The following interview with Urs Morf [1] was carried out on May 22, 2014 by Patrick Renz and Frauke Heidemann in Beijing, China. The main topics of the interview were the Chinese natural gas sector and ongoing corruption probes, freedom of press, terrorist attacks, the housing bubble and loans. All footnotes are remarks by Patrick Renz and Frauke Heidemann, aimed at giving additional background knowledge for the reader to follow up on these issues easily.

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. Natural Gas and Corruption Probes

The Russia-China natural gas deal dominated recent headlines. How do you assess this deal? Has it been a success for the Russians, for the Chinese or is it a win-win deal?

It is clearly a success for the Chinese. I reported about this deal for the first time back in 1997, when the Russian Prime Minister Chernomyrdin came to China. [2] The news was almost exactly the same and it was reported that a deal had finally been signed. In those negotiations however, the crucial element has always been the price. It was always reported that this was the one detail that still had to be sorted out, but the Chinese never wanted to pay the price the Russians expected. They knew what they could make when they sell to Europe and the Chinese knew what Turkmenistan and Myanmar were offering. [3] The differences are not big but calculating the enormous amounts of natural gas that is delivered those are huge sums. Until most recently, the Russians never gave up on their position.

Now with the crisis in Ukraine this has changed. For Russia this deal is a success as they have a new and very big customer. The deal is worth one fifth of what they sell to Europe and could potentially double as with Europe there is the risk less demand due to economic and environmental reasons. For China it is a success because they need the imported gas even though they have alternatives such as shale gas and conventional natural gas. Since they want to switch partly from coal to gas, they need to increase their imports. The contract is set up for 30 years and the supply is secure. Therefore, it is a win for China.

China went from being a junior partner to being the senior partner in Sino-Russian relations. The relationship between the two turned 180 degrees. Previously, China was a underdeveloped country and the Soviets came to China as development workers. Today the Chinese are producing consumer goods and sell them to Russia. During Putin’s visit to Beijing, 43 deals have been signed between China and Russia. One of them has been with Great Wall Motors, a car manufacturing company, that is now starting their first operations in Russia. [4] It is no longer Russian people helping Chinese fight their underdevelopment but Chinese companies opening joint ventures overseas.

Especially in the field of shale gas, China is still very much dependent on foreign technologies. How is the climate for investments of foreign companies in China?

I believe if they really want to kick-off their shale gas production, they will have to cooperate with one or two of the big players and will have to impose special regulations in this field. Officially only the service sector is open for foreign energy companies and oil companies, which in reality means only gas stations can be operated by foreign oil companies. The rest is closed from foreign involvement through diverse guidelines and rules. The petro complex is the most powerful and best connected interest group in the Chinese power structure. Therefore, China is probably also undergoing the current anti-corruption probe. [5] This was certainly also about Zhou Yongkang [6] but he is a former head of the petroleum sector and this graft probe is about the three petro companies and about restricting their power and influence. However, sine there is a lot of money in play, they are fighting back as good as they can. The coal sector is another factor. They are also very powerful and not in favor of finding alternatives to coal. Altogether, there are colliding interests and you still have to factor in environmentalists. In the U.S. shale gas production is really taking off, but not everybody is happy about this due to potentially severe ecological impacts. Those impacts are known in China as well.

Would you then say the anti-corruption campaign related to CNPC is either more part of an effort of Xi Jinping to reform the energy sector, or to consolidate its power due to the connections with Bo Xilai of those under investigation?

I would say it is a combination of both. There is the internal power struggle and Xi certainly was able to somewhat consolidate his power, but this is an ongoing process. It is still not certain whether they will publicly hold a trial against Zhou Yongkang. With the current scope of the anti-corruption campaign, one useful effect is that people have for years witnessed corruption and got even more frustrated by the process as there seems to be no one who is not corrupt. I am not sure whether this will not prove counter-productive in the medium-term.

So it is a combination of consolidating power while ending the influence of those following Zhou Yongkang and of bringing the internal security apparatus back under the influence of the party leaders. Additionally, there are the economic factors that also play an important role. Zhou Yongkang has been tackled but there was one after another that has been put under investigation with an obvious red line behind this. They have been tackling the entire petro sector and this shows how important this is for the focus of Xi Jinping.

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. Territorial Disputes

Regarding the diverse territorial conflicts in the South China Sea and East China Sea, do you see any change in how this is perceived in China?

