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Dalian Wanda to buy Swiss sports group Infront

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BEIJING—Chinese property and entertainment giant Dalian Wanda Group Co. is buying Swiss sports-marketing company Infront Sports & Media AG for €1.05 billion ($1.19 billion), a move that could help China bid to host big sporting events.

Wanda plans to take Infront public, though it doesn’t yet have a time line or location selected for a listing, Wanda Chairman Wang Jianlin said during a news conference Tuesday. The acquisition is expected to help boost sports in China and increase Wanda’s influence in global sports, Mr. Wang said, adding that he is planning two other acquisitions this year. He didn’t disclose details.

Infront, based in Zug, Switzerland, oversees media and marketing rights for international sports events and organizations. Infront President and Chief Executive Philippe Blatter —who is the nephew of FIFA President Sepp Blatter, head of soccer’s world governing body—said the deal would help the company boost investments and improve its offerings in sports.

Infront is “best-positioned to actively support China in its bidding efforts for major sports events,” Mr. Wang said.

For Wanda, the Infront acquisition would align with the Chinese company’s pursuit to expand its entertainment empire. Wanda, led by billionaire Mr. Wang, bought U.S. movie-theater chain AMC Entertainment Holdings Inc. in 2012 and has been building theme parks in China to rival companies such as Walt Disney Co. It is also scaling up its film ambitions, creating a Chinese version of Hollywood in the coastal city of Qingdao.

One of its more recent moves focused on its sports ambitions. In late January, Wanda announced a €45 million deal to buy a 20 per cent stake in Spanish soccer club Atlético Madrid. Wanda also said then it is investing €20 million annually over the next two years to support the development of 180 young Chinese soccer players in Spain.

Wanda would take on uncharted business territory with its move for Infront, which has held World Cup production rights, represents Olympic winter-sports federations and provides media and marketing services for the Chinese Basketball Association.

Infront is the exclusive sales representative for distribution of broadcast rights to the 2018 and 2022 World Cups, according toInfront’s website. The company also has sales-representative rights for FIFA events in 26 Asian territories, including China and India, from 2015 to 2022, Infront said.

Wanda’s ownership and increased involvement in sports will likely strengthen China’s future bids to host the World Cup, said Xavier Robert, a partner at private-equity house Bridgepoint, which bought Infront in 2011.

Several other companies competed with Wanda for the Infront acquisition, said Mr. Robert, adding that Wanda gained approval because of its “capacity” to help Infront grow in China and outside the country. Mr. Robert declined to disclose which companies bid for Infront.

Infront generated more than $913 million in revenue in 2014, Mr. Robert said, declining to disclose revenue for the year prior.

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Infront oversees media and marketing rights for international sports events.

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As US exits, China takes on Afghanistan role

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In December, representatives of the U.S., China and Afghanistan met for private talks in London, the first time the three countries convened to seek ways to forge peace in Afghanistan, a senior U.S. official said.

The previously undisclosed meeting, which came within days of a visit by the Afghan Taliban to Beijing, was a step on a path long resisted by China, wary of the U.S. military presence in Afghanistan and reluctant to meddle in its neighbor’s affairs. The three countries met again last month at an international meeting on Afghanistan in the United Arab Emirates, one participant said.

China’s move toward the role of mediator signals a foreign policy shift in Beijing—for decades focused on domestic issues—that could recalibrate the geopolitics of Central Asia and test China’s capacity as a regional leader, Western officials said.

“In a certain sense, they’re competing with the U.S. for success in Afghanistan. They want to prove they can do it better,” said David Sedney, a former U.S. diplomat in Beijing and Kabul and deputy assistant secretary of defense for Afghanistan, Pakistan and Central Asia from 2009 to 2013.

U.S. officials declined to discuss the outcome of the talks. But China’s participation is seen as part of a broader diplomatic effort that began around the time Chinese President Xi Jinping took power in 2012 and has since intensified.

The December trip to Beijing by the Afghan Taliban delegation was the second in recent months, Afghan and foreign officials said. And it came weeks after Afghan President Ashraf Ghani ’s visit to Beijing, his first official trip abroad.

Beijing has also pledged $327 million in economic aid to Kabul through 2017, and now appears to be exploring ways to enhance Afghanistan’s security as the U.S. and its allies make their exit.

China’s foreign ministry said Beijing wanted to play a “constructive role” supporting an Afghan-led peace process, but didn’t respond to specific questions about the Taliban visits or other diplomatic activities. Afghan officials have said they welcomed a role by China.

The initiative in Afghanistan reflects Mr. Xi’s drive to enhance regional diplomacy and China’s international standing, experts say, as well as challenge the U.S. as the primary underwriter of regional peace and prosperity.

The Taliban last month issued its first statement acknowledging contacts with China, but denied that Beijing was involved in peace talks. It said the recent Taliban delegation’s visit to China was intended to build neighborly relations.

Others familiar with the visit said Beijing hoped to host talks between the Taliban and Afghanistan’s government—and the effort appeared to be gaining traction. A former senior Taliban commander said another delegation would visit China soon and Russia would join those talks. Russia’s foreign ministry said only that it supported an Afghan-led peace process.

Despite reservations about China’s more assertive foreign policy elsewhere, the U.S. has welcomed Chinese involvement in Afghanistan after a decade of being rebuffed by Beijing, current and former U.S. officials said. Washington is waiting for more details about China’s plans, they said.

China has already started training Afghan police, an Afghan security official said, and is considering funding for nonlethal security equipment.

It remains unclear whether China has the political will or diplomatic resources to succeed. “It will take a long time to know whether they can achieve a result,” said Mohammad Mohaqeq, a senior Afghan government official.

But Beijing has a strong motive to try. China has long worried that instability in Afghanistan and Pakistan would worsen unrest in its Muslim northwest, where officials blame ethnic Uighur separatists for a recent surge in violence.

These fears have grown as the U.S.-led military involvement winds down in Afghanistan, creating a potential security vacuum.

