“She’s got blood on her blade, and her clothing smells of gunpowder,” wrote Chinese blogger Hecaitou after hearing of Hu Shuli’s resignation as editor of Caijing, China’s most important business and news magazine. Though her radical move was not unexpected, the news set Chinese media on fire and sent reporters worldwide racing to file copy. (For part one of this series, click here.)

Neither Hu nor the publisher, Wang Boming, has spoken publicly about their dispute. Rumors of internal dissension at Caijing had been swirling for months, and in October they were confirmed when managing editor Daphne Wu resigned, along with almost three-quarters of her sales force.

Caijing had been obliged to turn over more than half of its revenue to SEEC (Stock Exchange Executive Council), which in turn derived almost half of its entire earnings in the first six months of 2009 from the magazine. The loss of income infuriated Hu because of the impact on her news-gathering ability. She “felt that Caijing was a cash cow for the [parent company] SEEC and was deprived of the resources she needed to make it world-class,” one of her reporters told the Wall Street Journal.

Hu was also under pressure from SEEC to give in to advertisers who sought ruanwen, or soft news, palatable stories featuring positive reviews. Caijing, unlike many of its competitors, never participated in this practice. It had no need to pander to special interests or cave in to pressure from its advertisers, because it was funded by the private investors of SEEC, not subsidized by the government, as are most Chinese media.

Wu, in charge of advertising, agreed with Hu’s ban on advertorials, which she felt prostituted the magazine. “[Y]ou may sacrifice some economic benefit in the short run, but you get credibility and trust from the readers, and that’s more important for the business eventually…. If you compromise, then you lose in the long term,” Wu told The New Yorker.

Hu didn’t like to compromise either. With a circulation of 200,000, Caijing was able to push back against government attempts at censorship much more successfully than were mass dailies that reach millions. She had so refined her sense of what could squeak safely by the propaganda department that she would have her reporters spend weeks doing research and developing a dangerously hot story, holding it back until she felt the moment was ripe for publication. Last June, for example, she noticed a one-line item in Xinhua, the official press agency, that the mayor of Shenzhen had been arrested. The full story was on Caijing’s Web site 29 minutes later.

But the turning point, apparently, was Hu’s defiance of the government’s prohibition against covering ethnic strife or military actions: In July, she sent reporters to cover the ethnic riots in Xinjiang province. Although Caijing didn’t explore the underlying causes of the clashes with the Uygurs in its initial account, such was the regime’s sensitivity and its accumulated frustration with Hu’s aggressive reporting that the Central Commission on Politics and Law, a powerful government agency, insisted on the need to “rectify” Caijing.

The publisher was told to fire his star editor. Instead, Wang, no longer able to resist the pressure to rein her in, told Hu that going forward, Caijing’s stories would have to be vetted by SEEC before they could be published. In other words, tone down the controversy—stick to the cai and the jing (finance and economics). That was clearly unacceptable to Hu, but she was nonetheless forced to cut three features and eliminate the two most provocative columns from the magazine’s Web site. All this came on top of her increasing irritation with the financial relationship between Caijing and its parent, SEEC.

Wang was in a precarious position: Caijing owed its success in part to its provocative stories, but as the magazine grew in size, wealth and importance, its increasing edginess risked alienating not only the government but its readers, and a drop in circulation would mean loss of revenue in what was by far the most profitable of SEEC’s products.

Other factors external to Caijing may have contributed to the pressure on its editorial department. It may have been “part of a larger constriction of civil society” as China prepared for the 60th anniversary of the founding of the People’s Republic on October 1. In addition, the All-China Federation of Industry and Commerce, which holds the publishing license that Caijing, like all Chinese media, was required to obtain from a state agency in order to publish, was headed by a man with liberal leanings until 2007 but has since come under the direction of someone more conservative.

Although observers disagree over the relative importance of Hu’s unhappiness over Caijing’s financial setup and editorial constraints, it’s clear that both were in violation of the two non-negotiable conditions Hu had set at the outset of her partnership with Wang Boming: full editorial control and generous financial support.

Two days after Hu Shuli left Caijing, she flew to Guangzhou, where she accepted the long-standing offer of Sun Yat-sen University to be the dean of its journalism school. Guangzhou is in southern China, close to Hong Kong, long known for export and international trade. It’s not surprising, observed the Committee to Protect Journalists, that Hu Shuli is headed for Guangzhou, which is very close to China’s financial centers for economical growth and is itself a “center for aggressive reporting.”

Hu is said to be planning a new publication to be called Caixin (finance news) with her loyal staff and a new backer. BusinessWeek reported that Wu’s departure was in preparation for the venture, and the Committee to Protect Journalists learned that they have already rented office space in downtown Beijing, which Wu and her staff have begun to occupy, an indication that they may have procured some initial funding. The highest obstacle will be obtaining the necessary licenses from the government, a process that, if successful, could take months.

Hu Shuli’s new Web site is now up, with arresting photographs of suffocated cities, desiccated lakes, melting icecaps and graphic evidence of global warming, safer themes than her Caijing subject matter. Concerned and pensive, her images contemplate planetary devastation and suggest the pain of relinquishing the position so clearly vital to her. The “Weekly English Digest” link goes to the new Caixin Weekly, with business and general news stories. As of Dec. 9, the latest issue posted was for Nov. 30–Dec. 4. Caijing’s English-language Web site, on the other hand, appears to be as Hu left it on Nov. 9, though the Chinese site seems to be current.

In the letter to his readers that Wang Boming wrote from his empty newsroom on Nov. 23 (translated and reprinted in the Wall Street Journal), he expressed his deep regret at losing a “partner of so many years.“ Remembering being “inspired by the title of ‘uncrowned king’ that the media held,” Wang wrote, “I sought out social justice and journalistic truth, and I was excited by the progress of China’s reform and opening.”

The propaganda department would be well advised to heed Caijing’s publisher: “[T]he newsperson’s sense of responsibility and mission … is that ‘the public has the right to know.’ We should defend this right, and moreover, we should act in the service of this right. Therefore, a commitment to editorial independence is at the very heart of our mission. Not only must we guard against the erosion of our independence from business interests, but we must also resist the imposition of inappropriate controls from above.”

Hu Shuli couldn’t have said it better. China’s emerging capital markets and burgeoning economy are in sore need of a watchdog media. Caijing‘s exposés spurred government investigations, instigated reforms and resulted in the arrest of criminals, and “the end of Caijing as we know it is an unmistakable setback for China,” Evan Osnos wrote last month. Or instead, as BusinessWeek wrote more optimistically, this might be “the first step to a new and even bolder publication.” China must choose between the increasing openness that has served its economy well or the regressive “bamboo curtain” of secrecy.

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