Tuesday, June 19, 2012

Fake bank adds to long list of China's fake products

China has excelled itself with its level of fakery after it emerged that a bank supposedly acquired by businessman was a fanciful invention.

Lin Chunping shot to fame in January this year when it was reported by state media that he had bought Atlantic Bank in the US for $60 million. However, it has now emerged that Li's acquisition was a fiction. The businessman had not only lied about his acquisition of the bank, the financial institution did not even exist.

Highlighting a growing problem

The case not only highlights the fraudulent and illegal behaviour of some individuals that are increasingly exploiting vulnerable people, it also reveals a poor level of research by media organisations which failed to research the supposed deal.

Any journalist worth their salt would have soon found that the bank did not exist. Yet the People's Daily and China Daily both reported on Li's supposed business acumen without checking into the veracity of the claims [China.org / China Daily].

"Lin Chunping, a businessman based in Wenzhou, east China's Zhejiang province, acquired the Atlantic Bank of America for 60 million US dollars in June, 2011," the People's Daily reported in February, adding that it had been renamed USA New HSBC Federation Consortium Inc. and had been put into a trial operation as of November 2011.

The paper then went on to claim that Lin Chunping and his New HSBC might become a benchmark for private enterprises in Wenzhou, China, where the businessman resided.


It is unclear how many individual actually deposited any money in Li's fake financial institution, though Xinhua reported that Li created fake invoices worth hundreds of millions of yuan, or billions of dollars.

The man, who was even appointed as a municipal Chinese People's Political Consultative Conference (CPPCC) member, has now been detained for alleged fraud, authorities confirmed last week. As well as the 42-year-old businessman six others have also been arrested in the city of Zhuhai in south China's Guangdong province in connection with the fraud.

Losses of state tax revenue could run into tens of millions of yuan, or hundreds of millions of dollars, according to police. [Telegraph / LA Times / Globe & MailRT]

Fake Apples and degrees

Lin, previously hailed by the local government and the media as a "financial hero" for Wenzhou, has now become another embarrassment where counterfeiting and corruption is rife.

Last year, officials forced the closure of five fake Apple stores in the southwestern city of Kunming, after the shops were widely publicized by an expat blogger. The stores were modeled after the US company's iconic stores complete with designer interiors, Apple logos and staff dressed in trademark T-shirts.

In June this year, local press in eastern Shandong province exposed a fake university. Students who did not score high enough on the national college entrance exam to make it into university received sham admission letters to the Shandong Institute of Light Industry, a real school. The students paid nearly 30,000 yuan [$4,800] over the course of four years to attend classes at the institute.

However, weeks before graduation, the students learned they would not get diplomas because they were not officially enrolled at the school but in a private training program that rents space from the institute, according to a report in the state-run Jinan Times. Meanwhile the program organizer disappeared leaving students with debts and no qualifications.

Lack of scruples

Faking among students is also said to becoming more common. Many graduates, trying to boost their careers, will pad out their resumes or exaggerate their experience.

Zinch China, the Chinese arm of US-based educational networking site Zinch.com, estimates that 90% of recommendation letters to US schools are fake, that 70% of essays are written by someone else and that half the transcripts are fabricated. Zinch drew the numbers from interviews with Chinese students, parents and agents.

Experts point to many reasons for the widespread of lack of scruples, from the need to be hyper-competitive to succeed in an overpopulated society to an ancient sage who countenanced lying to achieve a higher purpose.

He Huaihong, a Peking University philosophy professor who teaches ethics, takes aim at China's politics, specifically the disconnect between an avowedly communist leadership and the capitalist economy it oversees.

Business concerns

Such issues should be of great concern, not only for China's indigenous population, but also for those doing business in this growing economy.

Openness and transparency is all important for investors and businesses. But in a country where censorship even extends to the blocking of financial websites and portals whose reports are important to make proper investment decisions, there exists a minefield for those doing business in China.

In 2007 China blocked access to the Observatoire International des Crises website after it posted an article, entitled "Shanghai, mon amour," [Shangaï, my love] which warned companies about the risks of trading with China.

The censorship was of great concern to Reporters Without Borders who said the move was a dangerous one which could affect the way businesses and investors make appropriate decisions.

