China will end a ban on foreign majority control of its steel companies, a long-touted overhaul widely seen by analysts as coming too late to revive the nation's beleaguered industry. 

The country's top economic planning agency, the National Development & Reform Commission, said in a statement on Friday that steel would be among 349 industries designated under a policy category it called "foreign investment encouraged," which opens the sector to foreign control. 

The change would be effective April 10, the agency said. 

State industry officials a year ago had told reporters the nine-year-old ban was under review. Beijing previously viewed steel as a strategic sector, supplying some of its most crucial industries, and was reluctant to allow outside control -- though it allowed minority stakes under certain conditions. 

The Chinese government in July 2005 blocked foreign investors from taking controlling stakes in domestic steel companies, thwarting a bid by Mittal Steel Co. to acquire control of Shenzhen-listed Hunan Valin Iron & Steel Co. Mittal was one of the companies that merged to become the world's largest steelmaker, ArcelorMittal SA, the following year. 

Since then, proposals to lift the ban have periodically surfaced from Chinese steelmakers hopeful for injections of foreign capital. Last year, the commission deregulated foreign participation in previously closed infrastructure projects including railways, gas pipelines, telecommunications and clean energy, setting the stage for a wider liberalisation. 

The latest move comes at a time when China's economic slowdown has taken a heavy toll on steelmakers. Pressure to cut environmental pollution and slowing demand from big-ticket construction have sent Shanghai steel prices plummeting 41 per cent over the past two years to 2,146 yuan ($US343) a metric ton. The latest move isn't likely to spark a flurry of bids from foreign companies, analysts say. 

"You're looking at an industry that has huge overcapacity and declining demand -- by and large, it's not the most attractive sector," said Oliver Barron, head of Beijing research for investment bank North Square Blue Oak. The Chinese government has focused too much on opening up unprofitable sectors, such as upstream oil exploration and coal-to-chemical businesses, rather than more-attractive mainstream industries such as telecommunications, Mr Barron said. 

The state-backed China Iron & Steel Association has for more than a year publicly supported opening up the steel sector. Part of the pressure to do so, its officials say, comes from mounting concern from export destinations over allegations of dumping of steel products from Chinese mills seeking a way out of the economic doldrums at home.

China's steel-product exports last year rose to a record 94 million tons, customs data showed. 

"One reason why trade friction has been rising is that foreign investment isn't allowed," Zhang Changfu, the association's secretary-general, said last year. "This has to change. if you don't let people in, how do you go out?"


 

SHANGHAI—The Communist Party’s internal watchdog agency placed the chairman of China’s third-largest automaker by sales under investigation—in a new wave of probes in the country’s antigraft crackdown.

The Central Commission for Discipline Inspection, in a statement released Sunday, accused Xu Jianyi, chairman of state-run FAW Group Corp., of “suspected serious violations of discipline and laws.” The phrase is typically used in China in cases related to corruption.

FAW is a major Chinese partner of Volkswagen AGand Toyota Motor Corp. Established in 1953, the company has a history that stretches back to the Mao era.

In pressing the anticorruption crackdown that began two years ago, party leaders have sent investigative teams to look at state-run companies, central government agencies and provincial governments. The commission in a separate announcement Sunday said that a senior provincial leader, Yunnan province’s Vice Party Secretary Qiu He, was placed under investigation for unspecified discipline violations.

Neither Mr. Xu nor Mr. Qiu could be reached for comment. The commission didn’t provide additional information. Calls to the headquarters of FAW went unanswered.

FAW and its joint venture with Volkswagen have come under scrutiny before. In June 2012, the National Audit Office, said that it found malpractice by FAW and FAW-Volkswagen, including failure to record sales of about 170 new cars. A few days after the audit report was issued, local anticorruption officials launched an investigation into a deputy general manager of FAW-Volkswagen’s sales division, said the joint venture at that time.

In August last year, the discipline agency launched probes into current and former executives at FAW-Volkswagen. Volkswagen hasn’t been accused of any wrongdoing.

The antigraft campaign’s scrutiny of state-run companies has taken down senior executives at oil giant China National Petroleum Corp. and conglomerate China Resources (Holdings) Co. In a July report, the official Xinhua News Agency said more than 50 senior managers at state-owned enterprises have been removed as part of the crackdown.

In the case of Mr. Qiu, investigators are focusing on a provincial leader known for introducing policies related to government transparency.

State-run media have described him as a “reform pioneer” and a “phenomenon.” The party’s People’s Daily newspaper in 2012 used a front-page story to liken Mr. Qiu to a cat and lazy officials under his paw as sardines.