During Afghanistan’s tumultuous political transition last year, Chinese security officials began visiting Kabul regularly, and expressed concerns about militant havens, according to a former senior Afghan security official.

Franz-Michael Mellbin, the European Union envoy to Afghanistan, said he first noticed increased Chinese interest in Afghanistan in 2013. “They have been looking for an area to expand their foreign policy toolbox,” he said, “but also doing it in a way that would not be seen strategically threatening to the U.S.”

During an October conference on Afghanistan in Beijing, a Chinese general surprised some U.S. participants by suggesting the Pentagon inquire about a joint effort with China to train Afghan security forces, say people familiar with the matter.

Until recently, such a joint venture would have been inconceivable. U.S. officials contacted the Chinese military and after some discussion, concluded there wasn’t serious interest. China was simply testing ideas about what it could do in Afghanistan, a senior U.S. official said.

Past peace initiatives in Afghanistan have failed, including a U.S.-backed effort in mid-2013 to hold talks in Qatar.

But China has some diplomatic advantages, including funds that Afghanistan desperately needs; a strong desire to curb Islamic extremism; and working relations with the main parties, including Iran and Russia.

Mr. Ghani, the Afghanistan president, has long experience dealing with China from his time at the World Bank. He sees Beijing as an important source of aid and investment, say people who have spoken to him.

In addition, Mr. Ghani and other officials see China as a source of influence over Pakistan, a China ally that is home to Taliban havens, and which would have to be involved in any peace deal, they say.

“We hope that China will play a proactive role in bringing peace to Afghanistan, because whatever the Chinese do, they do it according to a plan and with focus,” Mr. Ghani said in a speech last month to mark the 60th anniversary of China-Afghan relations. “Now, as they have become involved, we will witness more steps toward achieving peace.”

China has ruled out sending troops, unless they are part of a United Nations peacekeeping force. One idea by U.S. participants in talks with China is for Beijing to provide Afghanistan with older Russian-designed Mi-17 helicopters, which are similar to aircraft the U.S. has given Afghan security forces.

China’s defense ministry didn’t respond to a request for comment.

Beijing would be hesitant about providing such heavy weaponry, said Hu Shisheng, an Afghanistan expert at the China Institutes of Contemporary International Relations, a think tank linked to the Ministry of State Security.

But he described as “feasible and realistic” the idea of U.S.-China training of Afghan forces outside Afghanistan—helicopter pilots, for example. The two countries are already jointly training diplomats for the Afghanistan government.

Mr. Hu, a participant in many of the recent talks on Afghanistan, said China was asking Pakistan to encourage the Taliban to join reconciliation efforts and was offering more aid to Islamabad.

Pakistan will work with China to support the Afghan peace process, a Pakistani foreign ministry statement said Monday after talks in Kabul between Chinese, Pakistani and Afghan officials.

China has kept a low profile in Afghanistan for the past decade after supplying the mujahedeen resistance against Soviet forces in the 1980s. When the Taliban was in power in the 1990s, China never established diplomatic relations. But it opened trade ties and met Taliban leaders to ask them not to support separatists in the mostly-Muslim northwestern Chinese region of Xinjiang.

Since 2002, China has maintained contacts with Taliban leaders, mostly through meetings inside Pakistan, according to foreign diplomats and Chinese and Western scholars.

As a result, China’s position on Afghanistan has largely mirrored Pakistan’s for much of the last decade, advocating a political role for the Taliban and a swift exit by U.S. troops. But in the past few years, concerns have grown in Beijing about Pakistan’s ability to keep Islamic extremism in check, according to Western and Chinese experts.

“China wants to be a world power. Now it’s going to learn how hard that is, how hard it is to exercise influence and achieve the results you want,” said Mr. Sedney, the former Pentagon official. “I’m not predicting that they’ll fail, but it’s an unknown.”

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After a decade of rebuffing US requests for help in Afghanistan, China may be ready to do more.

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China's Premiere set for ASX listing

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China-based Premiere Eastern Energy will list on the Australian share market on Thursday as it pursues growth in the world's largest economy.

The supply chain manager of petrochemical products, based in Guangdong province, hopes to become the largest Chinese energy company on the local market.

After reaching a minimum share subscription of $3 million at 20 cents a share, Premiere will begin trading at 1030 AEDT.

It has said the Australian market offers a sophisticated capital market an internationally recognised corporate governance environment that provides a suitable platform for its growth plans.

Premiere Eastern chief executive Zhan Aiping said the company had averaged $720 million in sales over the past three years and would have a market value of almost $184 million.

"The launch process brings about many opportunities for Premiere Eastern Energy to continue its expansion in China and further target the fast growing Chinese oil consumption," Mr Aiping said.

Premiere Eastern Energy is a wholesale distributor in the Chinese petrochemical supply chain, acting as the conduit between the oil refineries and importers and the retailers.

A surge in private vehicles has boosted demand for oil as China becomes more urbanised and disposable incomes increase.

The company made an annual net profit of $29.8 million in 2013.

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Premiere Eastern Energy to join local bourse on Thursday after reaching $3m subscription.

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China business news digest

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Click here to subscribe to the China Spectator daily newsletter.

Your daily digest of the biggest business news in China, translated and summarized every day. China Spectator has not verified these stories.

Iron ore waits as rare earths are next cab of China's resource tax reform rank

The recent announcement that China will look at making Tungsten and Molybdenum the next two commodities to be targeted as part of the country's overhaul of how it taxes resources has sparked speculation that the introduction of altered tax arrangements for iron ore will be delayed, according to a report in today's National Business Daily.

The news that China would look into pushing ahead with reforming the resource tax arrangements for Tungsten and Molybdenum was included in a report into the state of China's non-ferrous metals industry that was released by the Ministry of Industry and Information Technology yesterday.

The reforms would be in keeping with a broader overhaul of resource taxation that has already been applied to coal and other resources and that involves resources being taxed according to value rather than volume.

