As a partner and founder of Jin & Fang LLP, Dr. Lei Fang practices U.S. IP law and counsels clients on IP protection and enforcement strategies in domestic and global markets. She represents multinational clients ranging from start-up companies to large corporations, universities, and research institutes in various technology fields, particularly in pharmaceutical biotechnology, medical device, and life sciences. She helps clients seeking patent, trademark, and copyright protections; IP due diligence; technology transfer; and licensing on various transactional IP matters. She also assists in the Hatch-Waxman ANDA (Paragraph IV) patent litigation involving generic pharmaceuticals, and managing International Trade Commission Section 337 investigations and related district and appellate court cases involving Chinese companies. She is currently an adjunct professor at the Emory University School of Law, where she teaches a contract-drafting course.

Penelope Prime: Dr. Fang, thank you for sharing your expertise in IPR protection with the China Research Center. We know that many companies investing in China have faced serious challenges with IPR issues because of weak enforcement. As an attorney who has worked a long time on IPR issues, how do you assess the situation in China today, and going forward?  What kind of changes are you seeing?

Lei Fang: In general, both IPR protection and enforcement in China have been improved dramatically. Intellectual property refers mainly to patent, trademark, and copyright. China has fully developed laws governing these three types of intellectual properties, and Chinese patent laws, trademark laws, and copyright laws have all been amended several times since they were enacted. The latest amendment for the Chinese trademark laws was in 2014. I believe between 2014 and 2015, the Chinese copyright laws were amended, too.  Since last year, China is preparing to amend its patent laws for the fourth time. The latest draft was prepared by the State Intellectual Property Office (SIPO) and was submitted to the State Council Legislative Affairs Office for review. A new draft of the fourth amendment may be available for public comments by early 2017.  So we can see that Chinese policymakers are continuously trying to change their laws and make them more compliant with international standards.

With respect to the protection side, China continuously increases its patent application filings both inside China and in other countries through international PCT or Paris Convention filings. In 2015, Chinese innovators filed over a million patent applications for the first time ever within a single year.

With respect to the enforcement side, I actually just discussed this issue with a few Chinese IP attorneys in China the other day. I was informed that China has set up special IP courts to deal with patent and complicated trademark infringement cases in three major cities: Beijing, Shanghai, and Guangzhou. These IP special courts are equivalent to the appellate court level in the U.S., but any patent infringement cases or complicated trademark infringement cases can be filed in these IP courts directly. There are about 20 highly experienced judges in these IP special courts. Each of them must have more than 10 years working experiences in dealing with IP issues. Therefore, the decisions rendered by these judges in the IP special courts should be reasonable and fair, I hope.

Furthermore, the statutory damage for IP infringement cases has been increased, and punitive damages for willful infringement are acceptable, too. For instance, for the trademark infringement cases, the statutory damage increased from 500,000 to three million RMB; For the patent infringement cases, the current statutory damage is about one million RMB, but the draft fourth amendment proposes to increase statutory damages for patent infringement, as well.

With respect to the national/local protectionism, the recent survey indicates “foreign plaintiffs notched a 100 percent win rate in civil cases heard by the Beijing IP court last year.”¹ This is very encouraging and good news for U.S. and foreign companies that are doing and/or will do business in China.

PP: Are those IP courts for foreign companies or both Chinese and foreign companies?

LF: These IP special courts handle all the patent infringement and complicated trademark infringement cases in China, regardless of the nationality of the companies or individuals. Basically, all the patent infringement cases can be filed directly before the IP special courts, but for the simple trademark and copyright cases, they would start with the local court first, and then can appeal to the IP special court, if needed. Although right now, there are only three such IP special courts in the three cities, eventually more IP special courts will be set up in other jurisdictions.

PP: So, if you have a problem in Sichuan you can’t go to one of the three courts?

LF: You can, if you (or the company) can show you are doing business in any of those three cities. It’s the same concept as in the U.S.: one must show a “personal jurisdiction” in the selected court.

PP: Do you see these rule and enforcement changes creating less infringement because people who might infringe see that they will get in trouble or more likely get in trouble so there’s more respect for IP today?

LF: Absolutely. Increasing damage awards and acknowledging punitive damages would certainly send more serious messages and imposing more serious punishment to the infringer, as well as more respect for the value of owners’ IPR.

PP: It is making a big difference, then?

LF: Yes. China is really trying to switch from “made in China” to “created in China”. The Central government is strongly emphasizing innovations and creative inventions.  Many new policies have been implemented to encourage innovations and technology transfer and licensing.

For a foreign company that is entering the Chinese market as part of its global business, actively seeking IP protections and diligently enforcing its IPRs in China are very critical. Remember, all IPs are territory, meaning you must have IPR protections in each and every nation/country in which you are doing business. Having only a U.S. patent does not prevent an infringer from copying or infringing your products or technologies in China. You’ve got to have a corresponding Chinese patent that covers your products and/or technologies, and can be asserted in a patent infringement suit, if an infringement arises. Further, you’ve got to think about all types of IPR protections in China. For instance, a Chinese invention patent to protect your products and technologies, a Chinese design patent to protect your products’ designs, a Chinese trademark to protect your brand names, a Chinese copyright to protect your source code, etc.

Many U.S. companies now realize the importance and necessity of obtaining Chinese IPs, and have started to seek Chinese IPR protections, as well as enforcing these IPRs in China diligently. That’s good news. Moreover, for any U.S. foreign companies, before entering the Chinese market, conducting due diligence and product clearance are equally important.  One should know potential competitors, their products and technologies, and whether you have  “freedom-to-operate” (FTO) in China.

PP: Do you mean compliance issues?

LF: No, not just compliance issues. It is the same for a Chinese company thinking about investing or operating in the U.S.  Due diligence and FTO assessment of the market are very important. It is very common and good practice for a U.S. company to conduct due diligence and FTO assessment when they develop a new product or technology. Due diligence and FTO assessment would help the company learn whether its product or technology is patentable: whether there are any blocking patents that the company’s product or technology may fall into, and if so, how to design around such blocking patent, if possible. In other words, whether the company has a freedom-to-operate its product or technology in the U.S. market.

In the recent years, due to global collaborations, more and more Chinese companies realize the importance of due diligence and FTO assessment, and have started to consider and conduct such assessments, too.

PP: A lot of Chinese companies are starting to invest in the U.S. Many of them are interested in developing their own technology, buying new technology, and learning so that they can conduct R&D themselves.  What trends do you see in that regard?

LF: As I said before, China now really focuses on innovations and advanced technologies. Although many Chinese companies are still very interested in merger with, or acquiring, U.S. companies, due to the lack of management and U.S. operating skills in running the company, Chinese companies are more interesting in investing in the U.S. company’s technologies, rather than the whole company.  Both the central Chinese government and local province level governments are encouraging and providing many incentives for Chinese companies to invest overseas.

For instance, lately there are many China-U.S. innovation and entrepreneurship competitions and forums in the U.S. These competitions are organized and initiated by Chinese investors and government agencies, and the main purpose is to foster communication and facilitate China-U.S. technology innovation and investment.

I just participated the first 2016 U.S.-Southeast China U.S. Innovation and Entrepreneurship competition in August. Surprisingly, more than 400 people attended this competition. The technologies presented related to biomedical, IT electronic, and other advanced technologies. Several Chinese investment groups attended and evaluated these technologies. The selected technologies will go to China to compete there. Even though this is the first of this kind of technology competition in the Southeast, I was told that Silicon Valley hosts such technology competitions almost every month.

PP: And these are Chinese companies in the competition?

LF: No, most of the technologies presented in the competition are from U.S. companies, research institutes, or universities. The Chinese local government on the province or city level sponsors the competition, and could possibly participate in developing the selected “winning” technology.

