Little-Known Entrepreneurs Putting China Near Top of Billionaires’ List (NYTimes, 11/07/07)

November 7, 2007
Little-Known Entrepreneurs Putting China Near Top of Billionaires’ List
By DAVID BARBOZA
SHANGHAI, Nov. 6 — The United States has more billionaires than any other country: 415 by the last count of Forbes magazine.
No. 2, and closing fast? China.
A year ago, there were 15 billionaires in China. Now, there are more than 100, according to the widely watched Hurun Report. Forbes has documented 66.
Unlike America’s rich, China’s are hardly famous, even here. Bill Gates and Warren E. Buffett are known around the world. But Yang Huiyan and Robin Li?
Yet, who they are, and what they decide to do — or are allowed to do — with their money and newfound influence will have political and economic consequences in China and probably far beyond, analysts say.
“They could start buying companies in the U.S.,” Chang Chun, an economist at the China Europe International Business School in Shanghai, said. “They have so much influence.”
Thanks to the capitalist stock mania sweeping the Communist mainland, Chinese private and state-owned companies issuing stock for the first time are becoming the most valuable companies in the world — at least on paper — often overnight.
On Tuesday, Alibaba.com, one of China’s biggest Internet companies, had a blockbuster stock offering, raising nearly as much as Google and soaring 193 percent on its first day of trading.
That came after the debut on Monday of the state-owned energy company PetroChina on the Shanghai Stock Exchange. Its market valuation ran up to more than $1 trillion, topping that of any company in history.
Analysts are skeptical about the way China’s stocks are valued, particularly those like PetroChina with huge amounts of untradable government shares. But on paper it has dethroned Exxon Mobil as the most valuable company in the world.
Similarly, China Mobile is the world’s most valuable telecommunications company. The state-owned Industrial and Commercial Bank of China, which was nearly insolvent a decade ago, is worth more than Citigroup.
And when Country Garden, a southern China real estate company, went public in April, its initial public offering was bigger than Google’s.
But many analysts argue that there is nothing underlying the skyrocketing values, or that the obscure finances of the companies make it impossible to know their true value. And if China’s stock market is a bubble, the new billionaires will disappear as quickly as they rose.
“A lot of people are surprised at how fast this has happened,” said Jing Ulrich, an analyst at JPMorgan. “But this is the power of the capital markets. A lot of people’s wealth is based on newly listed companies.”
After a nearly decade-long bear market for Chinese stocks, investors here are in party mode. The Shanghai Stock Market is up nearly 400 percent in two years. The Hong Kong Stock Exchange is shattering records.
The emergence of the superwealthy is a dramatic turnaround in a country that once branded enemies of the state “capitalist roaders.”
But in the 1980s, Deng Xiaoping broke with Maoist dogma by saying, “to get rich is glorious,” setting off a wild scramble that has produced a generation of hungry entrepreneurs.
Many analysts believe the Chinese are so new to this type of money that they themselves do not know what they will do with it, assuming it lasts.
As much as the bounty of billionaires is a source of pride, it is also a potential cause for concern in a nominally Communist country. Per capita income in China is less than $1,000 a year.
“One issue is social stability,” says Emmanuel Saez, a professor of economics at the University of California, Berkeley. “In Latin America you had such a concentration that revolutionaries wanted to redistribute it.”
Perhaps for that reason, many wealthy Chinese entrepreneurs fight to stay off the rich lists. Plus, the early lists of wealthy often led to unwanted scrutiny, including investigations and jail for some on tax evasion or corruption charges.
But times have changed.
With the economy of China roaring and entrepreneurs sensing a golden age of stock riches, everyone seems to be mouthing the words “shang shi,” Chinese for initial public offering.
Among the most celebrated are the young Internet tycoons. Robin Li, the 38-year-old founder of Baidu, which is called China’s Google, is now worth about $2.4 billion, making him richer than Jerry Yang of Yahoo. Ma Huateng, 36, of Tencent, another Internet giant, is worth $1.9 billion. And Jason N. Jiang, the 34-year-old founder of Focus Media, is worth $1.1 billion.
Mr. Jiang grew up in Shanghai, and studied literature before turning his focus to business while in college. He says he started out selling advertising in Shanghai and then, in 1997, formed what is now Focus Media with the idea of placing video monitors broadcasting advertisements in elevators, apartment complexes, supermarkets, and even on street corners.
With the help of Goldman Sachs and Credit Suisse, Focus Media went public in 2005 on the Nasdaq — and its shares have jumped about 800 percent in two years.
But it may be ambition more than money, at least so far, that motivates him. “I want this company to be the greatest media group — the greatest media company in the world,” he said in an interview. “I want Focus Media in every part of the world.”
He says he works 8 a.m. to 2 a.m., and does not feel tired. He also says he has no time for anything else, including spending his enormous wealth. He has upgraded to a nicer home in recent years, he says, but has little time for sports or anything else. He is single and works through lunch at his desk, buying a $2.50 take-out meal nearly every day.
“I think this is typical,” he says of successful entrepreneurs in China. Experts call entrepreneurs like Mr. Jiang the country’s best hope for innovation.
“These young 30-something-year-old entrepreneurs have become billionaires, and they’ve become role models for others,” says Chen Zhiwu, a professor of finance at Yale University. “They have totally energized Chinese entrepreneurs.”
In fact, after Forbes and the Hurun Report, which tracks the wealthy, published their rich lists this fall, the government in Hunan Province, Mao’s birthplace in central China, seemed to complain that the province was not accurately represented.
The Hunan provincial government posted its own rich list on its provincial Web site, as if to say: people from Hunan are great entrepreneurs, too.
While Forbes this year estimates that there are 66 billionaires in China, Rupert Hoogewerf, publisher of The Hurun Report, has already found more than 100, and there could be many more, he says.
Mr. Hoogewerf also says that 6 of the 10 richest self-made women in the world are from China, including Zhang Yin, the founder of Nine Dragons Paper, which collects recycled paper from the United States and turns it into boxes in China.
The richest person in China, since last April, is also a woman: Yang Huiyan of Country Garden, the real estate company.
Ms. Yang, 26, who did not grant an interview, is No. 1 on both rich lists, and easily the richest woman in Asia. A graduate of Ohio State University, she is worth about $16 billion, making her richer than George Soros, Rupert Murdoch and Steven P. Jobs.
Her father, a real estate developer in southern China, gave her most of the family’s fortune in stock, just before Country Garden’s blockbuster Hong Kong initial public offering.
In keeping with their reputation for discretion, of about 15 billionaires contacted recently, only one, Mr. Jiang, agreed to an interview. They tend to hide their billions, friends say, sometimes with offshore purchases. Some even boast that they still get a $2 haircut.
Their stories, though, are remarkable. Huang Guangyu, 38, grew up in a poor village in southern China, where he and his brother sold plastic bottles and newspapers. Now, he controls Gome, one of the country’s most popular electronics stores.
Li Ning won three gymnastics gold medals at the 1984 Olympics in Los Angeles. Later, he founded a sporting goods company, took it public and signed Shaquille O’Neal to a sneaker contract. Now, Mr. Li is richer than Tiger Woods.
The rise of the Chinese billionaire is remarkable not just because of the speed with which it has happened — the country only opened up to capitalism 25 years ago — but because it happened without the help of a single global brand, no Sony or Toyota. (Japan has only 24 billionaires.)
Indeed, China’s wealthiest, largely real estate tycoons (35) and manufacturers, appear singularly focused on making it inside China, not outside.
That is the next challenge of the billionaires. And some are already embracing it.
Shi Zhengrong studied physics and solar energy in Australia before returning to China in 2001 to start up Suntech Power. Six years later, Mr. Shi’s solar energy company is valued at $9 billion, its stock price up over 300 percent since the public stock offering in December 2005.
In an interview earlier this year at his Shanghai headquarters, Mr. Shi insisted that solar power will play a role in China’s development. And as he finished the meeting, he smiled and said, “Some day, this company will be as big as Microsoft.”

In China, a Lake’s Champion Imperils Himself (NYTimes, 10/14/07)

