The Blog

For Sale: ‘Shanzhai’ Lamborghini for $65,000

By On June 25, 2012 In Copycats, Shanzai, Technology With No Comments Permanent Link to For Sale: ‘Shanzhai’ Lamborghini for $65,000Permalink

I believe, you only need to spend less than 300 yuan to own a smartphone that looks like an IPhone on the outside, but have you heard of spending 420,000 yuan for a “Lamborghini”? Recently, a report on the Internet with pictures and videos once again stirs up waves with the word “Shanzhai” in the Chinese auto market.

shanzhai fake lamborghini

A home automaker has made a Shanzhai version of the “Lamborghini Murcielago LP640” model. Different than the earlier Shanzhai cars, the car maker said this Shanzhai Lamborghini’s exterior is 99% identical to the genuine mode, interior is up to 70% similar. The Shazhai Lamborghini is modified from a Toyota MR2. The craftsmanship alone has won netizens’ admiration.

Shanzhai Lamborghini maker has his own workshop, according to this announcement posted, he is selling this model LP640 for 420,000 yuan, reservation period is 5 month and order deposite is 50% of the cost, 210,000. However the car cannot get license plate, is only meant for public display and driving on non-public roads.

2.2 liter Toyota 5s and 2.0 t 3S engine, 100 kilo-meters in 9 seconds, top speed 2000, 175 horse powers, sound decibel frequency can be more than 90% identical. Body is 1:1 ratio. Interior is Lamborghini style, dash board is not Lamborghini.

Cannot get license plate, reservation period is 5 month, order deposit is 50% of the total cost, 210,000 yuan.

Power window, power wings, GPS navigation, backup camera, real leather seats and leather interior.

Interior can be done upon customers’ request, it is impossible to be 100% (identical as the real)

Interior and exterior color can be determined by customer.

Engine cover is not transparent, rims are custom made, original rims cost 50,000 extra

Car’s front bumper is 2007 style

Original car key cost 9,000 extra

We did not make modification on the original beam, so car safety index is same as the original Toyota.

However we added stainless steel, steel pipe and steel plate in the driver and passenger side doors.

We also added 4 point racing seat belts.

This car cannot get license plate, but satisfies all driving capabilities. However our factor sells the car only for display.

Car symbol, glass, grille, tail lights and exterior accessions are all original factory parts. New style of LED tail lights cost 10,000 extra.

Steering wheel is racing car steering wheel with original Lamborghini symbol.

All buttons in interior are all original Lamborghini parts.

Real Lamborghini Murcielago LP64:

 

china lamborghini

chinahush

 

Shanzai Lamborghini Murcielago LP64:

 

china lamborghini

chinahush

 

 

china lamborghini

chinahush

 

original Toyota MR2:

 

china lamborghini

chinahush

Read more: http://www.chinahush.com/2012/06/24/shanzhai-lamborghini-99-identical-exterior-sells-for-420k-yuan/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+ChinaHush+%28ChinaHush%29&utm_content=Google+Reader#ixzz1yoPzUbjx

Something’s Making China Really Fat, Really Fast

By On June 25, 2012 In Policies, Technology With No Comments Permanent Link to Something’s Making China Really Fat, Really FastPermalink

Mariela Alfonzo just got back from a three-week trip to China, where she’s been researching walkability in the rapidly expanding megalopolises of Beijing, Shanghai, and Guangzhou.

And a lot of what she saw wasn’t exactly pedestrian-friendly. Kind of the opposite. In a scary way.

“Driving patterns are a real issue,” says Alfonzo, a research fellow at NYU-Poly. “I almost got run over every single day I was there. And I was being attentive.” She laughs about it now, but you can tell she’s not kidding.

China’s urban areas are booming economically, but that trend is paralleled by another one with serious implications for public health: obesity rates have skyrocketed over the last generation. The number of Chinese people who are obese quintupled between 2005 and 2011, to nearly 100 million people. The World Health Organization estimates that 38.5 percent of the population was overweight in 2010, up from 25 percent in 2002. Male children from high-income familieshave an especially high rate of obesity.

Likely factors include everything from the availability of fast food to an increasingly sedentary lifestyle. Alfonzo and her colleagues, Kristen Day of NYU-Poly and Zhan Guo of NYU Wagner, are looking for connections between patterns of urbanization and walkability and the rise in obesity.

Alfonzo’s team is now laying the groundwork for what will be an unprecedented analysis of development patterns, density, and their relationship to physical activity in the booming new cities of China. Her travels took her to the farthest reaches of the sprawling cities, and although she knew what to expect, she was amazed by the pace of building she saw. “I just couldn’t believe the amount of development that wasn’t there 5 to 10 years ago,” says Alfonzo.

To start, she and her colleagues will develop a system that will describe the different categories of housing and commercial development in China, from high-rise tower blocks to traditional hutongs.

The work will be influenced by research Alfonzo has done in the United States. Most recently, she co-authored a paper for the Brookings Institution with Christopher Leinberger, “Walk This Way: The Economic Promise of Walkable Places in Metropolitan Washington, D.C.” (Emily Badger wrote about it last month in a piece called “Why We Pay More for Walkable Neighborhoods.”)

The Brookings work was based on data gathered using a tool called the Irvine Minnesota Inventory, which measures walkability based on 160 criteria in four domains: accessibility, pleasurability, perceived safety from traffic, and perceived safety from crime.

But Alfonzo and her fellow researchers realize that standards from the United States cannot be transferred wholesale to the Chinese setting. The tools will have to be modified and refined.

“Density doesn’t play the same role in getting people active as it does in the U.S.,” says Alfonzo. “In the rapidly urbanizing developing world, the relationship is not so clear. It’s all so dense to begin with, and people are still walking a ton relative to the U.S.”

