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Coverup? Huawei Should Send Its PR Bill to ZTE

I’ve never been much for conspiracy theories. Not that I don’t like a touch of the fantastic in my daily life (I live in China, after all). But when you think about the sheer logistics involved in most of the major conspiracy theories things start to break down pretty quickly.

Consider that old favorite of the tinfoil hat brigade, that NASA faked the American moon landings, and think about what it would have required. It’s not just the fakery of the photographs and video, but also that everyone who worked on all the aspects of the fakery, from the astronauts to the guys who would have had to doctor the photos and fake the moon rocks and telemetry (depending upon whether you think mission control was in on it or not) would have had to keep their mouths shut. For going on 45 years. For six successful lunar landings involving eighteen astronauts, twelve of whom have allegedly walked on the moon. Not only does everyone who knows about the fraud have to keep his mouth shut, but everyone who has a public face has to keep his story aligned. Especially that attention-junkie Aldrin. It only takes one person to blow the lid off, intentionally or accidentally. Frankly, it’s just easier to go to the goddamned moon.

I’m not particularly interested in getting into a pissing match with conspiracy theorists (like thermonuclear war, it’s not “winnable” in the conventional sense of the word), so much as I am in setting up a problem. Coverups pose similar problems to conspiracies in that, like a big pile of sweaty dynamite, they are unstable by nature and easily detonated, sometimes by the tiniest of disturbances. That’s why they don’t tend to make good PR strategy.

Of course, by definition no one knows when a coverup succeeds. Small ones involving one or two people? Probably a fair number. Big ones involving lots of people and big stakes? Not so many, I’d guess. “Three may keep a secret if two of them are dead,” wrote Benjamin Franklin, perhaps optimistically. In most cases, the participants aren’t Navy Seals or the CIA or other kinds of people who are indoctrinated and trained into cultures of secrecy (and yet still sometimes blow it). We’re talking about just folks who are easily pressured by law enforcement, or who just get drunk on lychee martinis at Centro and shoot off their mouths. Sooner or later someone is going to slip up and the dynamite is going to blow.

Then everyone in serious trouble because, as the old truism goes, the coverup is worse than the crime. Technically, it’s more accurate to say that the coverup significantly aggravates the crime. Coverups turn mistakes into crimes and crimes into enormities. Think of the devastation inflicted on Penn State by the recently published Freeh inquiry, which was most damning for revealing the efforts taken to protect the institution over the victims. Or think of your own toddler, if you have one. If he uses a sharpie to draw all over the wallpaper, you’re angry. If he lies about it, well, then you’re disappointed. Anger is over in minutes. Disappointment leads to years of therapy and careers in bitter standup comedy.

A big pile of sweaty dynamite might be blowing up in the face of Chinese telecoms equipment company ZTE right now. The fuse was lit by a Reuters report back in March (blocked in China), which showed how ZTE was acting as a middleman for relaying restricted American technology to Iran for use in a national Internet monitoring system. The explosion may have started last week when the aptly named website The Smoking Gun reported that the FBI has launched a criminal investigation into the sale. The FBI has not confirmed the investigation, but The Smoking Gun has posted an affidavit that makes fun reading because it includes grubby details of the alleged covering-up. Much of it has the desperate, furtive feel of the third reel of an Abel Ferrara film (or, apropros of the lunar landing discussion above, a Peter Hyams film). You can feel the options narrowing as they talk through them. I don’t know how this situation will turn out, but I do know this: As bad as ZTE looked for shipping US surveillance gear to Iran, they look worse for the discussion of the coverup.

Two other thoughts about this case. First, the FBI case is apparently based on the deposition of a young, American lawyer who was in ZTE’s employ. I find myself reminded of something I heard from a relative who was once highly placed in the empire of a wealthy Hong Konger: White people don’t handle the money. One wonders how much trust ZTE will invest in its white people after this.

