The Australian government ordered the sale of a Sydney waterfront mansion it alleges was illegally bought by Chinese investors last year, opening a new frontline in its battle to curb the flow of foreign money contributing to rising home prices. 

Treasurer Joe Hockey gave a unit of Hong Kong-listed Evergrande Real Estate Group up to 90 days to find a buyer for the house, located in the affluent suburb of Point Piper, that it bought for $39 million in November. He said Evergrande's Australian unit -- Golden Fast Foods -- failed to meet regulatory requirements that govern foreign investment in Australia's property market. 

In a statement, Evergrande said it had tapped a local law firm to be in charge during the buying process. 

"The company will fully cooperate with the arrangements of Australian authorities to make sure it is in legal compliance," Ke Peng, Evergrande's vice president, said. 

Australia has become one of the hottest real estate markets in the world, fueled in part by an influx of foreign money that has driven home prices in many cities beyond the reach of many Australians. Stories of foreigners snapping up harbour-front homes in Sydney, in particular, have become common in Australia, resembling earlier controversies over Russian oligarchs buying property in London and New York. 

Wealthy Asian buyers are said by real estate agents to be willing to pay a third or more than domestic buyers for property they are interested in. Last year saw Chinese investment in Australian real estate climb to a record, helping propel a 14.3 per cent rise in Sydney house prices and leading to pressure on Prime Minister Tony Abbott's government to better enforce investment rules. 

Last week, the government said it would make it harder for foreigners to buy residential property in the country, raising fees and imposing heavy fines on those who flout the rules. Current rules only allow foreign investors to buy real estate in development and exclude them from acquiring houses already built. 

According to the new proposals, non-Australians buying established property would also have to pay an application fee of $5,000 if it is worth less than $1m, and $10,000 for every extra $1m in the purchase price -- as well as requiring special approval from Australia's foreign investment watchdog. 

The drive to enforce rules around foreign investment in real estate comes as Mr Abbott battles to shore up support with voters after months of poor polling, having narrowly survived a recent attempt to unseat him from within his own party. 

"Golden Fast Foods is a foreign-owned company which failed to notify the foreign investment review board of its intended purchase," Mr Hockey said. "We welcome all foreign investment that is not contrary to our national interest." 

The property, known as Villa del Mare, is one of Sydney's best-known luxury homes. Its more than 1,500-square-metre footprint includes an infinity pool and gardens with sweeping views across to the Sydney Opera House and Harbour Bridge. Built in a Mediterranean-style, the property contains five large bedrooms and a separate apartment. 

Ken Jacobs, the real estate agent who managed the sale of the mansion, said he was surprised by Mr Hockey's decision. 

"It was purchased by an Australian company, a company that is registered in Australia," Mr Jacobs, who works for realtor LJ Hooker in the Sydney suburb of Double Bay, said. "That company was set up by a major accountancy firm and it warranted that they didn't need Foreign Investment Review Board approval." 

FIRB, the foreign investment watchdog, wasn't available for comment. 

Guangzhou-based Evergrande owns assets ranging from Chinese real estate to a controlling stake in a Hong Kong-based magazine publisher and a successful mainland soccer team.

Richard Simeon, who runs Simeon Manners, a boutique real estate firm that has sold more than $100m in property to Asian buyers in recent years, said the government's decision to challenge the Evergrande unit's deal isn't likely to undermine foreign demand for Australian property. 

"Asian buyers are meticulous in the fact that they have to comply. This doesn't scare off the 99.9 per cent of purchasers who are looking to do the right thing," Mr Simeon said. 

It isn't the first time that Mr Abbott's government has cited national interest grounds scuttling deals involving foreign investors. 

In 2013, Mr Hockey stopped a $3 billion bid by US agribusiness giant Archer Daniels Midland for local grain handler GrainCorp -- a move that raised concern over the conservative government's openness to foreign investment as it seeks to turn the country into a food bowl for Asia. 

Activity in China's services sector grew moderately in February, indicating the sector has managed to remain in expansionary territory.

The HSBC China Services Business Activity Index printed at 52 in February, up from 51.8 previously.

A reading above 50 signals expansion, while a reading below signal contraction.

Overall, business activity hit a five-month high with the HSBC China Composite PMI -- which covers both manufacturing and services -- posting at 51.8 in February, up from January’s recent low of 51.0.

Annabel Fiddes, Economist at Markit, said the "solid rise in new orders suggests that activity growth may pick up in the months ahead, as firms continued to add to their payroll numbers amid a positive business outlook”.

"Meanwhile, the renewed improvement in manufacturing operating conditions suggests that the Chinese economy is on a steadier growth footing in February” she said.

LOS ANGELES—Federal agents Tuesday executed search warrants at several Southern California sites they say are connected to three multimillion-dollar birth-tourism businesses that enabled thousands of Chinese women to travel here and return home with infants born as U.S. citizens.

The investigations are likely to culminate in the biggest federal criminal case ever against the booming “anchor baby” industry, according to U.S. authorities. The search warrants cite suspected visa fraud, tax evasion and harbouring illegal immigrants, among other charges.

Agents seized records from apartments where, they said, Chinese women on tourist visas stay before and after delivering babies, as well as from residences of U.S.-based individuals who they allege run three separate anchor-baby operations in Los Angeles, Orange and San Bernardino counties. The U.S. Homeland Security and Treasury departments, as well as the Internal Revenue Service, are conducting criminal investigations of these individuals, according to three affidavits reviewed by The Wall Street Journal.

In Orange County on Tuesday morning, about 40 agents entered the luxurious Carlyle Apartment complex, where residents said they had noticed many pregnant women coming and going. The agents, who collected diaper boxes, computers and documents, are expected to remain at the site all day. No arrests were observed.

The businesses named in the affidavits could not be immediately reached for comment. One of the companies, Los Angeles-based Star Baby Care Center says on its starbabycare.com website that it has “served” more than 8,000 women since 1999. Another company, USA Happy Baby Inc., promises to refund women if U.S. officials at the airport send them back home, according to the affidavit.

Investigators said clients of some companies choose from different packages, some offering apartments in complexes boasting resort-style opulence and amenities and outings to upscale eateries, Disneyland and a shooting range. All are provided Mandarin-speaking nannies.

Long associated with Mexican immigrants who came across the border with the sole purpose of giving birth, the desire to bear an American child has spawned an industry that caters to wealthy foreigners. Chinese nationals, eager to gain a foothold in the U.S., have become the main clients, authorities say, often paying brokers $50,000, excluding medical fees.

Babies born on American soil are automatically U.S. citizens. The so-called anchor baby is thus eligible for education, health and other benefits, and when 21 years old, can sponsor family members to legally immigrate to the U.S.

There are no official figures on the number of babies born to mothers who visit the U.S. to give birth. The Center for Immigration Studies, a Washington group that supports a crackdown on the practice, estimates 40,000 so-called “birth tourists” annually.