As an example, Alfonzo noted an interesting design pattern that cuts across different types of housing: Chinese housing complexes are “interior-focused.” Gated high-rise and mid-rise communities echo the traditional walled neighborhoods of ancient Chinese cities. “The Forbidden City is an example,” says Alfonzo.

Within modern gated complexes, she says, there’s a lot of walkability, a refuge from the 10-lane highways that roar outside the walls. “Even though outside was a barrier, inside were narrow paths, public spaces, people out and about,” she says. “The informal economy was flourishing – you can buy just about anything.”

In order to get past their assumptions about what makes a place walkable, Alfonzo and her team are working with Chinese planners and designers to create surveys that are sensitive to the local cultural context. They are also going to be looking beyond the health ramifications of walkability, including economic and environmental data in their studies. “One of the pushbacks we’ve gotten is that Chinese officials don’t care about health concerns,” she says. “We think the economic aspect might resonate more.”

Alfonzo says that there is increasing openness among officials to new ideas about what makes cities more livable and walkable. “There are a growing number of planners and urban designers who understand these issues,” she says. “Officials are more and more open to hearing about other policies, even if they’re Western.”

Read more: http://www.theatlanticcities.com/commute/2012/06/whats-making-china-fat/2340/#ixzz1yoGKesNY

Will Technology replace Lawyers?

By On June 20, 2012 In Technology With No Comments Permanent Link to Will Technology replace Lawyers?Permalink

In the end, after you’ve stripped away their six-figure degrees, their state bar memberships, and their proclivity for capitalizing Odd Words, lawyers are just another breed of knowledge worker.

They’re paid to research, analyze, write, and argue — not unlike an academic, a journalist, or an accountant. So when software comes along that’s smarter or more efficient at those tasks than a human with a JD, it spells trouble.

That’s one of the issues the Wall Street Journal raised yesterday in an article on the ways computer algorithms are slowly replacing human eyes when it comes to handling certain pieces of large, high-stakes litigation. It focuses on a topic that is near and dear to the legal industry (and pretty much nobody else) known as discovery, which is the process where attorneys sort through troves of documents to find pieces of evidence that might be related to a lawsuit. While it might seem like a niche topic, what’s going on in the field has big implications for people who earn their living dealing with information.

The discovery process is all about cognition, the ability of people to look at endless bails of info and separate the wheat from the chaff. For many years, it was also extremely profitable for law firms, which billed hundreds of dollars an hour for associates to glance at thousands upon thousands (if not millions) of documents, and note whether they might have some passing relevance to the case at hand. Those days are pretty much dead, gone thanks to cost-conscious clients and legal temp agencies which rent out attorneys for as little as $25-an-hour to do the grunt work. Some firms are still struggling to replace the profits they’ve lost as a result.

And now comes the rise of the machines — or, more precisely, the search engines. For a while now, attorneys have employed manual keyword searches to sort through the gigabytes of information involved in these case. But as the journal reports, more firms are beginning to use a technology known as “predictive coding,” which essentially automates the process at one-tenth the cost. Recently, a magistrate judge in a major Virginia employment discrimination suit ruled that the defense could use predictive coding to sort through their own data, despite objections by the plaintiffs who worried it might not pick up all the relevant documents (Probably left unspoken here: plaintiffs in lawsuits also like to drive up the costs for defendants, in the hopes that it will encourage them to settle).

In truth, researchers have found predictive coding to be as accurate, if not more so, than the attorneys its replacing. As the WSJ noted:

Several studies have shown that predictive coding outperforms human reviewers, though by how much is unclear. A widely cited 2011 article in the Richmond Journal of Law and Technology analyzed research on document review and found that humans unearthed an average of about 60% of relevant documents, while predictive coding identified an average of 77%.

The research also showed that predictive coding was more precise, flagging fewer irrelevant documents than humans did.

“Human readers get tired and make mistakes. They get fatigued,” says David Breau, an associate at law firm Sidley Austin LLP who has written about predictive coding.

Shorter version: There is now software that’s smarter and more efficient at these tasks than a human with a JD. Not only that, but it’s finally being given sanction by the courts, which would have the power to stop such a new technology in its tracks if they chose.

For the legal industry, this is a mixed blessing. The same way that robotics have created factories that need fewer workers, these programs will create firms that need fewer lawyers (even if it just means they’re renting fewer temps). Firms that have already figured out how to prosper without the enormous margins they achieved by charging egregious fees for associates to perform menial labor will benefit. The partners will keep on doing the most valuable work, even as the bottom rungs of their firms shrink.

But what about the rest of us? We’re now living in the age of Watson, everyone’s favorite Jeopardy-playing computer, where intelligent software has become more skilled at recognizing and fetching relevant information than most people. It’s precise enough to do our taxes. It’s precise enough to satisfy a judge. And the people who benefit most from it are those at the top of an industry, the people like law firm partners who are paid to take information and shape it into a narrative.

This is how countries get more productive and more prosperous. As we learn to make goods and perform services more efficiently, their prices come down. The question is what new jobs replace the old ones that are lost in the churn. As of now, who knows what they’ll be? Maybe in a few years there will be program I can ask.

From TheAtlantic - shaping the national debate on the most critical issues of our times, from politics, business, and the economy, to technology, arts, and culture.
Read more: http://www.theatlantic.com/business/archive/2012/06/ilawyer-what-happens-when-computers-replace-attorneys/258688/#ixzz1yIYeUPTR

Is China a Kleptocracy?

By On June 18, 2012 In China IP, Copycats With No Comments Permanent Link to Is China a Kleptocracy?Permalink

Is China a Kleptocracy? This article argues in favor.  China is a kleptocracy of a scale never seen before in human history. This post aims to explain how  this wave of theft is financed, what makes it sustainable and what will make it fail. There are several China experts I have chatted with – and many of the ideas are not original. The synthesis however is mine. Some sources do not want to be quoted.