PP: In China?

LF: Either one, in China or in the U.S.; it doesn’t matter. In China, almost every province has, on the government level, set up innovation technology incubation and development centers for companies, particularly start-up companies.

Same here, too. For example, in the U.S. Silicon Valley, there are several incubation centers providing incentive packages for start-up companies to grow up and develop. Same here in Georgia. In Peachtree Corners, for example, there is a new technology park particularly set up for start-up companies and small business owners, including Chinese-owned companies.

China is also working on facilitating university technology transfer and licensing. Anyhow, China is really focusing on developing and acquiring innovations and advanced technologies in the next five to 10 years.

PP: What kind of areas are priorities?

LF: Technologies related to life sciences are certainly a big interest. China’s pharmaceutical and advanced medical development are behind – not like the IT field.  Others, such as artificial intelligence (AI) technologies, and material sciences – e.g., biomaterials, energy control materials, etc. – are also a focus of China’s interest.

PP: Do you have an example of a Chinese company investing in technology here that you could share with us?  Or is that client privilege that you can’t really share?

LF: I am aware of several Chinese investment companies constantly investing in U.S. companies, and Chinese pharmaceutical companies that are very active in merging with and acquiring U.S. companies.  WuXi AppTec is a good example.

PP: So the company is acquiring that technology here and taking it back to China?

LF: Not necessary, and it depends on many factors dealing with business and market strategies. The focus is licensing the technology for further development and commercialization.

Of course, we have been talking about investing in technologies, but there are many Chinese companies interested in investing in real estate and services like AMC.²

PP: Entertainment.

LF: Yes, entertainment and more.  I just saw the news this morning that a Chinese company is thinking about buying GNC, which sells vitamins and supplements.  They are talking about buying a branch of GNC for $100 million.

PP: Because a company develops a technology or buys a technology or licenses a technology doesn’t mean that they can be successful using that technology or selling the products and service—

LF: No, it’s still a long way to go.

PP: What is it about firms that tend to be more successful in that regard, especially Chinese firms, or is it too early to say?

LF: I think when a company decides to license a technology, they must conduct due diligence on the technology and the market.  Technology development and commercialization, particularly in the life sciences and biopharmaceutical fields, is a very complicated, long process and involves many players in various stages. Of course, the earlier stage, less investment, but higher risk; the later stage, higher investment, but less risk.  Even after the development stage, there are animal studies, clinical trials for FDA regulatory approvals, because whatever you make in the lab is different from what can be used in the market.

So, it’s very hard to predict, and it depends on many factors. Nothing is guaranteed during the technology development process, particularly in the life sciences. However, if the technology is good and has potential market value, and the company engages the right people to work on it in different stages, then there’s a high probability of success.

PP: In terms of the Chinese companies investing in technology here, what is the breakdown, just a rough estimate, of how many of those companies would be state-owned companies versus private companies?

LF: I think most of them are private companies.  Even if the company is state-owned, it’s probably semi-state-owned.

PP: Is that in life sciences or in general?

LF: In general, I believe 80 to 90 percent are private companies, not state-owned companies.

PP: Thank you so much.

The post Intellectual Property Right Challenges and Opportunities in China and U.S.: An Interview with Dr. Lei Fang appeared first on China Research Center.

Chinese goods seem to be everywhere these days.

Consider this: At the Olympics in Rio this summer, Chinese companies supplied the mascot dolls, much of the sports equipment, the security surveillance system and the uniforms for the volunteers, technical personnel and even the torch-bearers.

Do you own a personal computer or air conditioner? Or a pair of shoes or set of plates from Wal-Mart? They all almost certainly bear a “Made in China” label.

Put another way, China has become an “export machine,” manufacturing an increasing share of the world’s products. Its initial success exporting in the 1990s – which surged after it joined the World Trade Organization in 2001 – surprised everyone, including Chinese policymakers. The result was rapid growth of over 9 percent for many years. In 2014, China surpassed the U.S. as the largest economy in the world in terms of purchasing power parity.

How did a country with a national income of just US$155 per capita in the 1970s turn into one of the most economically powerful countries in just 40 years? The answer not only shines light on China’s success story but also offers some important lessons for governments considering a turn inward, such as the incoming Trump administration.

I visited China for the first time in the spring of 1976 – just before China’s renewed entry into global markets. Research, teaching and taking students to China over the following decades have given me a window to observe the dynamic development that has occurred. And now, as a clinical professor at Georgia State University and director of the nonprofit China Research Center, I am involved with research and outreach that informs policy and business to strengthen U.S.-China relations.

The costs of isolation

Historically, China has nurtured strong connections to world commerce.

From the Han Dynasty (206 B.C. – A.D. 220) until the Ming (A.D. 1371-1433), goods, culture and religion flowed among Central Asia, the Middle East and China via the various overland routes of the Silk Road. Sea exploration began in the Ming Dynasty, when the famous Captain Zheng He took seven voyages to establish trading contacts with Africa, Arabia, India and Southeast Asia. In the early 1900s, Shanghai was nicknamed the “Paris of the Orient” based on its role as a center of trade and finance.

But after Mao Zedong led the communists to victory in 1949, China established a planned economic system, withdrawing from global markets, which the communists deemed capitalist and imperialist. Foreign assets were nationalized and companies left the country. Trade increased with the communist Soviet Union and Eastern Europe during the 1950s, but that was sharply curtailed with the Sino-Soviet split in the early 1960s. The U.S. did not even have official trade links with China between 1950 and the early 1970s.

From Mao’s point of view, China’s goal was to build a strong economy by being self-sufficient in production of all its needs. He believed that self-sufficiency should even extend to each province as well. His “plant grain everywhere” policy, regardless if the geography was ill-suited for it, is an example of how far he implemented this strategy. One consequence was the disastrous Great Leap Forward, in which an estimated 30 million or more died from famine.

This disaster resulted partly from pushing self-reliance in industry in the countryside, as well as setting impossible grain output goals. The idea of specialization of production based on relative efficiency of resources was seen as capitalist and dangerous to communist development. To benefit from specialization, China would need to depend on other countries and deal with competition. As a result of rejecting specialization and trade, China’s economy grew slowly, with poor living conditions based on backward technology and little exchange within the country, let alone between China and the world.

Because China had been closed to foreign investment since the early 1950s and exported primarily to pay for essential imports, the value of China’s exports in 1978 was less than $7 billion – a mere 0.3 percent of their value today. This isolation contributed to China’s low living standard. Its GDP per capita of $155 ranked 131st out of the 133 countries with reported data, just above Guinea-Bissau and Nepal.

When I visited in 1976, I saw men with belts wrapped a couple of times around their waists – because they were very thin, and perhaps because the planned economy did not produce many sizes of belts.

Renewed global connections

When Mao died in 1976, a group of leaders, including Deng Xiaoping, believed that market reforms would revive the economy through more efficient production and better technology. China’s so-called “opening up” officially began with the Third Plenum of the Chinese Communist Party Central Committee in December 1978.

As part of the reform strategy, China’s leaders established four special economic zones in southern China near Hong Kong with incentives for foreign companies to invest in production aimed at exporting. The most well-known zone is Shenzhen, located in Guangdong Province.

At the time, U.S., Japanese and European companies were looking for new locations to manufacture their goods cheaply after wages rose in East Asian countries like Hong Kong, South Korea and Taiwan. And few other countries were welcoming to foreign investment. India, for example, remained closed to foreign direct investment for another decade.

In other words, China’s policies changed at a fortuitous time.

Companies moved quickly to China, especially across the border from Hong Kong, giving birth to deep manufacturing capacity that became the center of the world’s supply chain. By 2006, foreign companies were generating nearly 60 percent of China’s exports and even today produce close to 43 percent of them.

