not the case.

Mr. Wang disclosed insider information he received from several high level
Chinese Communist Party (CCP) officials. He said if a product cost 10 yuan,
a normal sales price should be 12 yuan, or a minimum of 10 yuan. However,
Chinese factories are selling it for only six yuan. They do have large
volumes of foreign business, but isn't this still a failing business?

The CCP officials told Mr. Wang that the key is Chinese factories require
"no investment." They do not need any capital, all the money comes from the
state-owned banks. The factories will have income as long as they have
contracts. Although the product only sells for six yuan, they only need one
yuan to pay the labor expenses, one yuan to pay the bank interest, and the
remaining four yuan is profit! This is their business strategy.

They divide the four yuan profit between themselves and travel overseas to
buy real estate. They are not buying typical houses, but mansions, with
cash. This is a very common phenomenon. Mr. Wang asked a CCP official, "What
if these failing businesses go bankrupt?" He smiled; his wife and children
would all immigrate overseas. He even touched his pocket, saying, "My
airline ticket is right here; I can leave the country any time I want."

This is the secret of how Chinese factories operate!

The U.S. and EU are applying severe pressure on China to raise value of
their currency. If China does, it will negate their export advantage, since
Southeast Asia and India also have low labor costs. When Chinese factories
lose business, they will not have the cash reserves to pay the bank loans
and wages, and will go bankrupt as a result.

As a matter of fact, the entrepreneurs and CCP officials who are
shareholders of these businesses could all foresee this happening, which is
why they have all purchased mansions overseas and have even purchased their
airline tickets in advance. This way they can escape when the bankruptcy
occurs.

Now I completely understand why China's banks have bad debt ratios as high
as 40 percent to 50 percent. This is the truth behind China's 8 percent
annual GDP growth. Now I understand why so many experts and scholars predict
that China's economy will soon collapse.

http://english.epochtimes.com/news/5-6-14/29294.html
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Ethan Gutmann, author of Losing the New China, delivered the following
address at the first Los Angeles English-Language "Nine Commentaries" Forum
held on May 28 at California Institute of Technology.
Ethan Gutmann's Thoughts on the Publication of the "Nine Commentaries"

I want to thank the organizers of this event, particularly Michael Yi. I
also want to thank Broad Press, including Carolyn Lu, the editor of the
Chinese edition of my book.

I'm happy to be here and talk about some of the issues following the
publication of the "Nine Commentaries on the Chinese Communist Party." As a
former Beijing business consultant to Western companies, I'll focus on the
significance of the "Nine Commentaries" for Americans.

Now when American businessmen talk about China, in any given conversation,
it's a common to hear that "China's changing." Often it's said in rather
breathless tones.

There's a surface truth the vast construction, new signs of wealth, and
all the lively fashions that come with capitalism. It's undeniable. Yet,
looking over the past ten years, in political terms, China has not changed
that dramatically at all.

True, capitalists have been incorporated into the Communist Party. True, the
one-party state has received some PR advice. Government ministries have
increasingly user-friendly websites. But State power, expressed in
surveillance, media manipulation, and rate of executions, is still
centralized and remarkably stable.

As Americans, as American businessmen in China, we have adjusted to this
state of affairs. We've bet money on it. In fact, in some ways, we have
embraced it. And I'm going to talk about that today.

But I'm also going to talk about where that places us vis-à-vis a rather
unexpected event: resignations from the Chinese Communist Party following
the Nine Commentaries. What if China really is changing?

Now, it's an especially challenging task for an American to speak about
China at this time of the year, the Tiananmen anniversary. Like most
Americans, I have no personal experience in facing anything like those
terrible days in June.

I've spoken with a few Americans who lived in China during the massacre-
businessmen mainly. Naturally, they were frightened. The diplomatic compound
in Beijing was sprayed with automatic fire as PLA units, released from weeks
of a tense stand-off, went on a spree. Americans still had a special,
protected status of course, but most of them -understandably- chose to
scramble for seats on any plane leaving Beijing. Planes flying into Beijing
were empty.