The macroeconomic effects of the Chinese kleptocracy and the massive fixed-currency crisis in Europe are the dominant macroeconomic drivers of the global economy. As I am trying a comprehensive explanation for much of the world’s economy in less that two thousand words I expect some kick-back.

China is a kleptocracy. Get used to it.

I start this analysis with China being a kleptocracy – a country ruled by thieves. That is a bold assertion – but I am going to have to assert it. People I know deep in the weeds (that is people who have to deal with the PRC and the children of the PRC elite) accept it. My personal experience is more limited but includes the following:

(a). The children and relatives of CPC Central Committee members are amongst the beneficiaries of the wave of stock fraud in the US,

(b). The response to the wave of stock fraud in the US and Hong Kong has not been to crack down on the perpetrators of the stock fraud (so to make markets work better). It has been to make Chinese statutory accounts less available to make it harder to detect stock fraud.

(c). When given direct evidence of fraudulent accounts in the US filed by a large company with CPC family members as beneficiaries or management a big 4 audit firm will (possibly at the risk to their global franchise) appear to sign the accounts knowing full well that they are fraudulent. The auditors (including and arguably especially the big four) are co-opted for the benefit of Chinese kleptocrats.

This however is only the beginning of Chinese fraud. China is a mafia state – and Bo Xilai is just a recent public manifestation. If you want a good guide to the Chinese kleptocracy – including the crimes of Bo Xilai well before they made the international press look at this speech by John Garnaut to the US China Institute.

China has huge underlying economic growth from moving peasants into the modern economy

Every economy that has moved peasants to an export-orientated manufacturing economy has had rapid economic growth. Great Britain industrialized at about 1 percent per annum. It was slow because all the technology needed to be invented for the first time. During the 19th Century US economic growth – once started – ran about twice the rate of the UK. They copied the technology which was faster than inventing it. Later economies (eg Japan, Malaysia, Thailand, Korea) went later and faster. As a general rule the later you industrialized the faster you went – as the ease of copying went up. In the globalized internet age copying foreign manufacturing techniques and seeking global markets is easier than ever – so China is growing faster than any prior economy.

This fast economic growth – which would happen in a more open economy – is creating the fuel for the Chinese kleptocracy.

The one-child policy drives massive savings rates

The other key fuel for kleptocracy is a copious supply of domestic savings to loot. The reason Chinese savings levels are so high is the one-child policy.

In most developing countries the way that people save is they have multiple children hopefully to generate a gaggle of grandchildren all of whom are trained to respect their elders. Given most people did not live to old age if you did you became a treasured (and well cared for) family member.

This does not work in China. Longevity in China is increasing rapidly and the one-child policy results in a grandchild potentially having four grandparents to look after. The “four grandparent policy” means the elderly cannot expect to be looked after in old age. Four grandparents, one grand-kid makes abandoning the old-folk looks easy and near certain.

Nor can the elderly rely on a welfare state to look after them. There is no welfare state.

So the Chinese save. Unless they save they will starve in old age. This has driven savings levels sometimes north of fifty percent of GDP. Asian savings rates have been high through all the key industrializations (Japan, Korea, Singapore etc). However Chinese savings rates are over double other Asian savings rates – this is the highest savings rate in history and the main cause is the one-child policy.

Low and middle income Chinese have very limited savings options

The Chinese lower income and middle class people have extremely limited savings options. There are capital controls and they cannot take their money out of the country.  So they can’t invest in any foreign assets.

Their local share market is unbelievably corrupt. I have looked at many Chinese stocks listed in Shanghai and corruption levels are similar to Chinese stocks listed in New York. Expect fraud.

What Chinese are left with is bank deposits, life insurance accounts and (maybe) apartments.

Bank deposits and life insurance as a savings mechanism in China

Bank deposits rates are regulated. You can’t get much different from 1 percent in a bank deposit. Life insurance contracts (a huge savings mechanism) are just rebadged bank deposits – attractive because the regulated rate is slightly higher.

This is a lousy savings mechanism because inflation has been between 6 and 8 percent (but is now lower than that and is falling fast). At almost all times (except during the height of the GFC) the inflation rate has been higher – often substantially higher – than the regulated bank deposit (or life insurance contract) rate.

In other words real returns for bank accounts are consistently negative – sometimes sharply negative.

You might ask why people save with sharply negative returns. But then you are not facing starvation in your old age because of the “four grandparent policy”. Moreover because of the underlying economic growth (moving peasants into a manufacturing economy) there are increasing quantities of these savings every year. This is the critical point – the negative return to copious and increasing Chinese bank deposits drives a surprising amount of the global economy and makes sense of many things inside and outside China.

The Chinese property market as a savings mechanism

Chinese people have very few savings mechanisms. The major ones (bank deposits and their life-insurance contract twins) have sharp and consistently negative real returns.

Beyond that they have property.

Bank deposits have sometimes 5 percent negative returns. If you got 1 percent negative returns from  property – well – you would be doing well. Buying an empty apartment and leaving it empty will do fine provided you can sell the property at some stage in the future.

It is commonplace amongst Western investors to view the see-through apartment buildings of China as insane. And they may be a poor use of capital. But from the perspective of the investors – well they look better than bank deposits.

Negative returns on bank deposits and the Chinese kleptocracy

Most Chinese savings however are not invested in see-through apartment buildings. Bank deposits still dominate. The Chinese banks are the finest deposit franchises in human history. They can borrow huge amounts at ex-ante negative real returns.

And those deposits are mostly lent to State Owned enterprises.

The SOEs are the center of the Chinese kleptocracy. If you manage your way up the Communist Party of China and you play your politics really well may wind up senior in some State Owned Enterprise. This is your opportunity to loot on a scale unprecedented in human history.