"Internet filtering is not just a problem for political activists, it also affects those who do business with China," RSF said at the time. "How do you assess an investment opportunity if no reliable information about social tension, corruption or local trade unions is available? This case of censorship, affecting a very specialised site with solely French-language content, shows the government attaches as much importance to the censorship of economic data as political content."

"The free flow of information online is not only a human rights issue, it is essential to lasting economic growth and the creation of solid trade relations with other countries."

The Observatoire International des Crises [OIC], a French organisation that produces a magazine on crisis management methods for businesses, drew the ire of authorities after publishing an article written by Didier Heiderich. In it Heidrich said, "The Middle Kingdom has managed to divert international investments for its benefit, obtain technologies without anything in return other than the promises arising from our own imagination, gag its dissidents - including those abroad - and ensnare the West in its golden clutches... Perhaps it is time to realise this before we are closed in the Chinese trap for good."

Flow of information, critical

Concerning the block, RSF said, "It seems to us to be more evident than ever that companies setting up, relocating or buying in China should be discerning and vigilant, acting with industrial rigour and social and environmental responsibility."

The free flow of information is critical. Bad news stories are often suppressed in China for fear of losing face. Yet for those wanting to invest in companies can make bad judgements if facts, or allegations of unscrupulous behaviour, are hidden.

In February this year a court in south China rejected the lawsuit of American Superconductor Corporation [AMSC] against Sinovel, China's largest wind turbine maker, over accusations of Intellectual Property infringements.

While Xinhua and other state media did report on the issue, the coverage was scant compared to the in depth coverage in the West. The case is still ongoing despite initially rejected by China's courts [Xinhua].

Judicial bias

The issue of bias in China's judicial system is something which many Western companies claim is rife. Douglas Clark of the European Union Chamber of Commerce says that such assertions are well founded. China's judicial system is not independent, he says. Today, a bigger problem than anti-foreigner bias is that some provincial courts may favour local firms over outsiders, Chinese or foreign. Even when judgements favour the complainant, fines are small and there is further opacity with judges failing to publish detailed rulings or, if they do, only after much delay.  [Economist / Green Tech Media]

The growing number of such cases should be a warning for those doing business in a country where bias in the legal system exists and where there are flagrant abuses of IP theft.

China now has become a crucial engine of global growth, far sooner than anyone had imagined. While developed countries remain in a quagmire, China's economy is roaring ahead. Consumers elsewhere worry about their jobs and financial futures, but many in China are getting rich, and about to get even more so.

IP theft

However, many are getting rich on copying not only the western model of capitalism, but by ripping off years of research, financial investment and development. While tourists and expats may be happy at obtaining a cheap DVD of the latest Hollywood blockbuster for little more than a dollar, this is only the thin end of the wedge which is affecting companies in the West.

Chinese companies can save millions of dollars in R&D by simply copying a western product, and with a cheap manufacturing base can significantly undercut foreign competitors.

When China's Shuanghuan company unveiled its Shuanghuan CEO 4x4 at the Frankfurt motor show German automaker BMW cried foul and said it would launch legal proceedings claiming the vehicle was a copy of their BMW X5 [CNN]

In June 2008 the Regional Court of Munich ruled that the Chinese SUV brand was a copy of the BMW X5 and prohibited the importing of the vehicles [Carscoop]. However, despite the ruling there are still moves to sell the copycat X5 in other European countries [Motortrend].

Undermining threat

Intellectual property rights [IPR] infringement in China reduces market opportunities and undermines the profitability of firms when sales of products and technologies are undercut by competition from illegal, lower-cost imitations. This is the assessment of the US International Trade Commission which published ia report on the problem in 2010 [ICCWBO - PDF].

Intellectual property is often the most valuable asset that a company holds, but many companies, particularly smaller ones, lack the resources and expertise necessary to protect their IP in China.

One is unlikely to see a fake iPad in a store outside of China anytime soon, but with fakery such big business, consumers and companies, both in China and elsewhere, need to remain alert.

China is fast becoming a superpower [Guardian]. But as its power grows, so do the risks of doing business with this commercial giant.

tvnewswatch, London, UK

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