AFP

China's holding of United States debt surged past $US1.3 trillion ($A1.5 trillion) for the first time in October, worth nearly $US1,000 per Chinese citizen, US Treasury figures show.

And with Hong Kong thrown in, Chinese holdings of US bonds reached a record $1.44 trillion, up from $1.31 trillion a year earlier.

The creditor-debtor relationship of the world's two largest economies continued even as China hinted in October that it could slow its dollar accumulation due to the Washington political battle that had threatened a US default on its debt.

China has stepped up its warnings over the past year of the risks of huge US debt.

But with the two being each other's largest trading partner, and China enjoying a massive surplus in bilateral trade, it continues to accumulate US Treasury bonds to prevent its currency from rising too fast.

The US currency accounted for nearly 40 per cent of China's total foreign reserves of $US3.66 trillion at the end of the third quarter.

Japan remained the second-largest US creditor in October, holding $1.17 trillion in US debt, up from $US1.13 trillion a year ago.

New international chief of Australia and New Zealand Banking Group Ltd, Andrew Géczy has initiated a sweeping restructure of his management team as he looks to push the lender deep into Asia, The Australian Financial Review reports.

According to the newspaper, as a result of the changes ANZ's head in Asia Gilles Planté will be promoted, while Mark Robinson, the lender's Europe, America, the Middle East and India chief will leave.

Several teams in ANZ's international division will be merged, and some levels of management will be removed altogether.

The AFR reports it is not clear how many jobs might be lost as a result of the restructure.

The newspaper cites an email from Mr Géczy as saying the lender needed better ­“execution” to reach its potential as a “super-regional” player.

Mr Géczy repalced Alex Thursby as chief of ANZ’s international and institutional banking division in September.

The Conversation

China’s National Energy Administration has just released some remarkable data on the addition of new electric generating capacity in 2013. China’s electric power system has been growing at a tremendous rate to keep up with the country’s breakneck expansion of its manufacturing industry over the past decade.

China’s growing renewables

Between 2010 and 2011 China’s power system passed the 1 million kilowatt mark, making it comparable in size to the US. In the years 2010, 2011 and 2012 the system was growing at around 10 per cent a year, by amounts varying between 83 million kW and 94 million kW each year.

But in 2013 so far (the first 10 months, January to October), the National Energy Administration revealed that capacity additions have slumped. They total just 63 million kW so far, and might amount to perhaps 88 million kW for the year. The total power system in China appears to be levelling out.

The remarkable feature is that the share of renewables has leapt in significance. Whereas non-fossil fuel capacity additions totalled 31 million kW in 2012, these renewable and nuclear power stations have totalled 36 million kW so far this year – and could be projected to be 43 or 44 million kW for the whole year. (That’s one new non-fossil power station of 1 million kW nearly every week!)

But the even more astounding feature is that the additions powered by renewables now exceed those powered by fossil fuels (coal and gas) and nuclear. Capacity additions involving hydro, wind and solar PV have totalled 33.8 million kW so far this year, while capacity powered by fossil fuels amounts to 27.0 million kW and by nuclear is just 2.2 million kW – or 29.2 million kW for fossil fuels plus nuclear. The renewables plus nuclear in 2013 make up 57 per cent of new capacity additions, while those powered by fossil fuels alone are down to 43 per cent.

This is one small blip on the statistical chart. But it is one giant leap for China. It means that the growth of its electric power system – that underpins the entire modernisation and industrialisation of the country – is now being powered more by renewables than by fossil fuels. Wind and solar are growing at a great rate, while nuclear is barely moving. We summarise this data in the chart below.

Source: Authors, based on NEA data

Source: Authors, based on NEA data

Source: Authors, based on NEA data

China’s 12th five year plan

It is a further remarkable coincidence that in the same week as the energy administration figures were released, China Railway revealed the building of the country’s high-speed rail network passed the 10,000km mark – by far the largest in the world. China’s high-speed rail is massively more efficient as an inter-city transport system than private automobiles and air. The country is also greening its electric power systems and consequently saving huge quantities of carbon emissions.

These results for 2013 reveal just how strongly China is swinging behind renewables as its primary energy resource. This is consistent with the 12th Five Year Plan (running from 2011 to 2015) which projects that China will be generating 30 per cent of its electric power from non-fossil sources overall by 2015. This is a level far higher than comparable industrialised countries.

And it is consistent with the allocation of capital to strategic industries including those producing cleantech goods, which are anticipated to be growing at 15 per cent per year by 2013 – or at twice the rate of the country’s GDP growth overall.

In other words, renewable energy and cleantech industries are seen by the country’s leaders as becoming a pillar of the industrial economy – along with the steel and automotive industries.

It’s just that it is happening even faster than China anticipated.

A lesson to be learnt from China

What a contrast with the situation in Australia. Here we find the new government using their “mandate” to abolish the carbon tax as an excuse to jettison any progress that has been hard won in Australia in renewables and cleantech industries.

A bill to abolish the Clean Energy Finance Corporation – Australia’s Green Bank and fabulously successful in driving the financing of new cleantech ventures, was passed in the House of Representatives with Coalition support, but rejected in the Senate. This probably gives the CEFC a reprieve of six months until there is a new Senate in place on July 1 next year – but the tide might have turned by then and the government might be less anxious to do away with an obviously successful CEFC.

Ministers in the new government take every opportunity to deride the renewables and cleantech sector, even though it is one of the few sectors to show any growth in Australia. By contrast they take every opportunity to promote coal and gas extraction – as if that could possibly be where our future lies. A new report from Oxford University underlines the fact China’s demand for coal is dropping, and Australian coal infrastructure could become “stranded assets”. Australia should be looking to build new manufacturing industries in cleantech and renewable industries – for our own benefit, and to take over some of the jobs lost as the vehicle industry shrinks.

China shows that smart countries build their energy security on strong foundations of manufactured systems – wind turbines, solar PV cells, and solar thermal arrays – rather than on mining and extraction of ores. Manufacturing industries will underpin the urbanized world of tomorrow, and the firms that contribute to them will reap increasing returns. Firms contributing to mining and extraction of resources will inevitably be forced to accept diminishing returns as the resources get harder to access.