Second, the organization that should be most annoyed about this alleged coverup isn’t the US government, the FBI or Internet-freedom activists; it’s ZTE’s Chinese competitor and Shenzhen neighbor, Huawei. Huawei has been busting its ass through an extensive lobbying and PR campaign to impress US politicians and regulators with its trustworthiness and thus extend its limited access to the huge American market. So far it has met with conspicuously limited success not least because US politicians stubbornly refuse to trust it due to its, well, Chineseness.

Huawei and ZTE are different companies, and illegal shipments to Iran aren’t spy-friendly backdoors in routers, but it will be very easy for American politicians and lobbyists to conflate the two Chinese companies and use this situation against Huawei as well. After all, they’re both giant, state-linked Chinese telecoms equipment companies. From an American political point of view, both carry all the reputation baggage that comes with the pedigree. They’re  suspected –sometimes with a dose of hysteria– of being instruments of Chinese policy and possibly vectors for cyberwar attacks. If one is caught with an uncapped sharpie…well, the argument will be, you do the math.

Given the effort its expended over the last few years and the collateral damage it is likely to sustain if the investigation of ZTE’s alleged coverup gathers steam, perhaps Huawei should send its PR and Lobbying bill for the last few years to ZTE. And as for the rest of us? I’m sure we’re all very disappointed.

Not shocked. Just disappointed.

Rectified.name June Mailbag

It’s been nearly three months since we launched Rectified.name. In that time, we have received a lot of feedback for our little group blogging project.  Much of the feedback has been good, some not so much.  Our goal is about once a month (or so) to do a post in which we respond to readers comments and questions….The Recitfied.name mailbag.

As will always be the case, these are actual emails/comments from actual readers.

Why no comments?

It’s not that we don’t love “the conversation”, but in our collective experience open comment threads on China blogs tend to degenerate into mass trollery pretty quickly. However, we do welcome your feedback on our Facebook page, on Twitter, or via email from our comments page. As we hope this post proves, we are paying attention and will respond. Hopefully in some cases more quickly than we did here.

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Subject: I Apologize if Anyone Felt Killed by William Moss

William,

I will see your North Korean Steamroller and Raise you one that happened as recently as 2003.
Rachel Corrie was killed in Palestine. Love your blog. Keep writing.

Such cheerful correspondents! Technically Ms. Corrie was killed by a bulldozer. We’re sure the North Koreans have studied that situation and are considering whether they need to escalate their choice of construction equipment in order to maintain their “only we are crazy enough…” aura. Do we hear a vote for backhoes?

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Hilarious ! I came to this from an Evan Osnos column in the New Yorker. I will bookmark this for more. Thanx ^gb

Thanx back at you.  By the way, Evan’s columns really are the gold standard for thoughtful reflection about what’s happening in China.

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Asia resident for 20+ years, 1/2 in Shanghai, i’m embarrassed to say that i’ve just found your site — immediately RSS’ed it — ‘Thar Be Dragons‘ and ‘I Apologize‘ are outstanding — re the former, comparing Daisey to Backhouse is tremendous — total agreement with your comments policy — keep it all, er, up – thanks

Although there is limited evidence that Mike Daisey ever had clitoral-rectal sex with Cixi, he did once tell an audience in Duluth, MN that he had.  Probably.  We’re still looking for his interpreter/fixer to confirm.

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 I enjoyed and agree with your comments about Bo’s case and its reflections of Chinese politics. In many ways, not much has changed since the Mao days; the only difference is that losers don’t necessarily get decapitated in the literal sense of the word. All the best,  John

There’s still time.

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Hi – I enjoy reading the blog, but the paper-towel-like textured background you have for the body text makes it a little less comfortable than it could be. Any chance of something less grainy? PTH

Our current endorsement deal with Brawny (See the designer prints! Who says cleaning up can’t be stylish? Ka-CHING!) prevents us from changing the background until the autumn. The WordPress template we’re using was the least offensive in the built-in library that we could all agree on. As the site grows, we will invest more time in prettying it up but for the moment time doesn’t permit. You can, however, use an RSS reader like Google Reader or NetNewsWire to subscribe to the site and get all the awesome content with none of the off-the-shelf design.