U.S. authorities so far have had difficulty prosecuting promoters of such schemes because their clients fall into a legal grey area: It isn’t unlawful for foreigners who are pregnant to travel to the U.S., or for foreigners to give birth here. The businesses that have sprung up typically don’t have storefronts; they advertise online and by word-of-mouth. In L.A. County, considered the centre of the industry, local authorities shut about 18 maternity “hotels” in 2013 over zoning violations following complaints from neighbours.

Efforts by some lawmakers in recent years to repeal birth right citizenship, guaranteed in the 14th Amendment of the Constitution, have failed. Opponents argue doing so would violate a fundamental tenet of the Constitution.

“Birth tourism should be illegal,” said U.S. Sen. David Vitter (R., La.). In January, he reintroduced a bill that wouldn’t allow a child born to a foreigner to automatically become a U.S. citizen unless certain conditions are met, such as one parent being a U.S. citizen, a lawful permanent resident or in the military.

The women and hospitals where they give birth are unlikely to be prosecuted, says Carl Shusterman, a former trial attorney for the Immigration and Naturalization Service.

Leading up to Tuesday’s raids, undercover agents with Homeland Security Investigations taped what officials called incriminating phone calls and collected incriminating evidence against individuals in Southern California allegedly running the schemes and their associates in China, according to the search-warrant affidavit prepared for one of the cases.

In Orange County, Chao Chen and Dong Li are partners in You Win USA Vacation Resort, a birth-tourism enterprise, according to the affidavit, which said the pair failed to report earnings to the IRS, “either by filing false tax return or not filing any tax return.”

In 2013, Mr. Chen received more than $500,000 in wire transfers, while his partner received more than $1.5 million from bank accounts in China, according to the affidavit.

Mr. Chen and Ms. Li couldn’t be reached for comment. It wasn’t known whether any of the companies named in the affidavits had attorneys.

From January 2013 to present, more than 400 babies were born at just one Orange County hospital used by the enterprise, the document said. At one apartment complex in Irvine, Calif., where agents collected documents Tuesday, the business rented “several tens” of units, which one or two pregnant Chinese women might share.

According to the affidavit, clients of You Win pay between $40,000 and $80,000 for a package that includes coaching on how to deceive U.S. officials in China to obtain a tourist visa, luxury accommodation for three months before and after delivery, transportation to hospitals, and help getting passports for newborns. Clients pay cash separately for medical expenses, often at an indigent rate of only $4,000 for delivery offered to uninsured U.S. patients, the affidavit said.

The website for You Win Vacation describes premium accommodation in high-rise buildings and beachfront villas near the “best” shopping mall and hospital.

An Internet chat room for the enterprise shows pictures of pregnant women, newborn babies and their families. Among the leisure activity enjoyed: a Clippers vs. Spurs basketball game at the Staples Center and visits to Disneyland and a shooting range.

One entry from a satisfied customer lauded the business’s staff, saying it hadn’t mattered that the baby’s father wasn’t present for the delivery because “all the staff were with me through every step.”

The business advised its clients to enter the U.S. through Hawaii or Las Vegas rather than Los Angeles “due to heightened security by customs and border protection” related to a high volume of “fraudulent visas and false statements in entry documents…over the last decade related to birth tourism,” according to the affidavit.

On arrival in the U.S., the clients opened accounts to receive funds later transferred from China to pay the Chen-Li enterprise, which operates a website, http://yyusa.com.

The website touts the advantages of having a U.S.-born child, including free K-12 education, low tuition and low-interest loans “to save over 1 million Yuan in four years in college over a foreign student,” government jobs reserved for U.S. citizens, legal immigration to the U.S. for family members who can later enjoy retirement benefits, and less pollution, among many others.

Agents who posed as interested clients heard from Mr. Chen that he had been in the business for several years, noting “it is a difficult business with a lot of competition.” He advised them to apply for a tourist visa early to ensure pregnancy wasn’t detected during the in-person interview with U.S. officials, according to the affidavit.

To qualify for a tourist visa, applicants must show they have strong ties to their home country and won’t remain in the U.S. long term. They must also pass an in-person interview with a U.S. consular official.

One undercover agent, who posed as a pregnant woman wishing to give birth in the U.S., told the suspects that she had no job, no college degree and no substantial assets in China, which would likely disqualify her for a visa, the affidavit said. A Chen-Li associate in China helped fabricate employment and fictitious university diploma, said the affidavit.

In Irvine, agents say they observed numerous Asian pregnant women being picked up and dropped off by vans at an apartment complex where the Chen-Li enterprise rents units. They also discovered U.S. passport applications for babies born to mothers who gave an address at the apartments, according to the affidavit.

If you had to choose a word or phrase to describe China, what would it be? Populous? Changing fast? What about innovative? That is in fact China’s aim – to become an innovative, knowledge-based intellectual property (“IP”) powerhouse.

China has returned to its historical center, being a leader in the global economy. China is the world’s largest economy using purchasing power parity as an indicator, as the International Monetary Fund (IMF) does.

Recently some commentators looking backwards were concerned by China’s gross domestic product (GDP) data for 2014. As predicted, it grew at 7.4 per cent. By some measures this was the slowest economic growth in China for 24 years.

However, leaders in China and some economists view this deceleration as an inevitability, or even a much-needed change for the Middle Kingdom. Indeed, China seeks new mechanisms for comparative advantage recognising that low-cost manufacturing is not sustainable long term.

Low-technology and labour-intensive industries used to flock to China to set up manufacturing lines. But as China’s labour costs escalate and labour relations grow tense, garment manufacturers and others have relocated to Bangladesh, Cambodia and other lower-cost developing countries.

Another challenge for China is its shrinking labour force due to an aging population, an aftermath of the previous one-child policy. As McKinsey & Company estimates, fifty years from now there will be one person aged 65 or above for every two others in the workforce in China.

China’s government is well aware of the middle income trap. From President Xi Jinping down, the People’s Republic is embracing its own framing of a “new normal”.

In his January 2015 speech at Davos, Premier Li Keqiang of the PRC emphasised that China is adopting “twin engines”. Firstly, mass entrepreneurship and innovation and secondly increasing the supply of public goods and services in China. Li Keqiang quoted the proverb: “When the wind of change blows, some build walls while others build windmills.”

Encouragement of research and development (“R&D”) to raise productivity has been in China’s policy agenda for several years, as reflected in its 12^thFive-Year Plan for which 2015 is the concluding year.

Corresponding policies and laws have been introduced.

• Research subsidy: In January 2015, the PRC’s Ministry of Science and Technology published a policy relating to government grants and subsidies for technological innovations. Prior R&D subsidy schemes such as the “863 Program” and the “973 Program” were abolished. This move may ease the problem of subsidy abuse, loosen government control and will hopefully encourage genuinely creative R&D projects.
• Talent recruitment: The 1000Plan launched in 2008 aims to entice recruits abroad specialising in areas such as technological innovation, skills optimisation, high technology and R&D. Recruits can now more easily apply for a Chinese “Green Card” (ie permanent residency in China) under the Measures for the Administration of Examination and Approval of Foreigners’ Permanent Residence in China.
• Intellectual Property Strategy Action Plan (2014-2020): Also in January 2015, China issued its latest IP Action Plan which highlights action to:

• promote the development and use of IP;
• consolidate IP protection through law enforcement;
• strengthen IP management; and
• bolster international co-operation in terms of IP.