The fossil fuels sector is promoting “alternative” fuels like coal seam gas and tar sands oil as the next bonanza. In the US this has reached a crescendo, with big fossil fuel companies (and Australia’s BHP Billiton) falling over themselves to become part of the new oil rush. But while it relieves the country of its heavy dependence on Middle Eastern oil, it does nothing to modernise the energy system through renewables and cleantech – and consequently China moves further ahead as the lead player (along with Germany and to some extent Japan).

The new data from China’s energy administration reveal just how committed China is becoming to its renewables sector – and how that will underpin the country’s energy security. It is worth pointing out that this will have a dramatic impact on China’s carbon emissions, slowing their growth and hastening the year when they will actually start falling.

John Mathews is professor of Strategic Management at Macquarie Graduate School of Management. Hao Tan is senior lecturer in International Business at University of Newcastle.

The authors do not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article. They also have no relevant affiliations.

This article was originally published at The Conversation. Read the original article here.

*Tapping China's green transformation, December 13

While the world mourns the passing of Nelson Mandela, one of China’s most influential liberal thinkers Qin Xiao is drawing lessons for his own country from South Africa’s experience.

Some in China regard the African republic as a dismal failure. The country is still mired in poverty, inequality and disease nearly two decades after the first all-race election in 1994 that ended the apartheid regime.

The government’s cheer squad argues that the failures by South Africa and some Eastern European countries to successfully transition from authoritarian states to prosperous democracies are examples of why China should not go down the same path.

Qin, one of China's most influential liberal thinkers and a professor at Tsinghua University (alma mater of the current president Xi Jinping), draws a different lesson from the South African experience.

Interestingly, he compares the current Chinese economic miracle to the rapid economic development in South Africa under the racist apartheid regime. South Africa experienced rapid economic development in the 1960s and 70s, with the economy doubling every seven years. Dubbed the ‘factory of Africa’, it was the first and only country to industrialise on the continent.

Qin says that South Africa and China share two striking similarities during their periods of rapid economic development.

The first similarity is that both economies have relied on an export-dependent model of development. Due to lack of domestic demand from poor black South Africans and Chinese peasants, both countries rely on exports as a key driver of development. As a result, both countries have enjoyed persistent current account surpluses. Between 1965 and 1982, South Africa’s surplus export earnings grew on average 15.2 per cent per year. 

The country also managed to attract a large inflow of foreign capital on the back of what Qin describes as “a low human rights globalised model of development”, whereby foreign multinationals take advantage of cheap labour with limited rights in developing countries.

Foreign multinationals earned handsome rewards from their investment. For example, American investment in South Africa yielded an 18 per cent return in 1979 compared to 14 per cent elsewhere. General Motors' subsidiary is China is just about the only highly profitable division in the loss-making global empire.

The second similarity is an obsession with infrastructure development. The white minority government was able to ignore the rights of black South Africans and compulsorily acquired their lands without compensation to build roads. In 1980, the country boasted the third-largest road network after the US and Germany.

This sounds awfully similar to what is taking place in China, where peasants’ land is forcibly acquired without compensation and protests are crushed with brute force. Consequently, China can boast a modern infrastructure that even outshines many developed countries.

Most controversially, Qin compares China’s rural and urban divide with that of the apartheid system in South Africa. China’s household registration system, which is known as Hukou, divides its citizens into rural and urban residents.

Urban citizens enjoy vastly superior rights in education, social welfare, health care and property rights than their country cousins. It is one of most divisive social issues plaguing the country. Beijing only started talking about giving limited property rights to farmers a few months ago.

Qin argues China’s discriminatory household registration system operates pretty much like the apartheid system, which provides an ample supply of cheap labour and land for accelerated economic development.

South African white minorities and Chinese urban residents reap a disproportionate share of the economic benefits. Though black South Africans and Chinese peasants also benefit from the rapid development, the wealth disparity is getting wider and wider.

In this regard, Qin says China’s situation is much worse than the wealth disparity in South Africa even during the darkest days of the apartheid regime, both in absolute and relative terms. 

The most crucial lesson for Qin is to see the limits of the South African model of development under the apartheid regime, which is eerily similarly to China’s at the moment. Though it enabled rapid development, it is not capable of resolving destabilising social divisions.

South Africa became democratic only after the unsustainable economic and social systems imploded, with international pressure also playing an important catalytic role. China’s hitherto successful economic model is also under enormous strain at the moment, not dissimilar to South Africa in the 1980s.

Qin warns emphatically that if China does not want to go down the South African path, it must reform while the economy is still sound and it can’t afford to start the process when the system implodes like South Africa.

“If China reforms while the economic miracle is still happening, we can avoid the situation South Africa is experiencing today. However, if China is forced to become democratic like Indonesia in 1997 when the economic miracle disappeared into thin air, we are no longer talking about a South African dilemma but a Russia dilemma in 1914,” wrote Qin in his new book about South Africa lesson for China.

Follow @peteryuancai on Twitter

AAP

Britain must boost its oversight of a cyber-security centre run by Chinese telecoms giant Huawei, Prime Minister David Cameron says, after politicians raised fears that the company's involvement could pose a threat to national security.

Cameron said British electronic eavesdropping agency GCHQ would now play a greater role in hiring key staff at the Huawei Cyber Security Evaluation Centre (HCSEC) in Oxfordshire, southern England, which the Chinese firm opened in 2010.

Huawei has been barred from involvement in broadband projects in the United States and Australia over espionage fears.

In July, the British parliament's Intelligence and Security Committee (ISC) published a report warning that the government had insufficient oversight of the centre, which is known as "the Cell", and urging national security adviser Kim Darroch to urgently investigate its operations.

Politicians had expressed concerns about alleged close links between Huawei and the Chinese state - which the company denies - and raised fears that China could exploit weaknesses in Huawei's equipment to spy on the UK.

Huawei supplies equipment to major British telecoms companies including BT, and channels phone calls and data around the country.

Cameron said on Tuesday that the government had heeded Darroch's recommendation that British spies should play a greater role in hiring the centre's top staff, and that oversight of the centre in general would be tightened.

"The government's main conclusion, which reflects discussion with the chairman of the ISC, is that oversight of HCSEC should be enhanced, and that GCHQ should take a leading and directing role in its future senior appointments," Cameron said in a statement.