The announcement of a timetable for changes to how the two rare earths are taxed has sparked speculation that similar moves in relation to iron ore might be delayed.

(National Business Daily)

Foreign banks are shedding stakes in Chinese banking industry due to Basel III requirements

Since 2009, many foreign banks have sold their stakes in Chinese banks.

In recent days, a new round of this exodus has been occurring with Hong Kong's Hang Seng bank selling its 5 per cent stake in China's Industrial Bank and Spain's Banco Bilbao Vizcaya Argentaria (BBVA) offloading its CITIC bank holdings.

China Business News quotes Li-Gang Liu, ANZ's chief economist for Greater China as saying that the latest Basel III requirements have seen many banks offload their stakes in emerging market banks in order to meet the stricter capital requirements of regulators.

(China Business News)

Strong demand for land in first-tier cities 

Demand for plots of land in China’s capital has remained strong over the first few weeks of the year with the city leasing over 40 billion yuan worth of land over the first 7 weeks of the year, according to a report in yesterday's China News Service.

Three more plots of land were leased to property developers for a total of 3.6 billion yuan on Tuesday.

China News Service quoted unnamed industry players as saying developers are returning to first-tier cities in a bid to reduce risks and are no longer as interested in leasing plots in third- and fourth-tier cities, many of which are experiencing high levels of oversupply.

(China News Service)

Inflation data points to sluggish property market

The price of accommodation increased by 0.8 per cent over the year to January 2015, according to figures on accommodation costs included in the National Bureau of Statistics' (NBS) monthly inflation data release.

This was a 0.2 percentage point drop on the 1 per cent annual growth in accomodation prices that occurred in December 2014.

In terms of month-on-month growth, after negative growth in November and December, the price level did not change in January.

(Caixin Media)

Chinese official warns anti-corruption efforts could affect economic growth

A high-level Chinese official has warned that the country’s anti-corruption campaign may be affecting economic growth, in a rare sign that the campaign maybe be wearing thin.

According to a People’s Daily report, Zhou Benshan, party secretary of the Hebei provincial committee of the Communist Party made the comments at a ‘self-criticism’ session on 26 December 2014.

“I resolutely support the CPC’s decision to form a disciplinary mechanism to ensure party cadres don't dare be corrupt” Zhou is reported to have said.

“However I am afraid that too much punishment of senior officials could harm the stability and development of the local economy.”

Since coming to power in late 2012, President Xi Jinping has overseen the revival of ‘self-criticism sessions’ – a Mao-era practice whereby officials must to admit to shortcomings and offer ideas for correcting their behaviour.

President Xi had previously conducted a similar session in Hebei in September 2013.

(People’s Daily)

181 SOE senior executives found guilty in 2014

According to the 2014 Report on Chinese Entrepreneur Crimes published by Legal Daily, Legal Person and related institutions on February 10th, 245 senior executives from state-owned enterprises was either guilty or suspicious of committing crimes.

245 senior executives at Chinese state-owned enterprises have either been found guilty or are suspected of serious crimes according to a new report published by the Legal Daily.

According to the paper, which is published by the Ministry of Justice, the number of suspects was the highest in the past 5 years due mainly to the current ‘zero-tolerance’ anti-corruption campaign.

Among 181 convicted cases, two-thirds were prosecuted for allegedly accepting bribes; one-third were of corruption and one-fifth for embezzlement.

(Sina Finance)

China-Aust FTA to take effect in late 2015

The China-Australia FTA will be signed in the second quarter of 2015 and will take effect in the fourth quarter reports China News Service citing an Australian embassy official.

According to the report, Minister Counsellor (Economics), Lachlan Crews told an audience in Guangzhou that once the agreement is signed, it will be reviewed by each country every three years. The basic agreement will remain the same but extra provisions may be added.

The much-heralded deal that was signed late last year in Canberra was technically ‘a statement of intent to conclude an FTA’.

(Netease Finance) http://money.163.com/15/0211/21/AI71R7VF00254TI5.html

Hainan government debt has soared 21.84%

The public debt of Hainan province has soared 21.84 per cent since the last nation-wide audit in June 2013. The outstanding public debt for the province is 172 billion yuan.

Hainan has become the first province to publicly report on its revised debt situation after the Ministry of Finance released new guidelines on the management of local government debt.

The provincial government’s direct debt accounts for 84.3 per cent of the total outstanding debt and the official guarantee accounts for another 7 per cent. The rest is contingent liability.

(Netease Finance)

China’s non-ferrous metal industry under pressure

China’s non-ferrous metal industry is under increasing pressure due to high operational costs and an over-capacity problem, according to a new report from the Ministry of Industry and Information Technology.

The Ministry says it is getting more difficult to shut down out of date aluminium smelters because it impacts on a myriad of problems such as local taxation, the un-employment rate, the debt problem as well as downstream industries.

The cost of funding for the whole industry increased 20 per cent in 2014.

(China News Service)

Where in the world has Chinese capital outflow gone? 

During the final quarter of 2014, an estimated $US250bn to $US270bn of foreign exchange left China. Analysts estimate the annual average outflow of capital is about $US600 and $US700bn between 2009 and 2013.

Chinese state media agency Xinhua predicts the outflow will accelerate this year from $US700bn to $US1,000bn or about 10 per cent of GDP. This means the outflow of capital was faster than GDP growth.

A Xinhua report has identified three main sources of outflows. Firstly, spending by Chinese students studying overseas; the report estimates Chinese students spend about $US26bn a year in the US. Secondly, spending by Chinese tourists -- especially since the US and Japan relaxed their visa requirements. Thirdly, Chinese investment in real estate; the report estimates Chinese buyers spend $US 100bn in the US every year on buying houses.

(Xinhua)

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US launches new trade challenge against China

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WASHINGTON—The U.S. opened a new front in a long string of trade disputes with China, challenging a broad program Beijing uses to subsidize export businesses.

