Newsweek has just run an essay by Ai Weiwei in which the artist and noted critic of the Chinese government paints a grim picture (to say the least) of life in modern China. The piece is notable not only for its stunning language, but also the fact that it comes from a man who was detained in an undisclosed location by Chinese security for about three months this year. As Ai writes: "My ordeal made me understand that ... there are many hidden spots where they put people without identity."

The conditions of his release are understood to include refraining from doing things like submitting essays for Newsweek that say:

"Beijing tells foreigners that they can understand the city, that we have the same sort of buildings: the Bird’s Nest, the CCTV tower. Officials who wear a suit and tie like you say we are the same and we can do business. But they deny us basic rights. You will see migrants’ schools closed. You will see hospitals where they give patients stitches—and when they find the patients don’t have any money, they pull the stitches out. It’s a city of violence.

...

The piece is worth reading in its entirety. It can be found by clicking here.

The owner of the small restaurant -- really, a few tables under a plastic awning -- wasn't sure what to make of us being there. His name was Mr. Li. Keeping an eye on me, he paced back and forth. He made small talk. He gave his foreign customer metal chopsticks. Mr. Li then heckled a man with whom I was trying to have a conversation. He took pictures of me. After a few minutes, though, Mr. Li sat down, listened and decided what he wanted: to be interviewed himself. So, over a plate of chicken and peppers, we started to talk.

When I lived in the Middle East, I often heard a variation of this statement about why regimes there liked China: The Chinese come to do business, and they don't meddle with domestic politics. 

Watching the tumult that has toppled several Arab governments this year, I've wondered how those behind the revolutions would view China and its policy of not asking questions of the (now) former regimes.

A Reuters report yesterday suggested there may be a price to come in Libya:

"We don't have a problem with western countries like Italians, French and UK companies. But we may have some political issues with Russia, China and Brazil," Abdeljalil Mayouf, information manager at Libyan rebel oil firm AGOCO, told Reuters.

The comment signals the potential for a major setback for Russia, China and Brazil, which opposed tough sanctions on Gaddafi or pressed for more talks, and could mean a loss of billions of dollars worth of oil exploration and construction contracts in the African nation."

An updated piece from Reuters today shows the issue has gotten attention in Beijing:

"China on Tuesday urged Libya to protect its investments and said their oil trade benefited both countries after a Libyan rebel official warned that Chinese oil companies could lose out after the ousting of Muammar Gaddafi.

'China's investment in Libya, especially its oil investment, is one aspect of mutual economic cooperation between China and Libya, and this cooperation is in the mutual interest of both the people of China and Libya,' the deputy head of the Chinese Ministry of Commerce trade department, Wen Zhongliang, told a news conference."

It's early days yet, but it'll be interesting to see how this plays out.

Just a quick note -- I've found the twists and turns of the relationship between China and Pakistan to be fascinating to watch.  The New York Times has an intriguing story looking at the possible implications of that cooperation:

"In the days after the raid that killed Osama bin Laden, Pakistan’s intelligence service probably allowed Chinese military engineers to examine the wreckage of a stealth American helicopter that crashed during the operation, according to American officials and others familiar with the classified intelligence assessments.

Such cooperation with China would be provocative, providing further evidence of the depths of Pakistan’s anger over the Bin Laden raid, which was carried out without Pakistan’s approval. The operation, conducted in early May, also set off an escalating tit-for-tat scuffle between American and Pakistani spies.

American spy agencies have concluded that it is likely that Chinese engineers — at the invitation of Pakistani intelligence operatives — took detailed photographs of the severed tail of the Black Hawk helicopter equipped with classified technology designed to elude radar, the officials said. The members of the Navy Seals team who conducted the raid had tried to destroy the helicopter after it crashed at Bin Laden’s compound in Abbottabad, but the tail section of the aircraft remained largely intact."

The full story can be found by clicking here.