The power of specialization

China’s export story is a lesson in the power of globalization for development. Specifically, China’s policies leveraged its comparative advantage.

It attracted foreign direct investment with incentives to export, which included an undervalued exchange rate and a large population willing to work for relatively low wages. The returns to this investment were used for infrastructure, education, R&D and institution-building. This focus on domestic capabilities supported growth and rising living standards, avoiding a “middle income trap” where a country is not able to move its production beyond the lower end of the value chain.

Over time, Chinese domestic businesses became increasingly competitive as they developed management skills and market knowledge. Even small domestic firms have grown their exports in recent years as a result of access to international e-commerce platforms such as Alibaba.

China’s embrace of global merchandise trade and capital markets has transformed it into a middle-income country with a GDP of almost $8,000 per capita in current U.S. dollars, and the largest producer of manufactured goods in the world.

Chinese families now have enough income to travel the world. Chinese tourists are expected to soon be the biggest spenders on travel. Meanwhile, labor-intensive, low-wage manufacturing is moving to new opportunities in Bangladesh, Vietnam, Cambodia and elsewhere, and the composition of China’s exports is changing from textiles, furniture and toys to sophisticated pumps, electronics and engines. China is successfully moving up the value chain.

The next stage and lessons for the U.S.

Going forward, however, exports are not likely to dominate China’s development process. Its outward investments will. Chinese companies are investing worldwide. The value of their investments outside of China reached $1 trillion in 2015, up from just $57 billion a decade ago. Some analysts expect it to double by 2020.

The impact of Chinese companies investing abroad looks likely to be as big, or bigger, than that of its exports. Chinese outward investment is growing very fast both because of industry conditions within China, loosening of constraints on outward investment by its leaders and growing capabilities on the part of business managers.

In just the U.S., already Chinese companies have invested an estimated $64 billion and employ 100,000 people. So while we will continue to buy goods “made in China,” we will increasingly work with, and for, these very same companies.

That is, if we are lucky. If the next administration carries out its campaign promises, then the U.S. may miss out on many of the benefits of foreign investment all together from China and elsewhere, such as revitalized towns with new jobs and tax-paying businesses.

In recent decades, the U.S. helped China join the global market system through corporate investment and government policy. Both countries benefited tremendously.

The irony is that China has learned its isolation lesson and is now promoting trade agreements that will substitute for the ones that the U.S. may leave on the table, such as NAFTA and the Trans-Pacific Partnership. And if the U.S. begins a trade war with China, then all bets are off. Not only will new jobs not materialize, but the low-cost goods we have enjoyed will be much more expensive, and our growing exports to China will no doubt be hurt by Chinese retaliation.

Penelope B. Prime, Clinical Professor of International Business, & Director, China Research Center, Georgia State University

This article was originally published on The Conversation. Read the original article.

The post What China’s ‘export machine’ can teach Trump about globalization appeared first on China Research Center.

The history of Chinese advertising in the broad sense can be traced back to the Song dynasty when stores used signs and words to advertise services (Wang, 2008). In the 1920s and 1930s, advertising in Shanghai was already a dynamic industry, with foreign advertising agencies and brands competing with the Chinese counterparts prior to World War II.

After the Chinese Communist Party takeover in 1949, the government gradually eliminated commercial advertising in the belief that a centralized socialist economy did not need advertising. During the Cultural Revolution (1966-1976), almost no commercial ads existed, except for limited commercial information about exports to foreign countries (Chen, 1991).

China officially announced a resumption of commercial advertising in 1978 after the Third Plenary Session of the Eleventh Central Committee of the Chinese Communist Party. At this meeting, China’s paramount leader, Deng Xiaoping, declared that China would shift from a political orientation – focusing on class struggle – to a more pragmatic approach – centered on economic reforms and the opening of the economy to global capital. Since then, advertising has gained strategic and symbolic importance in opening up society and developing the economy in China.

In the past few decades, Chinese advertising experienced exponential development. Foreign advertising agencies urged their global clients to enter China in 1979, right after the country opened its door to the outside world. Now foreign brands and advertisements have become an inherent part of the daily lives of Chinese consumers.

Convergence between foreign and Chinese advertising practices

The Shanghai TV Station aired China’s first foreign commercial for the Swiss Rado wristwatch in 1979. The one-minute English commercial, focusing on product information, was broadcast only twice, but it produced a huge impact in China.  Hundreds of people went to state-run local stores to inquire about the product in the next few days. Interestingly, the product was not sold in China until four years later, suggesting that the advertiser was initially more interested in image advertising than selling products since China had not yet developed a consumer market.

Coca-Cola entered China in 1979, and it was the first foreign brand that was sold in the Chinese market. The first foreign commercial that China Central Television (CCTV) – the only national TV network in China – aired was for Coca-Cola.  It caused criticism because the product was viewed as not aimed at ordinary Chinese consumers.

During the 1980s, Japanese brands and advertising achieved wide recognition. Brands such as National, Panasonic, Sony, Toshiba, and Toyota became household names among urban Chinese. Similarly, Japanese advertising agencies also achieved prominence in the Chinese market largely because Dentsu and a few other Japanese agencies collaborated closely with Chinese advertising professionals and academics. However, since the 1990s, American advertising agencies have obtained a more prominent position in China.

In the 1980s Chinese advertisers used hard-sell advertising strategies, focusing on product information and production processes (gates of factories, machinery, diligent workers, their awards, etc.).

With increasing influence of foreign advertising practices, Chinese advertisers later adopted soft-sell strategies that catered to a variety of values such as family bonding, individualism, romance, adventure, love, beauty, modernity, newness, masculinity, and femininity.

Chinese ad professionals also demonstrated a strong desire to learn from their Japanese and American counterparts. Many exchange programs were established for Chinese ad professionals to learn the newest advertising practices. Professionals working at foreign ad agencies were constantly invited to give talks about foreign advertising. With various efforts to professionalize advertising, including the establishment of professional associations, the opening of degree programs in prominent universities, and the publication of advertising books, advertising gradually became an attractive profession that elevated its lowly image of puffery to a career that ambitious young Chinese were interested in pursuing.

Initially, Chinese professionals were more interested in working at foreign advertising agencies since they provided better salaries, benefits, and training. Chinese advertising agencies were generally viewed as having a lower status. In the last decade, foreign and Chinese advertising practices have converged, largely because of the constant exchange of advertising personnel, ideas, and practices. While Chinese advertising agencies in the past offered lower pay to employees, starting in the mid-2000s Chinese ad agencies offered even higher salaries to professionals who already had experience in foreign advertising practices. Now ads in the Chinese market featuring foreign and Chinese brands look very similar. Both types of ads stress affective connections with consumers in order to generate demand.

Swinging between nationalism and cosmopolitanism

A prominent theme in Chinese advertising is the selling of nationalism and cosmopolitanism. Both foreign and Chinese brands resort to the promotion of these concepts in their ads. However, there are some subtle differences given their different origins, perceptions, and relationships with modernity. One obvious difference is that Chinese brands are more likely to resort to patriotism or nationalism as a selling strategy. Chinese brands such as Li Ning (a Chinese sportswear brand) and Hai’er (a home appliance brand) have long been selling national pride in marketing their products. Li Ning, in particular, has been inherently associated with China’s Olympic glory and “Chinese-ness.” Hai’er, on many occasions, has sold its foreign expansion as a successful story in the Chinese market not only to endorse the quality of its products, but also to claim itself as a pioneer in increasing China’s global influence. The selling of nationalism is about the reconstruction and reinforcement of traditional images, symbols, rituals, myths, and customs in the context of China’s search for national identity and modernity in an increasingly globalized world. Advertisers appropriate and reinterpret Chinese symbols, images, rituals, historical heroes, and China’s anti-imperialist history to create a narrative of patriotism, loyalty, and national glory.