October 14, 2007
In China, a Lake’s Champion Imperils Himself
By JOSEPH KAHN
ZHOUTIE, China — Lake Tai, the center of China’s ancient “land of fish and rice,” succumbed this year to floods of industrial and agricultural waste.
Toxic cyanobacteria, commonly referred to as pond scum, turned the big lake fluorescent green. The stench of decay choked anyone who came within a mile of its shores. At least two million people who live amid the canals, rice paddies and chemical plants around the lake had to stop drinking or cooking with their main source of water.
The outbreak confirmed the claims of a crusading peasant, Wu Lihong, who protested for more than a decade that the region’s thriving chemical industry, and its powerful friends in the local government, were destroying one of China’s ecological treasures.
Mr. Wu, however, bore silent witness. Shortly before the algae crisis erupted in May, the authorities here in his hometown arrested him. In mid-August, with a fetid smell still wafting off the lake, a local court sentenced him to three years on an alchemy of charges that smacked of official retribution.
Pollution has reached epidemic proportions in China, in part because the ruling Communist Party still treats environmental advocates as bigger threats than the degradation of air, water and soil that prompts them to speak out.
Senior officials have tried to address environmental woes mostly through pulling the traditional levers of China’s authoritarian system: issuing command quotas on energy efficiency and emissions reduction; punishing corrupt officials who shield polluters; planting billions of trees across the country to hold back deserts and absorb carbon dioxide.
But they do not dare to unleash individuals who want to make China cleaner. Grass-roots environmentalists arguably do more to expose abuses than any edict emanating from Beijing. But they face a political climate that varies from lukewarm tolerance to icy suppression.
Fixing the environment is, in other words, a political problem. Central party officials say they need people to report polluters and hold local governments to account. They granted legal status to private citizens’ groups in 1994 and have allowed environmentalism to emerge as an incipient social force.
But local officials in China get ahead mainly by generating high rates of economic growth and ensuring social order. They have wide latitude to achieve those goals, including nearly complete control over the police and the courts in their domains. They have little enthusiasm for environmentalists who appeal over their heads to higher-ups in the capital.
Mr. Wu, a jaunty, 40-year-old former factory salesman, pioneered a style of intrepid, media-savvy environmental work that made Lake Tai, and the hundreds of chemical factories on its shores, the focus of intense regulatory scrutiny.
In 2005 he was declared an “Environmental Warrior” by the National People’s Congress. His address book contained cellphone numbers for officials in Beijing and the provincial capital of Nanjing who outranked the party bosses where he lived.
But Mr. Wu was far from untouchable. He lost his job. His wife lost hers. The police summoned, detained and interrogated him. The local government and factory owners also tried for years to bring him into the fold with contracts, gifts and jobs. When party officials offered him a chance to profit handsomely from a pollution cleanup contract, a friend warned him not to accept. Mr. Wu, who needed the money, said yes.
Lake of Plenty
The country’s third largest freshwater body, Lake Tai, or Taihu in Chinese, has long provided the people of the lower Yangtze River Delta with both their wealth and their conception of natural beauty.
It nurtured a bounty of the “three whites,” white shrimp, whitebait and whitefish, and a freshwater crustacean delicacy called the hairy crab. Natural and man-made streams irrigated rice paddies, and a network of canals ferried that produce far and wide.
Along the lake’s northern reaches, near the city of Wuxi, placid waters and misty hills captured the imagination of Chinese for hundreds of years. The wealthy built gardens that featured the lake’s wrinkled, water-scarred limestone rocks set in groves of bamboo and chrysanthemum.
Since the 1950s, however, Lake Tai has been under assault. The authorities constructed dams and weirs to improve irrigation and control floods, disrupting the cleansing circulation of fresh water. Phosphates and other pollution-borne nutrients made the lake eutrophic, sucking out oxygen that fish need to survive.
Even in its degraded state, Lake Tai made an ideal habitat for China’s chemical industry, which expanded prolifically in the 1980s. Chemical factories consume and discharge large quantities of water, which the lake provided and absorbed. Its canals made it easy to ship goods to the big industrial port city of Shanghai, downstream.
With strong local government support, the northern arc of Lake Tai became home to 2,800 chemical plants, most of them small cinder-block factories that took over rice paddies beside canals.
Mr. Wu’s hometown alone had 300 such plants. His narrow village road was reinforced with concrete to withstand the weight of cargo trucks. Factories here made food additives, solvents and adhesives.
The industry transformed the economy. By the mid-1990s, taxes on chemical industry profits accounted for four-fifths of local government revenue, according to a report from the city of Yixing, which oversees Zhoutie.
Mr. Wu benefited as well. In his early 20s, he got a salaried job as salesman for a factory that made soundproofing material. It allowed him to travel around the country, and paid nice commissions on his sales. His wife, Xu Jiehua, made dyes.
Mr. Wu took long walks after dinner. The acrid tinge in the cool night air was the smell of prosperity to some locals. But it nauseated him, Mr. Wu recalled in later interviews.
In streams where he and Ms. Xu played as children, teeming whitefish used to tickle their legs. By the early 1990s, there were no fish in the streams, which ran black and red. “Rivers of blood,” Ms. Xu quoted him as saying.
Mr. Wu is small and pudgy. Ms. Xu calls him “little fatty.” He also has a short temper, and pollution sparked it.
“In the beginning I didn’t understand it myself,” he recalled years later in an interview with Farmers’ Daily. “It was my personality that decided all of this. I felt the burden getting bigger.”
He began by snapping photos of factories dumping untreated effluent into canals. He mailed them, anonymously at first, to environmental protection agencies.
When that produced few results, he signed the letters and included his phone number, volunteering to help inspectors see the problem for themselves.
Local regulators ignored him. But fish kills, declining rice yields and slumping tourism to the once pristine area made Lake Tai’s ecology a broader concern. Higher-ranking officials in Nanjing, capital of Jiangsu Province, got in touch.
One evening, Mr. Wu brought provincial inspectors to see concealed pipes running from a factory near his home to a stream that flowed into the lake. The factory, Feida Chemical, got slapped with a fine, and Mr. Wu got his start.
Friends and Enemies
Mr. Wu’s farmhouse filled up with the evidence he amassed, a bit haphazardly, of a looming environmental disaster. He used his pantry to store plastic bottles containing muddy water samples from streams and canals. Near his queen-size bed he kept stacks of newspaper clippings and photographs, letters and petitions.
One letter from local farmers described how a nearby factory making 8-hydroxyquinoline, used as a deodorant and antiseptic, emitted noxious fumes that “make our days and nights impassable.” Another writer referred to a local factory as “a new Unit 731,” after the Japanese team that conducted chemical warfare experiments in World War II. Members of another group said they did not dare tend their rice paddies without wearing gloves and galoshes because irrigation water caused their skin to peel off.
Mr. Wu answered many such calls for help. Between 1998 and 2006, the environmental protection agency of Jiangsu Province recorded receiving 200 reports of pollution incidents and regulatory violations from Mr. Wu.
Many of those he helped became allies. But Mr. Wu was making as many enemies as friends.
“Our society lacks the right atmosphere for environmental protection,” he told one local newspaper. “Even in areas where pollution is most severe, I still have a hard time winning people’s support.”
Some residents feared for their jobs, with good reason. The soundproofing factory fired Mr. Wu in 1999. His notice of dismissal, which he saved among his other papers, cited his failure to attend a meeting.
His family lived off his wife’s salary at the dye factory for a time. Then one day Ms. Xu mentioned to Mr. Wu how the stream near her factory changed colors depending on which dye they made that day. Mr. Wu brought a television crew to film the rainbow-colored stream. Ms. Xu soon lost her job as well.
“He did not always have our family’s happiness at heart,” Ms. Xu recalled. “He probably should have investigated someone else’s factory.”
Such pressure, though, made him confront local authorities more directly.
In 2001, Wen Jiabao, then a vice premier, now China’s prime minister, came to investigate reports of Lake Tai’s deterioration. Like most Communist Party inspection tours, word of this one reached local officials in advance. When Mr. Wen asked to see a typical dye plant, one was made ready, according to several people who witnessed the preparations.
The factory got a fresh coat of paint. The canal that ran beside it was drained, dredged and refilled with fresh water. Shortly before Mr. Wen’s motorcade arrived, workers dumped thousands of carp into the canal. Farmers were positioned along the banks holding fishing rods.
Mr. Wen spent 20 minutes there. A picture of him shaking hands with the factory boss hangs in its lobby.
Mr. Wu fired off an angry letter to Beijing recounting the ruse and warning the vice premier that he had been “deceived.” Mr. Wu circulated copies among his friends. Local officials saw it, too. Several villagers said they were warned then that they should keep a distance from Mr. Wu.
Words From Above
One summer afternoon in 2002, Mr. Wu went out on an errand and saw a banner stretched across the main road downtown. It read: “Warmly welcome the police to arrest Wu Lihong for committing blackmail in the name of environmentalism.”
Mr. Wu told friends he initially suspected that the banner was hung by local factory bosses to intimidate him. But when he went to the police to complain, he found a stack of placards with the same exhortation in the police station. The police had erected the banner themselves, and they detained him on the spot.
His family received a detention notice accusing Mr. Wu of inciting farmers to stage a public protest about pollution a few weeks earlier. The notice did not mention blackmail, as the banner had, and the police never pressed charges. He was released within two weeks.
That episode appeared to be part of an inconsistent, somewhat bumbling effort to keep Mr. Wu boxed up and harmless.
There were carrots as well as sticks. Zhang Aiguo, the chief environmental regulator in the city of Yixing, struck up a dialogue with Mr. Wu, several friends said.
Hang Yaobin, a truck driver and sundry shop owner in Zhoutie who has also pressed for better environmental controls, said Mr. Zhang told Mr. Wu that they could improve the environment together. But Mr. Wu should expose problems in other jurisdictions and should stop damaging Yixing’s reputation.
“Zhang Aiguo told him: ‘Don’t make me stink, or I’ll lose my job. Then we’ll accomplish nothing,’” Mr. Hang said.
In a telephone interview, Mr. Zhang declined to discuss his dealings with Mr. Wu in detail. But he acknowledged that the two talked regularly before he was assigned to another position in the Yixing government.
In 2003, Mr. Zhang offered Mr. Wu a business opportunity. A steel plant in Zhoutie had been ordered by environmental authorities to buy new dust-control equipment. Mr. Wu could find a vendor for the equipment and earn a handsome commission, several people told about the arrangement said.
Mr. Zhang confirmed that he told Mr. Wu of the opportunity.
Mr. Wu debated whether to accept. Mr. Hang said he advised his friend against it. “If you’re engaged in a confrontation with officials you can’t gamble, or visit prostitutes, or have any other vice,” Mr. Han said. “They are always looking for ways to get you.”
But this contract involved an environmental cleanup. And with both Mr. Wu and his wife out of work, they needed money. Mr. Wu agreed to contact a vendor recommended by Mr. Zhang.
It was not a rewarding endeavor. He brokered a contract. But the dust-control company gave him only a token advance on his promised commission. The steel plant boss, who had befriended Mr. Wu, eventually withheld part of what he owed the dust-control company to compensate Mr. Wu, according to Ms. Xu, his wife.
That was one of several muddled interactions with local officials and businessmen that did not satisfy either side. Mr. Wu remained cash-strapped. He did not stop contacting Nanjing and Beijing about pollution problems.
In 2005, he heard that the local government would be the host of a big delegation of Chinese reporters as part of the China Environmental Century Tour. He got in touch with China Central Television, the leading national broadcaster, and promised to reveal the story behind the story.
He arranged covertly for the reporters to inspect a section of the Caoqiao River that he learned the government planned to show them on the coming tour. He revealed hidden pipes that discharged black effluent from local factories into the river, which flows into Lake Tai.
The China Central Television crew later joined the Potemkin official tour. They aired a special report on “the river that goes from black to clear overnight.”
Mr. Wu was the star of that report, an environmental celebrity. Later the same year, the National People’s Congress, China’s party-run Parliament, declared him an “Environmental Warrior.”
Model City
With President Hu Jintao and Mr. Wen demanding tougher action on pollution, local officials in 2006 came under new pressure to clean up Lake Tai. Despite repeated pledges and campaigns to protect the once scenic lake, it was still rated Grade V by the State Environmental Protection Administration, the lowest level on its scale.
Yixing ordered a new crackdown on small chemical factories. It claimed to have reduced the total number by half from the peak of 2,800 in the late 1990s. The city said the industry, which once accounted for as much as 85 percent of the area’s industrial output, constituted just 40 percent in 2006.
But local officials put at least as much emphasis on fighting the perception that they had a pollution problem. They lobbied heavily for the State Environmental Protection Administration to declare it a “Model City for Environmental Protection.”
Around the same time, Wu Xijun, the Communist Party boss of Zhoutie, called Mr. Wu to his office. The two Mr. Wus, who are not related, had a “face-to-face talk” about the damage Wu Lihong’s environmental protests were doing to the area’s reputation. The party secretary then made him an offer, according to friends of Mr. Wu and an official court document that confirmed the meeting.
In March 2006, the township party committee paid Mr. Wu to promote tourism on the condition that he stop “nonfactual reporting” of pollution problems. The payments totaled about $5,000, the court document confirmed.
Mr. Wu may have toned down his protests for a time, friends said. But early this year, he learned that Yixing had won the environmental administration’s designation as a “Model City for Environmental Protection.” Enraged, he began his most assertive effort to date to embarrass local officials.
He spent weeks traveling throughout the area on his motorcycle, collecting water samples and photographing rivers and canals. He gathered data he hoped could prove that factories released most of their polluted water at night in quantities that the currents could wash away by dawn.
In April, he prepared to bring the water samples and photographic evidence to Beijing. He told friends he intended to file a lawsuit there against SEPA, the environmental administration, for its decision to honor Yixing. He never made the trip.
On the night of April 13, several dozen police and state security officers raided his farmhouse. Climbing ladders, they pried open the windows to his second-floor bedroom, arresting him and seizing documents and a computer.
Prosecutors quickly indicted Mr. Wu on two charges of blackmail. The first charge claimed that after he “gained knowledge” of a contract between the steel company and the dust-control company in 2003, he threatened to use his connections to undermine it unless the dust-control company paid him to keep quiet.
The second charge claimed that Mr. Wu extorted money from the Communist Party Committee of Zhoutie by threatening to report pollution problems.
Prosecutors revised the indictment twice in the following weeks. They dropped the charge of blackmailing the Communist Party, offering no explanation. Then they added a new charge, this one for “fraud.” It claimed that Mr. Wu had illegally aided the steel company boss in preparing false documentation to account for the money the steel company paid Mr. Wu in 2003.
The three indictments each claimed that Mr. Wu confessed to the various charges. The last week of May, with Mr. Wu in custody, Lake Tai cried for help. Nitrogen and phosphorous, the untreated residue of chemical processing, fertilizer, and sewage, built up to record levels, while rainfall fell short.
Lake Tai’s Revenge
Lake Tai had algal blooms before. This time, according to an analysis by the State Environmental Protection Administration, cyanobacteria “exploded” at rates that had not been seen in the past. Much of the lake was covered with a deep, foul-smelling canopy that left most of the 2.3 million people in Wuxi, the biggest city on the northern part of the lake, without drinking water for many days.
Local officials initially called the outbreak a “natural disaster.” But state media rushed to the scene, and some showed pictures of chemical factories dumping waste into the lake even as residents formed long lines at supermarkets to buy bottled water.
Neighboring cities shut sluice gates and canal locks to prevent contamination, creating a monumental maritime traffic jam and further reducing circulation around Lake Tai. The problem did not ease until central authorities ordered Yangtze River water diverted into the lake. Even then, the bloom lingered into late summer.
Mr. Wen convened a meeting of the State Council to discuss the matter. “The pollution of Lake Tai has sounded the alarm for us,” state media quoted him as saying. “The problem has never been tackled at its root.”
Five party and government officials in Yixing and Zhoutie, including three involved in environmental work, were dismissed or demoted. Li Yuanchao, the party boss of Jiangsu Province, vowed to clean up Lake Tai even if it meant taking a 15 percent cut to the province’s economic output. Authorities pledged to shut down hundreds of the most egregious polluters in their most sweeping crackdown to date.
Ms. Xu, Mr. Wu’s wife, said she hoped the authorities would conclude that it would be improper, or at least inconvenient, to prosecute Mr. Wu under such conditions. His trial, initially scheduled for June, was delayed, prompting speculation that someone at a higher level had intervened.
But although Mr. Wu’s arrest generated attention in both the domestic and international media, there is no indication that central government officials objected to his prosecution. On a Friday afternoon in August, the road in front of Yixing’s courthouse filled with Volkswagen Santanas, the standard-issue sedans of China’s police and security services. In a park nearby, officials hung a banner advertising the city’s new status as a “Model City for Environmental Protection.”
The evidence against Mr. Wu consisted mainly of written testimony and his own confession. The judges rejected a request by Mr. Wu’s lawyer to summon prosecution witnesses for cross-examination.
Mr. Wu told the judges in open court that the police had deprived him of food and forced him to stay awake for five days and five nights in succession, relenting only when he signed a written confession. He said that the confession was coerced and that he was innocent. The judges ruled that since Mr. Wu could not prove that he had been tortured, his confession remained valid.
Mr. Wu lost his temper. “Since I was a child I have never broken the law,” he shouted, according to relatives who attended. “If I could right now, I would like to split you in two.” He was sentenced to three years.
Shortly after the trial, Mr. Hang, the sundry shop owner and colleague of Mr. Wu, handed a reporter photos, clippings and documents collected over a decade of environmental work. He said he had no use for them now. Environmental work had become too risky.
He said he had recently seen some little fish darting around in the milky green water of a canal nearby. He took it as a good sign. “Once the white shrimp come back, that would be good,” he said. The white shrimp had not come back just yet.
Jake Hooker contributed reporting from Beijing and Zhoutie.