Us Westerners see the skimming arrangements. If you want to sell kit (say high-end railway control equipment) to the Chinese SOE you don’t sell it to them. You sell it to an intermediate company who on-sell it in China. From the Western perspective you pay a few percent for access. From the Chinese perspective – this is just a gentle form of looting.

And it is not the only one. The SOEs are looted every way until Tuesday. The Business insider article on the spending at Harbin Pharmaceutical is just a start. The palace pictured in Business Insider would make Louis XIV of France (the Sun King) proud. This palace shows the scale (and maybe the lack of taste) of the Chinese kleptocracy.

A normal business – especially a State Owned dinosaur run by bureaucrats – would collapse under this scale of looting. But here is the key: the Chinese SOEs are financed at negative real rates.

A business – even a badly run business – can stand a lot of looting if it is (a) large and (b) funded at negative real rates.

Those negative real rates are only possibly because there are copious bank deposits available at negative real rates to State controlled banks.

The cost of funds in China and the willingness to hold foreign bonds

The Chinese Government (and the banks are part of the government even though they are listed) has access to seemingly unlimited bank deposits at negative real costs.

When you have copious funds at a negative cost a lot of investments that look stupid under some circumstances suddenly look sensible. US Treasuries look just fine. Don’t think the Chinese are going to stop holding Treasuries. The Treasuries yield far more than they pay the peasants. The Chinese make a positive arbitrage on holding low rate US bonds.

Monetary threats to the Chinese establishment

The Chinese kleptocracy – and indeed several major trends in the global economy – depend on copious quantities of savings at negative expected rates of return by middle and lower income Chinese.

There are two core threats to this system – one widely discussed – one undiscussed.

Inflation (widely discussed) is known to produce riots and demonstrations in China – and is considered by Westerners to be bad news for the Chinese establishment. And there are good reasons why the Chinese riot with inflation – the poor who save because they are going to starve – get their savings taken away from them.

But ultimately the Chinese establishment like inflation – it is what enables their thievery to be financed.

The more serious threat is deflation – or even inflation at rates of 1-3 percent. If inflation is too low then the SOEs – the center of the Chinese kleptocratic establishment will not generate enough real profit to sustain the level of looting. These businesses can be looted at a negative real funding rate of 5 percent. A positive real funding rate – well that is a completely different story.

The real threat to the Chinese establishment is that the inflation rate is falling – getting very near to the 1-3 percent range.

Low Chinese inflation rates will mean reasonable returns on savings for Chinese lower and middle income savers. Good news for peasants perhaps.

But that changing division of the spoils of economic progress will destroy the Chinese establishment (an establishment that relies on a peculiar and arguably unfair division of the spoils). The SOEs will not be able to pay positive real returns to support that new division of spoils. The peasants can only receive positive real returns if the SOEs can pay them – and paying them is inconsistent with looting.

If the SOEs cannot pay then the banks are in deep trouble too.

All because the inflation rate is dropping. Maybe they can stop it dropping. The Chinese establishment has a vested interest in getting the inflation rate up in China. Because if they don’t all hell will break loose.

Unless the Chinese can get the inflation rate up expect a revolution.

Read more: http://www.businessinsider.com/how-the-chinese-kleptrocracy-works-2012-6#ixzz1y9jajZpG

US Listed Chinese Stocks – Coming Under Scrutiny

By On June 18, 2012 In Uncategorized With No Comments Permanent Link to US Listed Chinese Stocks – Coming Under ScrutinyPermalink

This article details how China’s securities regulators are blocking information request by the SEC.

China and the U.S. appear to be an a collision course over accounting.  That’s a lot more serious than it sounds.  By the end of this year, unless a compromise can be reached, there is a very real chance that U.S. securities regulators may end up employing the “nuclear option”:  forcibly delisting every Chinese company currently listed on a U.S. stock exchange — such as Sinopec, Sina.com, China Life, and China Unicom.

It’s a potential catastrophe-in-the-making that few investors or politicians have given any serious thought to.

Last year, the US-listed stocks of more than a few Chinese companies took a beating following accusations by short sellers and research shops like Muddy Waters that SinoForest and other companies — many of which had avoided IPO scrutiny by arranging reverse mergers with already-listed entities — were grossly exaggerating their real assets and business performance in their official financial statements.  These accusations prompted the Securities and Exchange Commission (SEC) to launch several fraud investigations into the Chinese companies in question.

Rather than assisting the SEC in its cross-border probes — as other countries regularly do — the China Securities Regulatory Commission (CSRC) has actively blocked the SEC’s information requests, insisting that audit materials on Chinese firms fall under China’s ambiguous yet draconian State Secrets Law.  This April, when the SEC issued a subpoena to the Chinese arm of Deloitte, demanding the audit records of Longtop Financial (which collapsed last May after Deloitte resigned as its auditor), Deloitte refused, noting that the CSRC directly ordered them not to turn over such papers.

The firm argued it could be dissolved and its partners jailed for life if they were to comply.  In May, the SEC responded by initiating administrative proceedings to punish Deloitte China for violating its duties under the 2002 Sarbanes-Oxley Act.  Penalties could include suspending the firm’s authority to perform audits for US-listed companies, which are required under U.S. securities laws.  Apparently similar subpoenas have been issued to each of the other “Big Four” global audit firms (E&Y, KMPG, and PWC), and have met with similar replies.