U.S. officials say the subsidy program, benefiting seven industries ranging from textiles to seafood, gives Chinese companies a small but crucial advantage in exports, contrary to the rules of the World Trade Organization.

The new WTO case comes as the Obama administration is seeking to negotiate a 12-nation trade bloc among Pacific nations, not including China. President Barack Obama last month said the Pacific agreement would help ensure China doesn’t write the rules of trade in the rapidly growing Asia-Pacific economic zone.

Successfully enforcing existing trade rules, especially broad subsidies that affect diverse industries and congressional districts, may help the administration make the case for the Pacific deal, known as the Trans-Pacific Partnership, and legislation needed to ease its passage.

In the case filed Wednesday, U.S. trade representative Mike Froman said his office is requesting WTO consultations over an obscure program in China that allows local officials to subsidize smaller exporters through “common-service platforms” at nearly 200 “demonstration bases” throughout the country.

U.S. officials say that while it is difficult to quantify the subsidies involved, China apparently provided around $1 billion over three years to the suppliers that give discounted or free services to Chinese companies through the common service platforms, including to exporters located in the demonstration bases.

“All of these services, provided free or at a discount, undermine fair competition,” Mr. Froman said.

The Chinese embassy in Washington didn’t respond to requests to comment on the case.

In China’s eastern Anhui province, for example, the local demonstration base offers subsidies of up to 10 per cent of the cost of an applicant’s project, according to a document on the Commerce Ministry’s website. The amount of the subsidy is capped at 1 million yuan (about $160,000).

Beneficiaries included companies that export items including processed meat, fish, tea and honey. Local officials evaluated the companies based on their potential as exporters, certification in their target markets and other criteria.

China’s goods exports to the U.S. totaled $467 billion last year, and the U.S. sent $124 billion in goods to China, resulting in a record trade deficit, according to the U.S. Census Bureau.

The current case is unlikely to gain as much attention as previous high-profile disputes involving specific Chinese industries, but trade experts say the case is representative of the many difficulties U.S. companies blame for complicating their operations there. Beijing and Washington are currently negotiating an investment treaty designed to improve commercial ties, and business groups say the pact would help prevent business and trade disputes.

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WTO case targets Chinese subsidies to exporters via system of ‘demonstration bases’.

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Fonterra makes offer for stake in Beingmate Baby & Child Food

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WELLINGTON, New Zealand—Fonterra Co-Operative Group has submitted a tender offer for a stake of up to 20 per cent in Chinese infant formula manufacturer Beingmate Baby & Child Food Company Ltd.

The company said in a statement it had submitted an offer to the Shenzhen Stock Exchange and expected to know the result of the tender offer on March 18.

No financial details were released.

Last August, Fonterra and Beingmate announced they intended to form a global partnership to help meet China’s growing demand for infant formula.

“The partnership will create a fully integrated global supply chain from the farm gate direct to China’s consumers, using Fonterra’s milk pools and manufacturing sites in New Zealand, Australia and Europe,” Fonterra added in the statement.

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Fonterra says it expects to know results of tender on March 18.

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Brother of China’s Premier steps down as deputy head of tobacco monopoly

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BEIJING—The brother of Chinese Premier Li Keqiang has stepped down as deputy chief of the country’s tobacco monopoly, a relationship that antitobacco campaigners said created a conflict of interest.

Li Keming, the Chinese premier’s younger brother, was “removed” from his role as vice director at the State Tobacco Monopoly Administration, the Ministry of Human Resources and Social Security said in a brief statement Wednesday. He had held the role since July 2003.

The younger Mr. Li will instead take up a new role at a supervisory panel under China’s State-owned Assets Supervision and Administration Commission, or Sasac, the statement said.

His departure from the tobacco monopoly, after spending more than three decades in the industry, comes as China’s leaders attempt to stub out smoking in the world’s largest tobacco market by sales. Tobacco use is contributing to rising incidences of chronic conditions such as heart disease and lung cancer in the country, which is home to more than 300 million smokers.

The younger Mr. Li’s position at the tobacco monopoly has long been cited by observers as a conflict of interest between the government and the cigarette makers it regulates. In a 2012 report, the Brookings Institution—a Washington-based think tank—described the situation as “particularly ironic,” given that the elder Mr. Li had overseen China’s public-health policy since 2008.

The State Tobacco Monopoly Administration, which controls China National Tobacco Corp., didn’t immediately respond to a request for comment.

China National Tobacco holds a monopoly on tobacco in China, and its cigarette makers account for 43 per cent of the world’s cigarette production, according to the American Cancer Society and the World Lung Foundation.

China’s tobacco industry generated nearly 956 billion yuan ($153 billion) in taxes and profits in 2013, up more than 10 per cent from the year before, according to official media, which didn’t break out specifics.

Wednesday’s government statement also gave details of other bureaucratic reshuffling, listing the appointments and removals of several other officials at Sasac, the China National Tourism Administration, and other agencies. It didn’t give reasons for the reshuffling.

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Li Keming’s position had been cited as a conflict of interest in world’s largest tobacco market.

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Where in the world has Chinese capital outflow gone?

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During the final quarter of 2014, an estimated $US250bn to $US270bn of foreign exchange left China. Analysts estimate the annual average outflow of capital is about $US600 and $US700bn between 2009 and 2013.

Chinese state media agency Xinhua predicts the outflow will accelerate this year from $US700bn to $US1,000bn or about 10 per cent of GDP. This means the outflow of capital was faster than GDP growth.

A Xinhua report has identified three main sources of outflows. Firstly, spending by Chinese students studying overseas; the report estimates Chinese students spend about $US26bn a year in the US. Secondly, spending by Chinese tourists -- especially since the US and Japan relaxed their visa requirements. Thirdly, Chinese investment in real estate; the report estimates Chinese buyers spend $US 100bn in the US every year on buying houses.