As recently as Sunday morning, the final day of China’s annual legislative sessions in Beijing, state-run media highlighted his contributions to the event, an indication the party’s allegations against Mr. Qiu are new. Premier Li Keqiang didn’t mention Mr. Qiu during a news conference Sunday to wrap up the legislative meetings. In discussing the anticorruption campaign Mr. Li said authorities continue to make “strong efforts to ensure all acts of corruption will be brought to account.”

The 58-year-old Mr. Qiu spent most of his career in the eastern province of Jiangsu, rising to vice governor, before he was transferred to Yunnan in late 2007. In both places, he earned a reputation for “sunshine policies” that have shaken up local politics by introducing a dose of public scrutiny of officials and pushed them to work harder.

Mr. Qiu is the rare “official with personality,” Joseph Fewsmith, a China analyst at Boston University has written.

China's state-run broadcaster has targeted foreign carmakers and dealers in its annual consumer rights gala alleging  problems ranging from pricing to quality.

Service centres affiliated with Nissan, Shanghai Volkswagen and Mercedes-Benz were accused by the programme of overcharging for routine repairs.

The programme also alleged that Jaguar Rover was selling some car models with faulty gearboxes.

The CCTV programme is broadcast on March 15 each year to mark World Consumer Rights day and is in line with government efforts to boost consumer protections in a market rife with fakes.

In 2013, Apple chief executive Tim Cook apologised to Chinese consumers after the Us technology giant was subjected to a barrage of criticism for alleged "arrogance" and double standards.

A senior Chinese aviation official has flagged the possibility of the country investing massively in a network of county-level general aviation aerodromes.

Li Jiaxiang, director general of the Civil Aviation Administration of China, told a forum on Friday that market demand for such a network is huge and that there is great potential for the development of general aviation in China, according to a Xinhua News Agency report.

General aviation refers to civil aviation operations that include flight training, cloud seeding, exploration, health services and other non-scheduled air services.

Mr Li said the market conditions required to back the development of such a network will exist during the period of the next five-year plan. 

Li said that responsibility for aviation facility construction was delegated to provincial level authorities as part of the government's efforts to reduce red tape last year.

China has 2,800 counties but only 78 such aerodromes that are up to scratch, according to Li.

The communist party head of China Eastern airlines said that demand for general aviation services will reach $US15.5 billion over the next decade.

“The general aviation industry could become a new source of growth that will fuel China's economic development” he told Xinhua.

China is pushing for more consolidation in the baby formula industry as part of a broader effort to improve the country’s food security.

According to an official document from the State Council, the Chinese government cabinet, Beijing wants to exercise better control and monitoring of the entire food production chain, singling out baby formula products as one of the key priorities.

The State Council published a directive on encouraging mergers and consolidations in the baby formula industry in June 2014, calling for the creation of ten companies with turnover of two billion each.

Furthermore, Beijing wants the top ten Chinese domestic brands to account for 65 per cent of the whole industry. At the end of 2018, the Chinese government wants to see the formation of three to five large producers with an average turnover of 5 billion yuan.

The end goal for Beijing is to see the top ten domestic companies dominate 80 per cent of the lucrative market in baby formula market. Chinese consumers are still distrustful of domestic brands ever since the 2007 Sanlu contamination scandal.

More than 50,000 infants were hospitalised with kidney problems after drinking Sanlu baby formula tainted with melamine, an industrial chemical used to artificially boost protein levels. Two company executives were sentenced to death over the scandal.

Chinese president Xi Jinping has taken a personal interest in the matter, saying the Sanlu scandal has affected people’s general trust in Chinese produced food products.

Brendan McKeegan, global head of sales at Camperdown Dairy International, which makes the Duri brand of infant formula for both the Chinese and Australian market welcomed the initiative.

“We believe this will lead to closer ties between these companies and overseas dairy companies such as Camperdown Dairy International.”

“These strengthened relationships will lead to Chinese companies expanding their product ranges to include “premium” dairy product offering from vertically integrated supply chains in countries such as Australia.”

Chinese premier Li Keqiang has hinted at the prospect of allowing selective defaults on debts, ending the government’s policy of preventing bankruptcies at all costs.

In the past, the Chinese government and state-owned banks have worked closely together to prevent companies and financial products from defaulting. In response to questions from the media about financial stability in China, the premier said there were isolated cases of financial risk but no danger of systemic risk.

The Chinese government will introduce a bank deposit insurance scheme this year as part of an overall strategy to ensure stability in the financial system. Guan Youqing, head of research at Misheng Securities, says this move will highlight instances of moral hazard and put pressure on interest rates.

The Chinese premier says the country has a high savings rate, with 70 per cent of local government investments generating returns. Mr Li said the government is also in the process of cleaning up local government financing vehicles. 