The promotion of Chinese-ness is particularly seen when China hosts global events such as the Beijing Olympics, the WorldExpo, and the Asian Games. During the Beijing Olympics, foreign brands also celebrated their connections to China. For example, McDonald’s asserted “I’m lovin’ it when China wins.” Coca-Cola had a record marketing blitz with theme music “China is red” and “China is hot.” The Olympic sponsor Adidas tried everything to establish its connection with Chinese culture and national pride. Non-official sponsors such as Pepsi and Nike also made efforts to connect their products and brands to China’s rising patriotism. Such endorsements of nationalism often met with consumer approval.

Given that foreign brands already had established their cosmopolitan identity, the appropriation of nationalism made them powerful rivals of Chinese brands, which could not claim to own nationalism in China any more.  To compete with foreign brands in the Chinese market, Chinese brands also aimed to balance nationalism and cosmopolitanism.

Chinese advertisers use various strategies to make global connections and sell the globalized images to Chinese consumers. Oftentimes, such global positioning is seen as contrived “Western-ness,” either by appropriating Western symbols – including Western languages, Western models, European-style architecture, sculpture, and famous tourist sites (such as the Seine River, the Arc de Triomphe, the Louvre, the Château de Versailles, the Eiffel Tower, Cambridge, Paris and Rome) – or by selling values associated with Western modernity (such as individualism, freedom, newness, and the pursuit of pleasure). In China, Western-ness is often associated with product quality and prestige. Products with foreign sounding names are many times sold at higher prices than brands with Chinese names. As a result, many clothing brands use foreign-sounding names. And some products also make false claims about their foreign origin.

Chinese ads often juxtapose foreign and Chinese cultural symbols, projecting the celebration of universal humanity through the meeting between East and West. Chinese advertising also sells dreams of common humanity and the desire for Chinese people to be recognized in the global market. The combination of foreign and Chinese elements means that Chinese brands aim to target the growing middle class in China, which often harbors a strong desire to have more global connections, while simultaneously treasuring their roots in Chinese culture.

However, global brands often enjoy more advantages in constructing such a convergent identity. After all, their cosmopolitan identity has been established in their origins and global success. Chinese brands instead are often viewed as having contrived cosmopolitan identities.

In other words, when Chinese brands compete with global brands, they are somehow at a disadvantage because foreign brands are inherently viewed as having higher quality and prestige. Considering the product scandals in China involving contaminated baby milk, poisonous rice, and other goods of questionable quality, foreign brands are often chosen because they are considered safer and of a higher quality. Chinese consumers now use foreign agents to buy directly from Western countries, and they purchase products when traveling to Europe, the United States, Hong Kong, Japan, and South Korea.

Digital advertising

Since China joined the World Trade Organization, Chinese advertising has not only been shaped by loosening regulations, but also by digital technologies. Now companies allocate more money to digital advertising in response to rising TV advertising prices and declining readership of print media.

The rapid development of digital and mobile advertising has seriously challenged traditional advertisers. For example, Baidu—on online portal–has already surpassed CCTV to become the largest advertiser in China, forcing CCTV to collaborate with new players.

Digital advertising focuses more on consumer participation, branded entertainment, and fan-centered advertising strategies. The pervasive use of digital advertising also means that it is becoming more difficult for Chinese regulators to administer advertising, thus leading to an increasing number of illegal, offensive, and controversial ads in China. Controversial advertising not only includes problematic products, but also the problematic use of questionable symbols, images, and words.

While there is hope that digital advertising will flatten the advertising gaps between Chinese and foreign advertisers and between Chinese and foreign advertising agencies, foreign brands and their agencies still enjoy some advantages because of their extensive networking, know-how, and capital. A vast number of Chinese ad agencies and brands still compete at the lower end. The global economic recession of 2008 has increased the Chinese market, which may lead to different dynamics in China’s advertising market in the future.

Conclusion

Chinese advertising is a dynamic industry and profession, which is closely related to China’s economic development in general. China’s rapid economic development amid the global recession makes the Chinese more significant. However, the Chinese economy is now slowing down, as Europe and the U.S. are recovering, which may further shape how China is perceived. Nevertheless, a sense of national pride among the Chinese consumer-citizens has strengthened, which influences advertisers and will shape advertising strategies in the future.

The post Advertising in China appeared first on China Research Center.

China has enormous potential for philanthropy. Forbes reported in 2016 China has 251 billionaires, second only to the United States’ 540, and China has the most new billionaires, adding 70 to the list.¹ Beijing has become the “Billionaire Capital of the World” with 100 billionaires, five more than New York City.² Credit Suisse reported that China’s middle class is the largest in the world: 109 million Chinese adults have wealth between $50,000 and $500,000, well ahead of the 92 million in the U.S.³

Despite the explosive wealth accumulation, charitable giving in China is lagging far behind the U.S. In 2014, giving as a percentage of China’s GDP was only 0.1 percent, compared to two percent in the U.S.⁴ Chinese giving was about one-hundredth of what Americans donated per person.⁵ China ranked 144 among 145 countries in the 2015 World Giving Index; only Burundi ranked lower.⁶

Why such a huge gap between private wealth and private giving? Chinese billionaire Jack Ma, founder of Alibaba Group, said during the 2015 opening ceremony of a new degree program in nonprofit management at Peking University, “Giving donations to charities is much harder than earning money.” Ma commented that in China, it is particularly tough to figure out to whom one should give. China lacks the infrastructure, training, and proper legal framework to ensure that donations go to good use. Setting that up does not happen overnight.⁷

Ma’s concern is widely shared by Chinese people who wish to contribute to social services – not only the super-rich but also the rapidly growing middle class. Private, modern philanthropic practices that are entrenched in Western culture are new to both Chinese donors and charities. Just 20 years ago, a distinct socioeconomic middle class was virtually nonexistent in China⁸, not to mention the ultra-rich philanthropist class. Only in recent years has China started the journey of modernizing philanthropy and social organizations. Like many other systems in China, Chinese philanthropy will take on its special characteristics in the process of modernization. The following discussion provides a deeper understanding of the current state, as well as the challenges and opportunities for such development in China.

The Rebirth of Philanthropic Spirit

Philanthropy appears to be a new phenomenon in China, but it isn’t. Conventional wisdom holds that the donation of money to good causes or to the general well-being of society is a modern Western concept to which China is not accustomed. But the fact is China has a long history of charitable behaviors. For both Confucianism and Buddhism, benevolence is a core value. Traditionally, “helping and caring for others” is held in high esteem by the Chinese. The value of philanthropy has been rooted in Chinese culture for thousands of years.

China also has a tradition of government planning and guiding of charitable activities. Before the ninth century, charitable activities were largely religion-based and managed by temples or ancestral shrines, some of which functioned much like the civil society we know today. Since the mid-ninth century, the government has been playing a key role in funding charities, often appointing local notables as managers. In the early 20^th century during the pre-Communist period, a number of prominent Chinese demonstrated remarkable generosity and charitable initiative. For example, former Premier of the Republic of China Xiong Xiling (1870–1937) pioneered China’s modern philanthropy by helping establish educational and human service institutions to confront natural disasters and the Japanese invasion. A group of Western foundations and missionaries introduced American-style philanthropy to China, including the Rockefeller Foundation’s contribution in medicine and John Leighton Stuart’s work with Yenching University.