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Hi Brian, Enjoyed your post on corruption in the margins. There’s a somewhat similar phenomenon in the US, although not quite as severe. The person in charge of purchasing for a business often gets to keep the visa/amex/master card reward points from purchases they make, and use the points for their personal use. This means they have at least some motivation to go to the overpriced vendors that have partnered with the credit company to offer bonus points, rather than find the best deal for the company. 

One reason we don’t let Brendan anywhere near the Rectified.name visa card.

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Hey guys, Your blog is just great. You need to know this. Having devoted my entire post-adolescent life to everything Chinese, consequently having lived in China for a decade, and now travelling back to the motherland on a monthly basis in my current self-employed capacity to work with Chinese clients, I get a lot from your postings. Not only can I relate to much of what you post, but I also greatly appreciate the sometimes unusual topics or creative analyses of current affairs. After all, I can read the print media for a high-level run-down on China, but your insights provide a much more perceptive viewpoint to any given issue. Anyway, that’s about all I wanted to say. I hope to see much more in the years to come.

All the best, Blair

PS. William –

In Australia for Christmas we actually often persevere with the full British tradition of roast turkey, ham, a plethora of sides, and plum pudding, while dressed up in our Sunday best, albeit with an often blistering sun blazing down on us. Insane, I know, but at least we get to drink lots of cold beer and go for a swim in the pool afterwards. And my partner is American, and believe me, she still can’t get used to seeing poor Santa dressed in his woolly suit with extra padding sweltering on main street in 35+ degree heat either…

Thanks for the kind words and we acknowledge that the traditional Christmas scene of sleigh bells and snow is an excellent example of North Atlantic cultural imperialism. Also, one hesitates to wonder how much beer Santa is drinking in these circumstances. I wouldn’t put my kids on his lap if I were you.

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Hey- Just read the piece about Rebiya and the Dalai Lama and wanted to point something out. The Dalai Lama’s comments about poisoning came after the interviewer specifically asked him about his security, and he also mentioned very clearly that the threat was pretty vague. I think a lot of the negative reactions to this came from people who read more sensationalistic headlines taken from the interview, because as presented in the interview itself it isn’t nearly as objectionable and I don’t think really qualifies as douchery. As for why the Chinese would even consider killing him now, why did the last Panchen Lama die when he did? There might be a precedent, even if the dalai lama HAD made some kind of serious accusation. anyways thanks for listening to the opinion of some random web guy.

 

As a Tibet, I found it funny that in the post where you criticize western media for not doing the homework on Rebiya Kadeer, you go into the same trap youself on Dalai Lama’s security. You obviously haven’t done the minimum of homework regarding the history of threats to Dalai Lama. Great that you reference GT as a source for forming your opinion on Tibet. Because then people know they cannot take you seriously on Tibet. I recommend that you read what Chinese local and regional leaders say on Tibet (in Chinese), rather than reading GTs satirical, ironic and morally disgusting comments in english targeted at western journalist and bloggers such as yourself.  Gendun

Dave Responds:

Dear Random Web Guy: Fair point on the Dalai Lama’s comments, and it was certainly not on the epic fail level of Rebiya’s foot shot. I will say, however, that the Dalai Lama and the Tibetan movement pioneered the strategy of focusing entirely on Western opinions and governments and paying no attention to the messages they send (intentionally or not) to Chinese citizens, who ultimately will be the real arbiters of the fate of minorities in China – especially if a democracy somehow comes into being.

As I said, I am not thrilled with finding I agree with something in Global Times, but occasionally they accidentally publish something that resembles a logical point: why go through all that trouble? Go back and read the Wired post on the practicality of contact poisons. If I were the Chinese, why not just shoot His Holiness and frame Dorje Shugden Devotees Charitable and Religious Society (DSDCRS), which, as the link you sent points out, has already murdered three monks close to the Dalai Lama including his Chinese translator?