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An estimated $US250bn to $US270bn of foreign exchange left China in final quarter of 2014.

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Foreign banks are shedding stakes in Chinese banking industry due to Basel III requirements

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Since 2009, many foreign banks have sold their stakes in Chinese banks.

In recent days, a new round of this exodus has been occurring with Hong Kong's Hang Seng bank selling its 5 per cent stake in China's Industrial Bank and Spain's Banco Bilbao Vizcaya Argentaria (BBVA) offloading its CITIC bank holdings.

China Business News quotes Li-Gang Liu, ANZ's chief economist for Greater China as saying that the latest Basel III requirements have seen many banks offload their stakes in emerging market banks in order to meet the stricter capital requirements of regulators.

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Banks offload their stakes in emerging market banks in order to meet the stricter capital requirements of regulators.

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Strong demand for land in China's first-tier cities

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Demand for plots of land in China’s capital has remained strong over the first few weeks of the year with the city leasing over 40 billion yuan worth of land over the first 7 weeks of the year, according to a report in the China News Service.

Three more plots of land were leased to property developers for a total of 3.6 billion yuan on Tuesday.

China News Service quoted unnamed industry players as saying developers are returning to first-tier cities in a bid to reduce risks and are no longer as interested in leasing plots in third- and fourth-tier cities, many of which are experiencing high levels of oversupply.

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Beijing has leased over 40 billion yuan worth of land over the first 7 weeks of the year.

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Chinese inflation data points to sluggish property market

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The price of accommodation increased by 0.8 per cent over the year to January 2015, according to figures on accommodation costs included in the National Bureau of Statistics' (NBS) monthly inflation data release.

This was a 0.2 percentage point drop on the 1 per cent annual growth in accomodation prices that occurred in December 2014.

In terms of month-on-month growth, after negative growth in November and December, the price level did not change in January.

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Price of accommodation increases 0.8 per cent over the year to January 2015.

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Beijing to boost economic 'fine-tuning'

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China's powerful politburo said the country's economic fundamentals remain unchanged despite slower economic growth. 

The Communist Party body said that the nation's political leaders will step up their efforts to ensure economic growth remains in a reasonable range, state media reported Thursday, citing a statement following a politburo meeting. 

Beijing will also step up its economic fine-tuning efforts, boost job creation and expand public services, the politburo said. 

It also repeated past statements that the authorities will continue their prudent monetary policy and proactive fiscal policy. 

China's economy expanded 7.4 per cent last year, the slowest pace in nearly a quarter of a century. A slew of recent economic data also added to concerns over rising deflation risks and sluggish domestic demand. 

The central bank lowered its reserve requirement ratio for banks earlier this month to inject liquidity into the banking system and boost economic growth. It has been injecting funds through open market operations and short-term lending facilities.

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CCP says leaders will step up efforts to ensure economic growth remains in a reasonable range.

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US launches new Chinese trade challenge

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The US opened a new front in a long string of trade disputes with China, challenging a broad program Beijing uses to subsidise export businesses. 

US officials say the subsidy program, benefiting seven industries ranging from textiles to seafood, gives Chinese companies a small but crucial advantage in exports, contrary to the rules of the World Trade Organisation. 

The new WTO case comes as the Obama administration is seeking to negotiate a 12-nation trade bloc among Pacific nations, not including China. President Barack Obama last month said the Pacific agreement would help ensure China doesn't write the rules of trade in the rapidly growing Asia-Pacific economic zone. 

Successfully enforcing existing trade rules, especially broad subsidies that affect diverse industries and congressional districts, may help the administration make the case for the Pacific deal, known as the Trans-Pacific Partnership, and legislation needed to ease its passage. 

In the case filed Wednesday, US trade representative Mike Froman said his office is requesting WTO consultations over an obscure program in China that allows local officials to subsidise smaller exporters through "common-service platforms" at nearly 200 "demonstration bases" throughout the country. 

US officials say that while it is difficult to quantify the subsidies involved, China apparently provided around $US1 billion over three years to the suppliers that give discounted or free services to Chinese companies through the common service platforms, including to exporters located in the demonstration bases. 

"All of these services, provided free or at a discount, undermine fair competition," Mr Froman said. 

In a statement Thursday, China's Ministry of Commerce said it "regretted" the US decision to file a challenge with the WTO and would respond according to the group's dispute-resolution procedures. 

In China's eastern Anhui province, for example, the local demonstration base offers subsidies of up to 10 per cent of the cost of an applicant's project, according to a document on the Commerce Ministry's website. The amount of the subsidy is capped at 1 million yuan (about $US160,000). 

Beneficiaries included companies that export items including processed meat, fish, tea and honey. Local officials evaluated the companies based on their potential as exporters, certification in their target markets and other criteria. 

China's goods exports to the US totalled $US467 billion last year, and the US sent $US124 billion in goods to China, resulting in a record trade deficit, according to the US Census Bureau. 

The current case is unlikely to gain as much attention as previous high-profile disputes involving specific Chinese industries, but trade experts say the case is representative of the many difficulties US companies blame for complicating their operations there. Beijing and Washington are currently negotiating an investment treaty designed to improve commercial ties, and business groups say the pact would help prevent business and trade disputes. 

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WTO case disputes broad Beijing program uses to subsidise export businesses.

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Hermès expects sales growth to slow in 2015

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PARIS— Hermès International SA, the French luxury company, said it expects sales growth to slow in the coming year, a sign that weakness in China’s market for high-end goods is now hitting the pinnacle of the luxury business.

Hermès, known for its Birkin bags and equestrian-themed silk scarves, said on Thursday it sold €1.22 billion ($1.38 billion) of goods during the fourth quarter, up 11 per cent from €1.1 billion in the same period in 2013, partly because of strong demand from U.S. shoppers. Excluding currency fluctuations such as the weakening yen, sales would have increased 9.6 per cent, a slowdown from earlier in the year as demand from Chinese shoppers was subdued by political turmoil in Hong Kong.