Lowy Interpreter

Should Australia join the Chinese-sponsored Asian Infrastructure Investment Bank? As often happens in international affairs, the answer is not found in the technical pros and cons of the proposal, but in the politics.

America seems to have strongly encouraged its close Asian friends (Japan, South Korea and Australia) not to join, concerned about China's growing influence in Asia. But now that the UK has decided to become a founding member, the pressure is on the hold-outs to sign up. 

There is no doubt that Asia needs much more infrastructure; that China has a lot of experience at building it; and that China has massive savings to help fund it. There is no doubt, too, that there would be some overlap with the World Bank and, perhaps more obviously, with the Asian Development Bank.

The AIIB does raise some questions. Would some competition between rival funding institutions be helpful? Would this new channel add to the resources going into infrastructure, or just re-channel the same funds? Is Australia more effective in improving AIIB governance by joining in from the start or by playing hard-to-get?

To start, the AIIB is just one more example of devolution away from the centralised global economic institutions created at Bretton Woods in 1944 and towards a more regional framework. The establishment of the Asian Development Bank in 1966 was an early example. The devolution process in Asia was given a huge boost by the Asian financial crisis of 1997-8. Many policy-makers in the region still hold the view that the IMF failed to understand the crisis, and from then on, they realised they should work to build regional institutions.

Japan's attempt to create an Asian Monetary Fund in 1998 was vetoed by America (China also resisted). Since then, the Chiang Mai Initiative has encroached on IMF territory, although it has yet to demonstrate operational capacity. Regional groupings such as ASEAN have become stronger, and regional networks have established close personal relations between officials across a wide range of disciplines and levels. For the most part, these regional institutions have been slow developers (it's hard to see the Chiang Mai Initiative Multilateral becoming an effective rival to the IMF), but much of the interaction is now at a regional level. 

There is a powerful case for subsidiarity -- pushing responsibility down to the lowest level practicable. Differences between the globe's regions are substantial, so regional knowledge and region-specific policies matter. Countries are also more likely to come to the assistance of neighbours. The Washington-based institutions have become top-heavy, weighed down by the need to placate universal representation. Rules imposed in response to specific problems are often applied globally.

The region already has the ADB. Does it need the AIIB, the BRICS New Development Bank and the Chinese New Silk Road initiative? Probably not. But Japan continues to monopolise control of the ADB (where Japan and the US each have voting rights well over twice as large as China's and the president is always from Japan). The US dominates the Washington institutions, with the American Congress preventing even modest governance reforms at the IMF.

Given this ossified and unwelcoming environment, China's search for alternatives is inevitable. 

Rather than lobbying its allies to oppose the Chinese initiative, the Obama Administration might remind Congress of the cost of its recalcitrance. As for Australia, the answer on the AIIB is now obvious. New Zealand has decided to join. Will they, once again, get ahead of us in regional ties?

This article was first published on the Lowy Interpreter and is reproduced with permission.

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

US investor migration program overwhelmed by Chinese applicants

The number of Chinese people applying for American 'investor migrant' visas has increased rapidly and there is a possibility of a huge backlog building up starting from June, according to remarks made by Carolyn S. Lee, the vice chairman of the American Immigration Lawyers Association's EB-5 committee, to an audience in Shanghai on Saturday.

H. Ronald Klasko, another lawyer specialising in migration law, told the audience that in 2014, 85 per cent of investors awarded a visa under the program were from China.

(China News Service)

CCTV takes aim at foreign carmakers

China's state-run broadcaster has targeted foreign carmakers and dealers in its annual consumer rights gala alleging problems ranging from pricing to quality.

The programme accused service centres affiliated with Nissan, Shanghai Volkswagen and Mercedes-Benz of overcharging for routine repairs.

The programme also alleged that Jaguar Rover was selling some car models with faulty gearboxes.

The CCTV programme is broadcast on March 15 each year to mark World Consumer Rights day and is in line with government efforts to boost consumer protections in a market rife with fakes.

In 2013, Apple chief executive Tim Cook apologised to Chinese consumers after the Us technology giant was subjected to a barrage of criticism for alleged "arrogance" and double standards.

(Tencent Finance)

Beijing pushes for consolidation in baby formula industry

China is pushing for more consolidation in the baby formula industry as part of a broader effort to improve the country’s food security.

According to an official document from the State Council, the Chinese government cabinet, Beijing wants to exercise better control and monitoring of the entire food production chain, singling out baby formula products as one of the key priorities.

The State Council published a directive on encouraging mergers and consolidations in the baby formula industry in June 2014, calling for the creation of ten companies with turnover of two billion each.

Furthermore, Beijing wants the top ten Chinese domestic brands to account for 65 per cent of the whole industry. At the end of 2018, the Chinese government wants to see the formation of three to five large producers with an average turnover of 5 billion yuan. 