In the 90s there was this motto of “peaceful rise” [7] what nowadays no longer seems to be the main focus. The territorial claims concern several islands that have according to the Chinese historically always belonged to them. In the last three to four years this claim has intensified. With an oilrig off Vietnam’s coast, they pushed the escalation to the next level and I sometimes ask myself what their goal is. [8] During ASEAN conferences China always stresses that it wants to find solutions and have good relations among neighbors. This is a huge contradiction to putting up oilrigs in front of one’s coast.

Do you think there is any potential for a solution?

It seems like a deadlock situation to me. With the Philippines it is less grave. But with regard to the Paracel Islands there is no understanding for the situation or for the other side. [9] People that grew up here have heard all their lives that these islands belong to China. If you don’t know else and have never heard anything else you believe this is nothing unusual. The same is probably true for the situation in Vietnam. Nevertheless, there certainly is a solution. In fact, there could even be two solutions, either multilateral with ASEAN as a whole agreeing on their position and negotiating with China or bilateral negotiations. The ASEAN nations are certainly not that eager to negotiate bilaterally as they are always lightweights compared to China. But with good will on a bilateral basis, one could find a solution and everybody would benefit. The costs for the exploration of natural resources around the Paracel Islands are enormous and there is a need for technology, expertise and funding. The same goes for the oil and natural gas that is expected to be around the Diaoyu/Senkaku Islands. [10] It would be very rational to exploit these resources jointly. This not happening is a sign that the leaderships do not want joint exploration. Domestic politics certainly play a great role here with both conflicts continuously held at a certain level that they can be used to divert attention from domestic issues. As most issues in China, there are multiple components needed to understand the issue.

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. Freedom of Press

As you have been working in China as journalist for a long time, has freedom of press ever been an issue for you?

Swiss media is certainly less scrutinized as we are neither Anglo-Saxon nor German. Whatever happens with regard to Switzerland – even if it is Tibetans demonstrating in Bern when there is a state visit from China – gets forgotten very quickly. As a journalist, there is a lengthy process necessary for renewing a visa but that affects everyone the same. It has become more difficult over the years and for example three years ago I even had to go to an interview. But all I face is less strict than for e.g. Germans, where there has always been someone from the immigration police sitting into the interview. This was not the case for me. The last two years I even had to deliver my documents but there was no problem at all.

It was just the opposite when I came to China in 1992. They were really happy that two big European newspapers had a correspondent in China and it was almost a surprise they didn’t deliver the visa to our doorsteps. To address the issue, it probably would be the best if all journalists would stand together and agree to simply not report from China for about two months to set a signal. However, that won’t be possible as there is always someone who tries to report and in the short run it would probably not bother the Chinese government too much. We journalists are always digging and are thereby counteracting all their propaganda, which is certainly bothering them.

Is there any topic you would not report about?

In China there is no topic. I once did not go to a meeting as I was warned from a trusted source that it could be a trap. I don’t step into traps. The story was about a petitioner who contacted me via cell phone and he wanted to tell his story. I heard that if I went to that meeting instead this petitioner, I would most likely meet people from the security apparatus. I never heard back again from this man. But aside from that, I report about everything while being aware of the possible consequences.

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. Terrorist Attacks

What is your take on the latest attack [11] in Urumqi?

That is an interesting topic. I have been travelling through Xinjiang as a student and even back then Urumqi was a city full of Han Chinese. Afterwards I went via bus to Kashgar and got along very well with the Uighurs, but what I realized was that street markets are strictly separated as the Uighurs don’t eat pork. That is why I was surprised at first when I heard that a car drove into a market as they certainly don’t drive into their own markets. Now we were able to verify that it was a market that is primarily visited from old Han Chinese.

When the attack happened at Tiananmen Square, most news outlets first reported that it was only an accident. You were among the first who publicly stated that it had to have been a premeditated attack. Why?

There were many reports at first about this being an accident but if you have been at Tiananmen Square you know that there is no way anyone could mistakenly drive up to the point this car did. [12] I therefore told my people what I believe and they trusted in what I said. Everybody sometimes makes mistakes, it also happened to me before. In China it is sometimes even more difficult as it can be impossible here to double-check things.

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. Housing Bubble and Loans

When we drove through Inner Mongolia, what really astonished us was the amount of high rise buildings that recently have been or are being built, but so far no people living in there. How do you assess this buildup of entire cities?