Communist Party propaganda increasingly blamed the Tiananmen Square movement
on "foreign influences." Those American expats who stayed on in Beijing
found they were shunned and avoided- even by street vendors. But it was more
in sorrow, than in anger. Their eyes would say: You are trouble and we have
had enough of that.

Were the street vendors correct? The best propaganda always uses a
caricature, however distorted, and caricatures work because they are based
loosely on reality. So it was with the "foreign influences" charge. It's
true that when Americans watch footage of the "Goddess of Democracy,"
rolling onto Tiananmen Square, our hearts pound. That moment of homage to
the Statue of Liberty, yes, but also of universal democratic aspiration. It
speaks to us.

Ironically, (and feel free to argue this point in the discussion) one can
also make a case that for the Tiananmen movement the "Goddess of Democracy"
was a tactical misstep- the end of a viable insurrection. The goddess of
democracy changed the optics: students looked more elitist, less "Chinese,"
less patriotic- another step away from worker masses who were necessary for
the movement to achieve victory. (And I mention this point in part, because
I don't think that the "Nine Commentaries" has this problem.)

Yet the Communist Party charge- that foreigners had somehow led Tiananmen-
How? The Bush administration was initially focused on a US naval visit in
Shanghai. The embassy was taken by surprise and tried to stay neutral.
American investment in China was relatively small; so was our leverage.
American expats and businessmen could only wait and watch just like everyone
else. American democracy was a beacon, like the torch on the Statue of
Liberty or the Goddess, but ultimately Americans bear no responsibility for
the Tiananmen Square movement or- in my opinion- the subsequent massacre.

I am belaboring this rather obvious point, because it underscores what a
dramatically different situation we are in today.

First, because we will not see the Goddess of Democracy reappear in Beijing
anytime soon. The American model is not in vogue. The Chinese Communist
Party would have us believe that our current disfavor can be blamed on our
current government- and our aggressive American foreign policy, Iraq, and
the rest.

What a tempting and easy explanation. It's not completely false. Disfavor
exists; Chinese State propaganda- anti-American propaganda- is effective. (I
know something about this because I used to help make the stuff.) But I also
watched students smashing up my embassy when Clinton was in the White House.
And the Goddess followed eight years of Reagan. In addition, Chinese people
tend to mistrust propaganda. When they can, they draw their assessments from
personal experience and word of mouth.

The real representatives of America, in Chinese eyes, are on the ground:
American businessmen. And I don't believe that we really act as a beacon.

Why? Well, first because we have acquiesced to Chinese corruption. Take,
just as one example, Motorola (perhaps the greatest success story in the New
China).

Let me quote "Buster," a Senior Operations Manager for Motorola in China
from '91 to '95. Paging accounted for 1.5 billion dollars of revenues back
in the early nineties and Motorola had 98% of that business. Motorola set up
what Buster called "a finder's system," working exclusively through Hong
Kong and Taiwanese businessmen. Motorola's contract?- You get 3% if we get
what we want but you've got to "lobby" on our behalf. Let me quote Buster
directly:

"It was kind of a standard by the time my division got into China. It was
clean as a whistle. Just figure 1.5 billion; 3% of 1.5 billion a year went
into the government officials pockets. Thanks to Motorola."

When that story- and many, many others- came out in my book did the American
Chamber of Commerce in Beijing launch an investigation?

Of course not. Because it's completely unremarkable. The majority of
American companies are flouting the Foreign Corrupt Practices Act. Does it
impact on how Chinese people view America? Of course it does. A Chinese
teacher that I met in Shenzhen, referencing various small-scale bribes by
firms like IBM and Dell, called them "American companies with Chinese
characteristics."

A second way that American businessmen undermine the image of America is by
undermining American security. I'm not even going to get into the military
technology transfer issues here- it's too extensive a list. And really, one
can make an argument that continued technology transfer from American
companies is preferable to China building its own advanced military research
and development capability.