An editorial in The Global Times -- a tabloid with nationalist tendencies  -- today continued the streak of Chinese press criticism about America's economic state:

It begins:

"The US political system has long been seen as the highest achievement of capitalist politics. It produced the notion of 'checks and balances,' which are recognized as the modern standard for democratic politics.

However, the downgrading of the US credit rating by Standard & Poor's has smashed the country's political capital."

And then moves on to:

"The real problem is that the US denies its own problems. It is confronted with new competitions and challenges, but still takes its system for ideal and denigrates all those that disagree. Such arrogant behavior is at the very core of the US downfall."

The Wall Street Journal, meanwhile, had an editorial of its own, titled: "China's Debt Addiction. Who is Beijing kidding with its chest-thumping economic lectures?"

The Journal argues:

"The real reason Beijing is anthropomorphizing the bond market is to deflect domestic criticism over losses on the investment of its $3.2 trillion in foreign exchange reserves. Chinese are asking why Beijing continues to lend their wealth to Americans rather than using it on development at home. The question arises from a misconception that Beijing has encouraged, which is that the reserves represent the earnings of the Chinese people, their 'blood and sweat.'

The reality is less admirable. The People's Bank of China (PBoC) accumulated its forex reserves by borrowing yuan from the Chinese people. The U.S. dollar assets and yuan liabilities are roughly balanced on the central bank's balance sheet. If the U.S. government is addicted to debt, so is China's."

Whatever your take on the situation, it looks like we're in for a bumpy ride.

Timing is everything. Three days after Standard & Poor's downgraded U.S. debt, and two days after China's official Xinhua newswire published a scathing critique of the American economy, People's Daily ran a column on its English-language website today with the headline "China must punish US for Taiwan arm sales with 'financial weapon.'"

China, as we all know, is the largest foreign holder of U.S. Treasuries -- to the tune of $1.1 trillion-plus. Ongoing discussions of a U.S. sale of F-16s to Taiwan, which Beijing considers to be part of its sovereign territory, is a hot-button topic in Beijing. China broke off military exchanges with the United States last year after Washington announced the sale of $6 billion-plus in arms to Taiwan.

The argument presented by Ding Gang, an editor at the state-run People's Daily newspaper, did not wander.

His first line --"Now is the time for China to use its 'financial weapon' to teach the United States a lesson if it moves forward with a plan to (sell) arms to Taiwan."

A bit later: "The essence of the problem is that some U.S. Congress members hold a contemptuous attitude toward the core interests of China, which shows that they will never respect China. China-U.S. relations will always be constrained by these people and will continue along a roller coaster pattern if China does not beat them until they feel the pain."

Then this: "China should consider how to build a direct link between the U.S. Treasury bond purchase and U.S. domestic politics while adopting measures to gradually adjust the structure of China's foreign exchange reserves. 

For example, China can directly link the amount of U.S. treasury holdings with U.S. arms sales to Taiwan and require international credit rating agencies to demote U.S. treasuries to force the United States to raise interest rates."

And: "China can also launch limited trade sanctions to the states of those U.S. Congress members who vigorously advocated arms sales to Taiwan to affect their employment."

To be sure, Ding also acknowledges that to target U.S. Treasuries by selling off Beijing's holdings, or by slowing future purchases, would inflict pain on China itself, which stands to lose a considerable amount of money if the value of its U.S. holdings dipped. That central fact -- I've heard it referred to as a sort of economic mutually assured destruction -- has convinced most observers that China wouldn't engage in any sudden moves along those lines.

Ding's saber rattling doesn't change that reality. But his timing is interesting.

 UPDATE: The Chinese language version of the column ran in Global Times, a tabloid published under People's Daily, on August 4. The timing of its publication in English today remains very interesting.

