China's Top Muckrakers Stop Digging

Why is Caijing -- long a lone outpost of daring Chinese journalism -- suddenly censoring itself?

There are no pyres of magazines burning, no information police combing the newsstands every morning. Magazine censorship in China is banal. Almost all of the control has long been done in-house before publication, by reporters and editors who know just how far they can and cannot go. The closest many private magazines get to an official censor is someone they call "Teacher," sent from their own publishing houses, to patrol content.

But these days, it's not just editors who are drawing in the lines. It's the investors -- the owners and backers of China's few independent media outlets. And there is no better example than Caijing, China's leading business magazine, for which I used to work as a sub-editor. The magazine, whose name means "finance and economics," earned its muckraking stripes with exposés of everything from corporate fraud and insider trading to the government's handling of the SARS outbreak. Editor in chief Hu Shuli was recently profiled in The New Yorker; the piece emphasized her savvy, which has ensured the financial magazine's survival and kept her and her reporters out of jail since she founded Caijing in 1998. The trick was knowing just how far stories could go and not taking them any further.

So when the magazine tightened the breadth of its coverage at the end of July, it was not the editorial side but the purse strings calling for caution. The source of the pressure, Caijing reporters told me, was the All-China Federation of Industry and Commerce, the party-led organization of businessmen that holds the magazine's publishing license. The change was passed down matter-of-factly at routine weekly meetings in July, sandwiched in along with the news budget. Many desk editors told reporters they wouldn't be running any politically controversial stories -- indefinitely.

The move at Caijing comes as part of a larger constriction of civil society ahead of the 60-year anniversary of the founding of the People's Republic on Oct. 1. In the case of Caijing,  the editorial chill came from an unlikely source: reform-minded and Columbia University-educated Wang Boming, the very investor who launched the magazine with a phone call asking Hu Shuli to be editor in chief a decade ago. Wang, a party scion, was born in Poland, where his father was the Chinese ambassador.

Wang declined to be interviewed, but he has said that he aspires to turn the holdings group that publishes Caijing -- as well as the Chinese editions of PC Magazine, Sports Illustrated, and Better Homes and Gardens -- into one of China's biggest advertising agencies. Which may be exactly why a push -- or a threat --  from the All-China Federation of Industry and Commerce had such an effect. China's media licensing structure makes it nearly impossible to get a license without major guanxi, or connections to officials in the right places. Private or foreign-invested magazines (like Caijing) often "rent" licenses from state-owned institutions, which means that those institutions end up taking responsibility for any politically risky material -- but investors lose the money if trouble brews.

According to the New Yorker, Hu Shuli agreed to run the magazine in 1998 only under the condition that Wang would keep his hands off the editorial side. This may be the first time in 11 years that he has failed to do so. "I've never heard of him interfering before," one longtime Caijing reporter said of Wang. "I've never seen this happen. We already knew what we can publish and what we can't."

Indeed, Caijing reporters and editors pride themselves on knowing the rules of their game; they credit the magazine's survival to playing by them. The untouchables are known among foreign media as "the three T's and one F": Tiananmen, Tibet, Taiwan, and the Falun Gong. Jeremy Goldkorn, who runs a Web site about Chinese media called Danwei.org, adds, "You don't directly criticize central government and top leaders, and you don't question their legitimacy. You can criticize lower-down officials, specific actions, and talk about local problems." The rules are blurry enough and enforced arbitrarily enough to keep everybody on their toes.

So after years of policing themselves, how did reporters at Caijing react to their main investor's decree? With a mix of ambivalence and apathy -- always citing the move as an "internal" decision. After placing several calls to one former colleague, I had nearly given up on interviewing him. He was probably too afraid to talk, I thought, and the last thing I wanted to do was get him in trouble. But he finally explained the policy shift on the phone from a crowded bus at rush hour. "It's not a big deal!" he said, yelling over traffic noise and the intermittent, robotic voice announcing each bus stop. "It's just that somebody up top felt uncomfortable, so Caijing decided to limit reporting on politics and social issues." He guessed it could curtail 20 to 30 percent of the magazine's articles.

The reporter was not only blasé; he was relieved: "They said to take it easy, so we finally get time to relax, go on vacation." He couldn't even remember where and when he first heard of the change, but before hanging up, he reminded me not to use his name.