Huawei, meanwhile, said it welcomed Darroch's conclusion that the Chinese giant was "a model for government collaboration with the private sector".

"Huawei shares the same goal as the UK government and our customers in raising the standards of cyber security in the UK," a company spokeswoman said.

Darroch said in a summary of his review that he was satisfied that the centre operated with "sufficient independence" and that vulnerabilities identified in its systems "could be explained as genuine design weaknesses or errors in coding practice".

China’s first lunar rover was launched from Chang’e-3, an unmanned spacecraft, and successfully landed on the moon last Saturday. Cutely named Jade Rabbit (or Yutu in Chinese,) the six-wheeled lunar rover is equipped with four cameras and two mechanical legs that can dig into soil samples to a depth of about thirty metres. The solar-powered vehicle will patrol the moon’s surface and study the lunar crust for at least three months. This achievement means that China is one of only three nations – after America and former Soviet Union – to land a vehicle on the moon’s surface.

Jade Rabbit’s success is no mean feat. But China wants more than this. In 2008, Beijing announced to the world that it aims to land a man on the moon by 2020. Saturday’s achievement is only one small step in a greater quest for the Chinese. We all know that the Neil Armstrong-led Apollo 11 mission did it over forty years ago. Now, a country with more than half a billion people living on less than US $2 a day wants to emulate that feat.

India, Japan and South Korea have all expressed interest in doing the same thing although the Chinese are by far the most committed to the task. Which begs the question: why does China want to be the first Asian nation to land a man on the moon?

Some Chinese agencies and officials say it is about a search for resources. Indeed, Jade Rabbit will survey minerals in a lunar crater named the Bay of Rainbows. The moon is believed to be rich in uranium, titanium and other mineral resources. It is also believed that the moon is far richer than the Earth in helium-3, an isotope of an element which could be the ‘perfect fusion energy source to replace oil and gas’ according to some reports. Several officials in China claim that helium-3 could be used to generate power for more than 10,000 years, even if the technology behind fusion reactors needed to utilise helium-3 does not yet exist. Others suggest that the moon could offer possibilities in solar generation, while there are also suggestions that a permanent base on the moon could be used for further Chinese deep space exploration.

Level-headed experts in China, and outside, caution that such aims are highly speculative. They argue that such plans are prohibitive in terms of cost, and that the science of these plans may not even be sound. Even so, Beijing has already poured tens of billions of dollars into its space program and will commit much more. There are even some in China who openly question whether the financial commitment is worthwhile when there are so many other problems to solve in China’s portion of the Earth. When doing a cost-benefit analysis means that the objectives do not make sense, and the prospect of failure (beyond landing a man on the moon) is far more likely than success, one must immediately suspect that the motivation goes beyond material gain.

Nation-states are strange creatures and indeed the motivations are ‘irrational’ - to economists and the like at least. First, there is national pride, which can serve as a unifying force. Staying unified and ‘big’ is a fundamental goal of China's authoritarian regime. Being the first Asian country to send a man to the moon would be an enormous achievement; it would also enhance the reputation of the Communist Party in the eyes of the Chinese people. It is no surprise that the successful landing of Jade Rabbit was plastered all over official Chinese news and blog sites within the country.

Second, prestige enhances a nation's ‘soft power,’ which rests on the ability to influence and shape the preferences of others and is the pulling power of a country's culture, ideals and achievements. China's promotion of the achievements during its 5,000-year-old civilization is one illustration of soft power at play. How often have we been told by Chinese propaganda agencies that paper making, gun-powder, printing and the compass were all invented in China? Being the first in Asia to land a man on the moon – and lead space exploration by mankind - would add to the grand narrative of the Middle Kingdom’s irresistible progress.

Third, the prestige that comes with success commands respect. Rising powers rarely feel secure unless they are accepted by other great powers. This is embedded in the consciousness of modern China, where memories of the country's historic fall from power in the 19th century remain profound.

Up to the 15th century, Chinese technological know-how was the most advanced in the world. China had the largest economy in the world for 1,800 of the past 2,000 years. As recently as 1820, it produced one-third of global output, and it remained the world's largest economy until 1885. Yet, since the 1840s, China has suffered what it sees as a series of humiliations at the hands of foreign powers: from the British, Japanese and Russians, as well as the Americans, who continue to protect Taiwan. Of course, official Chinese histories tend not to emphasise the self-inflicted troubles and wounds in the twentieth century that caused unparalleled disaster for its people.

Nevertheless, according to the prevailing Chinese interpretation of its history, foreign powers have stood ready to carve up China since the mid-1800s. They did so, not only because of expansionist greed, but because they had little respect for the greatness of its civilization. For many Chinese, the country's achievements over the 5,000 years gave it a mandate to dominate Asia based on its economic, cultural and technological authority. This authority was trampled upon by outside powers, and lost from the mid-19th century onwards. Even 30 years after Deng Xiaoping decided to enter the global system, China thinks of itself as an outsider. President Xi Jinping, like his predecessors, continually emphasise that “hostile foreign forces have not abandoned their conspiracy and tactics to Westernize China and to divide the country.”

Growing its economic and military might – like firing missiles allegedly capable of taking down an American aircraft carrier – is about demonstrating the country's capability. But putting the first Asian person on the moon and exploring the marvels of the universe is more subtle and far more seductive and attractive to outsiders.

This then is the bottom line. Despite talk about China's economic miracle and its great re-emergence, China remains an insecure power governed by an insecure regime. The Chinese Communist Party is seeking to convince the Chinese people that it is uniquely placed to return their country to greatness. Beijing is not looking to spend tens of billions of dollars without a clear idea of what it wants in return.

True, Neil Armstrong did it so many years ago. But no one has done it since. A Chinese footprint and flag on the moon’s surface would be some tangible evidence that Asia can emulate the achievements of the West; and that China is Asia’s natural leading light. To Beijing, that is well worth the money that it is devoting to these projects.  

Dr John Lee is the Michael Hintze Fellow and adjunct associate professor at the Centre for International Security Studies, Sydney University. He is also a non-resident senior scholar at the Hudson Institute in Washington DC and a director of the Kokoda Foundation in Canberra.

AAP

French carmaker Renault has signed a $US1.3 billion ($A1.5 billion) joint venture agreement with China's Dongfeng, finally ending a decade without a manufacturing presence in the world's biggest car market.