Beijing hints at allowing selective defaults

Chinese premier Li Keqiang has hinted at the prospect of allowing selective defaults on debts, ending the government’s policy of preventing bankruptcies at all costs.

In the past, the Chinese government and state-owned banks have worked closely together to prevent companies and financial products from defaulting. In response to questions from the media about financial stability in China, the premier said there were isolated cases of financial risk but no danger of systemic risk.

The Chinese government will introduce a bank deposit insurance scheme this year as part of an overall strategy to ensure stability in the financial system. Guan Youqing, head of research at Misheng Securities, says this move will highlight instances of moral hazard and put pressure on interest rates.

The Chinese premier says the country has a high savings rate, with 70 per cent of local government investments generating returns. Mr Li said the government is also in the process of cleaning up local government financing vehicles. 

China looks to the skies for next investment boom 

A senior Chinese aviation official has flagged the possibility of the country investing massively in a network of county-level general aviation aerodromes.

Li Jiaxiang, director general of the Civil Aviation Administration of China, told a forum on Friday that market demand for such a network is huge and that there is great potential for the development of general aviation in China, according to a Xinhua News Agency report.

General aviation refers to civil aviation operations that include flight training, cloud seeding, exploration, health services and other non-scheduled air services.

Mr Li said the market conditions required to back the development of such a network will exist during the period of the next five-year plan.

Li said that responsibility for aviation facility construction was delegated to provincial level authorities as part of the government's efforts to reduce red tape last year.

China has 2,800 counties but only 78 such aerodromes that are up to scratch, according to Li.

The communist party head of China Eastern airlines said that demand for general aviation services will reach $US15.5 billion over the next decade.

“The general aviation industry could become a new source of growth that will fuel China's economic development” he told Xinhua.

(Xinhua News Agency)

Central authorities to re-examine local government debt data over fears of swollen estimates

Central authorities have given themselves a month to audit the latest local government debt data, according to a report that was published in Saturday's Economic Observer.

The Ministry of Finance, the NDRC, the PBOC and CSRC will together examine the latest estimates of outstanding local government debt that were submitted to the Ministry of Finance by local governments nationwide on March 8.

The central ministries have split up the task and will focus their efforts on the direct debts of local governments. 

Wang Zecai, a researcher with the MOF's Research Institute for Fiscal Science, told the paper that the reason the central authorities were auditing the submitted figures was that the amount of debt reported by central and western regions exceeded expectations and there were suspicions that the numbers might have been inflated.

The problem was not just with estimates of the amount of debt on the books but also over definitions of what exactly qualified as 'government debt', according to Yang Zhiyong, a researcher with the Chinese Academy of Social Science's National Academy of Economic Strategy.

An unnamed local level financial official told the paper that the reason why the figures haven't been made public is because the size of the debt estimates were so large. The official went on to say that the aim of this latest round of auditing is to squeeze out some of the 'air' that had been added to the numbers.

The official told the paper that one central province had already seen its local government debt shrink by more than 100 billion yuan during an internal auditing process.

(Economic Observer)

Central authorities have given themselves a month to audit the latest local government debt data, according to a report in Saturday's Economic Observer.

The Ministry of Finance, the NDRC, the PBOC and CSRC will together examine the latest estimates of outstanding local government debt that were submitted to the Ministry of Finance by local governments nationwide on March 8.

The central ministries have split up the task and will focus their efforts on the direct debts of local governments. 

Wang Zecai, a researcher with the MOF's Research Institute for Fiscal Science, told the paper that the reason the central authorities were auditing the submitted figures was that the amount of debt reported by central and western regions exceeded expectations and there were suspicions that the numbers might have been inflated.

The problem was not just with estimates of the amount of debt on the books but also over definitions of what exactly qualified as 'government debt', according to Yang Zhiyong, a researcher with the Chinese Academy of Social Science's National Academy of Economic Strategy.

An unnamed local level financial official told the paper that the reason why the figures haven't been made public is because the size of the debt estimates were so large. The official went on to say that the aim of this latest round of auditing is to squeeze out some of the 'air' that had been added to the numbers.

The official told the paper that one central province had already seen its local government debt shrink by more than 100 billion yuan during an internal auditing process.

China said Monday it will allow local governments to issue bonds with additional maturities and encourage more investors to buy the debt, in a bid to strengthen local finances. 

In new rules governing local bond issuance, local governments now can offer bonds with maturities of one or three years, in addition to five, seven and 10 years, the finance ministry said in a statement on its website. 

The new rules, which are now in effect, apply to provincial governments as well as cities directly governed by the central government  --  Shanghai, Beijing, Tianjin and Chongqing. 

