New ingredients are emerging that look set to generate a surplus of apartments in Sydney in two or three years – the first time that has happened for a long time.

The two new ingredients are the emergence of Chinese developers and a looming change of attitude by local councils and planning authorities.

Those buying Sydney apartments in the current strong market and those commenting on the 2014 buoyant forces need to be aware of the looming trend reversal.

And, although the forces are slightly different, a similar situation is emerging in Melbourne.

I reached the Sydney conclusion after a conversation with Sydney’s largest apartment builder and owner Harry Triguboff, who explained to me that he is seeing new trends in Sydney, which, if they continue, will cause of surplus of apartments. However given strong demand he does not expect the market to collapse but the new ingredients will clearly affect price levels. And Triguboff does not expect the emerging over supply of apartments in Sydney to affect rents.

To understand the power of the new forces we have to quickly document what has been causing the shortages.

On the supply side, councils and planning authorities made it very difficult to get planning and development approval on economic terms. This limited the supply and pushed up prices, so contributing to the high cost of dwellings in Sydney. At the same time banks were reluctant to lend to apartment property developers and to take into account pre-sold apartments bought by people residing on the Chinese mainland.

So while supply was constrained, in recent times, banks have been happy to fund buyers – particularly investors – whose ranks have been boosted by lower interest rates. At the same time Westpac have been big funders of Chinese buyers who are also assisted by their own banks. This classic planning/banking squeeze on supply and the boost in demand created by banks and interest rates contributed to the Sydney dwelling shortages and boosted prices effectively taking first home buyers out of many markets. Although he has been a long-time critic of the councils, planning authorities and banks, in fact Harry Triguboff has been a major beneficiary of these trends because he has had the capital to fund both the planning delays and construction of new developments.

But dramatic changes are ahead.

Triguboff says that while the local councils and planning people are still tough “the dam walls are cracking” as these groups and the NSW government realise the damage that has been done to dwelling affordability in Sydney.

The Chinese have been significant buyers of Sydney (and Melbourne) apartments for a long time but their buying intensity is increasing and the Chinese are also buying apartments in many other countries. There has always been a strong desire by wealthy Chinese to have assets abroad as a safeguard against what might happen in China. But overseas investment is now being encouraged and the jailing of leading politician Bo Xilai has intensified the desire of many Chinese to have assets overseas.

In Sydney and Melbourne not only are the Chinese buying apartments from Australian developers like Harry Triguboff’s Meriton, but Chinese developers are now entering the market. Unlike smaller Australian developers the Chinese do not need to use Australian banks and are using their own banks to fund the developments. Accordingly, funding is now plentiful and the two pillars of supply constraint are crumbling.

In Melbourne there is no developer of the power of Triguboff/Meriton. Most of the new developments have been concentrated around the Docklands and Southbank area where permission has been relatively easy to get. But in other areas of the city the Sydney-style supply constraints exist leading to too many apartments being concentrated in the one geographical area (Southbank/Docklands). This is also changing. And the Chinese developers are entering the Melbourne market with a vengeance, out bidding many locals for key sites. Like Sydney the supply blockages are breaking down.

For a long time in Brisbane the Chinese were not buyers in the market and so prices were restrained but that is now changing.

In Sydney and Melbourne the Chinese are not buyers of developments in outer areas like Sydney’s Northern beaches so apartments are much cheaper than in the city. But much more travel is usually required by residents.

China is putting a prominent rule-of-law campaigner on trial this week, reinforcing leaders' harder line on dissent as they try to maintain political control in the face of slowing economy.

Xu Zhiyong will face trial Wednesday in Beijing on charges of disturbing public order, according to his lawyer. The charges stem from a series of protests over corruption and access to education in Beijing last year, which Mr. Xu allegedly helped organize.

Mr. Xu, a legal scholar and a former visiting scholar at Yale University, is the founder of the New Citizens Movement, a loosely organized civic group that advocates for greater rule of law and transparency and more equal access to education. Five other members of the movement are set to stand trial in Beijing later in the week, and all face a maximum of five years in prison, lawyers said.