Renault CEO Carlos Ghosn on Monday described the project as a "strategic alliance" that would open up "new frontiers" for the carmaker.

"China has the biggest growth potential in the world," he said, adding: "Dongfeng has paramount knowledge of the Chinese market."

There were many opportunities in China, especially in developing electric vehicles, Ghosn said.

"This project is about exploring new frontiers. The challenge is big but we are ready and well-prepared."

The joint venture in Wuhan, in the central province of Hubei, is expected to start production in 2016 and will have an initial capacity of 150,000 vehicles a year, but production is expected to double.

The two groups will each hold a 50 per cent stake in the new venture, which started with a joint investment of 7.76 billion yuan ($A1.5 billion).

The plant in Wuhan will begin by assembling urban SUVs, of which Renault already sells tens of thousands of units a year in the Chinese market.

The two groups will also set up a research and development centre in China with 200 staff to develop new technologies for electric and hybrid cars.

By a staff reporter

Australia and New Zealand Banking Group Ltd (ANZ) chief executive officer Mike Smith has backed the lender's vigorous push into Asia, saying the region is the a key driver of global growth, as well as now a key driver of ANZ’s growth.

Mr Smith told shareholders at the lender's annual general meeting, the opportunities being created by Asia’s growth underpins the group's growth and performance in every country that it operates in including the major domestic franchises in Australia and in New Zealand.

"It provides us with the options to focus on both returns and growth, and by doing so deliver long-term value creation for our shareholders," he said.

"It means that the value of our business is much more than the sum of the individual parts and shareholders will increasingly invest in ANZ, not just as an Australia bank yield play but
also as a growth stock."

Mr Smith said the lender's super regional strategy was about building a "better bank for customers and a better bank for shareholders".

"It’s a long-term strategy and our progress in 2013 and the initiatives we have in place, leave me confident that there’s more ‘gas in the tank’," he said.

He added the lender's four priorities for the coming years were; improving the customer experience, continuing to diversify revenues, a focus on driving productivity and increasing shareholder returns.

Earlier, ANZ announced David Gonski would succeed John Morschel as chairman from May 2014.

Bloomberg News

Ma Huateng, chairman of Asia’s largest Internet company Tencent Holdings Ltd., overtook property tycoon Wang Jianlin to become China’s second-richest man, according to the Bloomberg Billionaires Index.

Ma has a net worth of $12.1 billion, surpassing Wang by $100 million, according to the daily index. Tencent shares have soared 90 percent this year in Hong Kong trading, compared with a 2.5 percent increase in the benchmark Hang Seng Index.

Ma, 42, is benefiting from Tencent’s development of mobile Internet games and services, especially WeChat, an instant messaging and social networking app known as Weixin in China. More than 84 percent of China’s Internet users regularly access instant messaging, making it the most popular online application, surpassing search engines, according to data compiled by Bloomberg.

“We view Tencent has the makings of a great long stock and expect significant growth from its mobile Internet business,” said You Na, a Hong Kong-based analyst at ICBC International. The brokerage initiated coverage of Tencent on Nov. 18 with a buy rating.

Tencent’s QQ instant-messaging service had 818 million monthly active users at the end of June, and WeChat had 236 million, almost twice the population of Japan. Tencent is counting on WeChat, which targets more upscale users than QQ, for its global expansion.

“We believe Tencent is well-positioned among the top mobile Internet entries via Weixin, beckoning a global Internet trend,” You said.

Billionaire Rivals

Tencent hired soccer superstar Lionel Messi to promote WeChat as it pursues new revenue streams, including charging for emoticons, to compete with Alibaba Group Holding Ltd. and search engine Baidu Inc. for China’s 591 million mobile Internet users. That’s greater than the population of any other country except India.

Baidu and Alibaba also are led by billionaires. Baidu Chairman Robin Li became the nation’s wealthiest individual earlier this month with a fortune of $12.4 billion. Alibaba’s Jack Ma, who founded the world’s largest Internet marketplace, is worth $3.7 billion.

The majority of Ma Huateng’s wealth is derived from his more than 10 percent stake in Tencent. He controls the Shenzhen-based company through Advanced Data Services, a British Virgin Islands investment entity. Shares of Tencent have leaped 6,000 percent since its initial public offering.

$176 a Month

Ma Huateng was born in Shantou, a city in the southern province of Guangdong, in 1971. His father, Ma Chenshu, moved the family to Hainan, an island off the south coast, and later to Shenzhen, near Hong Kong, where he got a job as a port manager.

In 1993, Ma graduated from Shenzhen University, where he studied computer science. His first job was developing software for pagers at China Motion Telecom Development, a supplier of telecommunications services and products in Shenzhen. He earned $176 per month.

Ma, whose English name is Pony, co-founded Tencent with a Shenzhen University classmate, Zhang Zhidong, in November 1998. Its first product was instant-messaging software similar to AOL’s ICQ chat service.

Zhang, who is the company’s chief technology officer, has a net worth of $6.6 billion, according to the Bloomberg Billionaires Index.

The index is a daily ranking of the world’s richest people. Each Bloomberg Billionaire profile contains a detailed analysis of how that person’s fortune is tallied.

The index measures the world’s wealthy based on changes in markets, the economy and Bloomberg reporting. Each net worth figure is updated every business day at 5:30 p.m. in New York.

Vancouver is about 14,000 kilometres from Beijing, separated by the vast emptiness of the Pacific Ocean. However, the health of Vancouver’s housing market is closely correlated with Chinese economic growth, according to Robin Wiebe, a research economist with the Conference Board of Canada.

At first glance, this seems a strange conclusion to draw. The vitality of the housing market is usually determined by local factors such as mortgage interest rates, changes in the employment rate and population growth.

However, Wiebe argues China’s influence rivals those three key domestic factors. “All aspects of the Vancouver housing market and economic growth in China move together and are statistically significant,” he told the Vancouver Sun.

He shows that Vancouver’s housing market was sluggish during the 1990s when the local economy was decent and demographics were favourable. The average resale price increased less than three per cent annually.

However, Vancouver’s housing price surged 24 per cent during the 2000s. Wiebe argues that these results closely mirror China’s economic performance in the last two decades. The 1990s started badly for China, with the economy only growing 3.8 per cent in 1990, following a disappointing 4.1 per cent in 1989.