The State Council, or cabinet, remains in control of how much debt local governments can offer each year, the ministry said, adding that no maturity can account for more than 30 per cent of the total quota allotted to each local government. 

Governments will also encourage bond purchases by more types of investors, including the nation's social security fund and housing provident funds, according to the statement dated March 12. 

The bonds, which will be issued based on the credit position of the issuing government, are for not-for-profit public projects and must be included in local governments' budgets, the ministry said. 

Last year, Beijing allowed 10 provinces and cities to sell bonds on their own credit on a trial basis, introducing the country's first Western-style municipal bonds. 

Local governments are generally barred from directly issuing bonds because of concerns over rising debt levels and fears that some local administrations don't have the ability to manage their own funds. Beijing has generally issued bonds on behalf of local governments. 

China began allowing some better managed local governments to issue bonds in 2009 to give local authorities more financing channels. 

The finance ministry said Monday that separate rules will be released later for bonds issued to finance for-profit projects.

China’s Asian Infrastructure Investment Bank is yet another example of infrastructure as politics, something that Australia is expert at.

And it’s pretty ironic that the Abbott Government is now thinking about joining the AIIB, but wouldn’t dream of doing something like it at home.

The AIIB is generally seen as a political creation designed by China to gain influence in the region and to get under the skin of the Americans, which seems to be working quite well.

The US has been politically pressuring its allies not to join, but that’s now falling apart. The UK, New Zealand and Singapore have agreed to sign up and Australian Prime Minister Tony Abbott is apparently preparing to do the same, although he may be checking first.

The idea of the AIIB, as well as the American-dominated World Bank and the Japanese-dominated Asian Development Bank, is to supply cheap loans and not-so-cheap political influence to countries that would otherwise have to pay prohibitive interest rates.

Unlike the World Bank and the ADB, which also help out on social projects, it looks like the AIIB will be strictly infrastructure. The initial capital will be $US50 billion and although China could supply the whole amount, it wants the thing to be a partnership of Asian countries, for both practical and political reasons (i.e. to annoy America).

The deadline for founding members is the end of this month. Tony Abbott says he’s thinking about it, now that the UK has joined, having previously said he’s not thinking about it, and will make up his mind in a week or two. Presumably that means he’s going back to Washington to see if it’s OK now, since they’ve let Britain do it.

He should also have a long hard think about what he’s doing with infrastructure in Australia.

So far the self-professed “infrastructure Prime Minister” has come up with just the Asset Recycling Initiative, which merely involves giving back to the states some of the future corporate tax that would be collected if they sell state-owned businesses.

Once a state-owned business is sold, it starts paying Federal taxes for the first time. The Abbott Government has agreed to contribute 15 per cent of the sale price of any privatisation towards infrastructure projects, up to $5bn over five years, from the pool of future tax collections.

It’s not much and it’s money they wouldn’t have got anyway.

What’s more it’s rightly seen as putting political pressure on the states to privatise, and also as the Grattan Institute’s John Daley told the ABC’s Q&A program last night (correcting Treasurer Joe Hockey’s more expansive claims) infrastructure investment has “tailed off” as a percentage of GDP since the Coalition was elected.

Hockey replied that -- hang on a minute! -- the Abbott Government had put $1.5bn into WestConnex in Sydney; Daley reminded him that that was agreed by the previous government. Oh right.

What he didn’t mention was that the ALP had actually promised $1.8bn for that project.

Anyway, history re-writing aside, it’s yet another road, when what this country needs is more rail.

In Victoria the Coalition is engaged in a deeply unedifying political stoush with the State Labor Government over the East West Link tunnel and road, demanding that it goes ahead while criticising the plan to spend $11bn on rail.

In fact the East West Link has been a shocking political stitch-up, which the Coalition used as a poison pill for the incoming Labor Government.

The ALP clearly made not proceeding with this project part of its election campaign and the Prime Minister himself said the election was a referendum on the East West Link.

Then in the lead-up to the election, the Coalition not only signed the contracts for the project but wrote a side letter locking any future Government to a sort of take-or-pay arrangement with the contractors, while at the same time forking out hundreds of millions of dollars in upfront, non-refundable, fees to banks.

The ALP then won election and has been attempting to implement its mandate of cancelling the project, against cries of “sovereign risk” from the Prime Minister and others.

The whole thing is an absolute disgrace and the most egregious politicisation of infrastructure that we have seen in a long time, and that is saying something. Little wonder that the public is jaded with the whole process of infrastructure in this country.

Infrastructure Australia was set up in 2008 to de-politicise infrastructure priorities, but it has been a miserable failure. In fact the new Coalition Government sacked everyone last year and appointed a new board and CEO.

And underlying the manifest failure of Australian politicians to deal properly with infrastructure is their refusal to set up a proper mechanism to borrow for it -- like the proposed AIIB, or the ADB.