But that situation no longer holds. Motorola again: They have outsourced
over 25 major research and development plants to China with a total China
investment of $10 billion, and 5000 researchers and engineers by 2006. Top
of the line facilities, fully equivalent to Motorola's R&D plants in the US.
The only difference appears to be that in some cases, they are specializing
in R&D that hews to Chinese military objectives: advanced research for the
Ministry of Science and Technologies "863" project: 4th generation wireless
technology, mobile technologies with commercial and defense applications,
semiconductors, and biotech. Company sources have confirmed repeatedly that
there is no attempt to do background checks on the Chinese engineers (party
membership is considered, if anything, a plus). All the technology goes
straight out to the PLA.

Motorola is not the only one doing this: IBM, Intel, Honeywell, Microsoft,
General Electric, Lucent.It's a vicious circle: American security, and I
would argue, Asian stability, are the big losers.

But there's also a hidden cost. Keep in mind, the Chinese people are
patriots. And if the top CEOs of American companies don't care about
America, why should they?

There is one area of security where American companies have been extremely
diligent: internal Chinese Security, specifically in the Chinese Internet.
Now I have spoken extensively on this topic in other forums. So I'm going to
confine myself to a single paragraph:

Without North American companies, there would be no Big Brother Internet.
Cisco built China's firewall. Yahoo normalized key-word and chat-room
censorship. Nortel began the Internet surveillance boom. China's current
state security system- it's "Gold Shield"- could not exist without products
like Cisco's "policenet," Sun's "Golden Finger" fingerprint recognition
system, and Nortel's "100% packet capture system" specifically designed to
"catch Falun Gong."

Those are the facts, but what are the effects?

Suppression of speech and political development. Damage to America's
strategic interests, values, and its image abroad. Damage to the global
cause of democracy and free speech. And incarceration of Chinese people.

Now as important as the Internet is, and I'm happy to return to the topic,
let's examine the American mind-set that produces these sorts of results.

First, remember that Americans were changed by the Tiananmen massacre as
well. The Westerners who stayed after Tiananmen were expected to exhibit a
degree of ideological acquiescence or at least a pretense of optimism about
the Chinese future.

Those same Americans, now top business leaders, authors, and even the
occasional journalist- still have tremendous ideological influence on expat
Beijing.

How does this play out?

Well- it plays out all the time. When a former Congressman doing business in
Beijing gives a dinner speech contemptuously referring to Falun Gong
practitioners "as a bunch of nuts"- precisely the Chinese Party line of the
day (at a time when the death count of Falun Gong practitioners from mental
hospitals and rehabilitation camps was already into the hundreds).

It plays out when the world wildlife fund representatives visit China (by
any measure, an environmental disaster zone for humans, let alone animals)
and the front page of China Daily features the reps sitting in front of a
Beijing Olympics banner- the Chinese Party line of the day- literally,
hugging pandas.

It plays out when- there are so many examples. Why do they do this stuff?
Are expat Americans evil? Are expat Americans stupid?

I don't think so. I think that American expats tend to be well-meaning- and
diplomatic. With a handful of notable exceptions, American expats are just
acutely aware of Chinese pride- that is, a nationalist sensitivity that is
largely defined by the Chinese state.

The modern American way to handle Chinese pride is to maintain a disarming
openness and informality, and to tell the truth about China- about 95% of
the time. Then take that all-important 5% (on hot issues such as Taiwan,
Falun Gong, Tiananmen, Chinese democracy) and fudge the results.

Perhaps, if they are really eager to please, they follow the Party Line. Or
perhaps certain subjects just don't get mentioned. Or bad-China points are
carefully balanced with good-China points. Or unattractive elements in China
are portrayed as mere "growing pains," as if China was a
pimply-but-promising adolescent.

Yet it's a vicious circle. The act of avoiding the 5% that might irritate
the Chinese pride, unavoidably, begins to feel patronizing. The Chinese
alert level to insult ratchets up. And that inevitable, clammy, sense of
Western superiority begins to haunt the conversation.

We cannot ignore the sense of inequality between Americans and Chinese. It
is no longer really based on income levels (too many Chinese millionaires
around), or national power (China is closing that gap), or even so-called
"soft power" such as culture, music and film (you won't find a bored
American in Beijing).