New China Hierarchy May Limit President’s Power (NYTimes, 10/13/07)

October 13, 2007
New China Hierarchy May Limit President’s Power
By JOSEPH KAHN
BEIJING, Oct. 12 — After intensive bargaining, China’s Communist Party has approved a new leadership lineup that denies President Hu Jintao the decisive consolidation of power that his supporters hoped would allow him to govern more assertively in his final five-year term as China’s top leader.
The party’s Central Committee agreed to elevate four senior officials to the ruling Politburo Standing Committee, but only one of them, Li Keqiang, the party secretary of Liaoning Province, clearly owed his rise in the hierarchy to Mr. Hu’s patronage, people told about the results of a Central Committee meeting said Friday.
Xi Jinping, the party boss of Shanghai, is also expected to join the Standing Committee. He would outrank Mr. Li and become the most likely successor to Mr. Hu as party chief, head of state and top military official in 2012, the people said.
Mr. Xi, whose father was a senior party official under Mao, is viewed as a compromise choice, acceptable to Mr. Hu but also to his now-retired predecessor as top leader, Jiang Zemin, who party officials say exercised broad sway over the reshuffling. Mr. Xi moved to Shanghai from Zhejiang Province just six months ago to replace the now disgraced Chen Liangyu, who was ousted in China’s biggest corruption scandal of the past decade.
Two other new members of the Standing Committee, He Guoqiang, a party organization official, and Zhou Yongkang, China’s top law enforcement officer, are widely viewed as close allies of China’s vice president, Zeng Qinghong, who will step down from the Standing Committee.
Personnel shifts in the ruling party are decided in secret, and the final leadership lineup will not be made public until the conclusion of a party congress, which convenes Monday. In the past, top leaders have continued to bargain and make changes in the hierarchy even after the Central Committee approved a slate of candidates.
The Central Committee issued a public statement on Friday that offered no information about personnel decisions but praised Mr. Hu lavishly.
Under Mr. Hu, the party “vanquished all kinds of hardship and dangers and advanced the work of the party and government to achieve major new successes,” the statement said. Among these successes, it continued, were raising living standards, improving defense forces and managing relations with Taiwan, the self-governing island that China claims as its territory.
The committee also said the party would amend its Constitution. That suggests that Mr. Hu’s concept of “scientific development,” a catch phrase for his policies to promote more balanced, equitable and sustainable development, will be enshrined in the Constitution alongside the political slogans of Mao, Deng Xiaoping and Mr. Jiang.
Even so, the coming party congress seems likely to underscore the collective nature of decision making in the ruling party, as well as Mr. Hu’s clout.
Mr. Hu will still have to work to build a consensus among the nine members of the Standing Committee, a majority of whom owe their rise more to the support of Mr. Jiang or Mr. Zeng than to Mr. Hu. Party members said Mr. Hu had hoped to reduce membership in the standing committee to seven from nine, and to elevate more members of his political base, the Communist Youth League, to the top body.
“If the current name list becomes the final one, it is a poor outcome for Hu,” said one party member who was told about the Central Committee’s deliberations. “It is a victory for collective leadership.”
Mr. Hu has earned plaudits for paying increased attention to the country’s growing wealth gap and the environmental costs of its long streak of rapid economic growth. He has strengthened relations with the United States, focused heavy diplomatic attention on Africa, and helped steer North Korea toward a pact to end its nuclear weapons program.
Yet he has also kept a tight rein on news media and done little to improve China’s domestic human rights record or legal system. He has taken few significant steps to overhaul the one-party system or allow more political pluralism.
Some supporters of Mr. Hu, who is 64 years old, have speculated that he might push political change in his second term, particularly if he eclipses the influence of Mr. Jiang, 80, and assumes more decision-making power.
Mr. Hu does appear to have succeeded in promoting many Communist Youth League officials to top provincial posts. The Central Committee also elevated two officials close to him, Li Yuanchao, the party boss of Jiangsu Province, and Liu Yuandong, who supervises the party’s relations with other political entities, to important new positions that carry regular Politburo rank, people told about the committee’s deliberations said.
But after years of careful cultivation, Mr. Hu did not succeed in positioning Li Keqiang, 52, the Liaoning party boss, as his successor, party officials said. Instead, Mr. Li will probably assume the position of prime minister, now held by Wen Jiabao, when Mr. Hu and Mr. Wen retire in five years.
Mr. Xi, 54, is expected to succeed Mr. Zeng as vice president and as the day-to-day manager of Communist Party affairs at this congress as the first step toward succeeding Mr. Hu as No. 1 leader when the next congress convenes in 2012. Just as Mr. Hu owed his designation in 1992 as the party’s future leader to Mr. Deng rather than to Mr. Jiang, who was party chief at the time, Mr. Xi’s rise came mainly at the behest of Mr. Jiang and Mr. Zeng, the people told about the deliberations said.
Mr. Xi is not likely to be identified publicly as Mr. Hu’s successor. The semiofficial China News Service said Thursday in a report that Mr. Hu would not follow Mao’s or Mr. Deng’s lead in picking a successor, but would rely on “collective discussion and collective decisions” within the party.
Some political observers have suggested that by having two younger members of the Standing Committee, the choice of a future leader could become competitive, permitting the 190 members and the 152 alternate members of the Central Committee to choose among candidates rather than ratifying decisions made at the very top.
But party officials said Friday that the party leadership had decided the matter. The discussion about a race for the top jobs was an attempt to make the party’s internal deliberations seem more open than they really are, they said. “Xi will be the general secretary and Li will be prime minister,” one person said. “The party is too concerned about stability to leave the issue undecided.”
The reshuffling will affect a range of other officials who have become well known in the West.
Wang Qishan, the technocratic mayor of Beijing, is now slated to succeed Zeng Peiyan as China’s top economic planner, people told about the Central Committee decisions said. Zhang Dejiang, the party secretary of Guangdong Province, will assume Wu Yi’s portfolio as the country’s trade policy maker and troubleshooter who coordinates responses to medical and safety problems.
Among key provincial posts, Commerce Minister Bo Xilai is expected to become party boss of the municipality of Chongqing in the southwest. Wang Yang, who currently holds the Chongqing job, is expected to move to Guangdong to replace Mr. Zhang. Yu Zhengsheng will assume Mr. Xi’s post as the top party official in Shanghai, the people said.

No Flinching From Recalls as China’s Exports Soar (NYTimes, 10/13/07)

