Falun Gong still worries China, despite efforts to crush the sect

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TUCKED away in a corner on Gerrard Street, in the heart of London’s Chinatown, three middle-aged Chinese women sit on the ground, their legs tightly crossed, in silent meditation. A deafening loudspeaker behind them blasts out a stream of invective against the Chinese Communist Party. Before long, one of them gets up and starts handing out flyers to passers-by. But pedestrians from China who are approached by the woman grimace and dart away. Most do not even bother to glance at the meditators, who are adherents of Falun Gong, a spiritual practice which China banned in 1999 and calls an “evil cult”. 

Such a brusque response should offer some solace to China’s government, which has been trying for nearly two decades to crush Falun Gong, a movement that once enjoyed widespread mainstream acceptance. The ruthless campaign, however, has significantly weakened, but not destroyed, the sect. Chinese officials still worry about its influence at home. Official lists of proscribed cults still put Falun Gong at the top. But it is the sect’s activities abroad that are an even bigger, and growing, concern for the Communist Party.

Officials like to tar Falun Gong with the same brush as apocalyptic cults such as America’s Branch Davidians and Aum Shinrikyo in Japan, but it shows no sign of the violent extremes associated with those sects. It is likely that the Chinese government overstates the comparison as a way of undermining the appeal of a movement that it sees not so much as a threat to society, but as a challenge to the party itself. As Carl Minzner of Fordham University puts it in a new book, Falun Gong has become “by far the most organised” among anti-Communist movements within the Chinese diaspora. Chinese dissidents in exile are prone to factious squabbles; they find it very hard to unite. Falun Gong shows little obvious sign of disunity.

Gong underground

It is difficult to assess how much of a following Falun Gong retains in China. So brutal has the government’s campaign against it been—including the imprisonment of thousands of Falun Gong followers—that practitioners are extremely wary of proclaiming their beliefs openly. In the 1990s Falun Gong may have had millions of adherents. Some of them were party members and officials. Students and staff met on university campuses to take part in Falun Gong meditation. Massimo Introvigne of the Centre for Studies on New Religions, a think-tank in Italy, says that the current following in China is probably only about 5% of what it was then. Even so, the numbers remain large enough to alarm the government. Every few weeks Chinese-language media report on recent arrests of Falun Gong suspects. In May a woman from the southern province of Guizhou was sentenced to a year in prison for sending pro-Falun Gong messages to more than 2,000 people on WeChat, a social-media platform. In July three women in Beijing were each sentenced to between three and four years in jail for distributing the sect’s literature at a market.

Overseas the movement, which has a large unofficial headquarters in hilly woodland in upstate New York, has been expanding its public profile (pictured are followers marching through Washington, DC, in June). In the early 2000s practitioners in America launched multi-language news media such as Epoch Times, a newspaper, and NTD, a television station. These have grown to rival China’s state media in their reach abroad. In 2006 followers created a pro-Falun Gong cultural group called Shen Yun Performing Arts. It has put on shows of traditional Chinese dance and music (spiced up with anti-Communist themes) before capacity audiences at prestigious venues. Next year the troupe is due to perform in 81 cities in four continents. Overseas adherents have also been adept at lobbying Western politicians. In 2009 Canadian legislators set up a bipartisan “Friends of Falun Gong” association. 

One of China’s biggest anxieties about Falun Gong is that it is led by someone living outside China over whom it has no control: Li Hongzhi, a 67-year-old former government clerk in a grain-procurement office in north-eastern China. Mr Li founded Falun Gong in 1992. It was then no more than a quasi-Buddhist spiritual movement. Adherents would try to gain enlightenment by reading the works of “Master Li” (said to be able to walk through walls) and engaging in slow-motion exercise routines, often in groups in public. Mr Li fled to America a couple of years before the sect was banned, and remains active. In a speech in June to thousands of followers at a stadium in Washington, he praised practitioners in China for keeping their faith despite repression by the “evil” party.

It was only in response to the party’s efforts to eradicate it that Falun Gong turned anti-Communist. In April 1999 thousands of followers protested outside Zhongnanhai, the party’s headquarters in Beijing, about the arrest of Falun Gong activists in the nearby port of Tianjin. It was the biggest demonstration in the capital’s heart since the pro-democracy movement of 1989. Although it had no political aim, it spooked the party. Chinese leaders felt threatened by what they saw as a “competing ideology”, says Anastasia Lin, a Canadian human-rights advocate (and winner of the Miss World Canada pageant in 2015) who practises Falun Gong. Three months later China banned the sect. Thereafter, Mr Li began openly attacking the party.

Among Chinese diplomats based abroad, monitoring Falun Gong’s activities and combating its influence is treated as an important duty. They put pressure on venues to cancel Shun Yun’s performances (sometimes successfully) and not to allow speeches by Falun Gong adherents. In 2015 Chinese officials denied Ms Lin a visa to take part in a Miss World contest in China. Last year the Chinese embassy in London told a student society at Durham University not to allow her to speak in a public debate (she did anyway). A Falun Gong practitioner in Calgary, Canada, says she believes she has seen Chinese spies try to infiltrate the sect in her city. She says some of them are “pretty conspicuous”, giving themselves away by not knowing the correct posture for meditating.