However, during the first quarter-century of the People’s Republic – from the Socialist Revolution through the Cultural Revolution – wealth was completely nationalized. An ideal Communist state was believed to be able to provide comprehensive public services and resolve all social problems, so almost any recognition of the need for private charity was considered a sign of government failure and was not encouraged. As Zhang Xin, one of China’s richest women and billionaire CEO of the SOHO China real estate development company commented, “As children of that society we could not have imagined the possibility of becoming a philanthropist.”⁹

It was not until 1978 that China turned to economic reform and reopened its doors to global markets. The most significant social consequence of China’s economic growth is the increasing diversification of public resources, interests, and needs. A modern nation, regardless of its political system, must find a way to combine public and private efforts in providing social services for its citizens. The Chinese government has begun to realize the essentiality as well as the benefits of civic participation and private philanthropy. Now, the same entrepreneurial spirit that has been demonstrated in the business sector is beginning to have an impact in the civic arena.

In 2014, China received an estimated $16 billion from both domestic and overseas donors, surpassing the peak last seen in 2008, when Wenchuan earthquake killed nearly 70,000 people and triggered significant public giving.¹⁰ Several successful entrepreneurs such as Jack Ma and Zhang Xin made strong commitments in philanthropy. In 2014, Jack Ma set up a $3 billion charitable trust, and Zhang Xin and her husband set up a $100 million endowment for underprivileged Chinese students to attend leading universities around the world.

We should not take China’s philanthropic record of the last 60 years as proof that Chinese people are generally not philanthropic. With continued economic growth and social diversification, China’s philanthropic spirit will likely flourish in the future.

Philanthropy with Chinese Characteristics

Why has modern philanthropy been slow to take off in China? China faces unique challenges in cultivating philanthropy, not only because of historical and cultural factors, but also, more importantly, because of the underdeveloped social support system. Philanthropy in China today demonstrates three noteworthy characteristics.

One is that Chinese donors are more focused on addressing immediate social needs, as opposed to long-term issues. The latest Giving China report showed that the vast majority of donations – more than 75 percent – have been directed to urgent needs including medicine and disaster relief, education, and poverty alleviation.¹¹ According to the research by Harvard Kennedy School Ash Center, the top 100 philanthropists in China gave most often to education (58 percent of total donations) and least often to environmental causes (0.9 percent), despite that China faces serious environmental challenges.¹² Other long-term social areas such as public policy, international affairs, and arts, culture and humanities received little support. In education, most giving was in support of universities, and specifically focused on scholarships and building constructions. Areas such as research, teaching, and special initiatives received very limited funding.

Secondly, Chinese people tend to trust family members and neighbors much more than strangers, partly because of the country’s long history as an agrarian society. This is true in China both for conducting business and for philanthropy. It works fine for traditional charitable behaviors – donors give to people in need and immediately see the result. But modern philanthropy does not work that way. The concept of modern philanthropy is not just about giving fish to feed a hungry person; it seeks to empower those in need to fish for themselves and even work to improve the entire ecosystem for fishing. In other words, the goal of modern philanthropy is to make sustainable, systematic change. We are helping people we do not know and it will often take years to measure our results. Many Chinese may find it difficult to adopt such concept. They are generally less concerned about tackling the long-term, root causes of the social problem. This pattern poses a direct challenge to the development of philanthropy in China.

Another characteristic is the widespread “trust crisis” of Chinese donors toward Chinese charities. Chinese social organizations are traditionally affiliated with the government, run by government personnel and supported by government funding. Such structure has proven to be inefficient and ineffective in providing many social services. In recent years, a series of scandals among major state-run charities, including the Red Cross Society of China, further undermined their credibility. Partly because of the reform of registration procedures for social organizations that came into force in 2013, a great variety of new organizations have sprung up in China. Currently there are more than 511,000 legitimately registered NGOs.¹³ Many of them are still quasi-state institutions. Donors often find it difficult to identify appropriate or trustworthy organizations to which to contribute. At the same time, organizations that want to raise funds for meaningful causes do not have a clearly defined set of technical and ethical standards to conform to. Only 30 percent of registered charities in China meet basic international standards for transparency and disclosure.¹⁴

As a result, Chinese donors often choose to adopt a hands-on approach in giving, by establishing their own operating foundations to conduct charitable work by themselves, or even personally hand out donations to recipients. A great number of wealthy Chinese give to overseas nonprofits in the belief that investing in those reputable organizations will bring meaningful social returns. The new charity law attempted to address the issue by specifying some requirements in transparency and accountability for charities, as well as a few fundraising guidelines. However there is still a long way to go for Chinese social organizations to build professionalism and re-establish public trust.

Road Ahead: Infrastructure Building and Professionalization

Over the past 30 years, China has established a market economy system. The next critical agenda for China is to deepen the reform and open the social sector. China is in urgent need of philanthropic infrastructure.

First, the market economy needs to perform strongly, and personal wealth needs to be well-protected. People should not worry that giving to charities may draw public criticism or create trouble for themselves. For example, Chinese donors often choose to stay anonymous because they are afraid of public attention and jealousy about their wealth. Also, when Chinese donors give to the world’s leading universities, their actions often generate wide criticism among the Chinese as if the donors were not “patriotic” or their motivations are simply to gain admission for their children. The society as a whole needs to develop a reasonable expectation about philanthropy, and respect that giving is a personal choice and reflects individual interests.

Second, China needs to develop a mature financial system to ensure the sustainable development of philanthropic funds and endowments. It should require that each nonprofit create a board that acts as trustee of public assets and ensures that the organization is well-managed and remains fiscally sound. Many Chinese social organizations do not have formal governance structures in place to fulfill fiscal and strategic responsibilities. A modern accountability system should be constructed to ensure that endowment assets will be in the hands of ethical and professional investment managers. Nonprofits should be required to hire professional public accountants to conduct independent auditing based on internationally accepted standards. Strong financial management correlates strongly with institutional quality and sustainability.

Lastly, China needs to establish a legal system to regulate the social sector concerning philanthropy. The new charity law confirms charities’ legal status, makes it easier for charities to register and raise funds, and improves tax incentives. In the U.S., the tax-exempt status for public charities entails large obligations and heavy regulation of the sector. Nonprofits are regulated by the tax authority at the federal level, by law offices at the state level, and by independent industry associations and watchdogs, etc.  In China, none of this is fully in place yet, and it remains unclear whether the Ministry of Civil Affairs can effectively perform all the regulatory and administrative functions designated in the new law.

In order to make philanthropy work, it is also critical for China to professionalize the governance and management process of social organizations. The Chinese nonprofit world is not yet an independent “sector.” Fundraising is not yet an established “profession,” nor is nonprofit management. China will need to nurture a new generation of professionals who are dedicated to social sector management. Research shows that the main reason individuals give is because they are asked to and are presented with opportunities that motivate them to give.¹⁵ Nonprofit professionals are the servants of philanthropy. They provide essential guidance and service for people to donate. They teach people the joy of giving. They also need to steward the donation and assume responsibility for the public trust. China’s for-profit corporations have been adopting many international management standards and skills. Today, China’s social organizations are faced with an unprecedented opportunity to try the same. Without competent professional leadership that cares about the cause and properly runs the organizations, we will continue to hear the comments that it is easier to make money in China than to give it away.

The post Why Giving is Harder than Earning: Philanthropy in China appeared first on China Research Center.