China’s economy also ended on a relatively weak note in the 1990s, expanding at only about 7.7 per cent in 1998 and ‘99. However, China’s economy surged during the 2000s, expanding at double digits for most of the decade.

The graph below shows that Vancouver house prices closely track that of Chinese real GDP growth.

Most importantly, Wiebe shows that two local factors – local employment growth and five-year mortgage interest rates – correlate much less strongly than Chinese GDP growth does to the three important market yardsticks of existing home sales, existing home price growth and total housing starts.

Check out this graph which shows how five-year mortgage rates had less impact on Vancouver resale price growth than Chinese economic growth.

“This could mean that a substantial proportion of Vancouver real estate purchasers do not need local jobs to buy any home (new or existing) and that many do not need a mortgage to buy a new home,” Wiebe said.

The basic principle of statistics tells us that correlation is not the same as causation. Though Vancouver house prices correlate closely with China’s GDP growth, it does not mean China is driving the housing market in Canada.

Tsur Somerville, a professor at the University of British Columbia, says that there is no doubt that the Chinese economy and the rest of the world is linked. But he believes local factors such as interest rates have played a bigger role in Vancouver house prices.

However, what Wiebe has not mentioned explicitly in his analysis is the growing Chinese appetite for overseas real estate and a growing trend for the wealthy Chinese business class to set up new nests around the world.

Chinese investment in overseas real estate assets has surged 25 per cent in 2013, according to Jones Lang LaSalle. Vancouver, just like Melbourne or Sydney, is a favoured city for Chinese migrants and investors.  

Australia shares many similarities with Canada, which are both large sparsely populated commodity exporting countries. Wiebe’s advice that observers need to pay attention to China’s economic health when assessing the outlook for Vancouver’s housing market also rings true for Australian property analysts.

AFP

The virtual currency Bitcoin has crashed in China, falling nearly 50 per cent after the country's biggest trading platform BTC China banned deposits in yuan following new restrictions reportedly imposed by the central bank.

Chinese speculators have driven Bitcoin prices into the financial stratosphere this year, peaking at 7,588.88 yuan (now $US1,250) on November 30.

By late on Wednesday they stood at 2,245 yuan, more than 70 per cent lower, and down 42.7 per cent from their 24-hour high after skidding as much as 48.7 per cent earlier.

Bitcoin, invented in the wake of the global financial crisis by a mysterious computer guru using the pseudonym Satoshi Nakamoto, is a form of cryptography-based e-money.

It can be stored either virtually or on a user's hard drive, and offers a largely anonymous payment system.

But Beijing keeps a tight grip on the yuan and enforces capital controls, which the e-currency threatens by its very nature.

Two weeks ago the People's Bank of China (PBoC), the central bank, ordered financial institutions not to provide Bitcoin-related services and products and cautioned against its potential use in money-laundering.

Reports earlier this week said it had banned domestic third-party payment companies from providing clearing services for virtual currency trading platforms, and on Wednesday BTC China said it was no longer taking yuan deposits - but withdrawals were still allowed.

While the PBoC made no announcements on Wednesday on any new curbs, analysts said the reported central bank instruction, if confirmed, could cripple Bitcoin trading in China.

"If the channel for depositing yuan in the platforms was completely cut off, all domestic exchanges would be invalid," said James Gong, a digital currency expert and member of the US-based Bitcoin Foundation.

"Bitcoin trading might be forced underground or shift to overseas markets," he said, adding the move would be a ban on Bitcoin trading "in disguised form".

BTC China asserted that its operations would continue.

In a notice to its "valued customers" posted on its website it said: "Due to new government regulations, BTC China will temporarily suspend CNY (yuan) deposits."

It added: "Rest assured that BTC China will continue to operate normally. We deeply apologise for any inconvenience."

BTC China CEO Bobby Lee said that the exchange received notice on Wednesday morning from a payment company that it was halting the deposit of customers' Chinese currency funds.

"We suspect the central bank has essentially requested third-party payment companies to not do business with us," Lee said.

Volatility in Bitcoin prices and potential risks it might bring to the domestic payment system may have triggered the central bank ban, analysts said.

"The central bank move... is to cool down Bitcoin trading and make it more rational," Ding Zhaoyong, a finance professor at Jilin University, said.

"Also the drastic price fluctuations might lead to uncontrollable risks to both delivering and charging sides in the third-party payment system, so... it must draw a clear line and avoid being passively driven into any payment dispute," Ding said.

Chinese speculators poured money into Bitcoin this year, driving the BTC China price up 9,122 per cent from January 1 to November 30 and making the country at times the world's biggest Bitcoin market.

Both BTC China and another major Chinese exchange, OKCoin, have resumed charging investors transaction fees, according to notices on their respective websites, which said the move was intended to prevent speculation and price manipulation.

The Chinese government has perceived a modification of Australian foreign policy by the Abbott government and the change threatens to hurt the nation’s relationship with Beijing, according to The Australian Financial Review.

The report suggests experts have spotted a cooling of relations since Prime Minister Tony Abbott won the September federal election, pointing to government comments over the air dispute over the East China Sea and closer ties with Taiwan and Japan as signs of change.

“I think there is an obvious shift in foreign policy under the new government, compared to the previous Labor government,” Wang Zhenyu, a research fellow at a think tank linked to China’s Foreign Ministry, told the AFR. 

If the current tension is not remedied, the Strategic Partnership signed between the two nations in April could be rendered “meaningless”, Mr Wang added, according to the report.

By a staff reporter

Outgoing Democratic US Senator Max Baucus has been nominated as the next US ambassador to China, according to media reports.

He will replace Gary Locke, a former Secretary of Commerce and the first Chinese-American to hold the prestigious position, next year if confirmed.

Politico reports that the Montana senator, who currently  chairs the  Senate Finance Committee is President Obama's pick for the role.

Mr Baucus was the chief architect of Mr Obama's health care reforms, and had previously announced that he would not seek reelection to the Senate in 2014.

Mr Baucus was first elected to the Senate in 1978.

If there is one issue keeping investors awake at night about the Chinese economy, it is the local debt problem. Having just barely survived a debt crisis in the United States and the Eurozone, the thought of another debt implosion in the world’s second largest economy is too scary to contemplate.