October 13, 2007
No Flinching From Recalls as China’s Exports Soar
By DAVID BARBOZA
SHANGHAI, Oct. 12 — Despite a wave of high-profile recalls, and growing scrutiny of the quality and safety of Chinese goods, China’s export boom continues, according to newly released statistics from both independent analysts and the government in Beijing.
China said Friday that it exported $878 billion worth of goods in the first nine months of 2007, up 27 percent from the period last year, when Chinese exports posted record volume.
Global worries about contaminated pet food, tainted seafood and toxic toys and toothpaste have not been significant enough to slow China’s export engine, analysts say.
“Forty million toys may be bad for dozens of toy makers in Dongguan,” said Dong Tao, an economist at Credit Suisse, referring to one of southern China’s toy-making centers. “But that’s small potatoes for China’s over $1 trillion a year of exports.”
China’s trade surplus with the rest of the world has already ballooned to $187 billion through September of this year, up from about $177.5 billion for all of 2006, and much of the gains have come in trade with the United States and the European Union.
Even in categories hit by high-profile recalls this year, like food and toys, exports rose sharply, according to data compiled by Global Trade Information Services, based in Columbia, S.C.
Through August, China’s food and agriculture exports to the United States were up 27 percent over last year, to about $2.5 billion. And global exports of Chinese-made toys jumped 18 percent, to about $16 billion, during the period, despite a series of recalls of lead-tainted toys by Mattel Inc., the world’s largest toy company.
An exception is Germany, where imports of toys from China fell 42 percent in the first eight months of the year, compared with the period in 2006.
But over all, China’s pricing advantage over Western manufacturers — including lower costs for labor, land and energy — continues to draw new businesses.
The trade data, however, did offer some evidence that importers were responding to safety concerns, particularly in some smaller food categories. China’s exports of eel to the United States, for instance, fell 94 percent after the Food and Drug Administration moved last summer to block the imports of certain types of seafood, including eel and shrimp, because of concerns about the presence of excess antibiotics.
Japan, a huge importer of Chinese seafood, followed suit, canceling large orders of Chinese eel. Japan’s eel imports through August of this year dropped to about $59 million from $101 million during the 2006 period.
But most companies that import from China today do not seem to be canceling orders.
On the other hand, over 60 percent of Chinese companies that responded to a recent survey said they were investing heavily in new quality-control systems, according to Global Sources, a Hong Kong company that helps businesses find export markets.
“As more and more companies in the U.S. are understanding their liability, they are investing or requiring their suppliers to invest in quality control,” said Merle A. Hinrichs, chairman of Global Sources.
Analysts say China is, to some extent, immunized against a loss of confidence in any one area by its increasing diversification.
“A growing share of China’s trade is IT and electronics,” said Jonathan Anderson, an economist at UBS who is based in Hong Kong.
Some of China’s biggest gains are coming from the European Union, where imports of Chinese goods have jumped more than 30 percent this year, in part because of an undervalued Chinese currency. European officials are now pressing China to allow its currency to appreciate.
“There is substantial resentment building up in Europe, and I think the Chinese don’t recognize that,” said Joerg Wuttke, president of the European Union Chamber of Commerce in Beijing.
“The renminbi has gone south, and if you have a currency that depreciates you get more competitive in your selling propositions.”
But even with a weak dollar, American imports of Chinese goods are also up 17 percent this year.
Through the first eight months of the year, American imports of Chinese toys rose 16 percent from a year ago. Imports of Chinese seafood also jumped over 16 percent.
Mr. Tao, the Credit Suisse economist, said that the real threat to China was not product recalls, but economic changes taking place in the United States and in China itself.
“It’s the U.S. slowdown that worries me, and rapidly rising production costs in China,” he said.
“Wages are going up, food prices are going up and environmental measures are being launched.”
Those changes would make it more expensive to manufacture in China, and that might slow the juggernaut, Mr. Tao said.
Safety Agreement With China
WASHINGTON, Oct. 12 (AP) — Bush administration officials and their Chinese counterparts sought Friday to nail down a plan to ensure the safety of products that the Chinese export to the United States.
Dr. Andrew C. von Eschenbach, commissioner of the Food and Drug Administration, declined to discuss specific steps that China agreed to take to improve safety.
He did say, however, that Chinese health officials would come to Washington this month to complete details of a memorandum of agreement between the countries.
On Thursday, investigators with the House Energy and Commerce Committee reported that the food supply chain in China failed to meet international safety standards and that a lack of internal regulation there required a much more vigorous program of inspections and testing than the F.D.A. had been willing to pursue to date.

Beneath Booming Cities, China’s Future Is Drying Up (NYTimes, 09/28/07)

September 28, 2007
Beneath Booming Cities, China’s Future Is Drying Up
By JIM YARDLEY
SHIJIAZHUANG, China — Hundreds of feet below ground, the primary water source for this provincial capital of more than two million people is steadily running dry. The underground water table is sinking about four feet a year. Municipal wells have already drained two-thirds of the local groundwater.
Above ground, this city in the North China Plain is having a party. Economic growth topped 11 percent last year. Population is rising. A new upscale housing development is advertising waterfront property on lakes filled with pumped groundwater. Another half-built complex, the Arc de Royal, is rising above one of the lowest points in the city’s water table.
“People who are buying apartments aren’t thinking about whether there will be water in the future,” said Zhang Zhongmin, who has tried for 20 years to raise public awareness about the city’s dire water situation.
For three decades, water has been indispensable in sustaining the rollicking economic expansion that has made China a world power. Now, China’s galloping, often wasteful style of economic growth is pushing the country toward a water crisis. Water pollution is rampant nationwide, while water scarcity has worsened severely in north China — even as demand keeps rising everywhere.
China is scouring the world for oil, natural gas and minerals to keep its economic machine humming. But trade deals cannot solve water problems. Water usage in China has quintupled since 1949, and leaders will increasingly face tough political choices as cities, industry and farming compete for a finite and unbalanced water supply.
One example is grain. The Communist Party, leery of depending on imports to feed the country, has long insisted on grain self-sufficiency. But growing so much grain consumes huge amounts of underground water in the North China Plain, which produces half the country’s wheat. Some scientists say farming in the rapidly urbanizing region should be restricted to protect endangered aquifers. Yet doing so could threaten the livelihoods of millions of farmers and cause a spike in international grain prices.
For the Communist Party, the immediate challenge is the prosaic task of forcing the world’s most dynamic economy to conserve and protect clean water. Water pollution is so widespread that regulators say a major incident occurs every other day. Municipal and industrial dumping has left sections of many rivers “unfit for human contact.”
Cities like Beijing and Tianjin have shown progress on water conservation, but China’s economy continues to emphasize growth. Industry in China uses 3 to 10 times more water, depending on the product, than industries in developed nations.
“We have to now focus on conservation,” said Ma Jun, a prominent environmentalist. “We don’t have much extra water resources. We have the same resources and much bigger pressures from growth.”
In the past, the Communist Party has reflexively turned to engineering projects to address water problems, and now it is reaching back to one of Mao’s unrealized plans: the $62 billion South-to-North Water Transfer Project to funnel more than 12 trillion gallons northward every year along three routes from the Yangtze River basin, where water is more abundant. The project, if fully built, would be completed in 2050. The eastern and central lines are already under construction; the western line, the most disputed because of environmental concerns, remains in the planning stages.
The North China Plain undoubtedly needs any water it can get. An economic powerhouse with more than 200 million people, it has limited rainfall and depends on groundwater for 60 percent of its supply. Other countries, like Yemen, India, Mexico and the United States, have aquifers that are being drained to dangerously low levels. But scientists say those below the North China Plain may be drained within 30 years.
“There’s no uncertainty,” said Richard Evans, a hydrologist who has worked in China for two decades and has served as a consultant to the World Bank and China’s Ministry of Water Resources. “The rate of decline is very clear, very well documented. They will run out of groundwater if the current rate continues.”
Outside Shijiazhuang, construction crews are working on the transfer project’s central line, which will provide the city with infusions of water on the way to the final destination, Beijing. For many of the engineers and workers, the job carries a patriotic gloss.
Yet while many scientists agree that the project will provide an important influx of water, they also say it will not be a cure-all. No one knows how much clean water the project will deliver; pollution problems are already arising on the eastern line. Cities and industry will be the beneficiaries of the new water, but the impact on farming is limited. Water deficits are expected to remain.
“Many people are asking the question: What can they do?” said Zheng Chunmiao, a leading international groundwater expert. “They just cannot continue with current practices. They have to find a way to bring the problem under control.”
A Drying Region
On a drizzly, polluted morning last April, Wang Baosheng steered his Chinese-made sport utility vehicle out of a shopping center on the west side of Beijing for a three-hour southbound commute that became a tour of the water crisis on the North China Plain.
Mr. Wang travels several times a month to Shijiazhuang, where he is chief engineer overseeing construction of three miles of the central line of the water transfer project. A light rain splattered the windshield, and he recited a Chinese proverb about the preciousness of spring showers for farmers. He also noticed one dead river after another as his S.U.V. glided over dusty, barren riverbeds: the Yongding, the Yishui, the Xia and, finally, the Hutuo. “You see all these streams with bridges, but there is no water,” he said.
A century or so ago, the North China Plain was a healthy ecosystem, scientists say. Farmers digging wells could strike water within eight feet. Streams and creeks meandered through the region. Swamps, natural springs and wetlands were common.
Today, the region, comparable in size to New Mexico, is parched. Roughly five-sixths of the wetlands have dried up, according to one study. Scientists say that most natural streams or creeks have disappeared. Several rivers that once were navigable are now mostly dust and brush. The largest natural freshwater lake in northern China, Lake Baiyangdian, is steadily contracting and besieged with pollution.
What happened? The list includes misguided policies, unintended consequences, a population explosion, climate change and, most of all, relentless economic growth. In 1963, a flood paralyzed the region, prompting Mao to construct a flood-control system of dams, reservoirs and concrete spillways. Flood control improved but the ecological balance was altered as the dams began choking off rivers that once flowed eastward into the North China Plain.
The new reservoirs gradually became major water suppliers for growing cities like Shijiazhuang. Farmers, the region’s biggest water users, began depending almost exclusively on wells. Rainfall steadily declined in what some scientists now believe is a consequence of climate change.
Before, farmers had compensated for the region’s limited annual rainfall by planting only three crops every two years. But underground water seemed limitless and government policies pushed for higher production, so farmers began planting a second annual crop, usually winter wheat, which requires a lot of water.
By the 1970s, studies show, the water table was already falling. Then Mao’s death and the introduction of market-driven economic reforms spurred a farming renaissance. Production soared, and rural incomes rose. The water table kept falling, further drying out wetlands and rivers.
Around 1900, Shijiazhuang was a collection of farming villages. By 1950, the population had reached 335,000. This year, the city has roughly 2.3 million people with a metropolitan area population of 9 million.
More people meant more demand for water, and the city now heavily pumps groundwater. The water table is falling more than a meter a year. Today, some city wells must descend more than 600 feet to reach clean water. In the deepest drilling areas, steep downward funnels have formed in the water table that are known as “cones of depression.”
Groundwater quality also has worsened. Wastewater, often untreated, is now routinely dumped into rivers and open channels. Mr. Zheng, the water specialist, said studies showed that roughly three-quarters of the region’s entire aquifer system was now suffering some level of contamination.
“There will be no sustainable development in the future if there is no groundwater supply,” said Liu Changming, a leading Chinese hydrology expert and a senior scholar at the Chinese Academy of Sciences.
A National Project
Three decades ago, when Deng Xiaoping shifted China from Maoist ideology and fixated the country on economic growth, a generation of technocrats gradually took power and began rebuilding a country that ideology had almost destroyed. Today, the top leaders of the Communist Party — including Hu Jintao, China’s president and party chief — were trained as engineers.
Though not members of the political elite, Wang Baosheng, the engineer on the water transfer project, and his colleague Yang Guangjie are of the same background. This spring, at the site outside Shijiazhuang, bulldozers clawed at a V-shaped cut in the dirt while teams of workers in blue jumpsuits and orange hard hats smoothed wet cement over a channel that will be almost as wide as a football field.
“I’ve been to the Hoover Dam, and I really admire the people who built that,” said Mr. Yang, the project manager. “At the time, they were making a huge contribution to the development of their country.”
He compared China’s transfer project to the water diversion system devised for southern California in the last century. “Maybe we are like America in the 1920s and 1930s,” he said. “We’re building the country.”
China’s disadvantage, compared with the United States, is that it has a smaller water supply yet almost five times as many people. China has about 7 percent of the world’s water resources and roughly 20 percent of its population. It also has a severe regional water imbalance, with about four-fifths of the water supply in the south.
Mao’s vision of borrowing water from the Yangtze for the north had an almost profound simplicity, but engineers and scientists spent decades debating the project before the government approved it, partly out of desperation, in 2002. Today, demand is far greater in the north, and water quality has badly deteriorated in the south. Roughly 41 percent of China’s wastewater is now dumped in the Yangtze, raising concerns that siphoning away clean water northward will exacerbate pollution problems in the south.
The upper reaches of the central line are expected to be finished in time to provide water to Beijing for the Olympic Games next year. Mr. Evans, the World Bank consultant, called the complete project “essential” but added that success would depend on avoiding waste and efficiently distributing the water.
Mr. Liu, the scholar and hydrologist, said that farming would get none of the new water and that cities and industry must quickly improve wastewater treatment. Otherwise, he said, cities will use the new water to dump more polluted wastewater. Shijiazhuang now dumps untreated wastewater into a canal that local farmers use to irrigate fields.
For years, Chinese officials thought irrigation efficiency was the answer for reversing groundwater declines. Eloise Kendy, a hydrology expert with The Nature Conservancy who has studied the North China Plain, said that farmers had made improvements but that the water table had kept sinking. Ms. Kendy said the spilled water previously considered “wasted” had actually soaked into the soil and recharged the aquifer. Efficiency erased that recharge. Farmers also used efficiency gains to irrigate more land.
Ms. Kendy said scientists had discovered that the water table was dropping because of water lost by evaporation and transpiration from the soil, plants and leaves. This lost water is a major reason the water table keeps dropping, scientists say.
Farmers have no choice. They drill deeper.
Difficult Choices Ahead
For many people living in the North China Plain, the notion of a water crisis seems distant. No one is crawling across a parched desert in search of an oasis. But every year, the water table keeps dropping. Nationally, groundwater usage has almost doubled since 1970 and now accounts for one-fifth of the country’s total water usage, according to the China Geological Survey Bureau.
The Communist Party is fully aware of the problems. A new water pollution law is under consideration that would sharply increase fines against polluters. Different coastal cities are building desalination plants. Multinational waste treatment companies are being recruited to help tackle the enormous wastewater problem.
Many scientists believe that huge gains can still be reaped by better efficiency and conservation. In north China, pilot projects are under way to try to reduce water loss from winter wheat crops. Some cities have raised the price of water to promote conservation, but it remains subsidized in most places. Already, some cities along the route of the transfer project are recoiling because of the planned higher prices. Some say they may just continue pumping.
Tough political choices, though, seem unavoidable. Studies by different scientists have concluded that the rising water demands in the North China Plain make it unfeasible for farmers to continue planting a winter crop. The international ramifications would be significant if China became an ever bigger customer on world grain markets. Some analysts have long warned that grain prices could steadily rise, contributing to inflation and making it harder for other developing countries to buy food.
The social implications would also be significant inside China. Near Shijiazhuang, Wang Jingyan’s farming village depends on wells that are more than 600 feet deep. Not planting winter wheat would amount to economic suicide.
“We would lose 60 percent or 70 percent of our income if we didn’t plant winter wheat,” Mr. Wang said. “Everyone here plants winter wheat.”
Another water proposal is also radical: huge, rapid urbanization. Scientists say converting farmland into urban areas would save enough water to stop the drop in the water table, if not reverse it, because widespread farming still uses more water than urban areas. Of course, large-scale urbanization, already under way, could worsen air quality; Shijiazhuang’s air already ranks among the worst in China because of heavy industrial pollution.
For now, Shijiazhuang’s priority, like that of other major Chinese cities, is to grow as quickly as possible. The city’s gross domestic product has risen by an average of 10 percent every year since 1980, even as the city’s per capita rate of available water is now only one thirty-third of the world average.
“We have a water shortage, but we have to develop,” said Wang Yongli, a senior engineer with the city’s water conservation bureau. “And development is going to be put first.”
Mr. Wang has spent four decades charting the steady extinction of the North China Plain’s aquifer. Water in Shijiazhuang, with more than 800 illegal wells, is as scarce as it is in Israel, he said. “In Israel, people regard water as more important than life itself,” he said. “In Shijiazhuang, it’s not that way. People are focused on the economy.”
Jake Hooker contributed reporting from north China. Huang Yuanxi contributed research from Beijing.