For the coming year, Hermès expects revenue to grow 8 per cent, decelerating from an 11 per cent increase last year, citing “economic, geopolitical and monetary uncertainties over the world.”

The company hasn’t yet reported profit figures for 2014 but said it expects its margin to slide slightly to about 31 per cent when it reports full-year earnings.

The projection of a continued slowdown in sales growth shows that Hermès—which has long stood apart from other luxury brands such as Louis Vuitton and Gucci, perceived by shoppers as the apex of an exclusive club—isn’t immune to trends buffeting the luxury industry.

Hermès has tried to maintain this allure by ensuring coveted items such as hand bags remain hard to come by and at higher prices than its peers. But along with other companies in the sector, it has suffered lower growth in China because of a slowing economy and a government crackdown on gift-giving and corruption,

The company said revenue was boosted by its new Shanghai maison—a large flagship store in a former police station—that opened in September. But growth in sales slowed from earlier in the year, in an environment that the company said was “marked” by a slowdown in China’s luxury market and events in Hong Kong.

Year-on-year, sales in Asia outside Japan grew 8.9 per cent in the fourth quarter. Watch sales, which fell globally by 13 per cent at constant exchange rates in the quarter, were particularly hard hit in China, the company said.

The company’s U.S. business posted strong growth, with sales in the Americas up 21 per cent—and 16 per cent when stripping out the effect of exchange rates—in line with what other luxury brands have reported recently. Last week, French group LVMH Moët Hennessy Louis Vuitton SA said that U.S. consumers helped drive revenue gains last year, which offset its sluggish sales in China.

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French company not immune to weakness in Chinese luxury-goods market.

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Will a democratic China be more peaceful?

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The rise of China as an economic and military power is causing concern around capital cities in the region from Tokyo to Canberra. Despite the recent de-escalation in Beijing’s assertive foreign policy, diplomats and military planners are still nervous about what a resurgent China means for regional security.

However, it’s instructive to indulge for a moment in a counter-factual exercise, and imagine that China has already become a democratic country. Will a free China become more accommodating and willing to use diplomatic means to settle disputes with its neighbours and engage in less sabre rattling?

This is what theory tells us and what Americans believe in too. Immanuel Kant argues in his essay “perpetual peace” that democracies are unlikely to go to war against each other to settle scores. He places his trust in essentially “peace-loving” people and their ability to influence the government’s foreign policy through the ballot box.

Perhaps most importantly, this is what Americans instinctively believe. Ever since the founding of the United States, Americans have believed their principles of freedom and liberty are universal and that the world would inherently be a better place if countries adopt these universal values.

The best embodiment of this American ideal is President Woodrow Wilson. He argued in the aftermath of the Great War, that people must be allowed to determine their own future and that the spread of democracy would follow.

As a result, the world would thus enter “an age…which rejects the standards of national selfishness that once governed the counsels of nations and demands they shall give way to a new order of things in which the only questions will be “is it right?” “Is it just?” Is it in the interests of mankind?”

Henry Kissinger, the master diplomatic historian and former US Secretary of State said in his new book World Order that Wilson’s ideals have made a lasting impact on the conduct of American foreign policy.  “Whenever America has been tested by crisis or conflict -- in World War II, the Cold War, and our own upheavals in the Islamic world -- it has returned in one way or another to Woodrow Wilson’s vision of a world order that secures peace through democracy, open diplomacy, and the cultivation of shared rules and standards,” he says.

However, both history and the contemporary political environment in China tells us that a free China may not lead to a dramatic pacification of Chinese foreign policy. Let us start with history; it is timely to remind us that when the nations of Europe started World War One, most of them had representative institutions of various influence. Even the German parliament was elected through universal suffrage.

The war was greeted with almost universal jubilation in many democratic countries including Britain, France and British dominions like Australia and Canada. Kissinger, who made a career out of studying war and peace said restraint was much more the attribute of the aristocrats who negotiated at the Congress of Vienna at the end of Napoleonic War, if only because they shared common values and experiences.

The most potent argument against the idea that a democratic China will become more peaceful is the rising tide of nationalism in the country. Yes, the Chinese Communist Party has a monopoly over power in the country but its legitimacy is based on the twin pillars of economic prosperity for the masses and nationalism.

The CCP has always presented itself as a nationalist party just like their Vietnamese and North Korean comrades. The party has developed a strong nationalist narrative -- portraying itself as the guardian of China’s sovereignty whilst playing up the country’s recent memory of imperialism as a “century of shame.” 

The party’s powerful propaganda machine has successfully fostered and cultivated a strong nationalist sentiment in the country. This is not just simple brainwashing -- there is also a genuine sense of grievance against former imperial aggressors such as Japan. Right-wing Japanese prime ministers like Shinzo Abe who constantly downplay Japan’s past wrongs are a gift from heaven for the CCP propaganda machine.

But the CCP’s propaganda success has come back to haunt them. Beijing is aware that popular nationalists command a large following in China and many of them see the government’s foreign policy as weak and ineffectual in guarding China’s national interests. This is one reason whhy the much-hated Russian president Putin has many fans in China -- because of his willingness to stand up to the West (From Beijing with love: China’s infatuation with Putin, 5 March 2014).

Denny Roy, a senior fellow at the East-West Centre, made a persuasive argument about why a democratised foreign policy may not necessarily lead to better and more peaceful outcomes on issues such as Japan and Taiwan.

“Authoritarian governments are not immune to adverse public opinion. In some circumstances, China’s leadership faces pressures comparable to those on democratic national leaders who seek re-election,” says Roy in Survival, a journal published by the International Institute for Strategic Studies.

It would be dangerous to discount the impact of domestic opinion on foreign policy making in China. Roy says a mobilised Chinese public could force Beijing to act against the government’s own cold-blooded calculations, putting a seemingly “irrational” course of action back on the table.