There is a further complication.  The Sarbanes-Oxley Act also established the Public Company Accounting Oversight Board (PCAOB), a five-person body appointed by the SEC.  Public accounting firms that wish to perform audits on US-listed companies must register with PCAOB, and PCAOB is required, by law, to conduct inspections of those firms.  So far, Chinese authorities have refused PCAOB permission to inspect auditors based in China, including the local arms of “Big Four” global audit firms.  Last month, it looked like PCAOB might have worked out a compromise that would let it observe Chinese regulators perform their own inspection, but the SEC action against Deloitte China appears to have derailed that plan.   The stage is set for a deadlock with serious, potentially disastrous implications, as my fellow CPA and Peking University counterpart Paul Gillis describes in his blog:

The PCAOB faces a December deadline to complete inspections of Chinese accounting firms that are registered with the PCAOB. It seems highly unlikely that they will meet this deadline, since Chinese regulators will not let them come to China. While the PCAOB could extend the deadline, they have already been under political pressure to act … Without resolution, the only meaningful option for the SEC, and the PCAOB, is for the PCAOB to deregister the firms and for the SEC to ban them from practice before the SEC.

The consequence of those actions would be that U.S. listed Chinese companies would be without auditors and unable to find them. Having an auditor is a listing requirement of the exchanges, so under exchange rules the companies face delisting. The U.S. listed Chinese companies would be unable to file financial statements as required. That should lead the SEC to eventually deregister the companies with the SEC.

Paul notes that shareholders in the delisted Chinese companies would still own their shares, but would be unable to trade them on U.S. exchanges.  The companies would probably try to list their stock on other non-U.S. exchanges such as Hong Kong, which could prove an expensive and cumbersome option.  The effect on US-China relations, and on investor confidence in cross-border investments in either direction, would be devastating.  Yet the alternative would be to allow Chinese companies to trade their shares on U.S. exchanges while openly flouting U.S. securities laws — not just Sarbanes-Oxley, which is somewhat controversial, but anti-fraud provisions dating back to the 1930s.

In the meantime, Chinese regulators have been moving to exert even greater secrecy and control over companies’ financial information.  Local bureaus of the State Administration for Industry and Commerce (SAIC) have started restricting public access to domestic corporate filings, after short sellers and analysts used information gleaned from those filings to call company financial statements into question.  Of more immediate concern, the Ministry of Finance is following through on plans to force the “Big Four” global audit firms to surrender majority control of their Chinese operations over to local CPAs, and dramatically reduce the number of foreign-certified CPAs they employ.  As Paul Gillis notes on his blog:

One of the unintended outcomes of the restructuring of the Big Four in China will be that the firms will likely be required to re-register with the PCAOB.  That could pose a problem, since the PCAOB has said they will accept no new audit firm registrations from China until the issue of inspections is resolved.

I was pondering the irresistible-force-meets-immovable-object dilemma here last night when I happened across a seemingly unrelated passage in Jim Fallows’ new book China Airborne, which offered a glimmer of hope.

In 1997, Jim relates, three Chinese airlines — Air China, China Eastern, and China Southern — had just been awarded or applied for very prestigious and strategically important routes to the United States, and had purchased brand-new state-of-the-art Boeing planes to fly those routes, with many further orders expected.  However, the safety record of Chinese airlines in the 1990s was atrocious.  In order to actually fly those routes, the airlines required approval from the U.S. Department of Transportation (DOT), the parent body of the FAA.  The DOT, at the FAA’s urging, demanded “confirmation that China’s regulatory standards, as applied by the CAAC, conformed to the worldwide guidelines laid out by international agreements.”  Until then, it was no fly.

The Chinese were furious, believing the Americans had double-crossed them by selling the planes and then reneging on the routes.  The whole thing could have concluded in respective chest-beating and a very ugly, damaging stand-off.  Instead, Boeing took the initiative (since its future sales were on the line) through a series of seminars, tours, and training sessions to reconcile the two points of view.  Key to its success was the way it handled Chinese sensitivities:

One [way] was to present all their recommendations in terms of meeting international standards for air safety and airline procedures, rather than seeming to say, This is how we do it in the U.S. of A.  Presenting the challenge this way made it far more palatable to the Chinese side.  Learning to comply with international standards was one more sign of modernization in China; doing things the “American way” could seem like a sign of continued subservience.  The examples were, of course, from American practices at the FAA or the operational details of Boeing and United Airlines, but the leitmotif was that Americans had learned how to make their practices meet international standards, and they could help the Chinese do the same thing.

Bridging the gap in securities regulation will surely be more difficult than fine-tuning some phrases — especially since Chinese companies that truly are fraudulent have a lot to hide.  But Chinese aviation officials had a lot to hide too, back then.  Many of them, once they realized how far they fell short of “international standards,” doubted whether they could ever make the grade, and feared losing face and making others lose face if they tried.  But working with their American partners, they succeeded:  China’s airline industry today has an admirable safety record, which has laid the foundation for ambitious plans for China to claim a leading role in the global aviation industry.  Caixin reports that at least some officials at CSRC are sympathetic to what the SEC is trying to achieve, and they certainly don’t want to seem too far out of step with their international (and much more cooperative) peers.

If China wants Shanghai to become a “global financial center,” or the Renminbi to develop into an “international currency,” it has to do the same thing in securities regulation that did in airline safety regulation.  It has to win the confidence of global investors just as it successfully won the confidence of global travellers.  China closing the windows and battening the hatches to avoid embarrassment is not a solution; but neither is Americans telling the Chinese “it’s our way or the highway.”  The U.S. has to make a forceful, compelling argument that adopting international norms of openness and cooperation will help China achieve its ambitions — but that until then, it’s “no fly” for unsafe stocks on U.S. markets.