Already, the two most provocative columns, "Opinion Leader" and "Debate," have disappeared from the Web site. "An editor said it's just to adjust the layout, but as far as we know, it's because we need to be more cautious in what we say and what we write," a third reporter said. "It's to protect ourselves. ... If officials say [they] don't like what we say, we have to change topics. Otherwise we may have to close our business. Now we are trying to publish just financial and economic stories; no one knows for how long."

But in a state-run economy with no clean division between politics and business, focusing only on economics means that reporters can't expose financial corruption, the very stories that made the reputation of Caijing in the first place. In the same week as the policy shift was announced to reporters, editors delayed a cover story about how rioting steelworkers in central China beat to death the executive in charge of privatizing the Tonghua steel mill. Originally slated for the cover, it was replaced by one on water prices and moved to the next issue.

Even before the latest move, the stakes in reporting such stories have always been high. As an eerie cautionary tale, the similarly named Caijing Shibao went out of business last year after its reporters investigated millions of dollars worth of suspicious cash transfers at a state-run bank. No editorial staff went to jail, but the penalty of three months without advertising income was expensive enough for its owner, media mogul Bruno Wu, to shut the publication down permanently, laying off 70 people. One dose of censorship like that is enough to sour every other newsroom sitting on a big exposé.

Yet to many reporters, the censorship itself seemed not up for discussion. Out of 10 editorial members I spoke with, four seemed unaware of a change. The one reporter in Shanghai who was rumored to have resigned in protest of the tightened self-censorship would neither deny nor confirm his reasons for leaving the company. "It's not appropriate to talk about," he said, asking, "Where did you get my number?" Having sworn my source to protective secrecy as well, I declined to say.

In a circle of silence, most editorial staff who were even informed of the change either cautioned me against writing about their tightened editorial constraints or said they were no big deal -- sometimes both in the same interview. Two reporters repeatedly said "self-discipline" when they meant "self-censorship." As one told me, "Caijing is a very self-disciplined media outlet."

Correction: This article originally stated that the author worked as an editor at Caijing. She worked as a sub-editor. FP regrets the error. 



How China Cooks Its Books

It's an open secret that China has doctored its economic and financial statistics since the time of Mao. But could it all go south now? 

In February, local Chinese Labor Ministry officials came to "help" with massive layoffs at an electronics factory in Guangdong province, China. The owner of the factory felt nervous having government officials there, but kept his mouth shut. Who was he to complain that the officials were breaking the law by interfering with the firings, he added. They were the law! And they ordered him to offer his workers what seemed like a pretty good deal: Accept the layoff and receive the legal severance package, or "resign" and get an even larger upfront payment.

"I would estimate around 70 percent of workers took the resignation deal. This is happening all over Guangdong," the factory owner said. "I help the Department of Labor, and they'll help me later on down the line."

Such open-secret programs, writ large, help China manipulate its unemployment rate, because workers who "resign" don't count toward that number. The government estimates that roughly 20 million migrant factory workers have lost their jobs since the downturn started. But, with "resignations" included, the number is likely closer to 40 million or 50 million, according to estimates made by Yiping Huang, chief Asia economist for Citigroup. That is the same size as Germany's entire work force. China similarly distorts everything from its GDP to retail sales figures to production activity. This sort of number-padding isn't just unethical, it's also dangerous: The push to develop rosy economic data could actually lead China's economy over the cliff.

Western media outlets often portray Chinese book-cooking as part and parcel of a monolithic central government and omnipotent Beijing bureaucrats. But the problem is manifold, a product of centralized government as well as decentralized officials.

Pressure to distort or fudge statistics likely comes from up high -- and it's intense. "China announces its annual objective of GDP growth rate each year. In Chinese culture, the government has to reach the objective; otherwise, they will 'lose face,'" said Gary Liu, deputy director of the China Europe International Business School's Lujiazui International Financial Research Center. "For instance, the government announced that it wanted to ensure a GDP growth rate of 8 percent in 2009, and it has become the priority for government officials to meet that objective."

But local and provincial governmental officials are the ones who actually fiddle with the numbers. They retain considerable autonomy and power, and have a self-interested reason to manipulate economic statistics. When they reach or exceed the central government's economic goals, they get rewarded with better jobs or more money. "The higher [their] GDP [figures], the higher the chance will be for local officials to get promoted," explained Liu.