If we want to have a glimpse of what a free China might do, we need to look no further than South Korea and its tense relationship with Japan.  Many South Koreans still harbour strong resentment against Japan and the dispute over Dokdo/Takeshima Island is a festering wound between two states. David Pilling, Asia editor of the Financial Times retold a story about a massive Korean demonstration in Seoul in 2001 when the then Japanese Prime Minister visited the controversial Yasukuni Shrine.

Twenty male protestors each chopped off a little finger in an outpouring of anger, says Pilling in his new book Bending Adversity: Japan and the Art of Survival. The only saving grace of the Japan-South Korea relationship is their common military alliance with the United States.

Yes, democracy and freedom will bring many positive changes and benefits to China, but don’t count on a more peaceful foreign policy from Beijing when that day arrives, well, not in the short to medium term anyway.

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China gives green light for SOE reform package: report

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A contentious state-owned enterprise reform package has been approved and will be released following major party and government meetings in March reports the Economic Information Daily.

After numerous readings and alterations, the top-level policy documents intended to guide China's SOE reforms have now been approved by higher authorities, the newspaper reports quoting an unnamed 'authoritative source'.

The same source says that the policies will be announced following the annual plenary meetings of China's parliament in March.

Mixed ownership reforms will be further widened, likely increasing the scope for private and foreign firms to take stakes in certain state-owned firms, according to the report.

The report also says that the size of the stakes that private and foreign firms can take in SOEs operating in 'competitive sectors' will be further expanded so that the state will no longer necessarily have an 'absolute' controlling stake.

It's also noted that SOE reform was a key area of policy attention in the recently concluded round of local level political meetings. 

Finally, given that almost a third of the companies listed on China's two main stock exchanges have ties to the government, the article quotes a report that says this SOE reform package is likely to help boost China's A-share market in 2015.

President Xi Jinping announced an overhaul of how China's state-owned enterprises at the conclusion of a major meeting of the CPC in late 2013.

The State Council and both the central and local branches of the State-owned Assets Supervision and Administration Commission (SASAC) have since announced various trials and measures but no overarching central policy has yet been released.

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Policies will be announced following the annual plenary meetings of China's parliament in March.

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China to become world's largest retail market in 2018

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China is on track to become the world's largest retail market in 2018, according to a report published by PricewaterhouseCoopers yesterday.

Over the next couple of years, China's retail sales volumes are expected to expand at an annual average rate of 8.7 per cent.

The report noted that retail industry sales volume in the Asia-Pacific region grew by and estimated 4.1 per cent in 2014 and said that this rate of expansion is expected to lift to 4.6 per cent in 2015.

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Retail sales volumes expected to expand at an annual average rate of 8.7 per cent: PwC.

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Chinese bank deposit insurance scheme imminent

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The Chinese government will implement a bank deposit insurance scheme this year, says the Deputy Governor of the People’s Bank of China Pan Gongsheng.

Beijing published its draft guidelines on bank deposit insurance for consultation last year. The State Council reportedly passed the draft guideline. The new insurance scheme will guarantee deposits up to 500,000 yuan. 

Mr Peng said the scheme will be implemented this year.

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New insurance scheme will guarantee deposits up to 500,000 yuan.

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What are the renminbi’s prospects in 2015?

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East Asia Forum

As the next five-year review of the IMF’s international reserve asset approaches, reviewers should strongly consider the case for including the Chinese yuan in the basket.

The Special Drawing Rights (SDR) is an international reserve asset used to supplement IMF member countries’ official reserves. Its value is based on a basket currently consisting of four key international currencies. This includes the US dollar, euro, British pound and the Japanese yen currently.

The IMF has two criteria for SDR basket currencies. First there is the ‘major trading country’ criterion. This applies to currencies whose exports of goods and services during the five-year period ending 12 months before the effective date of the revision had the largest value. Then there is the ‘freedom of use’ criterion for currencies determined by the IMF to be widely used to make payments for international transactions and to be widely traded in the principle exchange markets.

In the 2010 review, the renminbi was deemed to meet the first criterion. But it fell short on freedom of use.

So what are the renminbi’s prospects in the review in 2015?

IMF staff produced a study in September 2011 which examined the criteria for SDR basket currencies. While confirming that the freedom of use criterion should be comprised of the ‘widely used’ and ‘widely traded’ clauses, the study proposed a revision of the indicators for the criterion according to the improvement of data availability and development of financial markets.

To decide whether a currency is ‘widely used’, the IMF would, under the proposed revision, look at the currency composition of reserves (with a possible supplementary indicator being the number of countries holding a currency in reserves), the currency denomination of international banking liabilities and the currency denomination of international debt securities. To determine whether a currency is ‘widely traded’, it would look at the volume of transactions in foreign exchange spot markets (and possibly the bid-offer spreads).

On these indicators, the renminbi would already meet the ‘freedom to use’ criterion. More countries are considering or have already made the renminbi one of their currencies for denominating reserve assets and the renminbi is already the 7th most widely used reserve currency globally.

By adopting a policy of bilateral central bank swap arrangements, the People’s Bank of China (PBOC) has focused on three major objectives: propping up trade following the global financial crisis, shaping a renminbi currency zone and building up renminbi deposits in foreign central banks. Those deposits, according to IMF guidelines, ‘are treated as reserve assets because the exchange provides the central bank with assets that can be used to meet the economy’s balance of payments financing needs and other related purposes’. The PBOC maintains currency swap arrangements with 28 countries or regions, reaching a total amount of RMB3.1 trillion.

In particular, the use of the renminbi in money market instruments in the Bank of International Settlements increased from US$0.9 million in the 3rd quarter of 2010 to 29.56 billion in the 2nd quarter of 2014. The renminbi is already the 7th largest reserve currency and ranks 9th in the amount outstanding of international debt securities.