Dimensions of China’s recent courtship of Iran include:  war and peace, international connectivity, and enhanced security cooperation.  Regarding the issue of war and peace, in 2013-2015 China undertook a high-profile and ultimately successful mediation effort in the Seven Party negotiations over Iran’s nuclear program.  (The “P5 + 1” + Iran = 7; the “P5” includes the five permanent members of the United Nations Security Council: the United States, UK, France, China, and Russia, plus one, Germany.) Those negotiations led to the Joint Comprehensive Plan of Action (JCPOA) agreement in July 2015 that was successfully implemented by January 2016.  In exchange for Iran’s scaling back of its nuclear program, many international sanctions against it were lifted.  China’s mediatory effort represented a bold initiative (for China) that was one manifestation less risk-adverse “pro-active diplomacy” mandated by Xi Jinping after he took power late in 2012.  China’s mediation effort was also a significant investment of political capital in Iran’s long-term emergence as a major regional power.  China’s mediation effort in the Seven Party talks stands with China’s 1987-1988 role in assisting Tehran escape from war (in that case with Iraq) via a Security Council ceasefire agreement acceptable to Tehran.   During the Seven Party talks, China played an important role in convincing Iran to come to terms with international concerns about its nuclear program.  Beijing also helped persuade Washington to reach a compromise with Tehran at that juncture.  Wikileaks documents show that even prior to the start of the Seven Party talks, China was passing messages between Washington and Tehran, and giving both sides advice about how to move forward in their quest for better ties.  China’s efforts thus helped Iran avoid a potentially devastating war with Israel and the United States, a war that might have eviscerated Iran’s comprehensive national power.  The China-mediated nuclear deal secured for Iran the lifting of sanctions, while safe guarding Iran’s “right” to non-military use of nuclear energy under the Non-Proliferation Treaty.  Comments by Iranian leaders indicate gratitude to China for its “positive and constructive” role.  During the Seven Party talks Beijing demonstrated, as it did in 1987-88, that China is Iran’s sincere and capable friend on issues of war and peace.   Beijing is now using that capital to entice Iran into expanded cooperation.

India sought and secured a degree of detachment from the United States during the debate over Iran’s nuclear programs, but undertook nothing comparable to China’s high-profile and vigorous mediation effort.  Nor did India have the substantial economic leverage with both the United States and Iran that China possessed while advising Washington and Tehran about the nuclear issue.  India was also handicapped by its non-inclusion in the United Nations inner circle on the nuclear talks.  In contrast to India, China demonstrated to Iran via its JCPOA mediation effort that it could get things done on matters of war and peace.

Regarding international connectivity, with the lifting of international sanctions in January 2016, China is offering Iran very large Chinese investments in Iranian industrialization, especially in the area of infrastructure: railways, highways, telecommunications, energy, harbors, and ports.  These proposals were laid out by China’s ambassador to Iran shortly before the nuclear deal was completed, and represented, in effect, a Chinese inducement to come to terms over its nuclear program.  Once that deal was implemented in January 2016, President Jiang Zemin carried more specific offers to Tehran, promising major Chinese financing and investment if Iran engages with China’s One Belt, One Road programs.  Xi’s visit was the first by a foreign leader to Iran after the successful implementation of the JCPOA.  It was also the first visit by China’s top leader to Iran since 2002 — 14 years before.

China’s vision is of dedicated trains and (perhaps) dedicated rails carrying containers of Chinese goods to Iranian ports for further shipment to the Middle East and western Indian Ocean region.  If and when Iranian ports join Kyaukpyu in Myanmar and Gwadar in Pakistan as littoral gateways for Chinese commerce entering the Indian Ocean, China will have gone a good distance toward mitigating its Malacca dilemma.  Chinese goods will also have better access to large markets around the Indian Ocean region.

There is apparently a debate underway in Iran over deeper Iranian dependence on China, as opposed to intensified efforts to secure greater European re-engagement with Iran’s economy. India has made an effort to limit or counter deeper Iranian economic integration with China.  Four months after Xi’s visit to Tehran, Indian Prime Minister Narendra Modi conveyed to Tehran India’s proposals for expanded cooperation, proposing revival of a harbor, rail, and road project linking Chabahar in Iranian Baluchistan with Delaram in west central Afghanistan and thence with Central Asia.  The Chabahar project was paralleled by a tripartite Iran-Afghan-Indian transportation agreement designed to boost trade between India, Russia, and Central Asia via Iran.  A third component of Modi’s effort was revival of the idea of a north-south corridor involving Russia, Iran, and India, and carrying Caspian Sea region oil and gas to Iranian ports for forward shipment to India and the world, while Indian goods would flow north to Central Asia.  In effect, Modi’s plan is an effort to moderate Iran’s economic dependence on China.

In the area of security, during Xi Jinping’s January 2016 visit, Iran and China signed a 25- year Comprehensive Strategic Partnership.  The political framework of the agreement included mutual support on “issues pertaining to their core interests,” including China’s One China policy and Iran’s “increasing role in regional and international affairs.”  In the “regional domain,” the two countries supported “multi-polarization of the international system,” non-interference in the internal affairs of other countries, and jointly opposed “imposition of unjust sanctions against other countries.”  All of these provisions were implicitly directed against the U.S.  China also undertook to support Iran in the areas of “space” and “peaceful use of nuclear energy.”  In terms of relations between Chinese and Iranian militaries, there was to be enhanced training, exchange of information, and “equipment and technology.”    The degree of Chinese alignment with Iran against the United States implicit in the terms of the Comprehensive Strategic Partnership marked a sharp departure from Beijing’s earlier careful reluctance to align with Iran against the United States.   This too seems to be a manifestation of Xi Jinping’s less risk-adverse diplomacy.

Visits to Iranian ports by PLA Navy (PLAN) warships is one concrete manifestation of the expanded Iran-China military partnership.   While small PLAN squadrons began calling at Indian Ocean ports in 1985 and greatly increased such activity after Beijing’s December 2008 decision to join international anti-piracy operations in the Gulf of Aden, Chinese warships conspicuously avoided Iranian ports.  Then in September 2014, two PLAN destroyers made the first-ever visit by PRC warships to Iranian ports.  That was two years into Xi Jinping’s leadership, at the same time movement toward what became the July 2015 agreement was accelerating.  Taken together, the September 2014 PLAN port calls and the Comprehensive Strategic Partnership bode a significantly expanded PRC-IR military partnership.

Nothing in the January 2016 Sino-Iranian joint declaration even insinuates opposition to India.  Indeed, Beijing’s bid to India is that it should partner with China and other like-minded countries such as Iran, to deal with common concerns with the security of their sea lines of communications in the Indian Ocean. India should, in Beijing’s view, take China rather than the United States as its partner in dealing with security matters in the Indian Ocean.  That has not thus far been an attractive choice from India’s perspective because it would open wider the door to growth of PLAN presence in the Indian Ocean region, ultimately posing the possibility of China becoming a resident power in the South Asia-Indian Ocean Region and the United States could be persuaded to “go home” and leave Asian matters for Asians to deal with.  India might then find itself living in a China-dominated SA-IOR.

Commentators in the Indian media have been critical of New Delhi’s slow response to China’s push for expanded partnership with Iran.  Modi’s May 2016 visit to Tehran seems to have been recognition of a more vigorous Indian counter to Beijing’s efforts.   The agreements struck during Modi’s visit demonstrate Iranian gains to be had through cooperation with India.    In private talks with Iranian leaders, Modi certainly would make clear India’s hopes that the evolution of Iran-China ties would not injure India’s national security.   The Iran card is in play.   New Delhi is calling Beijing’s bid.

Several macro-structural changes underlie the new Chinese-Indian rivalry.  The PLAN’s 2009 entry into the Indian Ocean on a permanent and expanding basis has raised the stakes for both China and India.  Iran’s growing regional influence — in Lebanon, Syria, Iraq, and Yemen — incline Tehran to look for a great power supporter such as its known and trusted friend China.   The intensification of India’s security partnership with the United States raises the danger for New Delhi that Tehran will drift into opposition to India’s alignment with the U.S.   Beijing will certainly play up this theme, intensifying the need for India to counter Beijing and demonstrate India’s friendship toward Iran. But perhaps the most important influence has been the recession of U.S. power as a regulator of both Chinese and Indian ties with Iran.   During the 1990s through the 2000s, Washington used its great influence to dissuade both Beijing and New Delhi from moving too close to Tehran.  The volte-face in U.S. policy embodied in the July 2015 agreement made it possible for both Beijing and New Delhi to undertake initiatives toward Tehran based on their own interests, rather than on U.S. policy interests. Simply stated, the withdrawal of U.S. power has led to intensification of Sino-Indian rivalry toward Iran.