With interest rates at record lows it makes much more sense for the Government to use its AAA credit rating to fund infrastructure rather than to provide the seed capital and upfront fees for private toll roads.

What Australia needs, above all, is rail, especially freight rail to get trucks off the roads, and especially the Inland Rail project from Melbourne to Brisbane, that has been discussed almost as endlessly as Sydney’s second airport.

For some reason the political imperative around infrastructure in Australia appears to involve building only roads, or at least getting private investors to build them, and then charge us to use.

No problem with tolls: as the CEO of Asciano, John Mullen, told us last week it takes about 35 hours for a train to get from Melbourne to Brisbane and just 20 hours for a truck -- and the truck doesn’t have to pay to use the road.

But trucking companies have much more political clout than rail companies, perhaps, as John Mullen said, because there are more of them.

And infrastructure, as we know, is all about politics, not about what’s needed.

Want to know if the Asian Infastructure Investment Bank is a force to be reckoned with? Ask the European nations abandoning America and signing up.

BEIJING—China is signaling that more measures are in the works to regain economic momentum and overcome weak demand from businesses and consumers.

Policies unveiled at the annual session of China’s legislature this month called for maintaining a moderately high rate of growth—7 per cent—and outlined further deficit spending to support the goal. Wrapping up the 11-day session at a news conference on Sunday, Premier Li Keqiang said that while the economy faced downward pressure, the government has room to step in and has “more tools in our toolbox” should growth flag and affect employment.

So far, there is little evidence that the interest-rate cuts and other measures taken in recent months to spur bank lending are doing much to reverse the downward slide in China’s $10 trillion economy. The economy, which grew at 7.4 per cent last year, has gotten off to a weak start by several measures, dragged down by high levels of corporate debt, a housing glut and a weak global economy. Given that, economists have said companies aren’t eager to borrow and invest.

“The question is whether they have as much control over this process as they’d like to think given weakness in the property sector and external demand,” said Adam Slater, economist with Oxford Economics. “The authorities like to present the image that they have great control of the economy. They don’t want to frighten the horses.”

Getting smaller businesses to borrow, consumers to spend and the heavy hand of the state out of the economy is vital to arresting the descent, economists said, and that is going to take more time and more action.

“Real interest rates are still high and credit demand is low, especially private credit where the government doesn’t have so much control,” said Standard Life Investments economist Alexander Wolf. “A lot of the problem is overcapacity and weak demand. As investment falls, and there’s been a steady fall for years, consumption falls with it.”

While the government has in the past relied on easing credit and infrastructure spending to ramp up growth, it has resisted doing so out of concern that money would flow to the wrong places—highly leveraged property developers and big state companies in industries suffering from overcapacity.

Further staying the government’s hand is that employment has held up well, something Premier Li highlighted Sunday. He cited reductions in government approvals needed to start businesses and expand investments for helping to generate new employment; China last year created over 13 million urban jobs.

Despite that, consumption has wobbled. Retail and catering sales during the Lunar New Year when tens of millions of Chinese travel to their ancestral homes grew at the slowest pace since the financial crisis, contributing to lower retail growth figures during the first two months of 2015.

“My holiday spending was pretty much the same as last year,” said Niu Junli, a 32-year-old salesperson at a handbag store in Beijing, who avoided splashing out during a visit to her parent’s home outside the capital.

Premier Li said the government is watching to see if growth sputters to the lower limits of its comfort zone, particularly focusing on any impact on employment and income. Mr. Li said the government would further cut red tape, reduce some taxes on businesses and overall improve conditions for private companies as part of long-term restructuring.

He didn’t elaborate on more forceful remedies the government might take. Economists expect one or two interest rate cuts—starting as early as the second quarter—totaling up to a half-percentage point this year and several reductions in the reserves that banks must hold with the central bank, which would free up more funds and counter capital leaving China in search of higher returns.

Mr. Li didn’t signal major support for a sector that has been a major driver of the economy—housing. Sales during the first two months of this year fell 16.7 per cent year on year, their steepest drop in three years. Mr. Li said that China needs to encourage more people to buy homes for personal use and predicted steady growth in property markets. With more people moving from the countryside to the city, “China’s housing demand is here to stay,” he said.

As exports, investment and infrastructure become more ineffective in generating economic growth, China’s leadership is looking to innovation and entrepreneurship to pick up the slack. Toward that end, Mr. Li said Beijing will continue to reduce regulatory interference. The number of government approvals required to begin a new venture has roughly halved to 50 to 60 steps in recent years, he said, although this level still raises costs and damps enthusiasm for startups.