Commonplace Western perceptions freeze the image of China within the infamous Shanzhai or copycat culture. Yet, as regards R&D, the OECD Science, Technology and Industry Outlook 2014 report predicts that by 2019 China will exceed the US in R&D expenditure.

Further, studies such as the Global Innovation 1000 report that in recent years Chinese companies have been involved in building “advanced innovation capabilities” to compete for a share of “global markets with in-demand, high-tech products”. These include companies such as Haier Group and Beijing Xiaomi Technology Co. Ltd.

Feeding these developments are growing technological innovation clusters such as Beijing’s Zhongguancun, Shenzhen, Shanghai and Hangzhou.

China has significantly increased its number of filed intellectual property applications, as noted in data gathered by the World Intellectual Property Organisation (WIPO). At a December 2014 WIPO press conference Australian-born, Francis Gurry, Director General of WIPO said that while China’s IP system is still “relatively young”, WIPO’s 2013 statistics put China as the global leader in the number of filed patent, trade mark and design applications.

There are valid doubts about the quality of many patent applications, driven perhaps by imposed quotas, directives, tax benefits or other incentives. There is also limited international impact so far from Chinese innovation. Nevertheless the change in attitude and emphasis within Chinese industry cannot be doubted. They are determined to be much more than the world’s production line.

Protection and enforcement concerns remain too about China’s IP system. In its 2014 report the Office of the United States Trade Relations again included China in its “Priority Watch List” for insufficient IP protection or enforcement. Meanwhile, and despite doubts, in late 2014 China established Intellectual Property Courts in Beijing, Shanghai and Guangzhou respectively.

China is looking abroad for growth. It is extending a warmer welcome to foreign direct investments into Mainland China, whether they be monetary or technological investments. In 2013 it instituted its Pilot Free Trade Zone in Shanghai and has subsequently introduced more relaxed regulations for foreign investors and business organisations. This model of operation will be replicated in more parts of China as it introduces more free trade zones.

A warm welcome is also being extended to the almost 700,000 Chinese students studying abroad. China is eager to call on its diaspora and welcome home its Haigui, a Mandarin pun for sea turtles used to describe Chinese students who return to China after studying abroad. After all, who better appreciates the significance of “know your enemy” than Sun Tzu’s own people? Evidence indicates that multinational corporations in China in particular favour hiring Haiguis to fill management positions.

China is changing from being the world’s low cost factory to become a global IP power. National economies worldwide, including the US and arguably India, compete for mechanisms to improve productivity and entrepreneurship and to shift economic resources out of areas of lower productivity to areas with greater yield. For this, supporting the life cycle of intellectual property is a national economic imperative as orthodox as having a central bank, fair tax system and environmental regulation.

Rosana She was born in Hong Kong, went to high school in England, graduated from Sydney University and is a lawyer with Dilanchian Lawyers & Consultants. Rosana and Noric Dilanchian specialise in trade with China, IP, IT and general business law.

The body of a senior Alcatel-Lucent Shanghai Bell Co. executive has been discovered in a waterway close to Shanghai's Huangpu River, according to an exclusive report published by Caixin yesterday afternoon.

Jia Lining, the head of the company's human resources department, had not been since January 14.

The company has confirmed that the executive's body had been found and also noted that the police have already ruled out the possibility that he was murdered, according to the article.

A wave of reports in mid-January tied Mr Jia's disappearance to allegations of graft at the company.

Before his disappearance, Jia Lining shared allegations that senior executives at Shanghai Bell were suspected of corrupt behaviour and abuse of power via WeChat.

Alcatel-Lucent Shanghai Bell is a joint venture between Alcatel-Lucent, the French maker of telecommunications equipment, and state-owned China Huaxin Post & Telecommunication Economy Development Center.

It's one of the 100 or so SOEs that are under the direct control of the State-owned Assets Supervision and Administration Commission.

Zhang Jindong, the chairman of Suning Appliance, China's biggest electronics retailer, said he would put forward a policy proposal that would require online retail platforms to accept more responsibility for disputed transactions.

According to an article carried on Caijing's website, Zhang, in his role as a delegate to Chinese People's Political Consultative Conference, suggested that in the event of poor quality goods being sold online, online trading platforms should be made to refunds customers first and then conduct an investigation into the merchant involved and hold them accountable.

The high-profile businessman also said that these online retail websites should also be required to maintain records of all transactions and should not be able to simply wipe their hands of involvement on the grounds that they are simply platforms on which trades are conducted.

Twenty-six per cent of goods traded online between January and September last year failed to meet quality standards, according to data released by the the Leading Group of the National Campaign against IPR Infringements and Counterfeit Products in China.

The Conversation

There can’t be too many people in Australia who don’t recognise that the health of the Australian economy is increasingly determined in China. The boom and all-too-predictable bust in the resource sector is the most consequential manifestation of this possibility.

There is now a growing – if somewhat belated – consensus that the undoubted potential benefits of being a reliable and convenient resource exporter were not captured and very unevenly realised. Because the vast majority of “Australia’s” resource sector is actually foreign-owned, any government would have had difficulty influencing its behaviour or reining in the manic investment splurge that has contributed to the collapse in resource prices.

Although much of the profits of the boom disappeared overseas, state governments in particular did enjoy a major boost to revenues. However, little thought was given to the long-term strategic use of the economic windfall the boom created. The contrast with Norway and its very different approach to collective investment is an indictment of the short-term, short-sighted nature of policymaking in this country.

Older readers may remember we’ve been here before. During the 1970 and 1980s, Japan was our principal trade partner and there was an expectation – here and in Japan itself – that the good times would continue to roll. There was also a backlash, in this country and the US, about Japan’s growing economic power and its investment strategies.

Although it was Japan’s long-term strategic investments in resources that ought to have caused policymakers most concern, it was “trophy” investments in the US and real estate purchases on the Gold Coast that caused the most angst among the general population.

This historical experience is worth keeping in mind as it is being repeated, only this time under a Chinese rather than a Japanese banner. Successive governments have been decidedly uneasy about Chinese investment in resources and agriculture, fearing the same kind of “strategic” investment rationale and thinking that once caused such trepidation about Japan.

Equally significantly, Chinese investment in real estate is also beginning to alarm policymakers and the general electorate alike.

Nothing epitomises the growing policy challenge facing the Australian government more than Joe Hockey’s surprising decision to force prominent Chinese business figure Xu Jiayin to sell his A$39 million Sydney mansion because it contravened foreign investment laws.

Given that many observers think that the Foreign Investment Review Board is normally a somnolent, under-resourced paper tiger whose regulatory reach is patchy, inconsistent and easily avoided, its role in this affair is noteworthy.

While this decision would seem at least partly motivated by the desire to be seen as responding to Sydney’s growing real estate bubble, it highlights a number of more fundamental challenges for government. First, is the government’s principal constituency the Australian electorate or the “international investment community”?