There is the speculation that the economic growth can be kept at its target through this. They are building ghost cities [13] on an enormous scale with sometimes absurd structures. In 08/09 they built gigantic wind energy parks that are not connected to the grid as out there no one is in need of this electricity. [14] These are the leftovers of planned economy and people have not completely overcome this. They don’t build exactly where it would be needed but there is a quota that needs to be fulfilled, which leads to blind growth. In our upcoming special edition there is always the question about the “China Model” [15] but I don’t think it is a model of success. They certainly are successful in providing their people with many new opportunities and there are enormous amounts of people who can finally afford to travel to distant places. But for example people who come to Beijing as migrant workers and work in low-paying jobs don’t profit from this. Sometimes they live in places such as former factories where they input small bungalows in which they live with up to four people and have a common bathroom due to the lack of space. At the same time in Ordos and other areas there are empty apartment buildings which those people never can afford. [16]

Almost all of our Chinese friends have the newest iPhone and while some might be able to afford it, most have paid it on a loan, which seems to be an increasing trend. How do you see this?

Buying things by installment is becoming increasingly usual. To get a mortgage on your house they increased the requirement of your own funds needed as they were afraid of a repetition of the US mortgage crisis. With consumer goods it might be different. But for the housing market the bubble might be about to burst as there is a complete oversupply of the wrong type of houses. There recently was an article in Xinhua or China Daily on why this won’t happen. The explanation was that China is not at the point Japan has been before its own bubble burst, as the urbanization rate is at about 54% and not yet at 75% in China, which is where it burst in Japan. [17] However, in China they build the wrong things at the wrong place. You can’t tell the migrant worker to go live in the huge apartment compounds, as they will never be able to afford it. All those empty buildings are a form of investment as there is simply no other alternative to invest money because no one trusts the stock market. Therefore, people buy apartments, as those don’t loose value according to public wisdom.

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Thank you very much for the interview.

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[1] If you are interested in the work of Urs Morf, visit the following site for his reports: http://www.srf.ch/suche?q=urs+morf.
[2] More on the background of the pipeline negotiations: http://www.bloomberg.com/news/2014-05-21/russia-signs-china-gas-deal-after-decade-of-talks.html.
[3] For an overview over the other Chinese pipeline imports: http://www.bloomberg.com/news/2014-06-23/china-imports-of-pipeline-natural-gas-rise-to-record-high-in-may.html.
[4] More on this at the website of Great Wall Motors: http://www.gwm-global.com/news_detail-1638.html.
[5] News on the anti-corruption campaign and its link to the energy industry: http://www.ft.com/intl/cms/s/0/5379486c-e608-11e3-a7f5-00144feabdc0.html – axzz3AvfaDMnS.
[6] The take of the South China Morning Post on the coming trial of Zhou Yongkang: http://www.scmp.com/comment/article/1562787/zhou-yongkang-must-not-be-given-show-trial-sake-chinas-rule-law.
[7] A Chinese state media perspective on the peaceful rise: http://news.xinhuanet.com/english/china/2014-05/09/c_133322459.htm.
[8] In the time since the interview the oil rig has been removed, tensions however remain: http://online.wsj.com/articles/chinas-cosl-moves-oil-rig-from-contested-waters-1405472611.
[9] Recent news on the continuous tensions in the South China Sea, also including the Paracel Islands: http://www.bloomberg.com/news/2014-08-10/china-thwarts-u-s-effort-at-easing-tensions-in-south-china-sea.html.
[10] An overview over the island dispute between China and Japan: http://www.bbc.com/news/world-asia-pacific-11341139.
[11] The attack referred to is the one of May 22 when two cars crashed into shoppers at a market and killed 31 people. More on this at: http://www.bbc.com/news/world-asia-china-27502652.
[12] Three men were sentenced to death for their involvement in the attack at Tiananmen Square: http://www.bbc.com/news/world-asia-china-27864060.
[13] A report on China’s ghost cities: http://blogs.wsj.com/chinarealtime/2014/05/16/chinas-ghost-cities-are-about-to-get-spookier/.
[14] More about the challenges wind energy has been facing back in 2008 and 2009: http://www.forbes.com/2009/07/20/china-wind-power-business-energy-china.html.
[15] A basic overview over the China Model: http://www.chinausfocus.com/finance-economy/chinas-model-of-development-and-the-beijing-consensus/.
[16] An analysis of whether Ordos really is a ghost city or not is provided by the Wall Street Journal: http://blogs.wsj.com/chinarealtime/2013/09/24/chinas-ghost-cities-may-not-be-so-spooky/.
[17] More on the forecasted rise in China’s urbanization rate: http://www.chinadaily.com.cn/china/2013-12/27/content_17199551.htm.

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