Read more: http://chovanec.wordpress.com/2012/06/17/can-u-s-and-china-avert-accounting-armageddon/#ixzz1y9hKc44y

Guilin Court “Drops the Hammer” on China’s First Ever Furniture Copyright Case

By On April 23, 2012 In China IP, Copyright, Second and Third Tier Chinese Cities With No Comments Permanent Link to Guilin Court “Drops the Hammer” on China’s First Ever Furniture Copyright CasePermalink

Guilin Court “Drops the Hammer” on China’s First Ever Furniture Copyright Case

The Guilin Intermediate People’s Court recently rendered a ruling with respect to a furniture-related copyright infringement dispute between Guilin Changfeng Furniture Industrial Co., Ltd. (hereinafter “Changfeng Co.”) and Guilin Golden Eagle Furniture Manufacturing Co., Ltd. (hereinafter “Golden Eagle”). The case is notable in that it is China’s first case involving “copyright protection for an original work of furniture.” The ruling not only reflects the necessity and feasibility of copyright protection for furniture design, but even more so resolves the issue pertaining to the immediacy of protecting furniture designs.

Plaintiff Golden Eagle is a manufacturer specializing in the design, production and sale of solid wood furniture. The company carried out copyright registration with the Guangxi Copyright Office on January 6, 2008 for the works of applied art (03-1 shoe cabinets) which it designs, produces and sells. The copyright was subsequently approved.

Likewise, defendant Changfeng Co. also manufactures solid wood furniture. In November 2007, Golden Eagle discovered on multiple occasions that furniture completely identical to its 03-1 shoe cabinets were being sold at markets in Beijing, Wuhan, Chongqing, Shenzhen, Nanning and other areas. Similarities between the plaintiff’s work and those sold by the defendant included the shape, features, design, pattern, ornamentation, color, hue and even the size and dimensions of the work at issue. Golden Eagle believes that Changfeng Co.’s unauthorized production and sale of products “similar” to its own constitute an act of intellectual property infringement, and Golden Eagle therefore initiated action against Changfeng Co. with the Intermediate People’s Court.

Changfeng Co. argued that the copyrighted subject matter in the present case is a work of art having a useful value, and thus falls within the boundaries of a work of applied art. Citing previous cases, the defendant claimed that protection for a work of applied art is subject to that of a design patent and does not fall under the scope of copyright protection (and thus is not entitled to copyright protection). The defendant further argued that the plaintiff’s claims lacked both factual and legal bases, and requested the court to reject the plaintiff’s lawsuit.

The court ruled, upon adjudication, that Changfeng Co. had imitated the furniture works of the plaintiff without its permission for the purpose of generating profits. The style of the defendant’s products was basically identical to that of the plaintiff’s. The defendant’s use of such works without the permission or authorization of the plaintiff infringed the rights to which the plaintiff is entitled under the Copyright Law. Changfeng Co.’s imitation and sales of the plaintiff’s products greatly impacted the production and sales market of the plaintiff, thereby breaching Article 4 of the People’s Republic of China General Principles of the Civil Law, which stipulates that: in civil activities, the principles of voluntariness, fairness, making compensation of equal value and good faith must be observed. The defendant additionally failed to comply with Article 47.1(5) of the People’s Republic of China Copyright Law, thus causing the plaintiff to suffer economic losses and injuring the goodwill of the plaintiff. The court ruled that Changfeng Co. is to assume the corresponding legal liabilities.

Source: China Intellectual Property News

Trademark squatting in China doesn’t sit well with U.S. retailers

By On April 9, 2012 In Trademark Hijacking, Trademark Squatting With No Comments Permanent Link to Trademark squatting in China doesn’t sit well with U.S. retailersPermalink

Chinese businesspeople hoping to cash in on American firms’ interest in their booming market are registering names such as Kardasian, J. Crew, Justin Bieber and Angry Birds. It’s legal, and China’s laws favor the first filer.

BEIJING — The Kardashian sisters don’t sell their clothing and perfume in China, and you can’t buy authentic J. Crew khakis here. But both names are already trademarked by Chinese businesspeople looking to profit from American enterprises that want to tap China’s booming retail market.

Extortion? Nope. It’s called “trademark squatting.” And it’s legal in China, where trademarks generally are awarded to those who are first to register them with government authorities. If these and other U.S. companies want to use their own names, they probably will have to pay the Chinese holder for the rights.

That’s a major contrast to the U.S., where the law tends to favor the first user. And it has led to a crush of applications in China to tie up the names and logos of well-known foreign brands, either to resell them or use them on Chinese-made products.

About 600,000 trademarks were filed in China last year, according to Thomson Reuters research. That’s about three times more than in the U.S., the runner-up.

Although it’s unclear how many of the recent Chinese applications were for established Western brands, anything appears to be fair game.

A man in Guangzhou registered the name of teen idol Justin Bieber. A Shanghai snack maker took the name and logo of the popular computer game Angry Birds. In northeastern Liaoning province, someone owns the trademark to make clothing under the Oprah Winfrey brand. The Facebook trademark has been registered for a variety of products, including soccer cleats and condoms — even though the social media site is banned in China.

“It’s not as sexy as counterfeiting, but trademark squatting is a big problem,” said Mark Cohen, former intellectual property attache for the U.S. Embassy in Beijing and now a visiting professor of law at Fordham University. “The system creates lots of opportunities for abuse. It’s very common for foreign companies to give in and pay.”

The practice has been given renewed attention with Apple Inc. embroiled in a legal battle with a financially troubled Chinese electronics company that holds the rights in China for the iPad name.

Proview Shenzhen is seeking $1.6 billion in compensation from the Cupertino, Calif., technology giant.

Proview has owned the iPad trademark since 2000, a decade before Apple’s tablet computer was launched, so experts don’t consider it a typical example of squatting. Still, they said the high-profile case could inspire countless others to join China’s trademark free-for-all.

Chinese law does provide some protection for foreign companies.

Those that can prove that their name or brand was too well-known for the Chinese trademark owners to have registered it in good faith can prevail.

But it’s not easy, said Stan Abrams, a law professor at the Central University of Finance and Economics in Beijing.

“The system here on the whole is geared towards first to file, and it takes a lot of time and effort to rebut the presumption that the registrant filed in bad faith,” he said.

Apple may have good reason to worry.