What's making people even more nervous is that very few seem to know the exact size of the local debt problem. And those who do know aren't saying a word. Beijing’s National Audit Office just completed a comprehensive survey of the local debt problem and reported to the State Council, the Chinese cabinet, in late October.

The audit commission began its work in July, shortly after Detroit – the home of GM, Ford and Chrysler – filed for bankruptcy in US federal court. The commission looked at the debt levels of all tiers of government, from mighty central government agencies to the finances of small villages.

The project was carried out with great secrecy. Local auditors have been ordered not even to share the results with their finance departments before they are publicly announced.

The investigation is a complex one. Local governments have been using innovative financial structures such as trusts and even wealth management products to raise debt. Auditors have reportedly clashed with local governments over classification of debts.

So, what do we know about China’s local debt problem so far?

The guesstimates range from 10 to 50 trillion yuan. The last official pronouncement on the extent of local debt levels was 10.7 trillion yuan, and that was back in 2010 before the explosion of growth of the shadow banking sector.

Because Chinese local governments can’t issue bonds on their own, they have been using financing vehicles – akin to the kind of off-balance sheet lending that froze international debts market in 2008-09 – to raise money.

The total size of money lent to these local financing vehicles is about 10 trillion yuan as of first quarter of 2013, according to data from the China’s banking regulator. That is a sharp increase of 30 per cent from the fourth quarter of 2009.

The large increase came about as a result of the 4 trillion yuan fiscal stimulus package unleashed by Beijing during the global financial crisis which played an important role in saving the Australian economy from recession.

A large part of the package was funded with debt from Chinese banks to the local governments. The National Audit Office also looked at books of 36 provincial capitals early this year. They have a collective debt size of 3.85 trillion yuan and nearly a third of them have a debt-to-GDP ratio of more than 100 per cent.

Though the audit office didn’t release these names, they are believed to be Nanjing, Chengdu, Guangzhou, Hefei, Changsha, Wuhan, Harbin, Xi’an and Lanzhou, according to Caixin, a respected Chinese financial magazine.

Haitong Securities, which has one of the best research teams in China, estimate the total size of China’s local debt problem is between 20 and 30 trillion yuan, or in other words, 40 to 60 per cent of the country’s GDP.

To put that in some perspectives, the debt to GDP ratio in the United States is about 73 per cent according to the Congressional Budget Office. In the case of Japan, its national debt is about more than 200 per cent of its GDP. For the record, Australia’s GDP to debt ratio is only 23.3 per cent. We don’t have a debt crisis, at least in comparison to other major economies.

Xu Yifan, the chief economist of Haitong and a former economist at the World Bank says cities with a good fiscal outlook usually carry between 20 and 40 per cent debt. In comparison, cities that are in trouble usually have a debt level between 80 and 120 per cent.

On average, China’s local debt level falls between these two camps. It is neither bad nor good. However, some local government entities are already struggling to repay their debts and have already requested extension of their loans.

Apart from the size of the local debt problem, the structure of the debts is another looming problem. In 2011, the National Audit Office reported that 53 per cent of local debts would be due in three years’ time. This means 2014 will be a crunch year for a lot of people. A lot of these debts have been used to finance long-term infrastructure projects

China’s local debt problem – at 40 to 60 per cent of GDP – is pretty serious. But it won’t explode, because both central and local governments have enough financial firepower to backstop the whole system from collapsing.

Not only is Beijing sitting on the largest pile of foreign reserves in the world, which is more than enough to reduce the country’s debt to zero. Its tax income per year is about 10 trillion yuan every year and increasing fast. 

Like Japan, China’s debt is largely domestically financed, so it is not subject to the whims of foreign debt vigilantes, who can dump debts at the first sight of weakness. 

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AAP

Chinese steel maker Baosteel has increased its stake in Pilbara iron ore hopeful Aquila Resources to almost 20 per cent.

Aquila said the massive steel-maker had increased its interest in the company by 19 million shares, or 4.6 per cent.

Baosteel bought a 15 per cent interest in Aquila in 2009 and has a representative on the company's board.

"The Company welcomes Baosteel's increased shareholding and views it as a sign of continued support for the development of the West Pilbara Iron Ore Project and broader appreciation of the value that Aquila's current share price represents," Aquila said in a statement.

Aquila says it is well positioned to capitalise on China's ongoing demand for steelmaking raw materials.

Under Australian rules, an aggressive shareholder can buy a three per cent stake in a company every six months after hitting the takeover threshold of 19.9 per cent without having to launch a full bid.

Shares in Aquila Resources rose three cents, or 1.42 per cent to $2.15 at 1525 AEDT.

A year into the new leadership’s campaign against corruption and official extravagance and the year is ending with little exuberance – even while economic growth remains strong.  

In 2013, sales of luxury goods in mainland China, which accounts for 29 per cent of the global market, rose only 2 per cent over the previous year, compared with 7 per cent last year. This was the slowest growth in the world’s biggest luxury goods market for much of the past decade.

The media is full of stories of officials being outed for everything from excessive alcohol binges on the public purse to graft and corruption. In Hunan province, 1,673 officials have been investigated so far. It has also been reported in official media that ‘leading officials’ in 22 provinces have returned illicitly obtained vehicles, offices and apartments. The Ministry of Agriculture has just issued instructions for the Chinese New Year which starts on January 31 forbidding them to send or receive gifts, including fruit and vegetables. It was also announced over the weekend that a leading taxation official in Guandong province is being investigated for ‘serious violation of discipline’ (read: corruption).

A chill is spreading among officials. Increasingly they are declining invitations to lunch or dinner, even when there is a clear business agenda. Officials are required to report in advance the purpose and reason for accepting hospitality and then to report on the discussions afterwards. Many say that accepting such invitations require too much effort and exposes them to potentially unwelcome attention. At last weekend’s Sanya Forum, held at Hainan Island, a number of senior ministerial-level officials, including city mayors, pulled out at the last minute.

Despite the uncertainty and caution caused by these campaigns, the economy has sustained robust growth throughout the year. Annual growth is likely to be at the high-end of the seven per cent range. The most recent HSBC flash PMI index show industrial production was continuing to expand. The PMI was 50.5. Anything above 50 indicates expansion.