Real estate agents are – surprise, surprise – bleating about the negative signal this decision sends to would-be investors in China. This argument is easily refuted as specious and self-interested. Productive investment – even in new real estate – ought to be welcomed, but buying existing stock simply drives up its already inflated value and prices locals out of the market.

The dangers of not regulating real estate investment can be seen in London, another global city with similar problems. In London, “Russian oligarchs”, as they are politely known, are emblematic of a process that has seen the UK’s capital become increasingly disconnected from the rest of the country.

A similar process is at work in Australia, with potentially even more problematic consequences. China’s new rich are increasingly looking for a safe place to stash their cash in the event that the Chinese economy or – even more worryingly – the Chinese political system implodes.

Even more problematically, much of this new wealth has questionable origins. It is no coincidence that capital flight from China is gathering pace at precisely the same time that Chinese authorities are involved in a seemingly genuine attempt to crack down on corruption.

One direct consequence of China’s domestic policy initiatives has been to encourage those who fear being exposed as corrupt to shift their ill-gotten gains offshore. The Chinese government is seeking greater co-operation from the Australian government in identifying and seizing the assets of corrupt officials who have fled to Australia.

If the message this sends to China is that only bona fide productive investment from reputable sources is welcome in Australia, it’s hard to see why that’s a problem. In a global era, governments around the world have to decide whose interests they serve and use the tools that still remain available to them to actually manage economic and social outcomes.

The consequence of simply leaving things to market forces is not difficult to predict: great powers and economies have always shaped lesser ones, all other things being equal. At a time when voters everywhere are increasingly cynical about politics, the dangers of not acting in the endlessly invoked “national interest” are becoming increasingly clear.

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

A former deputy Auditor-General and a senior Chinese legislator, Dong Dasheng has slammed some local governments’ decision to falsify fiscal revenue figures.

He says according to his knowledge some local governments overstate their revenue between 20 to 30 per cent and some go as high as 50 per cent, according to an interview with Beijing Times.

Mr Dong, who was a senior auditing official says the Auditor-General’s office look into personal affairs of more than a dozen provincial governors and ministers every year.  He also reveals the office only manages to audit about 50 per cent of large state-owned enterprises.

He admits big state-owned giants only get audited once every five year and no one look into their massive overseas investment projects which worth 4.3 trillion yuan at the end of 2013. 

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

Suning chairman urges stricter regulation of online retail platforms

Zhang Jindong, the chairman of Suning Appliance, China's biggest electronics retailer, said he would put forward a policy proposal that would require online retail platforms to accept more responsibility for disputed transactions.

According to an article carried on Caijing's website, Zhang, in his role as a delegate to Chinese People's Political Consultative Conference, suggested that in the event of poor quality goods being sold online, online trading platforms should be made to refunds customers first and then conduct an investigation into the merchant involved and hold them accountable.

The high-profile businessman also said that these online retail websites should also be required to maintain records of all transactions and should not be able to simply wipe their hands of involvement on the grounds that they are simply platforms on which trades are conducted.

Twenty-six per cent of goods traded online between January and September last year failed to meet quality standards, according to data released by the the Leading Group of the National Campaign against IPR Infringements and Counterfeit Products in China.

Senior Chinese official under investigation

A senior Hebei provincial official has been detained as part of the ever-widening anti-graft campaign in China.

According to a statement posted to the website of the CCDI on Tuesday, Jing is "suspected serious discipline and law violations”.

Jing has been a member of the standing committee of the Hebei provincial committee of the Communist Party of China (CPC) for over six years.

The announcement breaks a long-held tradition that such investigations are not disclosed during major political sessions.

The announcement was made just five hours after the opening ceremony of the Chinese People's Political Consultative Conference (CPPCC), an advisory body to the country's parliament.

According to Caixin, Jing’s fall is related to head of legal affairs at Langfang City and two officials from land and construction department.

Taiwan kicks Alibaba out

Taiwan has ordered Alibaba Group Holding Ltd to withdraw from the market within six months for violating investment restrictions on mainland-controlled firms.

Taiwan officials said Alibaba registered as a foreign company when it was in fact a company from mainland China. Foreign companies face fewer rules than mainland businesses.

Emile M.P. Chang, acting executive secretary for Taiwan's Investment Commission told Reuters the company had been fined 120,000 Taiwanese dollar (US$3,824) and must withdraw or transfer its holdings from its operation in Taiwan. Alibaba said it would work to get in compliance with the rules.

Shares in the e-commerce giant fell 2.9 per cent on the news today. 

The Taiwan crackdown comes as Alibaba contends with charges in its home market that it is selling fake goods. In January, the company hit back at a Chinese regulator that accused it of selling fake good and labelled its executives "arrogant".

Alibaba completed the world's biggest IPO with its listing on the New York Stock Exchange in September last year.

Headquartered in the eastern city of Hangzhou, Alibaba operates China's most popular online shopping platform, Taobao, which is estimated to hold more than 90 per cent of the online market for consumer-to-consumer transactions.

Body of missing Alcatel-Lucent Shanghai Bell executive discovered

The body of a senior Alcatel-Lucent Shanghai Bell Co. executive has been discovered in a waterway close to Shanghai's Huangpu River, according to an exclusive report published by Caixin yesterday afternoon.

Jia Lining, the head of the company's human resources department, had not been since January 14.

The company has confirmed that the executive's body had been found and also noted that the police have already ruled out the possibility that he was murdered, according to the article.

A wave of reports in mid-January tied Mr Jia's disappearance to allegations of graft at the company.

Before his disappearance, Jia Lining shared allegations that senior executives at Shanghai Bell were suspected of corrupt behaviour and abuse of power via WeChat.

Former deputy auditor general slams local government stats

A former deputy Auditor-General and a senior Chinese legislator, Dong Dasheng has slammed some local governments’ decision to falsify fiscal revenue figures.

He says according to my knowledge some local governments overstate their revenue between 20 to 30 per cent and some go as high as 50 per cent, according to an interview with Beijing Times.

Mr Dong, who was a senior auditing official says the Auditor-General’s office look into personal affairs of more than a dozen provincial governors and ministers every year.  He also reveals the office only manages to audit about 50 per cent of large state-owned enterprises.

He admits big state-owned giants only get audited once every five year and no one look into their massive overseas investment projects which worth 4.3 trillion yuan at the end of 2013.

China's central bank has taken a fresh move to lower borrowing costs for businesses in a weakening economy, just days after it cut policy interest rates for the second time in less than four months. 

The People's Bank of China has lowered interest rates that it charges commercial lenders on a special short-term lending tool, known as the standing lending facility, two people with direct knowledge of the matter told The Wall Street Journal. 

The central bank cut the overnight interest rate on the instrument to 4.5 per cent from 5 per cent previously and the seven-day rate to 5.5 per cent from 7 per cent, said the people who requested anonymity. 

The decision came after the PBOC cut its benchmark lending and deposit interest rates by 0.25 percentage point, effective Sunday. 