The inequality is political- the fact that the Chinese cannot talk, openly
and collectively, about the most basic issues: the history of the Communist
Party, the Cultural Revolution, Tiananmen, democracy in Taiwan, race issues,
and faith.

But by accepting this state of affairs, both parties to the conversation,
American and Chinese, tacitly agree that the vast majority of the Chinese
people are to be infantilized.

They should be loved, flattered, managed- one should avoid "hurting the
feelings of the Chinese people," as the Communist Party leaders like to say,
but most of all, they should not be trusted on their own.

Expat or not, I reject that New China paradigm.

I sense that power, a very sophisticated understanding of power and justice,
is the lifeblood of Chinese culture. I feel that the surface of the Chinese
character- caricatured as one of shrewdness and business moxie- masks a
deep, almost spiritual, sense of historical tragedy. And to my mind, the
opportunity cost of suppressing Chinese political instincts and liberated
expression is just as great a loss as the suppression of the Chinese
capitalist and entrepreneurial spirit under Mao.

And by the way, all the elements that I have just mentioned can be found in
the "Nine Commentaries".

Now, to mitigate the belief that the Chinese people should not engage in
politics or self-government, we offer the sop that this is a temporary
measu every economic restriction lifted, every step that China takes
towards capitalism, every Mao suit discarded, and every jiao added to a
Chinese pocket is at least a half-step towards a modern, responsible, and
democratic China. American CEOs give the impression that they can make their
investments and then lie back as if on a cruise ship headed inexorably
toward a great port with all the amenities: a US-Chinese co-prosperity
sphere, champagne toasts to the end of history, and a New China that (for
all their lip service about 5000 years of Chinese culture) will actually
look a lot like the America that they left behind.

I don't reject this New China paradigm outright. No one can predict China's
future. But my book centers around one simple question: What if the trends
of at least a decade don't support the theory? And how are Americans shaping
those trends?

Add to this one more question, if the mass defections from the Communist
Party lead to crisis, and in the worst case, another Tiananmen-style
crackdown, this time, can we, as American expats, really say we bear no
responsibility?

Fortunately for the expat conscience, they don't have to consider that
question just yet. The Chinese people are still, in 2005, on a forced march.

But the reaction to the Nine Commentaries suggests that they don't have to
be. If significant segments of the Chinese people reject the idea that
hyper-nationalism and internal political controls are the only way to ensure
continued growth, they could break the spell of willful ignorance, could
break the controls on the Internet, and could break the Communist Party. And
like everything else in China, it could happen very, very quickly.

In the book, I premised that "irate overtaxed peasants with Internet-enabled
cell phones ten years from now" have the power to change China. Since I
wrote those words, with every Chinese citizen who renounces their Communist
Party membership and begins to embrace democratic principles, my belief in
that statement has only grown stronger.

I want to close with this thought: The rise of China is the most exciting
and awe-inspiring event of our time. I felt it every moment I was in
Beijing. And I fully expect that my son will grow up in a world where China
is a superpower. But none of us- American or Chinese - should have to dread
that prospect.

I want to congratulate The Epoch Times for creating a place of freedom,
faith, and inquiry. A place where controversial words don't get edited out,
and passion is respected. I hope that our discussion today will continue in
that spirit. Thank you.

http://www.theepochtimes.com/news/5-6-15/29550.html
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Shanghai and Shenzhen stock markets have sky-rocketed for three days
following June 8, with Mainland media and Hong Kong media giving two totally
different explanations. The Mainland media's harmonious chorus shows signs
of the Central government's directive behind the scenes.

On June 6, the China Stock Market Index dropped below the 1,000 point
speculator's psychological support level, showing the lowest record of the
past 8 years. Two days later, on June 8, Shanghai and Shenzhen stock markets
underwent a big change, with the Shanghai A-share composite index rising 84
points, or 8.21%, at the end of the day, ending at 1,115.5 points. This is
the highest growth in a single day since June 24, 2002. A-share turnover
reached 18.7 billion RMB ($US2.25 billion); over 1.5 times the 7.3 billion
RMB (US$.882 million) of June 7.