An Opportunity for Wall St. in China’s Surveillance Boom (NYTimes, 9/11/09)

September 11, 2007
An Opportunity for Wall St. in China’s Surveillance Boom
By KEITH BRADSHER
SHENZHEN, China, Sept. 7 — Li Runsen, the powerful technology director of China’s ministry of public security, is best known for leading Project Golden Shield, China’s intensive effort to strengthen police control over the Internet.
But last month Mr. Li took an additional title: director for China Security and Surveillance Technology, a fast-growing company that installs and sometimes operates surveillance systems for Chinese police agencies, jails and banks, among other customers. The company has just been approved for a listing on the New York Stock Exchange.
The company’s listing and Mr. Li’s membership on its board are just the latest signs of ever-closer ties among Wall Street, surveillance companies and the Chinese government’s security apparatus.
Wall Street analysts now follow the growth of companies that install surveillance systems providing Chinese police stations with 24-hour video feeds from nearby Internet cafes. Hedge fund money from the United States has paid for the development of not just better video cameras, but face-recognition software and even newer behavior-recognition software designed to spot the beginnings of a street protest and notify police.
Now, the ties between China’s surveillance sector and American capital markets are starting to draw Washington’s attention.
Rep. Tom Lantos, the California Democrat who is chairman of the House Foreign Affairs Committee, said he was disturbed by a recent report in The New York Times about the development of surveillance systems in China by another company, China Public Security Technology, which, like China Security and Surveillance, incorporated itself in the United States to make it easier to sell shares to Western investors.
Mr. Lantos called American involvement in the Chinese surveillance industry “an absolutely incredible phenomenon of extreme corporate irresponsibility.”
He said he planned to broaden an existing investigation into “the cooperation of American companies in the Chinese police state.”
Executives of Chinese surveillance companies say they are helping their government reduce street crime, preserve social stability and prevent terrorism. They note that London has a more sophisticated surveillance system, although the Chinese system will soon be far more extensive.
Wall Street executives also defend the industry as necessary to keep the peace at a time of rapid change in China. They point out that New York has begun experimenting with surveillance cameras in Lower Manhattan and other areas of the city, and that corporations make broad use of surveillance cameras in places like convenience stores and automated teller machines.
“Is New York a police state?” said Peter Siris, the managing director of Guerrilla Capital and Hua-Mei 21st Century, two Manhattan hedge funds that were among the earliest investors in China Security and Surveillance.
Mr. Lantos and human rights advocates contend that surveillance in China poses different issues from surveillance in the West because China is a one-party state where government officials can exercise power with few legal restraints.
Mr. Lantos is part of a Democratic Congressional majority that is increasingly eager to confront China at a time of high Chinese trade surpluses and considerable economic insecurity in the United States. He is also a longtime ally of Nancy Pelosi, the speaker of the House and a fellow Californian, who made her reputation in Congress as a critic of China on human rights issues.
A White House spokesman, Tony Fratto said the White House would not comment on specific companies, adding, “It’s not appropriate to interfere in the private decisions of Americans to invest in legally incorporated firms.”
The New York Stock Exchange said that it had no comment except to confirm that China Security and Surveillance was expected to list on the exchange “later this year, subject to the usual conditions, including approval by the S.E.C.”
Because the company already has shares traded in the United States and is not selling any additional shares, Securities and Exchange Commission regulations say approval is automatic once the company fills out a notification form and the New York Stock Exchange confirms it has approved the listing.
Over the last year, American hedge funds have put more than $150 million into Chinese surveillance companies.
The Chinese government trade association for surveillance companies, which also regulates the industry, predicts that the surveillance market here will expand to more than $43.1 billion by 2010, compared with less than $500 million in 2003. Under the Safe Cities program adopted by the government last winter, 660 cities are starting work on high-tech surveillance systems.
Many Western experts, skeptical that China faces a terrorism threat, have suggested that the government may be using it as an excuse for tougher policies toward ethnic minorities in western China, notably Xinjiang Province, and toward Tibet.
Terence Yap, the vice chairman and chief financial officer of China Security and Surveillance Technology, said his company’s software made it possible for security cameras to count the number of people in crosswalks and alert the police if a crowd forms at an unusual hour, a possible sign of an unsanctioned protest.
Mr. Yap said terrorism concerns did exist. His company has outfitted rail stations and government buildings in Tibet with surveillance systems.
Mr. Yap and Lin Jiang Huai, the chairman and chief executive of China Public Security, said that their companies did not do business with the Chinese military and should not raise concerns in the United States. They also said their businesses used technology developed in China and were therefore not subject to United States export controls.
China Security and Surveillance has been aggressively raising money in the United States, including $110 million in convertible loans so far this year from the Citadel Group, a big hedge fund in Chicago. In the last 18 months, the company has used the money to acquire or make a deal to buy 10 of the 50 largest surveillance companies in China.
James Mulvenon, the director of the Center for Intelligence Research and Analysis, which does classified analyses of foreign military and intelligence programs for the Pentagon and other government agencies, said that Beijing clearly wanted the company to consolidate the industry.
“They’re really sort of the Ministry of Public Security’s national champion,” Mr. Mulvenon said of China Security and Surveillance. “In terms of the gear and building the surveillance society, they are the ones.”
After the company announced sharply higher sales and profit on Aug. 13, a succession of American hedge fund managers and investment bank analysts took turns on a conference call questioning and congratulating Mr. Yap.
Traded on the over-the-counter bulletin board market while waiting for the beginning of trading on the New York Stock Exchange, the company has raised almost all of its money through the Citadel loans and private placements of stock with 17 institutional investors in the United States, including the Pinnacle Fund and Pinnacle China Fund in Plano, Tex., and JLF, a hedge fund based in Del Mar, Calif.
The Pinnacle funds’ investments have risen six-fold in 17 months. The funds, which raise all their money in the United States, are also the main investors in China Public Security Technology, with a stake that has nearly tripled in value since February.
Barry Kitt, the founder and general partner of the funds, declined to comment. Citadel and JLF officials also declined to comment.
Each time China Security and Surveillance makes an acquisition, it holds an elaborate banquet, with dancers. The majority of the 500 or more people invited are municipal and provincial security officials, as well as executives of rival companies that may become acquisition targets.
“When they come, they hear central government officials endorsing us, they hear bankers endorsing us or supporting us, it gives us credibility,” Mr. Yap said. “It’s a lot of drinking, it’s like a wedding banquet.”
Lehman Brothers bankers and various Ministry of Public Security officials have spoken at such events, which have been held all over the country. One was at the Great Hall of the People in Beijing, where Mr. Li himself — of Project Golden Shield — addressed the crowd.
China Security and Surveillance has headquarters in Shenzhen, a high-tech manufacturing center in southeastern China, but two years ago it purchased a “shell” Delaware company with no operations but a listing on the American over-the-counter bulletin board market. It turned the Delaware company into its corporate parent.
China Public Security, also with headquarters in Shenzhen, incorporated in Florida in the same way to obtain a listing on the over-the-counter bulletin board.
China Security and Surveillance is involved in some of the most controversial areas of public security. Mr. Yap said on the conference call with Wall Street analysts and hedge fund managers in August that one of the company’s growth areas involved surveillance systems for Internet cafes; the government is trying to clamp down on users of the cafes in order to discourage pornography and prostitution.
Critics say the surveillance is aimed at catching democracy advocates, Falun Gong adherents and others the Communist Party regards as threatening, noting that rules for nightclubs are less rigorous, and do not require live feeds to police stations.
Mr. Yap said investment firms from Europe, the United States and Asia were so enthused about the surveillance market in China that he typically led a full-day tour each week to some of the company’s factories and installations.
At an aging Shenzhen police station, where the scuffed and peeling yellow walls look as though they have not been painted since the Cultural Revolution, a $100,000 bank of new video screens behind the duty officer’s desk shows scenes from nearby streets. In another neighborhood, the company has installed a $1 million system.
Many of the surveillance cameras are still assembled at a modest factory. But the company has used $20 million of the cash it raised in the United States to acquire a large industrial park with six just-completed factory buildings and six dormitories.
In Shenzhen, white poles resembling street lights now line the roads every block or two, ready to be fitted with cameras. In a nondescript building linked to nearby street cameras, a desktop computer displayed streaming video images from outside and drew a green square around each face to check it against a “blacklist.” Since China lacks national or even regional digitized databases of troublemakers’ photos, Mr. Yap said municipal or neighborhood officials compile their own blacklists.
To show off his systems, Mr. Yap strode across a nearby plaza flanked by apartment towers and a low-rise shopping area, pointing out tiny unobtrusive domes and tubes attached to various poles. “See, there’s a camera on the lamp pole, and another one over there and another one here,” he said. “Big Brother is watching you.”