The Chinese central bank launched the SLF trial in 2013 in a bid to meet liquidity demand from commercial lenders and pass on the credits to corporate borrowers. In February, it expanded the use of the scheme from 10 provinces and cities to a nationwide program. 

"They've cut the benchmark interest rates and now they are sending an even stronger signal that they want to push down borrowing costs in the interbank market," said Suan Teck Kin, economist at United Overseas Bank in Singapore.

However, interest rates in the interbank or money market fell only slightly after the central bank's move, suggesting that the authorities need to do more, analysts said. 

The weighted average of the seven-day repurchase agreement rate, a benchmark gauge of money market funding costs, edged down to 4.68 per cent from 4.72 per cent Tuesday. The overnight rate was at 3.43 per cent, just a touch lower than 3.45 per cent Tuesday. 

"Compared with these market levels, the central bank's interest rates are still looking too high," said one of the people with direct knowledge of the matter. 

Effective borrowing costs in the world's second-largest economy, especially for struggling smaller businesses, have risen sharply in recent years amid a rapid buildup of corporate debt and declining profitability. 

Until November, when Beijing kicked off the latest round of monetary policy loosening, authorities had mainly resorted to piecemeal easing measures to bolster the economy, with limited success. 

For example, the PBOC pumped about 400 billion yuan ($A83.0bn) into the banking system in December via loans to some of the country's largest state-owned banks. 

China's economic growth slipped to 7.4 per cent last year, its slowest pace in nearly a quarter century. Many economists expect the government will lower this year's growth target to around 7 per cent. 

The PBOC's latest move also came on the eve of the opening session on Thursday of China's annual legislative meetings, where key policies are debated and a likely lower official growth target will be revealed. 

Given the weak state of the economy, Mr Suan said he expects another policy rate cut by the PBOC as early as in the second quarter of this year. 

China's defence budget will rise by about 10 per cent in 2015, Beijing says, extending a run of double-digit annual increases that reflects its broad military ambitions.

The estimate was announced on Wednesday by Fu Ying, a spokeswoman for China's Communist-controlled parliament, ahead of the figure's official release on Thursday.

Beijing has for years been raising spending on the People's Liberation Army in double-digit steps, flexing its military and economic might as it asserts its claims in a series of territorial disputes with Tokyo and others.

Last year, a budget report prepared for the National People's Congress said defence appropriations had risen 12.2 per cent - a figure that raised eyebrows in the region and Washington.

"Now, I can reveal to you the general case, which is that the increase in proposed defence spending in the 2015 draft budget will be about 10 per cent," said Ms Fu.

The rise was in line with the central government's overall spending growth, she added.

China's defence budget saw stated increases of 10.7 per cent in 2013, 11.2 per cent in 2012 and 12.7 per cent in 2011.

Analysts believe China's actual military spending is significantly higher than publicised, with the Pentagon estimating it at between $US135 billion ($A172.62bn) and $US215bn in 2012.

China's ruling Communist Party maintains that its military - the world's largest - is aimed at securing peace rather than engaging in disputes with its neighbours over territory in the East and South China Seas.

Beijing also frequently defends China's military rise by pointing to the "century of humiliation" the country endured during its partial occupation by European powers in the 19th century.

"Our lesson from history - those who fall behind will get bullied - this is something we will never forget," Ms Fu told reporters.

"Our country will achieve modernisation, of which national defence modernisation is an important part," she added. "This requires a certain guaranteed amount of funding."

SHANGHAI—U.S. companies in Shanghai are sceptical about the business benefits of the city’s pilot free-trade zone and have echoed concerns by American companies elsewhere in China about growing antiforeign sentiment and slowing economic growth.

An annual survey released on Wednesday of more than 370 members of the American Chamber of Commerce in Shanghai found that almost three-quarters of respondents believed the China (Shanghai) Pilot Free Trade Zone offered no tangible benefits for their business. Around half said they hadn’t noticed any change for their business since the zone opened in September 2013.

Promoted by Premier Li Keqiang as a symbol of China’s commitment to reform, the Shanghai free-trade zone promised to be an area where the country’s constraints on some industries were loosened and red tape was cut. It was modelled on the special economic zone in the southern Chinese city of Shenzhen in the 1980s, which transformed southern China into an export machine.

But the FTZ so far has failed to impress those surveyed, with 45 per cent of respondents saying there was a lack of information to help them understand how the zone works.

The survey results mirrored those of a similar report released earlier this month by the American Chamber of Commerce in China, in which respondents voiced increased concerns over what they see as rising antiforeign sentiment and a more challenging business environment.

According to Wednesday’s survey, companies are increasingly uncertain about how China’s economic reform program will affect their business. More than half of respondents cited that as their biggest business risk, up from 45 per cent in 2013 and 25 per cent in 2012.

Slower growth for China’s economy is also weighing on the minds of foreign business leaders, with 53 per cent citing it as a business risk, up from 35 per cent the year before. “There is a general expectation of further market slowdowns,” the AmCham report said.

Meanwhile, more than half of the respondents said they believed China’s regulatory environment favoured Chinese companies. “This high response rate has held steady for the past three years, indicating a persistent issue with little improvement,” the report said.

Some 63 per cent of the companies surveyed said laws and regulations that favour local companies hindered their business, up from 58 per cent in 2013.

Around half of the respondents said that China’s antimonopoly and anticorruption investigations were more likely to target foreign multinational companies.

China has investigated and fined a raft of companies, most prominently technology and auto firms, for alleged anticompetitive practices. Other foreign companies have also run afoul of the state planning agency and price regulator, the National Development and Reform Commission.

China has countered that its antitrust probes also have been aimed at numerous domestic companies.

The AmCham Shanghai survey said that the lack of transparency in how companies are selected for investigation is the biggest challenge for them when facing antimonopoly and anticorruption actions, followed by an unclear regulatory basis for investigations. “Both factors help create an environment in which companies feel anxious and vulnerable,” the report said.

BEIJING—As China’s leaders open the country’s biggest political event of the year, there will be no denying that the era of slower growth has arrived.

The economic mood is downshifting on almost every front, which means that as people’s demand grows for better schools and pensions and cleaner skies, the government is in less and less of a position to provide.

Leaders have tried to drive home that slower expansion of the world’s second-largest economy is no cause for alarm: the “new normal.” Nevertheless, when Premier Li Keqiang ’s speech on the economy opens the National People’s Congress Thursday, the clue to how Beijing intends to proceed will be mainly in one number: the target for growth.

Last year’s goal was “about 7.5 per cent”; when actual growth came in at 7.4 per cent--the slowest in more than two decades, officials disputed that it represented a miss.

A significantly lower target for 2015 would suggest Beijing will tackle difficult measures to retool an economic model economists say has run its course. By contrast, a little-changed goal signals that leaders will stick to a strategy of propping up growth, compromising on the need for reforms.

“They’re moving too slowly,” said Standard Life Investments economist Alexander Wolf. “They missed the golden period of higher growth when reforms would have been easier.”

He says that without overhauls of bloated state-owned enterprises and other reforms, growth will slow further. “And if the model still hasn’t changed, that’s the real concern,” Mr. Wolf added.