In just the last month, two famous global luxury brands have been dealt setbacks by Chinese courts. Hermes International lost a bid to stop a small Chinese clothing maker from making neckties under the luxury brand’s Chinese name, Ai Ma Shi. Chivas Bros. failed to stop another garment firm from selling clothing labeled with its Chivas Regal Scotch whiskey logo.

Chivas said it would continue to appeal. Hermes International did not respond to requests for comment.

Pfizer Inc. tried unsuccessfully for 11 years to stop a Chinese pharmaceutical company from selling a drug using the popular Chinese name for Viagra, Wei Ge, which translates to “Mighty Brother.”

“These guys are using the goodwill of other brands to sell their own stuff,” Abrams said. “This is why we’re supposed to have trademark enforcement.”

Basketball Hall of Famer Michael Jordan is one of the latest to test China’s legal system. The former hoops star filed a lawsuit last month against a well-known Chinese athletic apparel brand named after Jordan in Chinese, Qiaodan (pronounced chow-dan).

Qiaodan Sports Co., which is valued at about $350 million and is planning an IPO, uses a logo that resembles Nike’s Air Jordan silhouette and is accused by Jordan of duping Chinese consumers into thinking it was the official brand of the former Chicago Bulls legend.

A search of China’s national trademark database reveals the company also owns the rights in Chinese to the Hu Ren Dui or Lake People Team — the common name here for the Los Angeles Lakers.

Qiaodan did not respond to requests for comment.

If Jordan wins, he won’t be the first basketball star in China to prevail in a trademark dispute. Several years ago, retired Houston Rockets star and Shanghai native Yao Ming blocked a company from using his name on a line of women’s sanitary napkins.

Meanwhile, a sporting goods maker in eastern Jiangsu province continues to manufacture basketballs emblazoned with Jeremy S.H.L., the Romanized Chinese initials of New York Knicks sensation Jeremy Lin.

Yu Minjie, the owner of the company, trademarked the name in 2010, reportedly because she saw great potential in the Chinese American athlete.

Other trademark holders say it was serendipity that led them to their curious names.

Xu Junwu, who makes public-address systems under the J. Crew brand in Guangdong, said he’s never heard of the U.S. clothing chain and explained that his sales team came up with the name.

“They just picked something easy to remember without a lot of letters,” he said.

But if the American retailer decides to open stores in China one day, Xu said, he isn’t prepared to give it up easily.

“We’ve put a lot of effort into building this brand,” Xu said. “We’re recognized in China.”

Zhen Yongyu said he trademarked Eminem after he saw it written on a bar in Hong Kong. He now wants to import Scottish whiskey and Russian vodka under the name and a logo, which looks identical to the Detroit rapper’s album covers.

“I’ve never heard of Eminem,” said Zhen, who’s based in Beijing. “The only Western artist I know is Lady Gaga,” which is already trademarked by a Beijing company to make walking sticks and sausage casing.

Zhen, who said he’s now focused on developing a brand of liquor for women, is open to negotiation.

“If this Eminem turns out to be a famous singer, we’re willing to cooperate as a potential partner to release this brand in China,” he said. “We’re also open to selling it.”

david.pierson@latimes.com

Tommy Yang and Nicole Liu in The Times’ Beijing bureau contributed to this report.

Bemoaning China’s Counterfeit Problem

By On April 9, 2012 In Copycats, Counterfeits, Shanzai With No Comments Permanent Link to Bemoaning China’s Counterfeit ProblemPermalink

Stan Abrams writes a balanced and insightful blog into China’s IP related issues.  Here’s an interesting one about how the US Military bemoans counterfeiting in China.

“I wrote about this last November, when members of the U.S. government were complaining about counterfeit parts purchased from vendors in China:

[S]ome of the criticism of China seems a bit odd. First, the emphasis on aggregate statistics by country of origin certainly singles out China as the bad guy. But seriously, we’re talking about electronics manufacturing. Where else is the stuff going to come from, particularly when price is an issue?

Second, [Senator Carl] Levin went after China’s intellectual property system directly, pointing out that counterfeit markets exist in Shenzhen and that “China’s authoritarian rulers could stop the counterfeiting ‘if they want to stop it.’”

Old story, no easy solutions. China has a big IP problem, as everyone recognizes. But it’s a complex matter that covers a lot of territory; a lot more is going on here than counterfeit chips ending up in U.S. military hardware.

Since then, the Senate asked the General Accounting Office to go on a little shopping trip and order a number of parts to gather information on vendors and product quality. The results are shocking:

U.S. government investigators, using a fictitious company, were able to easily find electronic parts for weapons from China on the Internet and every single item they bought was counterfeit, despite China’s pledge to crack down on fake products.

A new report by the congressional Government Accountability Office showed that 334 of 396 vendors who offered to sell parts to the fictitious company were from China.

Well, maybe not so shocking. Fakes on the Internet? No one could have seen that coming.

Perhaps I should read this report. I’m wondering just how this shopping was done. Did the GAO create an account on Taobao or something? Did they perform any due diligence before they made these purchases?

Look, as I’ve said before, this is a big problem . . . for the U.S. military. Sure, China should crack down on counterfeits, and in my opinion, they have. But everyone wants immediate action on their pet issue. The MPAA is outraged that one can still buy a fake DVD in front of the Guo Mao subway station. The Business Software Association is pissed that one can download copies of Microsoft from China-based servers. Carl Levin is shocked that the government hasn’t shut down all online sources of counterfeits. But the government can’t fix everything immediately. Moreover, why should they prioritize something that helps the U.S. military, anyway?

None of them are being realistic of course, and I understand that it’s difficult counseling patience ten years after China joined the WTO. But setting up little sting operations that uncover China-based counterfeiters, only to turn around and point the finger at the country as a whole – that’s not really fair.