But the Chinese state retains an oversized role in the economy and many of the outlined moves to limit its role are difficult to verify. There is also a timing mismatch said economists: new industries aren’t growing fast enough to make up for the declines in the old growth engines, and it will take years to chip away at the inefficiencies, vested interests and structural underbrush of state-led growth.

During the two-hour question and answer session, Mr. Li omitted any mention of reforming state-owned companies, a step that some economists said is essential to spur private enterprise given their inordinate grip on bank borrowing and hold over key markets.

HANNOVER, Germany—Chinese tech firm Huawei Technologies Co. Ltd. is teaming up with German software maker SAP SE to offer integrated solutions to certain specified business sectors, instead of selling solely hardware such as servers or data storage, the enterprise unit’s Chief Executive Yan Lida told The Wall Street Journal at CeBIT trade fair in Hannover.

The enterprise segment, Huawei’s smallest, produces network gear for customers. After taking the helm of the segment in April, Mr. Yan identified sectors such as energy, transportation, Internet service providers, public administration, banks, government, education and media, which he aims to provide integrated solutions for.

One element of this strategy is the collaboration with SAP. Both companies will send research and development staff to each other’s headquarters to develop products targeting customers in those sectors. As part of Huawei and SAP’s partnership, the companies will work on integrating Huawei’s ICT infrastructure and connectivity solutions with SAP’s Hana Cloud Platform and SAP applications and analytic tools, the companies said.

Additionally, Huawei plans to build research facilities with developers of the company’s three segments to address the needs of customers when it comes to the Internet of Things, the network of physical objects embedded with electronics, software, sensors and connectivity. “Today’s Information and Communication Technology cannot support Industry 4.0,” Mr. Yan said.

Huawei’s enterprise segment posted $3.13 billion in sales last year, a 27 per cent increase from 2013. This year, the segment aims to raise sales by $1 billion, he said.

The Chinese company, mostly known for its network gear and devices, targets mainly the Asian and European market with its products for enterprises.

Huawei also operates a larger research and development facility in Munich, with more than 350 staff, out of more than 75,000 globally.

SHANGHAI—The weekend death of a former top Chinese general accused of corruption closes one avenue for potential pushback against China’s sweeping antigraft campaign from the country’s military.

Xu Caihou, a former vice chairman of China’s Central Military Commission, died at age 71 on Sunday of bladder cancer, state media said. He was the highest-ranking Chinese military official accused of corruption in China in decades and a target of vitriol in government-run media.

The website of the official People’s Liberation Army newspaper said in an editorial on Monday that Mr. Xu’s death marked the end to a “pathetic and shameful life.”

Still, the accusations against Mr. Xu risked breeding possible resentment among other members of the military elite who might feel threatened. A trial could have provided the former general a platform to embarrass Chinese President Xi Jinping or challenge the merit of the accusations.

“It’s a terrible thing to say, but his death was in everyone’s interest,” said Kerry Brown, a professor of Chinese politics at the University of Sydney. “There’s a neatness in this now that he’s gone.”

Mr. Xu was expelled from the Chinese Communist Party in June and stripped of his rank. He was quoted in state media last October as admitting to military investigators that he accepted “extremely large” bribes. But he was never given the chance to publicly address the allegations, and exact charges weren’t made public.

The former general was among the most senior Chinese leaders publicly implicated during a forceful anticorruption campaign Mr. Xi kicked off in late 2012. Chinese officials say they need to capture such high-level officials—or tigers, after Mr. Xi’s slogan that anticorruption investigators would “hunt tigers and swat flies”--to show the antigraft push is serious.

Mr. Xu has been seen as a symbol for broader corruption within the military, one of China’s most vaunted institutions. So far, there is no public indication of disunity in China’s military, though Mr. Brown said the overall campaign would naturally cause some resentment among senior officials. More than a dozen other military officers have also been publicly accused of corruption in recent months.

Mr. Xi, who leads the military commission and is also the son of a general, has projected an image as highly supportive of a modern military that can stand toe-to-toe with U.S. armed forces. Last week, Mr. Xi met with top officers and credited them with “vigorously” promoting the goal of running a clean military.

Chinese authorities Monday tried to address the potential issues surrounding prosecuting Mr. Xu while he was in ill health. They said through official media that Mr. Xu continued to receive treatment for his cancer throughout the probe but that it ultimately failed.

On China’s tightly controlled social media, sympathy for Mr. Xu appeared in short supply. One commentator on Weibo Corp.’s microblog service wrote the former general’s name would live in “infamy for a thousand years.” Other commentators suggested the long-ailing Mr. Xu was a scapegoat. One wrote his death marked a “compromise” and that his demise “is the best ending for everyone.”

BEIJING—The vice chairman of major Chinese oil producer PetroChina Co. has been placed under investigation as China’s anticorruption drive continues to shake up its massive state-owned parent company.