Mr. Xu and his legal team plan to stay silent throughout the proceedings on Wednesday in protest what they say is a rigged process, his lawyer, Zhang Qingfang, said.

"We believe this court is not convening for the purpose of discovering the truth but rather to go through the motions of convicting him, and we will not cooperate with that," Mr. Zhang said of the Beijing Intermediate People's Court, where Mr. Xu will be tried.

The court, contacted Monday, said only the Beijing Higher People's Court is authorized to answer questions from foreign media. A woman at the higher court declined to answer questions over the phone, and her office didn't respond to a faxed request to comment.

The trials come after what for activists has been a dispiriting first year of President Xi Jinping's rule. A broad crackdown on dissent has included new rules criminalizing the spread of rumors online and increased control of the traditional media as well as detentions of dozens of rights campaigners. The multipronged approach is more sophisticated than previous crackdowns, rights advocates said, and demonstrates the new leadership's determination to maintain tight political control as it confronts a slowing economy.

"In the past, you would see dissidents get arrested, followed by more control over the print media, followed by a crackdown online. This time it was everything all together," said Maya Wang, a researcher with Human Rights Watch. "It's one of the most strategic battles over public opinion we've seen."

Mr. Xu, 40 years old, is the most prominent dissident to face trial in the country since Liu Xiaobo, the writer found guilty of subversion in 2009 and awarded the Nobel Peace Prize in 2010. Unlike Mr. Liu who had openly confronted the Communist Party-led system since the late 1980s, Mr. Xu is known as a moderate credited with helping launch China rights defense movement. He made his name in 2003 after he and a handful of other activists successfully lobbied for the closing of controversial detention centers used against vagrants. Later that year, he won election to the local legislature as an independent candidate, a rare feat lauded at the time by official media.

In 2010, Mr. Xu teamed with others, including prominent venture capitalist Wang Gongquan, to launch the New Citizens Movement with the aim of pushing political reform from the ground up, by creating what he called a "culture of citizenship."

"The idea of the New Citizens Movement's is not to 'overthrow,' but to 'establish,' " he wrote later in an essay. "It's not one social class displacing another social class, but allowing righteousness to take its place in China."

Members of the movement initially gathered online and at monthly dinners in cities across the country. After Mr. Xi became China’s party chief and launched his anticorruption campaign in late 2012, the activists began calling for leaders to publicize their assets and staged several protests.

Authorities detained several New Citizens activists in March, including Ding Jiaxi, a lawyer who helped organize protests in Beijing. Mr. Xu was detained in July, followed by Mr. Wang in September. Mr. Ding is set to stand trial on Friday.

The trials also come as the Supreme People's Court and the Communist Party have vowed to improve the delivery of justice, in part by improving openness in court cases and allowing for more thorough investigation of evidence in the courtroom.

Mr. Xu's lawyer, Mr. Zhang, has accused the Beijing courts and prosecutors of failing to live up to that pledge by holding separate trials for New Citizens Members accused of organizing protests in Beijing--a decision, he said, that would prevent the defendants from offering testimony on each other's behalf.

Often in criminal trials, evidence and testimony are simply read into the record, making it difficult for the defense to challenge.

"One can't cross-examine a piece of paper," said Jerome A. Cohen, a New York University law professor and China law expert. "If this indeed proves to be the case, it will demonstrate how hollow the Supreme People's Court's new emphasis on testing the evidence in open court hearings is in practice."

Critics have also questioned the timing of the trials, which are set to begin just as Chinese people begin to travel home for the Lunar New Year holiday, also called Spring Festival, at the end of the month. The aim, according to activists, is to reduce the chance that the trials will draw New Citizens' supporters to Beijing.

"The most important thing is to prevent a mass incident. They don't want to have large-scale events happening in Beijing, so they moved it to Spring Festival," said Hu Jia, a veteran Beijing-based rights activist. "Some of the most dedicated members of the rights movement have already left Beijing and gone home."