Even in a Virtual World, ‘Stuff’ Matters (NYTimes, 09/09/07)

September 9, 2007
Even in a Virtual World, ‘Stuff’ Matters
By SHIRA BOSS
IT’S payday for Janine Hawkins. Not in the real world, where she is a student at Nipissing University in Ontario, but in the online world of Second Life, where she is managing editor of the fashion magazine Second Style.
Ms. Hawkins, who in Second Life takes on the persona of Iris Ophelia, a beauty with flowing hair and flawless skin, keeps a list of things she wants to buy: the latest outfits from the virtual fashion mecca Last Call, a new hairstyle from a Japanese designer, slouchy boots. When she receives her monthly salary in Linden dollars, the currency of Second Life, she spends up to four hours shopping, clicking and buying. After a year and a half, she owns 31,540 items.
Living it up in Second Life is a break from Ms. Hawkins’s part-time job as a French translator, but she works just as hard in the virtual world.
Last month, she earned 40,000 Linden dollars ($150), for interviewing designers, arranging fashion shoots and writing about trends in Second Life, called SL by frequent users. “I usually spend what I earn,” Ms. Hawkins said. “It’s entertaining.”
It also says a lot about the real world, especially when it comes to earning and spending money.
When people are given the opportunity to create a fantasy world, they can and do defy the laws of gravity (you can fly in Second Life), but not of economics or human nature. Players in this digital, global game don’t have to work, but many do. They don’t need to change clothes, fix their hair, or buy and furnish a home, but many do. They don’t need to have drinks in their hands at the virtual bar, but they buy cocktails anyway, just to look right, to feel comfortable.
Second Life residents find ways to make money so they can spend it to do things, look impressive, and get more stuff, even if it’s made only of pixels. In a place where people should never have to clean out their closets, some end up devoting hours to organizing their things, purging, even holding yard sales.
“Why can’t we break away from a consumerist, appearance-oriented culture?” said Nick Yee, who has studied the sociology of virtual worlds and recently received a doctorate in communication from Stanford. “What does Second Life say about us, that we trade our consumerist-oriented culture for one that’s even worse?”
Second Life, a three-dimensional world built by hundreds of thousands of users over the Internet, is also being used for education, meetings, marketing and more obvious game playing. It’s a wide world with a lot going on, in multiple languages, and it can be real-life enhancing for populations who are isolated for physical, mental, or geographic reasons. But as a petri dish for examining what makes many of us tick, Second Life reveals just how deep-seated the drive is to fit in, look good and get ahead in a material world.
Many residents have lived the American dream in Second Life, and built Linden-dollar fortunes through entrepreneurship. In what could have been an ideal world, however, or one where anyone could be a Harry Potter, Second Life has an up-and-down economy, mortgage payments, risky investments, land barons, evictions, designer rip-offs, scams and squatters. Not to mention peer pressure.
“Second Life is about getting the better clothes and the bigger build and the reputation as a better builder,” said Julian Dibbell, author of “Play Money,” which chronicles his year of trying to make a living by trading virtual goods in online games. “The basic activity is still the keeping up with the Joneses, or getting ahead of the Joneses, rat race game.”
TO have a Second Life, one needs a computer, the Second Life software, and a high-speed Internet connection. You use a credit card to buy Lindens, and Lindens earned during the game can be converted back into dollars via online currency exchanges. Players start by choosing one of the standard characters, called an avatar, and can roam the world by flying or “teleporting” (click and go). Nobody can go hungry, there is no actual need for warmer clothes or shelter, and there is much to do without buying Lindens.
But walking around in a standard avatar, when there are so many ways to buy a better appearance, is like showing up for the first day of school dressed differently than all the other kids. You stick out as different, as an SL “newbie.”
“It’s hard not to fall into that,” Mr. Yee said. “There are shops everywhere, so it’s easy to say, ‘Oh, O.K., I guess I’ll get a better pair of jeans.’ ”
Second Life was started in 2003 by a Silicon Valley techie inspired by a sci-fi novel, “Snow Crash.” It is owned by a private company called Linden Lab. The original idea of the game was to unleash creativity. Residents don’t have to wear the latest fashions; they don’t have to look — or act — human at all. They can take any animal, robotic, or inanimate form they want.
And while there is a minority population of animal characters, and wearing butterfly wings is currently in vogue for humans, for the most part the population is young women bursting from their blouses and young men bulging with muscle. (Underneath the clothes are cyber genitalia, sold separately. Mark Wallace, a blogger who writes about Second Life, explained that the parts are not fashion accessories but rather “a functional appliance” for, ahem, entertainment purposes.)
While a frequent criticism of Second Life is that spaces are often empty and that there’s “nothing to do,” a crowd can be found at the mall, just as it can in suburbia. For example, the Xcite! store, which sells body parts, is “always crawling with avatars,” said Mr. Wallace, co-author of a forthcoming book, “The Second Life Herald.” Fashion is big business in Second Life, along with entertainment and land development.
Big corporations like Toyota have set up islands in Second Life for marketing. Calvin Klein came up with a virtual perfume. Kraft set up a grocery store featuring its new products. But those destinations are not popular.
“These brands that have this real-world cachet are meaningless in Second Life, so most are ignored,” said Wagner James Au, who blogs and writes books about Second Life. “Just showing up and announcing ‘We’re Calvin Klein’ isn’t going to get you anywhere.” American Apparel closed its virtual clothing shop, and Wells Fargo abandoned the island it had set up to teach about personal finance.
Second Life exclusives do exist: A magic wand was a hot item at one point, and the sex bed is currently in demand. (“If you lie on it with more than one avatar, it’s like you’re in a porn movie,” Mr. Au explained.)
But the more mundane items are what really drive the economy: clothes, gadgetry, night life, real estate. “People buy these huge McMansions in Second Life that are just as ugly as any McMansions in real life, because to them that is what’s status-y,” Mr. Wallace said. “It’s not as easy as we think to let our imaginations run wild, in Second Life or in real life.”
Mitch Ratcliffe, an entrepreneur and blogger, was an early resident of Second Life and built a house with a lake. But he was soon disillusioned with the upkeep involved with owning the property. “I don’t see why I would want my second life to be about the same striving and profit that my first is,” Mr. Ratcliffe wrote in a blog entry about his Second Life adventures. He eventually reincarnated himself as Homeless Hermes.
“People come by, see the user name and tell me how sorry they are that I don’t have a home. Why?” he wrote. “It’s very middle class, very staid in the way economic stigma is attached to a failure to get to work.” In the meantime, Homeless Hermes took up buying and selling virtual land and has pocketed the equivalent of $800.
Land is the biggest-ticket item in Second Life, with Linden Lab selling islands for $1,675, plus a $295-a-month maintenance charge.) Catherine A. Fitzpatrick, a Russian translator in New York who in Second Life is a landlord known as Prokofy Neva, got into the game three years ago and now owns hundreds of apartment buildings, houses and stores that she rents out to about 1,500 tenants who pay from $1.50 a month to $150 a month. She takes several hundred dollars a month out of the game to pay real-world bills. Prokofy Neva herself does not have a house. “If I did, I would rent it out,” she said. “Why not make money from it?”
She has, however, turned over virtual acreage for a land preserve and public use. She and an architect friend were initially entranced by the idea of creating artistic homes that could defy gravity, but they discovered that there wasn’t demand for that in Second Life.
“The average person wants a ranch house or a beach house,” she said. “They don’t want even Frank Lloyd Wright.” (She added, “These people are my customers, so I respect that.”)
Some residents do wear grunge clothing — itself a status symbol in Second Life because of the difficulty of replicating ripped and stained clothing digitally. But the largest slice of the population follows the crowd, and the crowd is not dressing up as dragons.
“The money is in the real-looking stuff: making skins with red lips and smoky eyes, and stiletto boots,” said Ms. Hawkins, the Second Life fashion writer. First comes something popular, then the knockoffs. Soon everyone has one. “People go for similar looks and similar things,” she said.
In Ms. Hawkins’s online closet are avatars that let her move around as a rubber ducky or as a fruit salad encased in gelatin. But those identities are novelty items that usually stay on the shelf. When she goes out in virtual public, Ms. Hawkins usually takes the form of Ms. Ophelia, who has more than 250 pairs of shoes.
Items are real-world cheap — an outfit usually costs $2 to $5 — but they can add up quickly. “It’s so easy to buy something, you don’t realize how much you’re spending,” said Carrie Mandel, a homemaker and mother in Chicago who spends two work days a week as well as evenings and weekends on her Second Life business, selling pets.
One coveted status symbol in Second Life is a souped-up muscle car called the Dominus Shadow. It currently costs 2,368 Linden dollars, about $9 at the current rate of 268 Linden per dollar. Many players pay that much every month for premium membership that lets them own land, and all are sitting at computers with high-speed Internet access. So why don’t more people treat themselves to the prized possession of a Dominus?
“It’s expensive in-world,” said Daniel Terdiman, author of the forthcoming book “Entrepreneur’s Guide to Second Life.” “You don’t think of how much things cost in real dollars; you think in Linden dollars. When something is expensive, even though it comes out to a few dollars, a lot of people don’t want to spend that much money.”
Although Linden dollars can be bought with a credit card, there is evidence that the in-world economy is self-sustaining, with many players compelled to earn a living in-world and live on a budget.
Surprisingly, many take on low-paying jobs. They work as nightclub bouncers, hostesses, sales clerks and exotic dancers for typical wages of 50 to 150 Linden dollars an hour, the equivalent of 19 to 56 cents. A recent classified ad stated: “I am looking for a good job in SL. I am sick of working off just tips.” This job seeker listed potential occupations as landscaper, personal assistant, actor, waitress and talent scout.
Second Life players are evidently discovering what inheritors have struggled with for generations: It’s not as much fun to spend money you haven’t earned. Apparently, despite the common lottery-winning fantasies, all play and no work is a dull game, after all.
“People don’t take jobs just for the money,” said Dan Siciliano, who teaches finance at Stanford Law School and has studied the economies of virtual worlds. “They do it to feel important and be rewarded.”
And to buy more things. “A lot of exotic dancers want to become models, so they can earn more money to buy more clothes,” Ms. Hawkins said.
It’s not just vanity that drives people to dress up in Second Life. It’s also seen as good for business. Ms. Fitzpatrick, the landlady, says she doesn’t really care about how her avatar looks. But she cares about what prospective tenants think. “I felt I had to go, finally, and buy the hair and the suit,” she said, “or my customers might think I’m too weird.”
Appearances count in Second Life’s financial world, too. Banks and stock exchanges are housed in huge, formal structures draped in marble and glass. “People in the banking industry wear shiny silver suits and are absurdly tall and have hired a couple people to walk behind them in black suits with ear bugs and shoulder holsters,” said Benjamin Duranske, a lawyer who blogs about legal issues related to the virtual world.
THE stock exchanges and banks in SL are imposing, but they are unregulated and unmonitored. Investors fed Linden dollars into savings accounts at Ginko Financial bank, hoping to earn the promised double-digit interest. Some did, but in July there was a run on the bank and panic spread as Ginko A.T.M.’s eventually stopped giving depositors their money back. The bank has since vanished. With no official law and order in Second Life, investors have little recourse.
Robert J. Bloomfield, a behavioral economist at Cornell University, studies investor behavior in the real world and recently became interested in how investors behave similarly in Second Life. “We know the little guy makes lots of dumb mistakes,” Professor Bloomfield said. “They tend to be overly impressed by the trappings of success. We see that magnified in Second Life.”
Some Second Life residents are calling for in-world regulatory agencies — the user-run Second Life Exchange Commission has just begun operating — and some expect real-world institutions to become involved as the Second Life population and economy expands. “It’s a horse race as to whether the I.R.S. or S.E.C. will start noticing first,” Mr. Duranske said.