And by the way, the media is playing into this as well. If you do a search of this issue in the news, you’ll get headlines like this one from Business Insider: “China Is Selling Tons of Counterfeit Military Equipment to the Department of Defense.” No, actually, “China” is doing nothing of the sort. Chinese vendors are doing so, not “China,” whatever the hell that means.

Let’s be reasonable here. I think Levin, the rest of the government loudmouths, and the media should have stopped with this  suggestion:

Given the lack of any crackdown by China, Levin said it was critical that the U.S. Treasury and Department of Homeland Security stop counterfeit products from entering the country, using authorities added to last year’s defense authorization bill.

Sounds like a good plan.”  See the article here.

“Google” Opens First Android Store in China: Take a closer look

By On April 9, 2012 In Copycats, Shanzai With No Comments Permanent Link to “Google” Opens First Android Store in China: Take a closer lookPermalink
Fake Android Store in Zhuhai

Fake Android Store in Zhuhai

The first “Google Android” store in China is decked up with green interiors and flashy lights and has the cute looking green Android robot all over the place. But wait… what is this glowing Apple logo doing in the Google Android Store? Unfortunately, this happens to one of the fake stores like the internationally famed Kunming Apple Store. In addition to Android phones, the store also deals in iPhones, iPads and Xiaomi phone.

The fake store is located in Zhuhai, a city on the southern coast of Guangdong province and it isn’t anything like the Androidland, the first official Android store by Google in Australia. It also has a catchy tagline “Celebrities Smartphone Experience Store” below the Android robot. The store also flaunts Apple products such as iPhones, iPads and iPods and many other Chinese phone brands like the very famous Xiaomi smartphone.

This article was originally posted by Brian Glucroft. See it here.

How China Steals Our Secrets: Cybertheft

By On April 8, 2012 In China IP, Cybertheft With No Comments Permanent Link to How China Steals Our Secrets: CybertheftPermalink

FOR the last two months, senior government officials and private-sector experts have paraded before Congress and described in alarming terms a silent threat: cyberattacks carried out by foreign governments. Robert S. Mueller III, the director of the F.B.I., said cyberattacks would soon replace terrorism as the agency’s No. 1 concern as foreign hackers, particularly from China, penetrate American firms’ computers and steal huge amounts of valuable data and intellectual property.

It’s not hard to imagine what happens when an American company pays for research and a Chinese firm gets the results free; it destroys our competitive edge. Shawn Henry, who retired last Friday as the executive assistant director of the F.B.I. (and its lead agent on cybercrime), told Congress last week of an American company that had all of its data from a 10-year, $1 billion research program copied by hackers in one night. Gen. Keith B. Alexander, head of the military’s Cyber Command, called the continuing, rampant cybertheft “the greatest transfer of wealth in history.”

Yet the same Congress that has heard all of this disturbing testimony is mired in disagreements about a proposed cybersecurity bill that does little to address the problem of Chinese cyberespionage. The bill, which would establish noncompulsory industry cybersecurity standards, is bogged down in ideological disputes. Senator John McCain, who dismissed it as a form of unnecessary regulation, has proposed an alternative bill that fails to address the inadequate cyberdefenses of companies running the nation’s critical infrastructure. Since Congress appears unable and unwilling to address the threat, the executive branch must do something to stop it.

In the past, F.B.I. agents parked outside banks they thought were likely to be robbed and then grabbed the robbers and the loot as they left. Catching the robbers in cyberspace is not as easy, but snatching the loot is possible.

General Alexander testified last week that his organization saw an inbound attack that aimed to steal sensitive files from an American arms manufacturer. The Pentagon warned the company, which had to act on its own. The government did not directly intervene to stop the attack because no federal agency believes it currently has the authority or mission to do so.

If given the proper authorization, the United States government could stop files in the process of being stolen from getting to the Chinese hackers. If government agencies were authorized to create a major program to grab stolen data leaving the country, they could drastically reduce today’s wholesale theft of American corporate secrets.

Many companies do not even know when they have been hacked. According to Congressional testimony last week, 94 percent of companies served by the computer-security firm Mandiant were unaware that they had been victimized. And although the Securities and Exchange Commission has urged companies to reveal when they have been victims of cyberespionage, most do not. Some, including Sony, Citibank, Lockheed, Booz Allen, Google, EMC and the Nasdaq have admitted to being victims. The government-owned National Laboratories and federally funded research centers have also been penetrated.

Because it is fearful that government monitoring would be seen as a cover for illegal snooping and a violation of citizens’ privacy, the Obama administration has not even attempted to develop a proposal for spotting and stopping vast industrial espionage. It fears a negative reaction from privacy-rights and Internet-freedom advocates who do not want the government scanning Internet traffic. Others in the administration fear further damaging relations with China. Some officials also fear that standing up to China might trigger disruptive attacks on America’s vulnerable computer-controlled infrastructure.

But by failing to act, Washington is effectively fulfilling China’s research requirements while helping to put Americans out of work. Mr. Obama must confront the cyberthreat, and he does not even need any new authority from Congress to do so.

Under Customs authority, the Department of Homeland Security could inspect what enters and exits the United States in cyberspace. Customs already looks online for child pornography crossing our virtual borders. And under the Intelligence Act, the president could issue a finding that would authorize agencies to scan Internet traffic outside the United States and seize sensitive files stolen from within our borders.

And this does not have to endanger citizens’ privacy rights. Indeed, Mr. Obama could build in protections like appointing an empowered privacy advocate who could stop abuses or any activity that went beyond halting the theft of important files.

If Congress will not act to protect America’s companies from Chinese cyberthreats,President Obama must.

Richard A. Clarke, the special adviser to the president for cybersecurity from 2001 to 2003, is the author of “Cyber War: The Next Threat to National Security and What to Do About It.”

This article was originally posted by the New York Times in the opinion pages section.

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