The annual Central Economic Work Conference was held over four days last week. Usually these take up only two days, but the longer meeting was in response to the big number of issues to be addressed following last month’s Third Plenum. The Work Conference set about adding detail and substance to the policy pronouncements of the Plenum’s Decision.

In familiar terms, the Conference said the government would seek to maintain stable economic growth through “proactive fiscal policy” and “prudent monetary policy”. Although a target growth figure was not released, it can be expected that the official growth target will again be in the order of seven per cent. This is the annual target growth rate in the current five-year plan.

Themes to emerge in official public reporting from the Work Conference included measures to contain the growth of local government debt, which was described as a “crucial task” for next year. Other themes were food supply and food safety and standards, employment of graduates, and reducing over-capacity in six industries, including iron and steel, aluminum and shipbuilding.

Emphasis was also given to promoting international trade, including by completing more free trade agreements and establishing more free-trade zones with preferential financial policies.

A separate conference on urbanisation presided over by President Xi Jinping was also held late last week. Xi’s presence underlined the importance being placed by the leadership on continuing rapid urbanisation, which will likely be a major theme in economic policy next year. Six major targets were set, which seek to accelerate the pace of urbanization in small to medium sized cities while balancing financing and environmental needs.

As in the Third Plenum’s Decision, reform of the hukou system – urban labour registration – was again declared a major objective but no details were provided as to how this was to be achieved. Separately, the Ministry of Public Security and 11 other ministries and commissions are reported to have drafted guidelines for hukou reform which, if adopted by the State Council (China’s cabinet), would come into effect immediately and lead to a new system across the country by 2020.

Apart from the myriad of agencies that are involved, the big challenge for hukou reform is the money: how to fund social welfare, health and education benefits of the estimated 260 million who are currently unregistered migrants in China’s cities.

Predictably, both the Work and Urbanisation Conferences re-emphasised the themes of the Third Plenum, notably pushing on with the further reform and opening of the economy and calling for greater reliance on market forces. While much detail is still lacking, through these high-level policy meetings flesh is beginning to be put on the bones of the Plenum decision. All of this is leading up to next year’s National People’s Congress expected to open at its usual time in early March.

While the growth outlook remains positive, despite the challenges of rising debt at the local level and in the shadow banking system, and as the government continues its seemingly endless struggle to cut excess capacity in heavy industry and control rising property prices, the campaigns to clean up the Party and root out corruption are making the Party and bureaucratic elite ever more nervous.

Despite continued reports in foreign and Hong Kong media that look more like clumsy deliberate leaks, there has been no official statement on the fate of former Standing Committee member and former head of China’s internal security, Zhou Yong Kang. At least half a dozen close associates of Zhou, including former Deputy Governor of Sichuan province, and senior executives of PetroChina, Zhou’s former power base, and his son have been detained on corruption charges. It has now been announced that another close associate, the Chairman of Kun Lun Energy Co, has been detained on corruption charges.

The net around Zhou is drawing ever tighter. To arrest a former Standing Committee member would hark back to the days of Mao. While people welcome the crackdown on corruption, settling political scores at this elite level in these ways is potentially destablising. As some are fond of saying, they have the body already (Zhou’s), so why bother cutting it up?

So next year is unlikely to see a return to the heady effervescence and exuberance of the past decade, even as China will continue to be one of the fastest growing economies in the world. A joyless new year is in prospect.

Geoff Raby is chairman and CEO of Beijing-based advisory firm Geoff Raby & Associates, and a former Australian Ambassador to China. He is vice chairman of Macquarie Group China and a Vice Chancellor's Professorial Fellow at Monash University.

AAP

China acted in an "irresponsible" way in a stand-off with a US naval ship this month in the South China Sea, American Defense Secretary Chuck Hagel says.

US officials have said that the USS Cowpens, a guided missile cruiser, had to take evasive action to avoid a collision with a Chinese vessel that was dangerously close in the December 5 incident.

"That action by the Chinese, cutting in front ...100 yards out in front of the Cowpens, was not a responsible action," Hagel told a news conference on Thursday.

"It was unhelpful, it was irresponsible," he said.

Hagel said the maritime confrontation, the first reported for several years, pointed to the need for clear protocols between the two militaries to avoid a potential clash in the Pacific.

"That's the kind of thing that's very incendiary, that could be a trigger or a spark that could set off some eventual miscalculation," he said.

The two sides needed to work "to have a mechanism to be able to defuse some of these issues as they occur."

General Martin Dempsey, chairman of the US Joint Chiefs of Staff, told the same press conference that American and Chinese military officers have been meeting to draft rules for when the two militaries encounter each other.

He said "those working groups have actually been meeting and making some progress."

China has played down the incident and said the US ship posed a "threat."

By a staff reporter

Treasurer Joe Hockey has conditionally approved a foreign investment application from State Grid Corporation of China (State Grid) to acquire a 19.9 per cent stake of SP AusNet, as well as a 60 per cent holding in SPI (Australia) Assets Pty Limited and SPI (Australia) Trust (trading as Jemena).

In a statement, Mr Hockey said the application is approved on the condition that at least 50 per cent of the members to be appointed by State Grid to the boards of SP AusNet and Jemena are Australian citizens who are ordinarily residents of Australia.

The acquisition will effectively give State Grid control over part of Melbourne’s electricity network and the New South Wales gas distribution grid, in addition to the main gas pipeline from the Bass Strait to Sydney.

State Grid is the world’s largest electric utility and ranked seventh in the Fortune Global 500.

SP AusNet is a dual Australian Securities Exchange and Singapore Exchange listed energy infrastructure entity which owns and operates electricity transmission networks, electricity distribution networks and gas distribution networks in Victoria. Jemena is a private company that owns and operates electricity, gas and water assets in eastern Australia.

"Australia is open for business and we welcome foreign investment when it is not contrary to the national interest," Mr Hockey said.

“It doesn’t matter what Australia does on climate change because China will just keep polluting regardless.”

It is surprising how often a statement like this turns up in the comments section of a news website or a panel-style TV show when the topic of climate change is raised. The argument is that China feels that it has more important things to worry about as it rapidly industrialises, and there is nothing we can do to force them to change.