As China Roars, Pollution Reaches Deadly Extremes (NYTimes, 8/26/07)

August 26, 2007
As China Roars, Pollution Reaches Deadly Extremes
By JOSEPH KAHN and JIM YARDLEY
BEIJING, Aug. 25 — No country in history has emerged as a major industrial power without creating a legacy of environmental damage that can take decades and big dollops of public wealth to undo.
But just as the speed and scale of China’s rise as an economic power have no clear parallel in history, so its pollution problem has shattered all precedents. Environmental degradation is now so severe, with such stark domestic and international repercussions, that pollution poses not only a major long-term burden on the Chinese public but also an acute political challenge to the ruling Communist Party. And it is not clear that China can rein in its own economic juggernaut.
Public health is reeling. Pollution has made cancer China’s leading cause of death, the Ministry of Health says. Ambient air pollution alone is blamed for hundreds of thousands of deaths each year. Nearly 500 million people lack access to safe drinking water.
Chinese cities often seem wrapped in a toxic gray shroud. Only 1 percent of the country’s 560 million city dwellers breathe air considered safe by the European Union. Beijing is frantically searching for a magic formula, a meteorological deus ex machina, to clear its skies for the 2008 Olympics.
Environmental woes that might be considered catastrophic in some countries can seem commonplace in China: industrial cities where people rarely see the sun; children killed or sickened by lead poisoning or other types of local pollution; a coastline so swamped by algal red tides that large sections of the ocean no longer sustain marine life.
China is choking on its own success. The economy is on a historic run, posting a succession of double-digit growth rates. But the growth derives, now more than at any time in the recent past, from a staggering expansion of heavy industry and urbanization that requires colossal inputs of energy, almost all from coal, the most readily available, and dirtiest, source.
“It is a very awkward situation for the country because our greatest achievement is also our biggest burden,” says Wang Jinnan, one of China’s leading environmental researchers. “There is pressure for change, but many people refuse to accept that we need a new approach so soon.”
China’s problem has become the world’s problem. Sulfur dioxide and nitrogen oxides spewed by China’s coal-fired power plants fall as acid rain on Seoul, South Korea, and Tokyo. Much of the particulate pollution over Los Angeles originates in China, according to the Journal of Geophysical Research.
More pressing still, China has entered the most robust stage of its industrial revolution, even as much of the outside world has become preoccupied with global warming.
Experts once thought China might overtake the United States as the world’s leading producer of greenhouse gases by 2010, possibly later. Now, the International Energy Agency has said China could become the emissions leader by the end of this year, and the Netherlands Environment Assessment Agency said China had already passed that level.
For the Communist Party, the political calculus is daunting. Reining in economic growth to alleviate pollution may seem logical, but the country’s authoritarian system is addicted to fast growth. Delivering prosperity placates the public, provides spoils for well-connected officials and forestalls demands for political change. A major slowdown could incite social unrest, alienate business interests and threaten the party’s rule.
But pollution poses its own threat. Officials blame fetid air and water for thousands of episodes of social unrest. Health care costs have climbed sharply. Severe water shortages could turn more farmland into desert. And the unconstrained expansion of energy-intensive industries creates greater dependence on imported oil and dirty coal, meaning that environmental problems get harder and more expensive to address the longer they are unresolved.
China’s leaders recognize that they must change course. They are vowing to overhaul the growth-first philosophy of the Deng Xiaoping era and embrace a new model that allows for steady growth while protecting the environment. In his equivalent of a State of the Union address this year, Prime Minister Wen Jiabao made 48 references to “environment,” “pollution” or “environmental protection.”
The government has numerical targets for reducing emissions and conserving energy. Export subsidies for polluting industries have been phased out. Different campaigns have been started to close illegal coal mines and shutter some heavily polluting factories. Major initiatives are under way to develop clean energy sources like solar and wind power. And environmental regulation in Beijing, Shanghai and other leading cities has been tightened ahead of the 2008 Olympics.
Yet most of the government’s targets for energy efficiency, as well as improving air and water quality, have gone unmet. And there are ample signs that the leadership is either unwilling or unable to make fundamental changes.
Land, water, electricity, oil and bank loans remain relatively inexpensive, even for heavy polluters. Beijing has declined to use the kind of tax policies and market-oriented incentives for conservation that have worked well in Japan and many European countries.
Provincial officials, who enjoy substantial autonomy, often ignore environmental edicts, helping to reopen mines or factories closed by central authorities. Over all, enforcement is often tinged with corruption. This spring, officials in Yunnan Province in southern China beautified Laoshou Mountain, which had been used as a quarry, by spraying green paint over acres of rock.
President Hu Jintao’s most ambitious attempt to change the culture of fast-growth collapsed this year. The project, known as “Green G.D.P.,” was an effort to create an environmental yardstick for evaluating the performance of every official in China. It recalculated gross domestic product, or G.D.P., to reflect the cost of pollution.
But the early results were so sobering — in some provinces the pollution-adjusted growth rates were reduced almost to zero — that the project was banished to China’s ivory tower this spring and stripped of official influence.
Chinese leaders argue that the outside world is a partner in degrading the country’s environment. Chinese manufacturers that dump waste into rivers or pump smoke into the sky make the cheap products that fill stores in the United States and Europe. Often, these manufacturers subcontract for foreign companies — or are owned by them. In fact, foreign investment continues to rise as multinational corporations build more factories in China. Beijing also insists that it will accept no mandatory limits on its carbon dioxide emissions, which would almost certainly reduce its industrial growth. It argues that rich countries caused global warming and should find a way to solve it without impinging on China’s development.
Indeed, Britain, the United States and Japan polluted their way to prosperity and worried about environmental damage only after their economies matured and their urban middle classes demanded blue skies and safe drinking water.
But China is more like a teenage smoker with emphysema. The costs of pollution have mounted well before it is ready to curtail economic development. But the price of business as usual — including the predicted effects of global warming on China itself — strikes many of its own experts and some senior officials as intolerably high.
“Typically, industrial countries deal with green problems when they are rich,” said Ren Yong, a climate expert at the Center for Environment and Economy in Beijing. “We have to deal with them while we are still poor. There is no model for us to follow.”
In the face of past challenges, the Communist Party has usually responded with sweeping edicts from Beijing. Some environmentalists say they hope the top leadership has now made pollution control such a high priority that lower level officials will have no choice but to go along, just as Deng Xiaoping once forced China’s sluggish bureaucracy to fixate on growth.
But the environment may end up posing a different political challenge. A command-and-control political culture accustomed to issuing thundering directives is now under pressure, even from people in the ruling party, to submit to oversight from the public, for which pollution has become a daily — and increasingly deadly — reality.
Perpetual Haze
During the three decades since Deng set China on a course toward market-style growth, rapid industrialization and urbanization have lifted hundreds of millions of Chinese out of poverty and made the country the world’s largest producer of consumer goods. But there is little question that growth came at the expense of the country’s air, land and water, much of it already degraded by decades of Stalinist economic planning that emphasized the development of heavy industries in urban areas.
For air quality, a major culprit is coal, on which China relies for about two-thirds of its energy needs. It has abundant supplies of coal and already burns more of it than the United States, Europe and Japan combined. But even many of its newest coal-fired power plants and industrial furnaces operate inefficiently and use pollution controls considered inadequate in the West.
Expanding car ownership, heavy traffic and low-grade gasoline have made autos the leading source of air pollution in major Chinese cities. Only 1 percent of China’s urban population of 560 million now breathes air considered safe by the European Union, according to a World Bank study of Chinese pollution published this year. One major pollutant contributing to China’s bad air is particulate matter, which includes concentrations of fine dust, soot and aerosol particles less than 10 microns in diameter (known as PM 10).
The level of such particulates is measured in micrograms per cubic meter of air. The European Union stipulates that any reading above 40 micrograms is unsafe. The United States allows 50. In 2006, Beijing’s average PM 10 level was 141, according to the Chinese National Bureau of Statistics. Only Cairo, among world capitals, had worse air quality as measured by particulates, according to the World Bank.
Emissions of sulfur dioxide from coal and fuel oil, which can cause respiratory and cardiovascular diseases as well as acid rain, are increasing even faster than China’s economic growth. In 2005, China became the leading source of sulfur dioxide pollution globally, the State Environmental Protection Administration, or SEPA, reported last year.
Other major air pollutants, including ozone, an important component of smog, and smaller particulate matter, called PM 2.5, emitted when gasoline is burned, are not widely monitored in China. Medical experts in China and in the West have argued that PM 2.5 causes more chronic diseases of the lung and heart than the more widely watched PM 10.
Perhaps an even more acute challenge is water. China has only one-fifth as much water per capita as the United States. But while southern China is relatively wet, the north, home to about half of China’s population, is an immense, parched region that now threatens to become the world’s biggest desert.
Farmers in the north once used shovels to dig their wells. Now, many aquifers have been so depleted that some wells in Beijing and Hebei must extend more than half a mile before they reach fresh water. Industry and agriculture use nearly all of the flow of the Yellow River, before it reaches the Bohai Sea.
In response, Chinese leaders have undertaken one of the most ambitious engineering projects in world history, a $60 billion network of canals, rivers and lakes to transport water from the flood-prone Yangtze River to the silt-choked Yellow River. But that effort, if successful, will still leave the north chronically thirsty.
This scarcity has not yet created a culture of conservation. Water remains inexpensive by global standards, and Chinese industry uses 4 to 10 times more water per unit of production than the average in industrialized nations, according to the World Bank.
In many parts of China, factories and farms dump waste into surface water with few repercussions. China’s environmental monitors say that one-third of all river water, and vast sections of China’s great lakes, the Tai, Chao and Dianchi, have water rated Grade V, the most degraded level, rendering it unfit for industrial or agricultural use.
Grim Statistics
The toll this pollution has taken on human health remains a delicate topic in China. The leadership has banned publication of data on the subject for fear of inciting social unrest, said scholars involved in the research. But the results of some research provide alarming evidence that the environment has become one of the biggest causes of death.
An internal, unpublicized report by the Chinese Academy of Environmental Planning in 2003 estimated that 300,000 people die each year from ambient air pollution, mostly of heart disease and lung cancer. An additional 110,000 deaths could be attributed to indoor air pollution caused by poorly ventilated coal and wood stoves or toxic fumes from shoddy construction materials, said a person involved in that study.
Another report, prepared in 2005 by Chinese environmental experts, estimated that annual premature deaths attributable to outdoor air pollution were likely to reach 380,000 in 2010 and 550,000 in 2020.