In recent weeks, Beijing has unveiled increasingly dramatic moves to spur bank lending in a bid to rekindle economic momentum. But such moves could set back its efforts to shift away from excessive reliance on exports, a bloated property market and government spending.

What strategy Chinese leaders pick matters on a global level. A plan that emphasizes short-term growth could give a boost to a world economy suffering from Europe’s malaise and an unsteady recovery in the U.S., but it could also raise questions about China’s long-term role as a global economic growth engine.

At home, leaders face strong pressure for more action. Many businesses say they don’t want to borrow or expand given weak demand. Smaller companies that do say banks are holding back credit because of worries about bad loans.

“Lower interest rates aren’t such a help,” said Chang Wenfei, general manager of Ake Electronics, a maker of smart gadgets in the southern city of Foshan.

Meanwhile, income inequality, health care and pensions are among the public’s top concerns, according to state media surveys.

Another is a deteriorating environment, one of the consequences of decades of breakneck growth. A documentary released in recent days that is quietly critical of China’s environmental policies was viewed over 100 million times online, prompting censors to scramble to contain domestic coverage.

“I worry about not having social insurance,” said Yang Jiahua, a 54-year old security guard at a toy factory in southern Guangdong province. “I keep working here hoping I’ll get a pension. Otherwise I would have been gone long ago. I feel miserable and depressed and don’t have much hope.”

Compounding the job for policy makers is a tighter fiscal environment. China is expected to raise its deficit target, which was 2.1 per cent of gross domestic product in 2014, but some economists say China’s actual budget deficit may be closer to 7.5 per cent of GDP, when off-the-book debt by local governments is taken into account.

Data provider IHS Global estimates that China’s debt-to-GDP ratio rose over 20 percentage points in 2014 to reach 247 per cent. A sizable portion of that is attributed to local government’s off-book borrowing.

Premier Li is expected to restate the country’s bias for “prudent” monetary and “proactive” fiscal policies. Economists say they expect that to translate into more monetary easing and expanded government spending as momentum slips and more investors move capital overseas.

That could fuel an equity bubble and let industries off the hook about tackling overcapacity, widely evident in the property sector. In a scene playing out nationwide, dozens of residential towers ringing the north-eastern port city of Dalian sit empty, many with Roman-style columns and balustrades evoking earlier days of excess before prices tumbled.

And while jobs have held up well, a rise in the politically sensitive unemployment rate could lead to still more stimulus.

State investment in the electricity grid is keeping copper wire makers afloat, said Zhang Xuhua, external trade manager of Jiangsu Shangshang Cable Group Co., but two years of tough times have dented industry confidence, he added.

Even companies poised to benefit from increased government spending on road, rail, water and electricity projects say state contracts hardly offset the impact of the broader slowdown.

“The bank credit situation still hasn’t improved very much,” added a cable-firm owner surnamed Bian in China’s eastern city of Yixing, a major copper manufacturing base, whose company recently folded.

East Asia Forum

China’s international energy investments and acquisitions have drawn much interest from foreign observers. Some analysts tend to believe that it represents a national energy procurement strategy driven by the central government.

These perceptions seem to derive from the phenomenon that China’s overseas direct investment (ODI) is mostly focused on energy and conducted by state-owned enterprises (SOEs). There is a general lack of knowledge on how Chinese SOEs do business overseas and the nature of their relationship with the central government. The argument of some Chinese analysts that Chinese oil companies abroad can and should play an important role in securing China’s energy security undoubtedly strengthens this popular impression in the West.

In reality, however, the story is less sinister but more complicated.

Overseas energy investment is not necessarily connected with a domestic energy shortage. China’s ODI reflects and is an extension of China’s domestic economic structure. These investment are mainly, but not exclusively, directed towards primary resources. But while the majority of Chinese energy and resource firms sectors are still SOEs, their share is decreasing with the rapid market transition and decentralisation occurring in China.

In some respects, China’s path in overseas investment is following a similar pattern to the US and Japan. As the domestic economic structure changes, the focus of overseas investment will shift from resource sectors to the manufacturing and service sectors.

China’s firms are mostly driven by profit motives and competitive pressure rather than energy security considerations or the need for resource acquisition. Although the government supports overseas investment, it is the enterprises, rather than the government, that generally initiates overseas investment decisions.

China’s economy has been in transition from a state-controlled economy to a more market-based economy for over thirty years. In this time, the government has worked hard to internationalise the economy by adopting the ‘invite in’ and ‘go out’ strategies. To ‘invite in’ means opening the Chinese economy to foreign firms, while to ‘go out’ means getting involved in the world market and investing overseas.

In the resource sector, internationalisation means inviting foreign investment into China, investing in overseas exploration and production, as well as conducting overseas business in the technology and labour services. A key motivation for companies investing overseas, overlooked by the detractors who view Chinese SOEs as tools of the state, is economic self-development. International exploration and production are a means of improving the technological, technical and managerial capabilities of Chinese companies and facilitating the export of related facilities, technology and labour.

The interests of China’s resource companies and associations do not always accord with those of the government and are sometimes in direct conflict with them. Just as Eric Downs points out that, one of the primary complaints Chinese policymakers and pundits make about the overseas investment of Chinese SOEs is that ‘each soldier is fighting his own war’, with each company placing their corporate interests above national ones.

For the enterprises, overseas commitment decisions are independently made based on their evaluation of the risks and returns. While they would like to secure whatever government support they can, they would continue their internationalisation and investment abroad even without any such support. This is especially so for non-state-owned enterprises and local SOEs, both of which enjoy little or no financial assistance. In most cases, it is the SOEs that recognise the opportunities first and initiate negotiations over the prospective investment. They then seek government approval of their investment plan and lobby for financial or diplomatic support if needed.

As it strengthens international dialogue and cooperation both at the corporate and government levels, China also needs to be more market oriented and transparent in domestic policymaking and promote steady economic, political and social transition. The so-called non-market resource solutions and incomplete market-based methods in China arise from the unfinished nature of the transition from the planned economy to a market economy. It is essential for China’s public to have a better understanding of the global resource situation and be more confident in the world energy market.

Fortunately a growing number of Chinese analysts are realising that acquiring overseas equity has little impact on China’s energy or resource security. While developing an understanding of the challenges of ODI, companies need to cooperate more with their international counterparts and improve their transparency and public relations. As the losses of SOEs in overseas investment receive more attention within China, further reform and liberalisation of SOEs as well as more overseas investment from non-SOEs can be expected in the future.

Zhao Hongtu is Research Professor, Institute for World Economic Studies, China Institutes of Contemporary International Relations (CICIR).

This article first appeared on East Asia Forum. Republished with permission.

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Thousands of delegates have arrived in Beijing to take part in the annual parliamentary sessions. Beijing residents have been treated with rare blue skies again as the authorities clamp down on polluters before major events.

One of the hottest topics for discussion is China’s pollution problem. An anti-smog documentary film named “Under the Dome”, has been viewed more than 100 million times since last Friday night has galvanised public opinion.  Citizens are demanding action from the government to clean up China’s toxic air, soil and water.