Luckily it’s not true. I’ve seen first-hand how much China’s leaders and population care about cleaning up their energy system. And while that’s great news globally, it is also good news for Australian towns and workers who stand to gain from billions of dollars in new investment in wind energy from Chinese investors – if we don’t mess it up.

Recently I presented a session at the enormous China Wind conference in Beijing. It was one of the less smoggy days in the city, but there were several other days that week when the sun was reduced to a hazy glimmer and visibility was down to a few hundred metres.

Many Chinese are extremely concerned about air quality, and it’s not hard to understand why. Pollution readings are often more than 10 times what the World Health Organisation rates as ‘unacceptable’ and the poor air quality has been found to directly cause life-threatening illnesses such as lung cancer. During the 2008 Beijing Olympics, hundreds of factories were shut down to temporarily preserve the city’s air quality, but this is obviously not a long-term fix.  

Something had to give. China has set ambitious clean energy targets, has started to embrace energy efficiency and is considering introducing a price on carbon and a tax on coal mining as a way to reduce its reliance on coal-fired power.

On clean energy, China is building wind farms at a rate we Australians can barely get our heads around. According to the Global Wind Energy Council, last year China installed more than four times the amount of wind power we have in our entire country. In fact China’s total installed wind capacity is almost 30 times what we have here. And Australia’s 62 operating wind farms last year produced enough power for the equivalent of more than a million homes.

Wind turbine technology continues to improve and the Chinese are one of the countries driving the evolution of larger turbines and new offshore models. Sinovel installed China's first 6 megawatt prototype wind turbine two years ago, which can generate twice as much power as the largest onshore wind turbines in Australia. And, according to Sinovel’s vice president and technical director, a new 10 MW turbine design is nearly complete with funding from China's Ministry of Science and Technology. All this investment and development will have these machines export-ready in the short- or medium-term.

The rapid expansion of wind power in China has run into problems plugging into the grid in some areas. The windiest regions are in the sparsely-populated north and north-east, where the transmission lines are few and far between. The quality of the grid connection in these areas means that on very windy days, not all of the power generated by the wind farms can be put into the grid, and some is wasted. Although this is being worked on, it’s a serious issue and will take time.  

While the domestic market settles, China is extremely interested in investing in other countries such as Australia. On our visit to China, the Clean Energy Council met with huge equity investors like Guohua who own a majority stake in the Musselroe wind farm in Tasmania, and Trina Solar, one of the largest solar companies in the world.

The message from these huge players was always the same: When will Australian wind energy policy stabilise so that we can invest confidently? These financiers have the money and they’re ready to build and buy projects, but not while our Renewable Energy Target seems constantly under review. The acrimonious debate on the carbon price has also put off a lot of companies who see it as indicative of a wider attitude towards renewable energy.

Let’s clear the air here – wind power is just one small part of what China is doing to reduce both pollution and emissions, but they’re doing it fast and they’re doing it on a huge scale, with a goal of improving the quality of life of its citizens. They’re also keen to spread their successes globally, with new technology coming online and plenty of finances ready for those markets which can guarantee a stable investment environment.

Alicia Webb is a senior policy advisor at the Clean Energy Council.

The biggest news in the month ahead is likely to come from offshore, with United States data drops including GDP, unemployment, inflation and retail sales.

Chinese inflation and PMI data is also due.

At home, local data releases include unemployment figures, housing finance numbers and the inflation read.

Corporate news will take a break over the holidays, with no earnings reports, annual general meetings or major speeches scheduled.

RBA

The Reserve Bank of Australia takes a breather over January, with no decision on interest rates expected.

On January 31, the central bank will release financial aggregates data.

Local news

Local news of interest this month includes inflation figures, unemployment numbers and the Australian Industry Group’s (AiG) indices.

On December 31, private sector credit figures will print.

On January 2, AiG will release its Performance of Manufacturing index.

On January 6, AiG will unveil its Performance of Services Index.

On January 7, the trade balance will print.

On January 8, AiG will release its Performance of Construction index and November job vacancies will be released.

On January 9, November retail sales and building approvals will be unveiled.

On January 13, November housing finance figures are out.

On January 15, new motor vehicle sales for December and lending finance figures for November will print.

On January 16, the December unemployment rate and ANZ job advertisements for the same month will be released.

On January 20, the TD Securities Inflation gauge for December will be unveiled.

On January 22, December quarter inflation figures are out.

On January 30, international trade price indexes for December will be released.

On January 31, the December RP Data/Rismark House Price Index, private sector credit figures and producer price indexes will print.

Corporate

January is likely to be a quiet month in corporate news.

On December 23, Sydney Airport goes ex-dividend, while Singapore Telecommunications has its record date.

On December 31, Sydney Airport has its record date.

On January 6, Merlin Diamonds will hold an extraordinary general meeting.

Overseas

The United States and China won’t be taking much of a break over January, with plenty of regular data releases expected.

On December 24, in the US, personal income and personal spending data for November will be released, with Bloomberg tipping lifts of 0.5 per cent and 0.4 per cent respectively.

On December 25, MBA mortgage applications data will be unveiled.

Durable goods orders for November will print, with economists tipping a 1.1 per cent lift, and new home sales data is expected to show a 0.3 per cent fall for November.

On December 27, initial jobless claims and the Bloomberg consumer comfort survey are expected.

On December 28, in China, the November leading index is due.

On December 31, in the US, November pending home sales and Dallas Fed manufacturing activity will be released.

On January 1, the December consumer confidence index is expected.

In China, December manufacturing PMI is due out, with Bloomberg expecting a slight decrease to 51.1.

On January 2, China’s HSBC/Markit manufacturing PMI is expected, with Bloomberg tipping a slight dip to 50.5 for December.

On January 3, in the US, initial jobless claims, the Bloomberg consumer comfort survey, the December ISM manufacturing survey and November construction spending data will be unveiled.

In China, December non-manufacturing PMI will be released.

On January 4, in the US, vehicle sales data will print.

On January 6, in China, HSBC/Markit services PMI for December is expected.

On January 7, in the US, the ISM non-manufacturing composite for December and November factory orders data will be released.

On January 8, the November trade balance is expected.

In China, the December trade balance will print.

On January 9, in the US, the US Federal Reserve will release the minutes from its December meeting, while MBA mortgage applications data and November consumer credit data will be unveiled.

In China, December consumer price index and producer price index data is expected.