What about the other criterion? Though China is a major world trader, the extent to which it has embraced financial globalisation is still very modest. China’s domestic equity and bond markets are indeed large and growing fast. Yet they punch below their weight given the size of the economy. And since funding is not a problem — China is the world’s biggest saver — the main obstacles are a fragmented regulatory framework, insufficient or inconsistent information disclosure, interest rate controls, and the absence of a large pool of institutional investors.

With a strong US dollar, increasing capital market volatility will impact the SDR currencies basket, affecting the SDR’s attractiveness as a reserve asset and as a unit of account. Among all the major currencies, analysts expect the renminbi will be one of the few major winners from a strengthening dollar. This will happen if China’s policymakers can point to gains from greater renminbi independence against the US dollar.

Including the renminbi in the SDR would make the value of the basket more representative of the structure of world trade — improving the basket’s legitimacy. The renminbi would also play an important role in balancing, the more independent US dollar, especially if China’s exchange rate regime is made more flexible.

Now is the time for the renminbi to enter into SDR basket.

Yide Qiao is the Deputy Chairman and General Secretary of the Shanghai Development and Research Foundation and the President of Excellence at the Academy of Development Research; Jiafei Ge is a researcher for the Shanghai Development and Research Foundation; Miriam L. Campanella is Associate Professor at the University of Turin and ECIPE, Brussels.

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Beijing is becoming a US deputy in Afghanistan

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Whether you fear or welcome a challenge to the world’s existing power structure, the main focus of attention is on when China will begin to translate its increasing influence into genuine global leadership. And after a period when China has widely been seen as wanting to have power without leadership or responsibility, there are some signs that things are beginning to change.

To be sure, we need to retain a sense of proportion. When China does something new it can often garner much greater attention than the ongoing continued activities of others. For example, while China has been identified as being on the “frontline” in the battle against Ebola, its actual contribution has been relatively modest compared to that of what the Guardian called the “usual suspects” of development assistance.

Furthermore, much of the new(ish) proactive Chinese international strategy has Chinese national and commercial interests very much front and centre; the promotion of a new maritime silk road seems to be a rather apt example here. But with these caveats in mind, something interesting seems to be happening in terms of China’s growing involvement in Afghanistan.

Taking Kabul by the horns

In October 2014, China for the first time hosted a meeting of the Istanbul Ministerial Process established to promote peace and co-operation between Afghanistan and its neighbours. In the words of a foreign ministry spokeswoman, the simple act of holding the event was an opportunity for China to promote its leadership credentials and allowed China to:

Showcase the world’s support to the peaceful reconstruction in Afghanistan, and build consensus of regional countries on strengthening co-operation on Afghanistan and jointly safeguarding security and stability in Afghanistan and the region.

New dawn? Sunrise in Kabul.UK Ministry of Defence, CC BY-ND

China’s leaders also used the opportunity to increase its financial aid to Kabul, pledging extra funding, training, and technical assistance. So far so normal – China has established a track record in using high-profile meetings such as APEC, the Forum on Africa-China Co-operation and so on to make announcements of new funding and aid initiatives.

Hey Mr Taliban..

But then something different happened as China began to provide some sort of mediating role and directly involved itself in Afghani politics by holding talks with both the Afghan government and the Taliban. As the US prepares to withdraw from Afghanistan, China seems increasingly willing to step in to fill the void and – for some analysts – to increase its international standing as a putative global leader in the process.

Perhaps it might even have more success than the other great powers that have tried, and failed, to pacify Afghanistan over the years. At the very least, it does not carry the same historical baggage as others in Afghanistan (or indeed, in the Middle East in general).

Of course, there are very good reasons for China to act. In the past, China claims that Afghanistan and al-Qaeda provided a safe haven for Muslim military separatists committed to “splitting” China and creating an independent Islamic East Turkestan state.

This might explain why China was prepared to accept US-led military action in Afghanistan in the first place, notwithstanding China’s usual commitment to defending state sovereignty. Contributing to peace and stability in Afghanistan, then, is not just an act of altruistic leadership, but one that has a clear national interest dimension for China as well.

Campaigners for East TurkestanS Pakhrin, CC BY

That said, other global leaders have often acted out of self interest as well; the global financial order built at Bretton Woods at the end of World War II was not exactly free from the influence of US economic considerations.

So how should we judge China’s emerging role as a provider of some form of global public goods?

Overtaking manoeuvre

Chinese strategists refer to the current era as one of strategic opportunity. Not least because of the consequences of the global financial crisis, a global power change has been accelerated, that has seen China rise while existing powers (most notably in Europe) decline. This has created a great opportunity for China to push to change the global order to one that is more reflective of Chinese power and Chinese interests.

But this opportunity is constrained by the residual power of the US which will remain, in Chinese eyes, the predominant global power for some time to come. Indeed, vice premier, Wang Yang, said as much in Chicago in December when he reaffirmed China’s commitment to a US-led rule based world order which China has “neither the ability nor the intent” to overturn.

The challenge for China is not (yet) how to replace the US, but how to act as its No.2. In the case of Afghanistan, the No.1 seems relatively comfortable with a greater Chinese role. But it’s not always the case that the No.1 seems amenable to accommodating China’s further rise. Where it isn’t, China has begun to take action to build its own alternatives.

So if the US won’t ratify changes to voting power at the IMF that would give China a greater say – and the power structure at the ADB continues to favour others – then China is prepared to launch its own organ of financial governance in the form of the Asian Infrastructure Investment Bank. Here we see China competing for some form of leadership by replicating existing ways of doing things, rather than trying to fundamentally challenge the very nature or essence of global governance and the global order.

China as No.2, then, seems increasingly prepared to take on some degree of leadership – as long as that leadership simultaneously serves other domestic ends. China’s leaders have also become skilled at using major international events to put over a preferred national image of what China is and what it stands for to an international audience.

Given the renewed focus on environmental issues in light of China’s airpocalypse, the Paris climate change conference at the end of the year might be very interesting indeed for students of China’s changing global role.

This article was originally published on The Conversation. Read the original article.

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