Mr. Hu said the New Citizens trials, however, also demonstrate the pressure the party faces from increasing public demands for rule of law. He noted that where previously authorities charged dissidents, including Liu Xiabo and himself, with subversion, Mr. Xu and others faced the lesser charges.

"They don't dare use subversion anymore," he said. "Instead, they use disturbing public order."

Dow Jones Newswires

The 2014 will be year zero for China’s bold reform plan. It will also be the year that will test the country’s tradition of defying doomsayers.

The Chinese government wants to pursue two set of conflicting goals this year: implementing the bold reforms unveiled at the Third Plenum last year and managing the country’s ballooning debt problem.  

Let me explain why these two goals are irreconcilable, at least for the short term.

Beijing’s well-crafted reform plan, if implemented, will set China on the path to grow into a more sustainable and innovative economic superpower. The plan calls for greater openness towards foreign companies, more innovation, reducing regional disparity and a level-playing for privately-owned companies.

The Central Economic Work Conference held in December identified “resolving risk associated with local government debt” as one the top priorities for Beijing this year. Local government debt grew at nearly 20 per cent every year since 2010, according to a recent government audit.

Both objectives are crucial to China’s long-term success, but will create enormous short-term tension. China’s recent economic growth has been achieved on the back of unprecedented expansion of credit and especially in the aftermath of the massive 4 trillion stimulus package. 

To rein in China’s debt problem, which has financed the country’s massive infrastructure spending, will be akin to withdrawing drug from a heroin addict. It will be good for his long-term benefit but will provide a shock to his system initially.

How to achieve a delicate balance between creating new economic growth engines and managing the country’s debt problem will be the biggest challenge facing the Chinese economy in 2014.

Just how bad is the debt problem?  China’s debt-to-GDP ratio, which includes government, household and corporate sectors, increased from 145 per cent in 2008 to nearly 200 per cent in 2012 according to JPMorgan’s calculations.

Zhu Haibin, chief China economist of the American bank, argues the most troublesome sector is not local debt government debt but the heavily leveraged Chinese corporate sector, which has a debt-to-GDP ratio of 125 per cent. That is one of the highest in the world among major economies.

It also shows how fragile some of these companies are. Research modelling predicts nearly half of China’s companies will be in the red when economic growth dips below 7 per cent, according to Liu Shijin, vice minister of the Development Research Centre of State Council (Is 7 per cent China’s new normal? 21 January).

How far would Beijing go to rein in its runaway debt problem this year? It seems unlikely that it will put its foot on the brake too hard. Otherwise, it may send such a shock through the system that the economy is not yet ready to absorb.

All signals suggest Beijing will emphasise stability over aggressive action to crack down on debt. The National Development and Reform Commission says the country aims for 7.6 per cent growth this year.

Li Keqiang, the Chinese premier who is largely responsible for running the country’s economy, has also repeatedly emphasised the need to grow at 7 per cent to maintain employment and ensure social stability.

It is most likely that the Chinese central bank prefers to use steady-as-she-goes Chinese medicine to treat the debt illness over more aggressive Western surgical operation. Zhu of JP Morgan says the Chinese central bank has been engaging in its own credit tapering since April last year, which sent inter-bank borrowing rates sky-high temporarily.

It is clear that Beijing wants to control the expansion of credit and manage the growth of debt, but not so aggressively as to upset the apple cart. The growth of shadow banking industry is also making it more difficult to put a lid on the expansion of credit.

So a race is on between structural economic reform and debt crisis. And the time is not on the side of China.

 Sure, it can still manage to grow at 7 or so per cent for the next few years – especially given that key export markets like the US are recovering.

But it always takes longer for the benefits of reform and productivity gains to be realised than for debt crisis to implode with little warning. China must not waste this crucial window of opportunity to steer the economy in the new direction.

Outbound Chinese tourist numbers will reach 200 million by 2020 and tourist spend will triple according to research conducted by CLSA Asia-Pacific Markets.