The challenge is formidable.  The debate about the environment goes to the heart of China’s current development dilemma. Do you want to have blue skies or GDP growth? For the past three decades, the government, the business and citizens have opted for economic growth. Environmental costs have been ignored.

Officials get promoted for building more factories and churning out more steel. Businesses dump toxic waste into rivers without ever turning on their expensive waste treatment equipment. Citizens have learned to just cop it.

If you want to understand why it is so hard to tackle the pollution problem in China, you need to look no further than the country’s steel industry. It is by far the largest producer and consumer in the world. The production capacity of just one province – Hebei -- is larger than the combined output of Japan and South Korea. In 2014, Hebei produced 185 million tonnes of steel. 

Many of these steel mills sprung up during the heyday of China’s industrialisation. A lot of them were built without official approvals let alone any environmental impact assessment.  Xiong Yaohui, the director-general of technical standards at the Ministry of Environmental Protection said 60 per cent of steel mills were built without environmental approvals. 

 “We don’t want to touch these illegal operations. How can we shut them down? 10 million tonnes of steel equals 100,000 jobs.  Hebei steel has reached a point where it is impossible to get rid of it,” he said in an interview with Chai Jing, the former CCTV anchor who produced the provocative documentary film.

What he said goes to the heart of the problem. How do you convince local governments to shut down steel mills that they rely on for creating jobs and generating much needed revenue? Beijing has been trying to slim down the industry for years without much success.

In fact, the industry has been growing rapidly despite a government clampdown and razor thin profits. Consider this: the profit margin for the whole industry last year was only 0.9 per cent, the lowest among all industrial sectors in China. And yet the industry invested another 64.8 billion yuan in new capacity. 2037 new projects started construction last year, according to the Ministry of Industry and Information Technology.

The industrial expansion is taking place at a time when Beijing wants to reduce the country’s steel production by 80 million tonnes by 2017, or roughly ten per cent of the total output last year. Hebei province alone will have to cut 60 million tonnes within the next three years.

Why do steel mills keep on producing when profits are almost non-existent and there is so much excess capacity in the system already? It is all about keeping unemployment rates down and helps to maintain the illusion of rapid economic growth. The Chinese government is subsiding loss-making steel firms to the tune of billions of yuan every year to prop them up. The deputy governor of the central bank Liu Shijun calls them ‘zombie firms”.

Chongqing Iron and Steel, a listed state-owned steel producer is a good example. In 2012, it received 2 billion yuan in subsides in order to turn an accounting profit. ­It lost 2.5 billion the following year when it got only 4 million yuan from the government.

These zombie firms are relying on life support from state-owned banks and pose a real risk to the stability of financial system. These are China’s “too big fail” companies, and they’re doing untold damage to the environment. In a bid to cut costs, they don’t switch on their waste treatment equipment and they refuse to install mandated emission reduction gear.

Most importantly, they are still mass-producing homogenous, low value added crude steel products, even when demand is waning. 16 provinces in China still regard the steel sector as a priority industry, which means it will get favourable policy support from local governments. It is just simpler to generate GDP through building big steel mills than encourage innovation.

To tackle China’s environmental crisis, the government must be willing to resolve the excess capacity issue in highly polluting sectors such as steel, coal and cement. Though there are signs that the government is placing less and less emphasis on ‘GDPism’ lately, economic growth at all the cost is still the gospel for many local cadres.

Unless there is a fundamental shift in that belief, China’s environmental crisis can only get worse. Ironically for Australia, the inability or unwillingness to confront the pollution problem is propping up miners’ bottom line as well as the federal budget. We should be really worried when and if governments at all levels in China start to tackle the smog problem more seriously. It seems the current of public opinion is flowing in that direction.

Follow Peter Cai on Twitter: @peteryuancai

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China’s central bank is looking into deflation risk after it it cut interest rates twice in the last three months, says Yi Gang, a senior deputy governor according to a report in the Beijing News.

Yi says the country’s consumer price index will not dip into negative territory and the bank has factored the deflationary risk into its policy-making process.

The deputy governor also downplayed the risk of the recent volatility in the RMB, saying the Euro and Japanese Yen lost ten per cent of their value against the greenback while the RMB only lost two per cent of its value.  

“If the American dollar is the strongest currency in the world, the RMB is the second strongest,” he said according to a Beijing News report. 

Tencent Holdings chairman Pony Ma has warned regulators of overreaching and destroying fledgling technologies and businesses.

The CEO and founder of the Chinese tech giant pointed to recent moves to regulate the emerging taxi-booking app sector and warned regulators not to go to far.

"We have yet to reach a consensus on the "internet of transport" sector” Ma said. “We should protect these emerging technologies”.

In February, two popular taxi-booking apps backed by Chinese tech behemoths Tencent and Alibaba announced they will merge to create a new company reportedly valued at $US6 billion ($A7.74 billion).

Ma suggested further integration of the internet sector with government services, businesses.

“The internet brings opportunities for all sectors” Ma said.

Ma also suggested a further integration of the Internet with the country’s cultural industry, and called for the protection of online copyright.

Earlier, Baidu CEO Robin Li has suggested starting a "China Brain Scheme" in 2015 to promote the country's development of artificial intelligence.

At least 36 members of China’s national legislature are billionaires with a combined worth in excess of the GDP of Vietnam according to data released by Hurun.

Other members include Yang Yuanqing, chief executive of PC-maker Lenovo and Lei Jun, CEO of smartphone maker Xiaomi.

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

Chinese central bank looks at deflation risk

China’s central bank is looking into deflation risk after it it cut interest rates twice in the last three months, says Yi Gang, a senior deputy governor.

Yi says the country’s consumer price index will not dip into negative territory and the bank has factored the deflationary risk into its policy-making process.

The deputy governor also downplayed the risk of the recent volatility in the RMB, saying the Euro and Japanese Yen lost ten per cent of their value against the greenback while the RMB only lost two per cent of its value. 

“If the American dollar is the strongest currency in the world, the RMB is the second strongest,” he said according to a Beijing News report. 

(Beijing News)

Tencent’s Pony Ma warns of regulatory overreach

Tencent Holdings chairman Pony Ma has warned regulators of overreaching and destroying fledgling technologies and businesses.

Tencent's CEO and Founder “Pony” Ma Huateng pointed to recent moves to regulate the emerging taxi-booking app sector and warned regulators not to go to far.

"We have yet to reach a consensus on the "internet of transport" sector” Ma said. “We should protect these emerging technologies”.

In February, two popular taxi-booking apps backed by Chinese tech behemoths Tencent and Alibaba announced they will merge to create a new company reportedly valued at $US6 billion ($A7.74 billion).

Ma suggested further integration of the internet sector with government services, businesses.

“The internet brings opportunities for all sectors” Ma said.

Ma also suggested a further integration of the Internet with the country’s cultural industry, and called for the protection of online copyright.

­(Beijing News)

Huawei brushes off rise of Xiaomi

Yu Chengdong, CEO of Huawei Consumer Business Group, says the smartphone industry is set for a major reshuffle in the next three to five years.