In the Xinhua editorial that slammed U.S. debt levels and management yesterday there was a section that pointed out that China's lead credit rating agency had met with "a sense of arrogance and cynicism from some Western commentators" when it downgraded U.S. debt. Now that Standard & Poor's has knocked the United States down a notch from AAA, Xinhua argued with an obvious sense of satisfaction, that decision by Dagong Global Credit Rating Co. looks reasonable. (I will pause to point out that Dagong currently has America at A, versus the considerably higher AA+ of S&P, and the continued AAA from both Moody's and Fitch Ratings.)

All of this led me to look up the decision by the U.S. Securities and Exchange Commission last September to deny Dagong's application to be accredited as an SEC-recognized rating agency. 

It's an interesting document, one which says a lot about American (if not Western) distrust of China's financial institutions. Among other things, the SEC's Office of International Affairs (OIA) was concerned about its ability to inspect Dagong's records, to include on-site reviews. During the process of figuring out whether that would be possible, the international affairs office exchanged letters with the China Securities Regulatory Commission (CSRC) to confirm that it would be allowed under Chinese domestic law.

I'll let the language from the decision speak for itself:

"By letter dated March 26, 2010, the CSRC responded that the issue of on-site visits for examination of an NRSRO would require an arrangement between the Commission and the CSRC after the CSRC resolved an issue regarding the inspection of Chinese accounting firms by the Public Company Accounting Oversight Board ("PCAOB").7 The CSRC's response did not address OIA's questions about the production of documents and reports.

On April 14, 2010, OIA responded to the CSRC, pointing out that the CSRC's March 26 letter was silent on the issue of whether Dagong would be able to provide documents to the Commission in response to requests. OIA also noted that it had informed the Division that the CSRC had been unable to confirm that Dagong would, under Chinese law, be able to produce directly to the Commission information it required as part of its ongoing supervision and regulation of an NRSRO. The CSRC responded by letter on May 10, 2010, stating that, because Dagong did not conduct any significant business in the United States, the CSRC "[did] not see any short-term necessity" for the Commission to conduct on-site inspections or review Dagong's 'working papers.'"

In a subsequent section, titled "Dagong's view of its ability to comply with applicable law," there's this passage:

"Dagong further explained that the document production would be subject to provisions in Chinese law that prohibit the disclosure of documents containing 'state secrets or [information of] vital interest to relevant securities companies' without approval from the CSRC, China's State Archives Administration, the Administration for the Protection of State Secrets, or 'other relevant authorities.'"

By that point in the document, just the fourth of nine pages, the reader has a pretty good idea of where the  SEC is headed.

Again, the decision is here, and is well worth a read. If nothing else, it is striking for this: Neither the U.S. or Chinese side of the argument sounds like it's going to shift anytime soon. And with rough economic waters ahead, that's going to be an issue.

(On the same subject, let me recommend a recent item in The Wall Street Journal -- Dagong's U.S. Downgrade: Cassandra, Chicken Little or Mad Hatter? What a headline! And the Xinhua piece from yesterday is here.)

The Audis came by in a line, like carriages on parade. Then the men in black shirts and black pants, with white gloves. There was a bustle of instructions being shouted into walkie-talkies and people pointing this way and that for where to position the luxury cars. The Audis were getting lined up for a "brand event" in Beijing's Central Business District this afternoon.

I wondered how many hundreds of thousands of dollars were before me. (I now know that the black car, for one, is the R8 Spyder. It apparently has a manufacturer's retail price starting at $127,000, and costs a lot more, I'd bet, in China with its high luxury taxes.)

Audi sedans are often the car of choice for the elite here. Bloomberg News last year described A6s as the "official cars of the nation’s top leaders." That in a country where the annual per capita disposable income of urban residents was reported to be $2,900 last year. 

Anyway, I was watching them this afternoon when I noticed the man next to me, holding a broom and also watching them. He turned as I took the picture.

I walked past this van on the way home and paused a moment to watch people duck in and look through the flowers for sale. The woman on the other side of the van has just made her friend (boyfriend?) pull his bicycle over so that she could have a peek. The guy in the foreground kept on eye on the merchandise, and seemed unsure what to make of me taking a few quick pictures.