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Hi guys. Love your blog. I’m casually studying Chinese in Harbin while making just enough off English teaching to support my self-imposed medical-style vacation in China. This week I hit an emotional trough reading China Daily, and the five mao comments. The topic, China’s human rights report on the US. While seemingly mostly factual, the tone was retaliatory. Like a shamed little boy. “I may have eaten the last cookie, but I saw you at the movie theater with that girl mummy doesn’t like”. Please, please, please write something to help me through this difficult time. The time will come when I can’t stand China anymore. But since I also love being here, I hope that day is a long way off. Foreign sites responding to the Chinese report are few, and mostly dismissive. Chinese Internet freedom of speech is… ok it isn’t. I need some intelligent perspective on the issue so I can forget about it and get on with tolerating living here. My emotional harmony is in your hands.

You have type-2 Chinabetes. You need to carefully monitor your intake of China-related news and commentary. We suggest restricting it to reading this blog and this blog alone. We also prescribe a healthy diet of fun, breezy modern western novels (Get a Kindle, or even better a Nook!), at least 2 hours of pointless video game playing a day, and if at all possible, recreational activities with other people that don’t involve alcohol or bitching about China, such as soccer, mahjong, karaoke, musical theater, or  drift racing.

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The one final post on Yang Rui reminded me of how I was watching an English competition back in 2008 in which one of the judges was Tian Wei, the other host of Cross Talk who often takes a very “Glorious China, Evil/Stupid everyone else” type of condescending tone of voice when talking to guests. During the Q&A Session she asked one contestant a question as if to suggest he doesn’t know anything about the subject and she knows everything. The first words out of this man’s mouth were “Let me tell you why you are wrong.” If I could track this guy down I would buy him a bottle of Qingdao and tell him how great it was that he made this woman publicly lose enough face to need a plastic surgeon.

Win little victories.

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In case you’re interested….

The most popular posts from May on the site:

It’s Not Just Yang Rui by Brendan O’Kane

The Devil’s Air Conditioner and other Tales of Woe by Will Moss

“Authorization Modernization always works until it quite suddenly doesn’t” by Jeremiah Jenne

Melissa Chan does not Compute by The Editors

An Expat Comes back from the Homeland by Dave Lyons

Pofu or no Pofu Yang Rui is just an Idiot by YJ

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We were also grateful to have our posts picked up and linked to by a number of China blogs including The Analects (Economist), The China Real Time Report (Wall Street Journal), James Fallows (The Atlantic Monthly), and The New York Times.  Jeremiah was quoted in The Global Post and the New York Times this past month, and Internet oracle Rebecca Mackinnon gave a nice shout out to Dave in her latest piece for Foreign Policy.

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Finally the top search topics for April/May at Rectified.name were:

bo guagua

Yang Rui

Bo Xilai

Gu Kailai

Bo Guagua Ferrari

Game of Thrones Chinese Title

Sheng Keyi

Nick Heywood

Instagram in China

 

All of which make some sense, unlike these search terms which somehow led the strange, the needy, and the possibly mentally ill to our site over the past two months:

write pretzel in chinese & pinyin

can you go on instagram in china

Yang Rui foreign bitch

china cannibalism blood medicinal

can get browsing history from my girlfriends instagram?

convincing others to do violence for me

william moss totally venal (NB: Will has asked his ex girlfriends to stop Googling him.)

jacques martin cologne

two asses with glasses on chinese shivering

intestine hangs out at dothraki wedding screenshots (Our bad – this was in our keywords.)

Testing Your Corruption Goggles

My evening Air China flight from Chengdu to Beijing last week was delayed due to bad weather in Beijing.  After waiting in the airplane on the runway for takeoff for three hours and then another two hours in the airport, Air China made the announcement at 11:30pm that the company would put the passengers up for the night in a “nearby” hotel.  We were given direction to buses parked outside the airport, and as we drove by the Air China hotel located conveniently outside of the airport, I thought “Here we go again, another long drive through the suburbs to some far-away hotel for a three hour rest only to take the long drive again to the airport in the morning.”

Why couldn’t Air China put the passenger first and put us up at the airport instead of driving 30km to some third-rate hotel where I had to pay an extra 120 RMB in order not to share a room with a strange and snoring fellow passenger?  Looking around the lobby, indeed other passengers were asking the same question.