In recent years, from New York to Hong Kong, “anti-cult” stalls have become an increasingly common sight in public places where Falun Gong practitioners gather. They usually have a handful of staff, who distribute anti-Falun Gong literature and display photographs aimed at making adherents look unhinged. Organisers deny that they are agents of the Chinese government, but it is likely that the party encourages their efforts. As David Ownby of the University of Montreal puts it, China’s campaign against Falun Gong is likely to be a never-ending war of attrition. 

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Lebanon’s economy has long been sluggish. Now a crisis looms

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THE main feature of Beirut’s skyline is not minarets or church steeples, but construction cranes. From the roof of a posh downtown hotel you can see 17 of them, throwing up luxury apartments that cost up to $1m each. Wealthy Lebanese sip wine on their terraces and discuss investment opportunities. They rub shoulders with Gulf tourists drawn by Beirut’s libertine nightlife. Lebanon’s economy relies on tourism, construction and finance for growth. All three seem to be thriving.

That, however, is an illusion. The country is tipping into a property slump—and perhaps a banking crisis that threatens its currency. An economic crash could destabilise a country already swamped with refugees and plagued by sectarian divides. Trouble in the banking sector, which draws investors from around the region, might be felt beyond Lebanon’s borders.

Start with tourism, which was bouncing back from a period of regional unrest. Arrivals hit a five-year high in 2017. But they are still below their peak of 2010 and the industry is fickle. In November Saudi Arabia briefly detained the prime minister, Saad Hariri, and forced him to resign (a move he later reversed). Hotel occupancy plunged by 14 percentage points within a month. Saudi visitors, who account for the biggest share of tourist spending, are down by 19% this year. Investment is sluggish. Kafalat, a firm that guarantees loans for small and medium enterprises, handled 117 tourism projects last year, a 6% drop from 2016. Annualised figures from the first half of 2018 show a further 18% decline.

More worrying is the construction industry, which accounts for nearly one in ten jobs. Despite the cranes dotting Beirut, construction is slowing. The number of permits issued in the first half of 2018 was 9% lower than in the same period last year. Property transactions dropped by 17% year on year in the first quarter.

Developers fear a deeper slump is coming. For years the central bank subsidised mortgages, offering 30-year loans with interest rates as low as 3%. In March it abruptly halted the scheme. Bankers say it was abused. Instead of buying houses, some borrowers put the principal into higher-interest savings accounts to turn a profit. Many young couples cannot afford unsubsidised loans, which carry rates of 8-9% and shorter repayment periods. Some have cancelled their weddings as a result.

From bad to worse

Lebanon’s economy was already struggling. Annual GDP growth was 8% in 2010, before neighbouring Syria plunged into civil war. Since then it has averaged less than 2%. The slowdown in the housing market will drag it down further. In Hamra, the commercial hub of west Beirut, electronics stores are almost empty despite deep discounts. Fewer new homeowners means less demand for refrigerators. Many shops have cut salaries or fired staff to get by. “This is the worst it’s been in 40 years. Everything is coming to a halt,” says Rafi Sabounjian, a small-business owner.

On paper, at least, the banking sector looks solid. Commercial banks hold $200bn in deposits, four times as much as Jordan, which has more people. The central bank (the Banque du Liban or BdL) sits on $44bn in assets, excluding gold, enough to cover more than two years of imports. Its governor, Riad Salamé, says everything is fine. He points to the months after Mr Hariri’s detention, when the central bank spent $1bn to prop up the Lebanese pound, which is pegged at 1,500 to the dollar. Reserves recovered almost immediately.

But those numbers are misleading. In 2016 the BdL pioneered something called “the swap”, a complicated scheme in which it borrows foreign-currency holdings from commercial banks. It uses the dollars to maintain the currency peg. The banks get eye-popping returns, raking in 40% for a one-year loan. With no economic growth, the swap works only if it can attract ever-larger sums. “It’s a pure pyramid scheme,” says Jean Tawile, a banker and adviser to Kataeb, a political party.

The BdL does not publish its net reserves. Toufic Gaspard, its former head of research, wagers that “swapped” deposits are worth $65bn—meaning net assets are already negative. Fearing a devaluation, banks are increasingly desperate to attract foreign currency. Interest rates even for short-term deposits are at their highest level in nearly a decade. High rates mean small firms cannot obtain credit. A decade ago commercial lending in Lebanon grew by 15-20% annually. This year it is shrinking.

The currency peg has been a pillar of the economy since 1997. Receipts are printed in dollars and pounds; shoppers use the two interchangeably. This is starting to look unsustainable. Devaluation would be painful for a country that imports so heavily. It would be good for exporters—but Lebanon hardly has any. Last year it exported $2.8bn worth of goods, about half as much as Iceland. The current-account deficit is more than 20% of GDP.