The report cited a number of factors driving the boom including income growth, increased annual holiday leave, relaxation of visa requirements, a deteriorating local environment and a crowded domestic tourism market.

About 100 million Chinese tourists went overseas in 2013, CLSA said.

The survey of middle-class Chinese consumers across 41 cities shows that 64 per cent are interested in travelling overseas in the next 12 months and 67 per cent intend to increase their travel budget.

"We believe this whole Chinese tourism story is just at the beginning" Aaron Fischer, head of consumer and gaming research at CLSA, said in a briefing yesterday.

According to the brokerage, tourist outflows in neighbouring Asian countries increased exponentially when per-capita Gross Domestic Product exceeding $8,000.

The number of provinces in China with per-capita GDP exceeding $8,000 is expected to jump from 10 in 2013 to 27 by 2020, according to the report.

“Chinese tourists are becoming increasingly savvy, independent, and demand higher quality experiences,” Fischer said.

According to CLSA, gaming, luxury goods and medical services will be the largest beneficiaries of the boom.

China Investment Corporation (CIC) has appointed Li Keqing to be the new president of the $600 billion sovereign wealth fund, replacing former Wall Street lawyer Gao Xiqing.

The Organisation Department of the Chinese Communist Party made the announcement on late Monday afternoon, according to Caixin Media. The move was widely expected by the market as Mr Gao has reached the mandatory retirement age.

Mr Li, Gao’s successor, served as Deputy Chairman of the National Council for the Social Security Fund. He also worked as Head of Investment Department of the National Council for the Social Security. Mr Li is reportedly a respected financier with a good track record investing in the markets.

Outgoing president Gao Xiqing is widely respected in China as one of the earliest founders of the country’s capital market. He graduated from Duke University with a Juris Doctor degree in 1986, where he was a Richard Nixon Scholar.

After a brief stint at Wall Street, he returned to China to become one of the co-founders of China’s Stock Exchange Executive Council, which was instrumental in the establishment of the Shanghai and Shenzhen Stock Exchanges in 1990.

Mr Gao has led an illustrious career in the Chinese banking sector as the General Counsel of the China Securities Regulatory Commission and chief executive of Bank of China International, the investment banking arm of the Chinese financial giant.

Gao was named president of CIC in 2007 and a major force behind the sovereign wealth fund’s push to invest abroad. CIC has numerous investment projects in Australia including a joint-venture resource fund with an Australian bank.

To what extent are China’s private companies controlled by Beijing?

This question has assumed prominence in recent times in Australia because of the high-profile rejection, on national security grounds, of Huawei’s pitch for involvement in the National Broadband Network.  Huawei – often translated as “Brilliant China” or “China is great” – is arguably China’s largest nominally private company.

It is a question that will arise in future as other private Chinese companies seek investment opportunities in Australia and have increasing freedom to do so (Weighing Up China's Vested Interests6 January).

Some have suggested that Beijing does not even exert influence over China’s state-owned companies. I addressed this issue previously – clearly there is a degree of control (China's SOE in Aussie Mirror16 January).

Others protest that, even if one accepts Chinese state-owned companies are controlled by Beijing, this is not the case with China’s private companies. These companies, the argument runs, are independent and should be treated and understood as analogous to private companies in Australia.

Australia’s former foreign minister, Alexander Downer – a director of Huawei’s Australian board – has been particularly public in insisting that because Huawei is a private company it is thus free from state control. “China may or may not be a source of risk,” asserts Downer. “But Huawei is not China”.

The problem with this approach is that it ignores that in China the demarcation between private commercial interests and the state interest is far from clear-cut. This is not to single out Huawei, it is a problem across the Chinese economy.

The journalist Richard McGregor, for example, in his best-selling book “The Party: The Secret World of China’s Communist Party Leaders” makes reference to a famous dispute in 2005 between rival brokerages CLSA and UBS about exactly what percent of China’s economy should be considered the private sector: CLSA said 75%, UBS said no more than 30%.

An interesting and perhaps revealing footnote to this story is that CLSA was bought by CITIC Securities, a Chinese state-owned investment company, last year.