The post India and the Emerging Sino-Iranian Partnership appeared first on China Research Center.

 As the anti-corruption campaign launched by CCP General Secretary Xi Jinping approaches its fourth anniversary, the question ought to be asked: where is it going? When the drive was first announced in the winter of 2012-2014, it appeared that it would prove a repeat of crackdowns launched by Xi’s predecessors – a burst of sound and fury in which a swarm of rank-and file-officials – known popularly in China as “flies” – would be detained by the party’s Discipline Inspection Commission, some of whom would then end up being prosecuted by the Procuratorate, and ultimately be packed off to prison by the People’s Courts. In the process, a few senior officials – known as “tigers” – would be “bagged.” Based on past precedent, Xi’s crackdown should have ceased being front-page news after a few months and quietly faded away – until some new scandal prodded the leadership to again declare that the party must fight corruption to the death.

As it developed in the spring of 2013 and onward, Xi’s crackdown wrought havoc on such assumptions. As in the past, tens of thousands of flies were investigated (upwards of 500,000 by rough estimates) by the party and indicted (more than 120,000) by the judiciary. The annual rates of increase were impressive. The total number of economic and official malfeasance cases “filed” by the Procuratorate increased nine percent in 2013 and a further 10 percent in 2014, followed by a slight two percent decrease in 2015 compared to 2014. The number of officials at the county and department leadership levels indicted increased nine percent in 2013, 32 percent in 2014, and a further 11 percent in 2015, with the result that the number indicted rose from 2,610 in 2012 to 3,821 in 2015. The number of more senior officials at the prefectural and bureau levels jumped 46 percent in 2013, 126 percent in 2014, and 27 percent in 2015, thus increasing indictments from 179 in 2012 to 747 in 2015. Between 2012 and 2015, the courts convicted 100,200 individuals on corruption-related charges. As of November 2016, 116 civilian tigers – defined as state officials, party cadres, and state-owned enterprise (SOE) managers holding bureaucratic ranks equal to or above that vice minister – and 82 military tigers – officers holding ranks of major general or above – had been implicated, including one former member of the Politburo Standing Committee (Zhou Yongkang); three former members of the Politburo, Bo Xilai (former Party Secretary Chongqing), General Xu Caihou (former Vice Chairman of the Central Military Commission), and General Guo Boxiong (former Vice Chairman of the Central Military Commission); and the former Director of the CCP Central Committee General Office (Ling Jihua).

Far from another short-lived political drama, Xi’s anti-corruption drive has thus proven to be more intense and protracted than its predecessors. Moreover, unlike its predecessors, it does not yet seem to have a discernable end. On the contrary, observers have suggested that Xi’s intensified drive against corruption is not a finite “campaign,” but is rather part of a “new normal” (新常态). It is true that in the past six months or so the drive has become less visible and dramatic. The “heyday” of the tiger hunting when senior officials and generals seem to be falling right and left (roughly from December 2014 to March 2015) appears to have passed. The drive nevertheless continues to claim victims, the most recent (September 2016) being the Acting Party Secretary of Tianjin Huang Xingguo. Flies also continue to fall at an unrelenting pace, as evidenced by terse reports posted daily on the Ministry of Supervisor and Central Discipline Inspection Commission’s shared website (http://www.ccdi.gov.cn/) and the party’s “anti-corruption” website (http://fanfu.people.com.cn/). As such, the blitzkrieg attacks of the earlier phases of the drive have now apparently given way to a less dramatic but perhaps no less intense war of attrition as Xi and his primary ally in the fight against corruption, Wang Qishan, continue to press onward.

At the Sixth Plenum of the 18^th Party Congress in late October 2016, Xi in fact made it clear that the drive would continue, and vowed to continue to attack high-level corruption. But little in terms of concrete regulations was new. For example, the plenum promulgated a new set of guidelines on corruption that included warnings against tolerating corrupt behavior by members of officials’ families, but it did not adopt a policy mandating that officials disclose family assets that would have served as a significant new hedge against such corruption. Similarly, talk arose of centralizing the discipline inspection system by pooling the resources of the party’s Discipline Inspection Commission, the state Ministry of Supervision, and the judicial Procuratorate, a change that would have helped make its local organs more independent of the corresponding party committees, and therefore less apt to protect local officials from scrutiny and more aggressive in pursuing evidence of corruption. In the end, however, the plenum approved a modest pilot program limited to a few provinces. Shortly afterward, the Central Discipline Inspection Commission also announced that it would dispatch inspection teams to Beijing, Chongqing, Guangxi, and Gansu plus 15 other major state agencies. This new round of inspections, however, replicates a pattern of periodic central intervention put in place back in 2013, not a major new escalation of the drive. In sum, the results of the plenum suggest that Xi intends to continue the drive, but that his basic tactic will likely remain much the same.

It would seem the drive is now approaching a critical juncture. Xi and Wang have bagged a lot of tigers, some of whom also happen to have been Xi’s potential or perceived political rivals. Xi has thus clearly used the crackdown on corruption to consolidate his grip on power and to at least partially re-establish the primacy of the central leadership over the sprawling party-state apparatus. In the process, he has perhaps made inroads against the extensive high-level corruption that apparently spread during the Hu Jintao era. He has certainly not, however, dramatically reduced the overall level of corruption. At best, he has perhaps brought the problem closer to some sort of “controlled” level.

Having made some inroads, Xi and Wang now face the difficult task of figuring out how to back off the anti-corruption fires they set during the more intense phases of the drive. Many observers report the ongoing drive has produced a pervasive atmosphere of fear among officials, and has left many paralyzed. Such fear is hardly unexpected. A broad reading of the past three years of revelations suggests many illegal and questionable behaviors and practices on which Xi and Wang have “dropped the hammer” since the 18^th Party Congress had become essentially “standard operating procedure” during later Jiang Zemin and Hu Jintao years. Some of those convicted of accepting bribes have, for example, confessed that they thought little of pocketing “red envelopes” (or briefcases or suitcases) stuffed with cash. In some cases, they claimed they felt pressured to accept bribes because to not do so would have violated prevailing informal norms of official behavior, and would have offended and angered those who offered bribes.

Given the apparent extent of corrupt practices among officials, cadres, and managers, Xi and Wang now face four daunting tasks. First, they need to continue to tighten administrative procedures and curb the autonomy of decision-makers and hence reduce the opportunities for corruption. Second, they need to reduce the gap between the pay officials, cadres, and managers receive and the income of private-sector actors with whom they interact. Higher official pay will not eliminate temptation, but so long as poorly paid officials control valuable assets and opportunities, resisting temptation will be difficult.

Third, Xi, and the party more broadly, has to address the reality that since the 1990s rapid economic development has spawned a new economic elite that is linked by blood and marriage to the older political elite. Power and wealth overlap in all advanced economies and political systems, including both authoritarian and democratic systems. Although Jiang Zemin embraced and legitimated China’s new economic elite with the Three Represents in 2002, China still lacks a system of ethics to regulate and regularize how power and money interrelate. As a result, a “culture of corruption” has grown and festered. Although the negative economic consequences of such loose ethics and shady officials might have been endurable during the days of rapid economic growth, as China’s economy slows, a culture of corruption will prove an increasing drag if it is not replaced by a new set of elite ethics.