The reason for the 2002 stock market jump was that the State Council decided
to cease the policy of stock market "state-owned shares reduction," with the
decision setting off a 9.3% rise. Now, nearly three years later, the reasons
for the China stock market's dramatic changes are that information has been
passed around that the People's Bank and China Securities Regulatory
Commission (CSRC) are researching a serious plan to rescue the stock market,
including pumping in 100 billion RMB (US$12 billion) to rescue dealers with
financial problems. Last week the CSRC also announced six rescue actions,
including permission to list companies' stock repurchase; permission to list
markets for purchasing stock funds; encouraging other organizations to enter
the stock market; tax benefits for dividends; establishing investor
protection funds, and approval for commercial banks to set up a fund
management company.

Mainland China media made positive comments about this stock market
bounce-back. Xinhua net published an article named "Long Expected Rain
Arrives on the Stock Market" the second day after the stock market bounced
back. People's Daily online described the news as "On the 8th June, Shanghai
and Shenzhen stock markets had an overall rise; stocks are growing,
investors are chuckling." The People's Daily print version used "How
Shanghai and Shenzhen Stock Markets Bounced Back from a Desperate Situation"
as the name of its article. All of these reports touted the change as great
news.

To the contrary, both of Hong Kong's important financial newspapers gave
negative reports on this bounce-back. Hong Kong Economic Journal and Hong
Kong Economic Times respectively published editorial articles named
"Mainland Stock Markets Have a Lot of Shortcomings; Hong Kong's Position
will be Difficult to Replace" and "Mainland Stock Market Suddenly Changes
from 'Zhu Market' to 'Wen Market'" ('Zhu Market' refers to China's former
prime minister, Zhu Rongji's policy-supported market, and 'Wen Market' means
China's current prime minister, Wen Jiabao's policy-supported market). The
articles mainly pointed out the shortcomings of the Mainland stock market in
that it does not operate according to market economy principles, but instead
operate according to administrative measures. Some analysts even believe
that the bounce-back was just the effect of the Chinese government having
injected funds in the form of a "painkiller" into the market.

Associate Director of Hong Kong Securities Company Ltd Research Department,
Kenny Tang, said, "Actually, the Chinese government's stock rescuing actions
expected by the Mainland stock market are not breaking through policies, it
is just moving capital into the market. It cannot improve the Mainland stock
market's structural problem from the roots, and this stock market
bounce-back cannot last." He also pointed out that investors lack confidence
in the Mainland stock market and too many forged account books have caused a
long-term bear market. Besides that, the Mainland stock market has many
structural problems, including the internal control system of dealers not
being strict enough, not having enough outside supervision, and too many
cases of dealers embezzling customers' money.

In 2001, the Mainland stock market reached a summit on the high tide of the
global hi-tech network, and on June 13 the Shanghai Composite Index reached
an unprecedented 2,242 points. But, after market's end that day, China's
State Council announced their state-owned shares reduction plan, causing
market concern that the circulation of a large volume of state-owned shares
would collapse the market. Since then the Mainland stock market has begun
its four- year-long bear market.

Prior to April 29, 2005, the CSRC brought up the "state-owned shares
reduction" again, and caused the Shanghai Stock Market to drop below 1,000
points. According to the information published by the CSRC, calculated at
the end of trading on May 27, 2005, the negotiable market value of the
Shanghai Stock Market is around 624 billion RMB (US$75 billion), and the
negotiable market value of the Shenzhen Stock Market is around 366 billion
RMB (US$44 billion). The total of the two markets is around 990 billion RMB
($119). Compared with over 1.886 trillion RMB ($US0.22 trillion) in the peak
period of June 2001, it has dropped nearly 896 billion RMB (US$108.25
billion).

According to above information, it is still too early to say whether the
Mainland stock market bounce-back is as the Mainland media have described
it. However, Mainland investors have experienced the market value
disappearance of nearly 1 trillion RMB in the past, so is it so easy for the
media to persuade them that the "long expected rain" has arrived?

http://english.epochtimes.com/news/5-6-17/29584.html
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