One of the reasons it is so difficult to properly characterize some Chinese businesses as bona fide ‘private’ companies, is because of legal ambiguities in their underlying corporate structure.

As McGregor rightly states:

“After more than three decades of market reforms, Chinese companies still come in all manner of guises and trade under an array of different business registrations to accommodate prevailing political pressures. They can be fully state-owned, collectively-owned or co-operatives; or limited liability companies with diversified share registers split between both public and private owners.”

Another issue is that, even if it can be established that a successful Chinese company is unambiguously privately owned, the management will nevertheless be extremely sensitive to the political environment in which they operate well beyond similar concerns enterprises in Australia face.

Whether or not a private entrepreneur is a genuine believer in the ruling party in Beijing – most, in my experience, are at best indifferent – he or she will nevertheless find it in their own personal interest as well as of their company to form close ties with the Party. In many cases, they become party members themselves.

A general rule of thumb is that the larger and more successful a Chinese entrepreneur's business, the most likely it will be co-opted in some way by the ruling party. The decision-making of management will, at the very least, be driven in part not wanting to make enemies of powerful people in Beijing.

One other point is that Chinese private companies are very sensitive to popular nationalistic sentiment on issues – often stirred up by the authorities – and in some cases may also genuinely share the same views as Beijing. It was revealing, for example, how many of China’s leading ‘private’ technology companies, Baidu and Tencent, late last year took a very public stance in favour of China’s ownership of the contested Diaoyu/Senkaku Islands. Clearly leading Chinese private hi-tech companies are not averse to taking actions in support of the stance of Beijing that go beyond pure commercial decision-making.

China is, of course, not the same thing as Huawei. Just as in many cases it may not be possible to establish any direct involvement in day-to-day management of a private company by Beijing. But it would be unwise to think that management of these companies are not very careful to make sure they do not take actions at odds with established Party positions.

For example, if our longest serving foreign minister were to establish the Alexander Downer Society for Religious Liberty in China, how long do you think his directorship at Huawei Australia would last?

As is the case with investment from Chinese state-owned enterprises, I would argue the key question is not whether a private company is controlled by Beijing. This should be assumed at least in some respect in both cases.

Rather, the issue is whether the particular investment made can be said to be a national security risk. In many cases, outside of sensitive industries, it will not be an issue.

Equally, Australia’s corporate and political leaders should not kid themselves that the character of Chinese ‘private’ companies are really much like what they have had experience dealing with in their careers to date.  

Dan Ryan is managing director of www.serica-services.com, a China-focused corporate advisory firm.

China is moving ahead with reforms to overhaul its financial system by helping banks clean up their balance sheets and launching a trial program to give smaller lenders easier access to cash.

The actions join a swift injection of liquidity by the central bank Tuesday into the banking sector as Beijing seeks to avert a cash crunch ahead of the Lunar New Year holiday when demand for funds rise.

Under new regulations that took effect this month, Chinese banks have greater freedom to write off small loans that have turned sour. Banks still need to follow strict rules, but the mild relaxation may make them more willing to lend to the small businesses that are a vital part of the world's second-largest economy, which is grappling with a slowdown.

Meanwhile, the central bank is trialing a program this week aimed at giving local banks around the country better access to funds when short-term borrowing costs rise above high levels. They are among the financial institutions most reliant on money markets for cash, leaving them vulnerable when short-term borrowing costs rise.

The moves to ease bad loan disposals and improve help for small banks come as China's regulators have become increasingly concerned about the potential risk from rising levels of nonperforming debt in the financial system. They have repeatedly warned banks to make adequate provisions for losses and step up efforts to control risk, especially in certain vulnerable sectors of the economy such as real estate--which has long been a focus of speculative activity--or in areas of overcapacity like steel and cement.

On Tuesday, stress in the banking sector eased with the weighted average of the seven-day repurchase agreement rate falling to 5.55 per cent from 6.59 per cent Monday, though it is still higher than the 5.17 per cent reached Friday.