Fourth, Xi and Wang have to devise some sort of “amnesty” that would allow corrupt officials, cadres, and manager to make a clean breast of their past transgressions and become part of new “less corrupt” way of doing official business. If corruption has become a near ubiquitous pathology among officialdom, continuing to aggressively combat corruption indefinitely could wreak significant damage to the party-state and could potentially destabilize China’s political superstructure. Having bagged more than 200 civilian and military tigers, taken down thousands of mid-level “cats,” and swatted upwards of 100,000 flies, Xi and Wang need to figure out how to declare “victory” and let the current anti-corruption drive transition to a true “new normal” of intensified anti-corruption work that deters corruption while also ensuring that the party-state can function.

De-escalating the anti-corruption drive and seeking to transition to a new normal could, however, confront Xi with two major challenges. First, even limited amnesty and marginal pay raises for officials and SOE managers could be seen as rewarding past corruption rather than a means to disincentivize future corruption. After almost three-and-a-half decades of China’s war on corruption, many ordinary Chinese have grown cynical and believe that corruption is a pervasive pathology. As a result, Xi is apt to find it difficult to convince the public at large that his crackdown has significantly reduced corruption.

Second, although Xi’s crackdown has bagged more than 200 senior party cadres, state officials, senior SOE managers, and military officers, as well as a number of China’s brash new tycoons, Xi’s critics grumble that his “friends” have escaped unscathed. They argue that the real goal of the tiger hunt has always been to take down Xi’s political enemies and thereby enable him to secure a grip on political power akin to that of Chairman Mao Zedong. To an extent, there can be little question that the crackdown has enabled Xi to consolidate power. It also likely true that, like the “dead tigers,” others among China’s political and economic elite have become wealthy by playing loose with the formal “rules” and using their access to power and connections to gain advantages from the economic boom that accompanied China’s transition from the plan to the market. Absent a dramatic takedown of some member of Xi’s inner circle, such talk is not likely to die down. On the contrary, if the intensity of the crackdown begins to fade, rumors that Xi allowed other tigers to remain free are likely to continue. Xi thus faces the risk that ramping down the crackdown could be seen as a self-serving attempt to legitimate a political system that remains dirty.

Finally, Xi may be facing a new and potentially serious challenge from China’s business elite. In December 2013, 56 delegates to the Hunan Provincial People’s Congress from the city of Hengyang were expelled after it was found that they had paid a combined Y110 million to 518 members of the Hengyang Municipal People’s Congress and 68 staffers to secure their seats. In September 2016, 45 delegates to the National People’s Congress (NPC) from Liaoning province were expelled after it was revealed that they had paid Y40 million in bribes to 523 of the 619 members of the Liaoning Provincial People’s Congress. Thirty-eight of the 62 members of the congress’s standing committee were axed. Twenty of the 85 members of the Liaoning Provincial Party Committee were among the expelled delegates. Among the 40-odd members of the province’s leadership,¹ the congress’s chair Wang Min, the former secretary of the Liaoning Provincial Party Committee and a member of the 18th Central Committee; congress vice chair Wang Yang; congress vice chair Zheng Yuchao; congress vice chair Fan Feng; congress vice chair Zhu Shaoyi; Vice Governor Gang Rui; Vice Governor Liu Qiang; and Su Hongzhang, secretary of the party’s powerful provincial Politics and Law Committee and Deputy Secretary of the Liaoning Provincial Party Committee, were expelled and in some cases charged with criminal bribery and election fraud.

Although the National People’s Congress and its local counterparts nominally exercise substantial legislative authority, they are often described as “rubber stamp” bodies that provide mere window dressing for China’s communist party dominated “people’s democracy.” If the congresses are functionally powerless, why would want-to-be delegates in Liaoning be willing to pay an average of Y900,000 (US$136,000) for worthless seats in the national legislature? Even more perplexing, why would want-to-be delegates in Hunan be willing to pay an average of Y1.96 million (US$295,000) for a seat in the even less influential provincial legislature?

According to Hong Kong-based scholar Suzanne Pepper, even though having a seat in a people’s congress may seem bestow no political power, “membership in any honorary body is coveted by people who see it as a mark of social status.” ² The people’s congresses, journalist Michael Forsythe writes, have become a “club for some of China’s wealthiest executives, keen to rub elbows with government officials.” Being a delegate, he continues, “… brings prestige, much like peerage or knighthood in Britain.” ³ A deputy’s “red hat,” Professor Zhang Ming argues, gives its wearer access to powerful officials and nefarious insider deals. ⁴

Members of the business community have, in fact, become part of China’s political establishment since former General Secretary Jiang Zemin first introduced his “Three Represents” theory in 2000 and announced that the communist party was not only the vanguard of the proletariat but also the representative of the “advanced productive forces.” Private capitalists, industrialist, investors, real estate speculators, and white collar professional thus joined workers, peasants, cadres, soldiers, and the managers of state-owned enterprises as part of the China’s “socialist” coalition. Preliminary data suggest, in fact, that not only have members of the non-state business sector become part of that coalition, the vast majority of those buying votes were members of the business community. The weight of the business community was particularly great in Liaoning and Hunan where managers and other business professionals made up more than 40 percent of the elected delegates. Among the 45 delegates expelled from the Liaoning Provincial People’s Congress, upwards of 40 had business connections. The available data also suggest that the many vote “sellers” were also members of the business community. But they were not alone in taking money for their votes. Delegates from a variety of other sectors – including the party apparatus, officialdom, education, and, perhaps most notably the police and military – were implicated and expelled from the Liaoning PPC. Eighteen of the 25 delegates from the PLA’s Liaoning garrison were expelled for selling their votes.

Whether the Liaoning and Hengyang vote-buying scandals are anomalies or indicative of a more widespread problem is not clear. But in light of evidence that vote buying is common at the village level where candidates reportedly often curry favor with voters by handing out relative small sums of cash, free dinners, and gifts such as cigarettes and cheap alcohol, it is possible that vote buying has become an integral part of the “electoral process” at the local and provincial levels in contemporary China. While local business elites may have begun to try to buy their way into the political superstructure from the bottom up, China’s new super rich also have been penetrating it from the top down through both the NPC and the Chinese People’s Political Consultative Conference (CPPCC). Close to one in 20 members of the 11^th National People’s Congress (2007 to 2012) and the 11^th CPPCC were listed among China’s super rich by Hurun, a Hong Kong-based magazine.

Formed in 1949, the CPPCC wrote the organic laws of the People’s Republic of China, and transferred its national legislative authority to the NPC in 1954. Relegated thereafter to an amorphous advisory role in a political system dominated by the Communist Party and largely defunct for a decade beginning in the mid-1960s, the national CPPCC, the provincial CPPCCs, and their local affiliates have been described as “useless flowerpots” whose main function was to give delegates from the provinces an opportunity to spend a week wining, dining, and basking in the media spotlight during the annual “double meeting” when the NPC and CPPCC simultaneously convene in Beijing, as well as providing retired cadres and officials with honorary sinecures for the golden years. The CPPCC’s apparent lack of any meaningful power notwithstanding, close to two dozen chairs and vice chairs of provincial political consultative conferences and dozens of senior members of local political consultative conferences have been implicated in corruption during Xi’s crackdown. Even though it appears that in many cases those implicated were involved in corruption before retiring from their party and state posts, evidence also exists that corrupt monies continued to flow to others after they relinquished their official posts.

If China’s growing business elite, with its hybrid mix of private entrepreneurs and SOE managers, is trying to buy its way into China’s institutions of power, it is possible that while Xi has been cracking down on corruption among the party and official ranks, corruption has been spreading among the ranks of the broader “united front” that the party has historically relied on for its political legitimacy. Xi may now be facing a new “second front” in the war with corruption. Rather than seeing the gradual de-escalation of Xi’s four-year-old tiger hunt, the anti-corruption crackdown could gain new momentum as Xi shifts from fighting corrupt party cadres and state officials to fight a new threat from the business sector.

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