To answer this question, we need to don our corruption goggles.  You know, the lenses that help us see how pirated DVD sellers get to stay on the block, day in and day out;  those spectacles that allow privately-driven-but-publicly owned autos on Beijing’s third ring road to glow like the red ooze that paid for them; or the x-ray glasses that penetrate the concrete walls of the CCDI’s detention center to reveal Wang Lijun removing a tattoo “Neil” from Bo Xilai’s six-pack using skin grafts from dead Chinese prisoners.

Today’s corruption goggle lesson is a focus on a ubiquitous corrupt practice: over-invoicing.  Over-invoicing is a popular mechanism used in both government organizations and private firms in China and the rest of the world to embezzle funds.

To illustrate how this works, imagine that your firm or relevant organ needs a new computer and budgets 3500 RMB for said computer.  In a cash-based economy, like China’s, where prices are settled through a negotiated person-to-person haggling process, a manager sends his employee with 3500 RMB in cash to the market make the purchase.  The employee bargains the price of the computer down below the budgeted level – say to 3000 RMB.  This is savings for the firm, right?  Wrong, the employee then requests the seller to create an official invoice for 3500 RMB and the employee, pockets 500 RMB.  Well not exactly.  The seller needs something out of the deal too, so he and the employee split the difference at 250 RMB each.

Is the firm worse off?  The purchase still came in at budgeted price – or even under-budget which makes the manager happy.  The receipt goes on the books and the employee’s effective wage has increased in a piece-meal fashion.  (In a variant form, sometimes the seller needs to receive the full 3000 to produce this receipt.  Here, he throws in an extra gift, say an external hard drive.  The buyer pockets the hard drive, and the seller gains the profit.)

Extend this example through the accounting system (i.e. bank manager as the seller; construction foreman working on your housing decoration project as the employee; provincial railway official applying for funds to build a high-speed rail network) and by donning our corruption goggles we can begin to observe the systemic and ubiquitous penetration of embezzlement practices throughout the China.

Last week I was talking to a friend, Cheng, whose lines of businesses range from retail fashion to IT repair to high-end dining services – a true gold standard of diversification.  He regaled me with his latest project – building five buildings within an 18 building luxury housing project.  Typically, launching into the real estate development business takes experience and capital, but not for this guy.

To provide context on his opportunity, the five buildings are to be used to relocate villagers whose homes were demolished to build the luxury lot; therefore, it’s a government sponsored project with very little oversight.  He and two other business partners bid among other investment teams to win the project – they put up zero capital and had zero experience in construction.  Yet their 90 million RMB bid won – thanks to the secret ingredient of a 3 million RMB bribe to a bank official!  So now they have a grant from the local government for 90 million, but what they didn’t tell the grant issuing bank was the project will only cost 70 million (over-invoicing in not-so-competitive bidding form).  So minus the 3 million for the bribe, the three investors split the difference of 17 million RMB in government funds.  To top it off, they can put 50% of the apartments in the five buildings on the market to make even more money.  Again, all for zero money down and zero experience at building apartments – not bad for a day’s work.  Why can’t I get in on this deal!!

Getting back to the China Air example, have your goggles led you down the road to true vision?  The hotel services 30km away are listed at a much cheaper price than the Air China owned hotel due to low rents in the suburbs and distance from a prime location.  Air China can charge itself a high price for a hotel room in a prime location and produce a receipt.  The airline is not worried about cost-savings with knowledge that as a state-owned enterprise it can engage in morally hazardous financial practices and rely on a bailout from the central government at nearly any time (indeed it may be getting one soon!).  Then it can then pay the cheap Podunk hotel at cost and then reap the difference in between.  I love it when opportunities are created out of crises (that you’ve also created).

In this game, all you need is a middle man who is willing to play the game with the marginal opportunity of creating an official receipt for you, and you can steal money.  In my next post, I’ll explore the growing role of the semi-private middle man in rising corrupt practices in China.  For now, let’s set our corruption goggles to glow pac-man yellow for middle-men!

 

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