This spring, a World Bank study done with SEPA, the national environmental agency, concluded that outdoor air pollution was already causing 350,000 to 400,000 premature deaths a year. Indoor pollution contributed to the deaths of an additional 300,000 people, while 60,000 died from diarrhea, bladder and stomach cancer and other diseases that can be caused by water-borne pollution.
China’s environmental agency insisted that the health statistics be removed from the published version of the report, citing the possible impact on “social stability,” World Bank officials said.
But other international organizations with access to Chinese data have published similar results. For example, the World Health Organization found that China suffered more deaths from water-related pollutants and fewer from bad air, but agreed with the World Bank that the total death toll had reached 750,000 a year. In comparison, 4,700 people died last year in China’s notoriously unsafe mines, and 89,000 people were killed in road accidents, the highest number of automobile-related deaths in the world. The Ministry of Health estimates that cigarette smoking takes a million Chinese lives each year.
Studies of Chinese environmental health mostly use statistical models developed in the United States and Europe and apply them to China, which has done little long-term research on the matter domestically. The results are more like plausible suppositions than conclusive findings.
But Chinese experts say that, if anything, the Western models probably understate the problems.
“China’s pollution is worse, the density of its population is greater and people do not protect themselves as well,” said Jin Yinlong, the director general of the Institute for Environmental Health and Related Product Safety in Beijing. “So the studies are not definitive. My assumption is that they will turn out to be conservative.”
Growth Run Amok
As gloomy as China’s pollution picture looks today, it is set to get significantly worse, because China has come to rely mainly on energy-intensive heavy industry and urbanization to fuel economic growth. In 2000, a team of economists and energy specialists at the Development Research Center, part of the State Council, set out to gauge how much energy China would need over the ensuing 20 years to achieve the leadership’s goal of quadrupling the size of the economy.
They based their projections on China’s experience during the first 20 years of economic reform, from 1980 to 2000. In that period, China relied mainly on light industry and small-scale private enterprise to spur growth. It made big improvements in energy efficiency even as the economy expanded rapidly. Gross domestic product quadrupled, while energy use only doubled.
The team projected that such efficiency gains would probably continue. But the experts also offered what they called a worst-case situation in which the most energy-hungry parts of the economy grew faster and efficiency gains fell short.
That worst-case situation now looks wildly optimistic. Last year, China burned the energy equivalent of 2.7 billion tons of coal, three-quarters of what the experts had said would be the maximum required in 2020. To put it another way, China now seems likely to need as much energy in 2010 as it thought it would need in 2020 under the most pessimistic assumptions.
“No one really knew what was driving the economy, which is why the predictions were so wrong,” said Yang Fuqiang, a former Chinese energy planner who is now the chief China representative of the Energy Foundation, an American group that supports energy-related research. “What I fear is that the trend is now basically irreversible.”
The ravenous appetite for fossil fuels traces partly to an economic stimulus program in 1997. The leadership, worried that China’s economy would fall into a steep recession as its East Asian neighbors had, provided generous state financing and tax incentives to support industrialization on a grand scale.
It worked well, possibly too well. In 1996, China and the United States each accounted for 13 percent of global steel production. By 2005, the United States share had dropped to 8 percent, while China’s share had risen to 35 percent, according to a study by Daniel H. Rosen and Trevor Houser of China Strategic Advisory, a group that analyzes the Chinese economy.
Similarly, China now makes half of the world’s cement and flat glass, and about a third of its aluminum. In 2006, China overtook Japan as the second-largest producer of cars and trucks after the United States.
Its energy needs are compounded because even some of its newest heavy industry plants do not operate as efficiently, or control pollution as effectively, as factories in other parts of the world, a recent World Bank report said.
Chinese steel makers, on average, use one-fifth more energy per ton than the international average. Cement manufacturers need 45 percent more power, and ethylene producers need 70 percent more than producers elsewhere, the World Bank says.
China’s aluminum industry alone consumes as much energy as the country’s commercial sector — all the hotels, restaurants, banks and shopping malls combined, Mr. Rosen and Mr. Houser reported.
Moreover, the boom is not limited to heavy industry. Each year for the past few years, China has built about 7.5 billion square feet of commercial and residential space, more than the combined floor space of all the malls and strip malls in the United States, according to data collected by the United States Energy Information Administration.
Chinese buildings rarely have thermal insulation. They require, on average, twice as much energy to heat and cool as those in similar climates in the United States and Europe, according to the World Bank. A vast majority of new buildings — 95 percent, the bank says — do not meet China’s own codes for energy efficiency.
All these new buildings require China to build power plants, which it has been doing prodigiously. In 2005 alone, China added 66 gigawatts of electricity to its power grid, about as much power as Britain generates in a year. Last year, it added an additional 102 gigawatts, as much as France.
That increase has come almost entirely from small- and medium-size coal-fired power plants that were built quickly and inexpensively. Only a few of them use modern, combined-cycle turbines, which increase efficiency, said Noureddine Berrah, an energy expert at the World Bank. He said Beijing had so far declined to use the most advanced type of combined-cycle turbines despite having completed a successful pilot project nearly a decade ago.
While over the long term, combined-cycle plants save money and reduce pollution, Mr. Berrah said, they cost more and take longer to build. For that reason, he said, central and provincial government officials prefer older technology.
“China is making decisions today that will affect its energy use for the next 30 or 40 years,” he said. “Unfortunately, in some parts of the government the thinking is much more shortsighted.”
The Politics of Pollution
Since Hu Jintao became the Communist Party chief in 2002 and Wen Jiabao became prime minister the next spring, China’s leadership has struck consistent themes. The economy must grow at a more sustainable, less bubbly pace. Environmental abuse has reached intolerable levels. Officials who ignore these principles will be called to account.
Five years later, it seems clear that these senior leaders are either too timid to enforce their orders, or the fast-growth political culture they preside over is too entrenched to heed them.
In the second quarter of this year, the economy expanded at a neck-snapping pace of 11.9 percent, its fastest in a decade. State-driven investment projects, state-backed heavy industry and a thriving export sector led the way. China burned 18 percent more coal than it did the year before.
China’s authoritarian system has repeatedly proved its ability to suppress political threats to Communist Party rule. But its failure to realize its avowed goals of balancing economic growth and environmental protection is a sign that the country’s environmental problems are at least partly systemic, many experts and some government officials say. China cannot go green, in other words, without political change.
In their efforts to free China of its socialist shackles in the 1980s and early 90s, Deng and his supporters gave lower-level officials the leeway, and the obligation, to increase economic growth.
Local party bosses gained broad powers over state bank lending, taxes, regulation and land use. In return, the party leadership graded them, first and foremost, on how much they expanded the economy in their domains.
To judge by its original goals — stimulating the economy, creating jobs and keeping the Communist Party in power — the system Deng put in place has few equals. But his approach eroded Beijing’s ability to fine-tune the economy. Today, a culture of collusion between government and business has made all but the most pro-growth government policies hard to enforce.
“The main reason behind the continued deterioration of the environment is a mistaken view of what counts as political achievement,” said Pan Yue, the deputy minister of the State Environmental Protection Administration. “The crazy expansion of high-polluting, high-energy industries has spawned special interests. Protected by local governments, some businesses treat the natural resources that belong to all the people as their own private property.”
Mr. Hu has tried to change the system. In an internal address in 2004, he endorsed “comprehensive environmental and economic accounting” — otherwise known as “Green G.D.P.” He said the “pioneering endeavor” would produce a new performance test for government and party officials that better reflected the leadership’s environmental priorities.
The Green G.D.P. team sought to calculate the yearly damage to the environment and human health in each province. Their first report, released last year, estimated that pollution in 2004 cost just over 3 percent of the gross domestic product, meaning that the pollution-adjusted growth rate that year would drop to about 7 percent from 10 percent. Officials said at the time that their formula used low estimates of environmental damage to health and did not assess the impact on China’s ecology. They would produce a more decisive formula, they said, the next year.
That did not happen. Mr. Hu’s plan died amid intense squabbling, people involved in the effort said. The Green G.D.P. group’s second report, originally scheduled for release in March, never materialized.
The official explanation was that the science behind the green index was immature. Wang Jinnan, the leading academic researcher on the Green G.D.P. team, said provincial leaders killed the project. “Officials do not like to be lined up and told how they are not meeting the leadership’s goals,” he said. “They found it difficult to accept this.”
Conflicting Pressures
Despite the demise of Green G.D.P., party leaders insist that they intend to restrain runaway energy use and emissions. The government last year mandated that the country use 20 percent less energy to achieve the same level of economic activity in 2010 compared with 2005. It also required that total emissions of mercury, sulfur dioxide and other pollutants decline by 10 percent in the same period.
The program is a domestic imperative. But it has also become China’s main response to growing international pressure to combat global warming. Chinese leaders reject mandatory emissions caps, and they say the energy efficiency plan will slow growth in carbon dioxide emissions.
Even with the heavy pressure, though, the efficiency goals have been hard to achieve. In the first full year since the targets were set, emissions increased. Energy use for every dollar of economic output fell but by much less than the 4 percent interim goal.
In a public relations sense, the party’s commitment to conservation seems steadfast. Mr. Hu shunned his usual coat and tie at a meeting of the Central Committee this summer. State news media said the temperature in the Great Hall of the People was set at a balmy 79 degrees Fahrenheit to save energy, and officials have encouraged others to set thermostats at the same level.
By other measures, though, the leadership has moved slowly to address environmental and energy concerns.
The government rarely uses market-oriented incentives to reduce pollution. Officials have rejected proposals to introduce surcharges on electricity and coal to reflect the true cost to the environment. The state still controls the price of fuel oil, including gasoline, subsidizing the cost of driving.
Energy and environmental officials have little influence in the bureaucracy. The environmental agency still has only about 200 full-time employees, compared with 18,000 at the Environmental Protection Agency in the United States.
China has no Energy Ministry. The Energy Bureau of the National Development and Reform Commission, the country’s central planning agency, has 100 full-time staff members. The Energy Department of the United States has 110,000 employees.
China does have an army of amateur regulators. Environmentalists expose pollution and press local government officials to enforce environmental laws. But private individuals and nongovernment organizations cannot cross the line between advocacy and political agitation without risking arrest.
At least two leading environmental organizers have been prosecuted in recent weeks, and several others have received sharp warnings to tone down their criticism of local officials. One reason the authorities have cited: the need for social stability before the 2008 Olympics, once viewed as an opportunity for China to improve the environment.