Such statistical creativity is nothing new in China. In 1958, Chairman Mao proclaimed that China would surpass Britain in steel production within 15 years. He mobilized villages throughout China to establish backyard steel furnaces, where in a futile attempt to reach outrageous production goals, villagers could melt down pots and pans and even burn their own furniture for furnace fuel. This effort produced worthless pig iron and diverted enough labor away from agriculture to be a main driver in the devastating famine of the Great Leap Forward.

Last October, Vice Premier Li Keqiang said in a speech after inspecting China's Statistics Bureau, "China's foundation for statistics is still very weak, and the quality of statistics is to be further improved" -- a brutally harsh assessment coming from a top state official.

Indeed, China has predicated its very claim of being the healthiest large economy in the world on faulty statistics. The government insists that even though China's all-important export sector has been devastated -- contracting about 25 percent in the past year -- a massive uptick in domestic consumption has kept factories producing and growth churning along. A close examination of retail sales and GDP growth, however, tells a different story. China's domestic retail sales have risen about 15 percent year on year, but that does not really translate into Chinese consumers purchasing 15 percent more televisions and T-shirts. The country tabulates sales when a factory ships units to a retailer, meaning China includes unused or warehoused inventory in its consumption data. There is ample evidence that state-owned enterprises buy goods from one another, simply shifting products back and forth, and that those transactions count as retail sales in national statistics.

China's retail statistics seem implausible for other reasons, too. They would imply an increase in salaries among Chinese people, allowing them to purchase that extra 15 percent. To be sure, the Statistics Bureau reported salaries had increased 12.9 percent in the first half of 2009. But Chinese netizens complained such numbers were hard to believe -- as did the bureau's chief.

A look at GDP growth also raises serious questions. China's economy grew at an annualized 6.1 percent rate in the first quarter, and 7.9 percent in the second. Yet electricity usage, a key indicator in industrial growth and a harder metric to manipulate, declined 2.2 percent in the first six months of the year. How could an economy largely dependent on manufacturing grow while its industrial sector shrank?

It couldn't; the numbers don't add up. China announced a $600 billion stimulus package (equal to about 14 percent of GDP) last fall. At that point, local governments started counting the dedicated stimulus funds in GDP statistics -- before finding projects to use the funds, and therefore far before the trillions of yuan started trickling into the economy. Local governments keen to raise their growth and production numbers said they spent stimulus money while still deciding on what to spend it, one economist explained. Thus, China's provincial GDP tabulations add up to far more than the countrywide estimate.

Alternative macroeconomic metrics, such as the purchasing managers' index (PMI), which measures output, offer a no more accurate reflection. One private brokerage house, CLSA, compiles its own PMI, suggesting a sharp contraction in industrial output between December 2008 and March 2009. Beijing's PMI data, on the other hand, indicated that industrial output was expanding during that period.

Unfortunately, such obfuscation means China's real economic health is difficult to assess. Most indicators that would help an intrepid economist correct the government numbers -- progress on infrastructure projects, end-user purchases, and the number of "resigned" workers -- are not public.

Still, it is possible to infer the severity of the gap between economic reality and China-on-paper by looking closely at monetary policy. China's state-owned banks dramatically increased lending in the first half of 2009 -- by 34.5 percent year on year, to more than $1 trillion. This move seems intended to keep growth artificially high until exports bounce back. Most analysts agree that it is leading to large bubbles in the stock, real estate, and commodity markets. And the Chinese government recently announced plans to raise capital requirements -- an apparent sign it sees the need to reign in the expansion.

For the long term, China is banking on its main export markets -- in the United States, Europe, and Japan -- recovering and starting to consume again. The hope is that in the meantime, rosy economic figures will placate the masses and stop unrest. But, if the rest of the world does not rebound, China risks the bursting of asset bubbles in property and stocks, declining domestic consumption, and rising unemployment.

That's when the Wile E. Coyote moment could happen. Once Chinese citizens no longer believe that the economy is doing well, social unrest and more widespread worker riots -- already increasing in scope and severity -- are likely. That's something that China will have a harder time hiding. And then we'll know whether China's statistical manipulation was a smart move or a disastrous mistake.

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