Liao Yongyuan most recently served as vice chairman of U.S.-listed PetroChina and as general manager at the state-owned parent company China National Petroleum Corp., the country’s largest oil and natural gas producer by volume. A brief dispatch by the Communist Party’s Central Commission for Discipline Inspection released Monday night said Mr. Liao was suspected of “serious law and discipline violations,” though no details were given. The term is typically used by the party watchdog in cases of suspected graft.

Mr. Liao couldn’t be reached for comment, and it wasn’t known whether he had a lawyer. In a statement to the Hong Kong Stock Exchange late Monday, PetroChina confirmed Mr. Liao had been placed under investigation, and said the company was operating normally.

The investigation against Mr. Liao marks the latest in what has been a tumultuous period for CNPC and PetroChina. Top serving and former executives, including former chairman Jiang Jiemin, have been caught up in a sprawling anticorruption drive championed by Chinese President Xi Jinping.

None of the senior oil executives accused in the anticorruption drive have yet stood trial. Mr. Jiang was expelled from the Communist Party in June for allegedly taking advantage of his position, extortion and accepting sizable bribes, according to China’s official Xinhua News Agency.

Some of the oil executives removed from their posts during the past 18 months have had close ties to Zhou Yongkang, another former CNPC chief who went on to lead China’s domestic security apparatus and who served as a member of the Communist Party’s all-powerful Politburo Standing Committee before retiring in 2012. Mr. Zhou was placed under party investigation in July, making him the highest-ranking party member to get ensnared in Mr. Xi’s campaign.

PetroChina has been among the central state-owned enterprises hardest hit by Mr. Xi’s corruption drive, and is also among the companies being targeted for reforms as part of the government’s plans to shake up the nation’s powerful yet inefficient state enterprises. Industry analysts and political scholars say that by removing top industry executives, Mr. Xi’s government has tried to neutralize opposition to his reform plans.

A 30-year veteran of China’s oil patch, Mr. Liao held tremendous sway over China’s energy sector from his perch at PetroChina. During the 1990s he helped lead oil-exploration work over China’s remote Xinjiang region. More recently in Beijing he held a series of increasingly senior positions in which he would have worked under Mr. Jiang and other former top executives who have recently been removed from office for alleged graft. Mr. Liao was appointed to his most recent post at vice chairman in May 2014.

The shake-up at PetroChina and CNPC has had major ramifications for China’s oil sector, contributing to a falloff in new investment and deal activity by the company last year. Industry insiders say executives at CNPC have been scared to make decisions approving spending on new activity, fearing it could draw the gaze of party investigators who have been probing the company’s activities world-wide.

Today, like oil companies elsewhere, PetroChina is under big pressure to cut costs amid low oil prices. Following decades of breakneck economic growth in China, which meant state oil companies had wide remits to raise production volumes no matter the cost, today slower growth means the government is seeking profitability from PetroChina and more balanced spending plans. The company has said it is striving to improve efficiencies and focus on returns.

PetroChina’s board is scheduled to meet next week in Beijing to approve the company’s 2014 results. It wasn’t clear whether Mr. Liao would be replaced on the company’s board.

China’s central and local governments collected more than 2.57 trillion yuan over the first two months of this year, a 3.2 per cent increase on the amount collected in January and February 2014, according to data released by the Ministry of Finance yesterday.

Part of the increase was due to the fact that some of the government revenue that was previously separately calculated as income from government funds is now being added to the general revenue column.

Total general government revenue increased by 1.7 per cent year-on-year over the two-month period if recent changes to the accounting practice are taken into account.

The central government collected 1.16 trillion yuan, a fall of 1.7 per cent year-on-year.

The aggregate of revenue collected by all levels of local government over January and February was 1.41 trillion yuan, an increase of 7.5 per cent on the same period last year. 

Though if the impact of altered accounting is removed, the annual increase comes in at 4.7 per cent.

Just over 455 billion yuan was raised via the long-term leasing of land over the two-month period, a fall of 36 per cent on the amount raised during the same period last year.

China attracted $US8.56 billion of foreign direct investment in February, up 0.9 per cent from a year earlier, the Ministry of Commerce said on Tuesday.

Chinese investments overseas surged by 68.2 per cent to $US7.25bn, according to the ministry.

Combining January and February, foreign direct investment rose 17 per cent from a year earlier, while outward direct investment rose 51 per cent. The ministry released statistics covering the two month period due to China's Lunar New year holiday week, which fell in both months.

China's gross domestic product (GDP) expanded 7.4 per cent last year -- the worst result since 1990. Last week, leaders lowered the country's 2015 GDP growth target to "approximately seven per cent", from last year's objective of about 7.5 per cent.