Speaking at the Mobile World Congress, Yu downplayed the rise of Chinese rivals.

"In the future, our main rivals will be Western companies, rather than Chinese ones” he said.

“The majority of Chinese smartphone manufacturers will disappear, but Huawei will become the leading company in the industry” he said.

As for Huawei’s Chinese rivals, Yu said that Lenovo is focussing too much on marketing and sales, at the expense of innovation. Yu also said Xiaomi was relatively successful at the moment, but that it’s success won’t last long.

Huawei sold 74 million smartphones, and its market share increased to 5.7 per cent in 2014 according to market research firm IDC. According to those statistics, Huawei is the third-largest smartphone maker after Apple and Samsung.

(Tencent Technology)

Chinese manufacturing plan to be submitted to State Council

Li Yuanzhong, the deputy head of CPPCC's finance committee revealed that a policy document outlining the future development of China's manufacturing industry will soon be submitted to the State Council for approval.

Li, who made the comments during a discussion session at the CPPCC, said the Ministry of Industry and Information Technology and the Chinese Academy of Engineering were currently working on a draft plan that covers the period from 2015 to 2025.

The objective of the new policy is to achieve full industrialisation at the end of this decade and become an industrial superpower by end of 2050. The plan, which has sometimes been referred to as "China's version of an Industry 4.0 plan", is said to focus on the development of industries such as IT, biological, pharmaceuticals and high-end equipment.  

(China Securities Journal)

China to push ahead with nuclear plans

China will push ahead with the development of third-generation nuclear reactors, according to comments made by Wu Xinxiong, the former head of China's National Energy Administation.

The former energy official who was removed from his position late last year, made the comments yesterday on the sidelines of the Chinese people's Political Consultative Conference (CPPCC).

Wu said that coal would continue to be used, but that China would endeavour to use coal in a cleaner way, with emissions similar to that produced by natural gas.

Wu also said the country needed to make efforts to further develop hydropower, wind energy and solar.

The former chairman of China's north-western Xinjiang Uygur autonomous region, Nur Bekri, replaced Wu as the head of the country's energy administration in late December.

(China Securities Journal)

The growth of bad assets in the nation's banking system is expected to slow this year after a rapid build-up in the past two years, said a central bank official on the sidelines of the nation's legislative meeting Thursday. 

Zhou Xuedong, the head of the People's Bank of China Nanjing branch in the eastern Jiangsu Province, told reporters that local asset management companies, set up in 2013 to resolve bad debt from local financial institutions, has acquired over 10 billion yuan ($A2.07 billion) of bad assets, playing an important role to absorbing bad debt accumulated in the province. 

Jiangsu's asset management company was the first of such institutions set up by Chinese local government, in a bid to accelerate resolution of soured loans. 

China set up four state-run asset management companies--including China Orient and Cinda Asset Management Corporation--in the late 1990s amid a previous surge of bad loans. The four companies took some 1.3 trillion yuan of bad debt off the books of the nation's top four state-run banks. 

Mr Zhou said China is expected to roll out deposit insurance program this year, which will pave a way for full interest rate liberalisation and establishment of more private banks. 

He said China's next step in its plan to achieve interest rate liberalization could be a complete removal of the cap on deposit rates. So far it has gradually raised the ceiling, most recently to 1.3 times the benchmark level.

China's government plans to spend more building up its commodity stock piles this year while taming its consumption of coal, part of a raft of policies to clean up highly-polluting industries while taking advantage of weak global resource prices. 

The country's Ministry of Finance said Thursday it would spend 154.6 billion yuan ($A32.bn) this year to build up its reserves of grains, edible oils and what it termed "other materials." That is a 33 per cent rise on such spending compared with 2014, when stockpile-spending rose 22 per cent. The figures were revealed in the ministry's report to the annual legislative National People's Congress currently taking place in Beijing. 

China imported record-high imports of oil, iron ore, copper and other commodities last year as prices for key commodities fell to their lowest levels in more than five years. The higher imports have underlined the appetite China still has for the resources it regards as essential for its long-term development, despite a recent softening in actual consumption levels. 

The finance ministry didn't specify what it meant by "other materials," but crude oil is among the commodities for which Beijing has been trying to build higher strategic reserves. China is aiming to have 90 days worth of oil in reserve to cover for supply disruptions, in line with other major economies. 

Industrial metals like copper, where China's domestic supply is weak, are likely on the list of commodities it is hoping stock pile further. China also buys corn, wheat, soybeans and other agricultural commodities from farmers when market prices fall below pre-set state-guaranteed levels. 

Most of the ministry's extra spending would be to finance loans and expenses associated with acquiring these stockpiles, it said. But the ministry said this year's spending would also cover losses from auctioning its cotton stockpiles. Traders say China is sitting on roughly 10 million metric tons of cotton that it bought mostly when cotton prices were much higher than they are today. It has been slowly selling those reserves over the last year. 

The figures disclosed Thursday refer only to central government expenditures and exclude rebate spending and transfers to local governments, which could significantly bump up the final annual spending on stockpiling. 

At the NPC's opening session, Premier Li Keqiang said Beijing would move forward on a two-year-old proposal to hold down coal consumption growth in "key areas." 

Mr Li didn't specify these areas, but a high-level political advisory body to the legislature had proposed such a policy in 2013 for the high-growth municipalities of Beijing and Tianjin, in addition to Hebei province, Shandong province, the Yangtze River belt around Shanghai and the Pearl River Delta. 

China's coal consumption and production fell last year for the first time in 14 years due to a slowing economy and cleaner energy policies, the National Bureau of Statistics said. Data released by the government show China is increasing its reliance on crude oil and natural gas for its energy needs. 

The government's latest policy appears aimed at hurrying China toward an inflection known as "peak coal," when an industrialising economy enters a long-term decline in its usage of the mineral. Economists largely forecast that China will hit that peak around 2020, but some say it might have already happened. 

Aiding the coal decline, China on Thursday set an overall economic growth goal for 2015 of about 7 per cent, lower than last year's 7.4 per cent actual growth. 

"It's possible that even without this administrative expansion, the Economics 101 will just work to bring consumption down, but this certainly gives the government a guarantee from major economic powerhouse areas that their coal consumption will not grow," said Li Shuo, senior climate analyst with environmental watchdog Greenpeace East Asia. 

China's top economic planning agency, the National Development and Reform Commission, also called for energy intensity to be cut 3.1 per cent in 2015 in a report accompanying Mr Li's address. 

"This is slower than last year, but that's understandable as they would be within the five-year target of an overall 16 per cent cut," said Miao Tian, energy analyst for investment North Square Blue Oak. 

China reduced its energy intensity by 4.8 per cent last year, ahead of its 3.9 per cent reduction target, on the back of environmental policies including a ban on highly-polluting coal and the closure of several steel mills. Energy intensity is a measure of the amount of energy needed to increase gross domestic product; higher levels of energy intensity indicate a higher cost of converting energy into GDP. 

There was little commodity market reaction to China's policy announcements, as most traders have already factored in the country's slowing growth outlook into prices.