Lebanese politicians made a fortune from the banking boom. Of its 20 biggest commercial banks, 18 are wholly or partly owned by politicians or well-connected families. Now they seem oblivious to the looming crash. Instead they float fanciful schemes for growth. Some hope Lebanon will become a hub for rebuilding post-war Syria. That plan faces many obstacles, not least that nobody knows who will foot the estimated $200bn bill for reconstruction.

Foreign donors pledged $12bn in aid at a conference in Paris in April. But most of this is loans, not grants, and Lebanon can ill afford more debt. The IMF expects its debt-to-GDP ratio, currently about 150%, to hit 180% in five years. By then debt service will burn through three-fifths of government revenue, leaving almost nothing for capital expenditures (already quite low).

In May voters went to the polls for a long-delayed parliamentary election. Mr Hariri took a beating, losing 13 seats, 40% of his total. Still, he will probably remain prime minister—if he ever forms a government. Instead of discussing reforms, lawmakers are haggling over cabinet posts, which they use to disperse spoils. With the economy heading for a crash, there may not be much to hand out.

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Are gender quotas good for business?

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LIBERAL California is on its way to becoming the first American state to mandate gender diversity in companies at board level. A bill approved by the state senate on August 30th requires publicly traded firms headquartered in California to have at least one woman on their boards by the end of next year. By 2021 they would be required to give women at least 40% of board seats. “It’s not only the right thing to do. It’s good for a company’s bottom line.” So said Hannah-Beth Jackson, one of the senators who proposed the bill. Some business leaders are unconvinced and are threatening to launch an appeal against the law. Are they right to worry? 

It was Norway that pioneered the idea. From 2008 it obliged listed companies to have women in at least 40% of board seats or face dissolution. Over the next five years more than a dozen countries, mostly western European, adopted similar quotas. In Belgium, France and Italy firms that fail to comply can be fined, dissolved or banned from paying directors. Germany, Spain and the Netherlands prefer quotas without sanctions. Britain opted for guidelines, and names and shames companies that fall short. In some countries the share of women among directors of large companies has grown four- or five-fold since 2007.

Nearly two-thirds of public firms in California have fewer than two female directors. Opponents of quotas say that this reflects the scarcity of women in upper management. A quota, they warn, would see boards being stuffed with inexperienced, token women. Another concern is that a small number of highly qualified women, known as “golden skirts”, would be stretched thinly across too many boards. But in Europe, such fears have not been realised. In large listed European companies “golden trousers” are almost as common: 15% of male directors sit on three or more boards; 19% of female directors do. Worries that quotas would lead to the appointment of under-qualified female directors also appear misplaced. A study of Italy’s 33% quota found that female directors at the biggest firms were more likely than their pre-quota predecessors to have professional degrees and qualifications. Norway’s quota led to a similar outcome. Elsewhere the picture has been more mixed, though, with female directors appointed after quotas likely to be younger, less experienced and, in some countries, foreign. 

Does any of this affect how well companies do? Some “snapshot” studies show that companies with more women on their boards have better returns and are less likely to be beset by fraud or shareholder battles. But causation is hard to prove. Studies comparing firms’ performance before and after quotas were introduced have been inconclusive. Some have found positive effects on firms’ results; others the opposite. One Italian study found an initial increase in stock price when female directors were elected to firms affected by the quota. But it found no effect on any of seven measures of firms’ performance, including profit, output, debt and return on assets. A French study offers one clue for why the addition of more women has not made a consistent difference. It concluded that the country’s new quota system led to changes in the way the boards made decisions. But there was no change in the substance of the decisions. It also found that the process did not change because the new members were women. It was because they were likely to be outsiders. Perhaps it is too early to judge the effect of quotas on companies’ performance. But if Europe’s experience offers any guidance, expectations that California’s new law could dramatically boost or hurt corporate performance are exaggerated.

Update (September 3rd 2018): This piece has been updated to reflect the result of the vote in California’s state senate on quotas on boards

Papers quoted in this piece
Gender diversity on corporate boards: an empirical investigation of Italian listed companies”, Silvia Solimene, Daniela Coluccia and Stefano Fontana, Palgrave Communications volume 3, Article number: 16109 (2017)
Gender Quotas: Challenging the Boards, Performance, and the Stock Market”, Giulia Ferrari, Valeria Ferraro, Paola Profeta, Chiara Pronzato, CESifo Working Paper Series No. 6084
Breaking the Glass Ceiling? The Effect of Board Quotas on Female Labor Market Outcomes in Norway”, Marianne Bertrand, Sandra E. Black, Sissel Jensen, Adriana Lleras-Muney, NBER Working Paper No. 20256
More than a Woman: Insights into Corporate Governance after the French Sex Quota”, Darren Rosenblum, Daria Roithmayr, Indiana Law Review, Vol. 48, No. 889, 2015

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