The new loan write-off rules were posted on the website of the Jiangsu provincial financial bureau, though they were issued by the Ministry of Finance. People in the banking industry said the rules were also made available in other parts of the country.

It wasn't clear when they were issued, but they took effect January 1. Press representatives for the ministry didn't respond to requests for comment.

The rules aim to "further regulate financial institutions' bad loan write-offs, help financial institutions effectively prevent operating risks and deal with asset losses while sufficiently realizing asset preservation and strengthening their ability to resist risk," according to the statement, on the Jiangsu government website.

"Some Chinese banks, especially some small lenders may seek to write off more bad loans in 2014 as they are increasingly pressured by deteriorating asset quality," said Grace Wu, an analyst at Daiwa Capital Markets Hong Kong Ltd.

The problems in the banking sector contributed to liquidity crunches in June, October and December, when the central bank maintained a largely unsympathetic approach to banks' cries for cash due to its push to weed out risky lending.

But this time, the central bank has moved early to ease tension in the financial system and offered funds to large and small banks in a bid to satisfy soaring cash demand ahead of the Lunar New Year holiday.

The central bank announced the program to help small banks on its official website late Monday, saying it was testing the system in 10 cities and provinces, including Beijing, Guangdong and Shenzhen, to experiment with offering short-term funds to small- and medium-size financial institutions via the so-called standing lending facility.

"The local bureaus included in the trial program should closely monitor funding costs in their own regions and offer funds at the cited rates to the financial institutions as soon as the market rates rise above the lines," said the central bank in a document seen by The Wall Street Journal.

It added that regional branches of the central bank should offer funds to local qualified banks if the overnight borrowing cost rises above 5 per cent, the seven-day rate is higher than 7 per cent or the 14-day rate moves to higher than 8 per cent before the start of the Lunar New Year which begins at the end of next week.

Dow Jones Newswires

China’s 2013 full-year economic growth data confirm what has been apparent for some time: China’s economy has settled into a high, but sustainable growth path. Putting aside excited commentary about two or three basis points movements in growth – and straw-men comparisons of this sustainable period of growth with the unsustainable, double-digit growth of the recent past – China’s rate of economic growth is largely unchanged in two years. And it is a rate of growth that would double GDP every decade.

In 2013, GDP increased by 7.7 per cent over the previous year, about the same as in 2012. Industrial production grew strongly, increasing 9.7 per cent year-on-year; retail sales were up 13.1 per cent on the previous year; and investment in non-rural fixed assets was up 19.6 per cent. Not surprisingly, business confidence remains robust, with a key indicator showing confidence on the index at 119.5 – anything about 100 is buoyant.

Increasingly negative sentiment about China’s economic prospects has been gathering, especially connected to concerns over local government debt and rapidly rising debt levels in the informal, or ‘shadow’, banking sector. Fears have been compounded by a series of short-term liquidity squeezes, leading to steep spikes in the overnight inter-bank settlement rates on at least four occasions in the past six months.

The People’s Bank of China is evidently caught in a delicate balancing act between tightening liquidity and introducing stricter, market-oriented disciplines across the financial sector, on the one hand, and ensuring that there is sufficient liquidity in the system to sustain what are by international standards high rates of economic growth, on the other.

Both narrow and broad measures of money supply, M1 and M2 respectively, grew somewhat faster in 2013 than real economic activity: M1 (cash) rose 9.3 per cent and M2 (cash plus deposits) increased 13.7 per cent, but China’s inflation rate remained stable at around 3.5 per cent.

Despite years of efforts by the central government to slow rising property prices in China’s first tier cities, however, these continued to grow apace in 2013. New house prices in major cities rose 27 per cent in 2013 compared with 2012.

Although the reliability of all these data is questionable when used for short-term analysis, and none more so than measures of inequality, the government is claiming that China’s income distribution is becoming more equal after years of growing inequality.

The National Bureau of Statistics is claiming that China’s Gini-coefficient (a measure of inequality) fell once more in 2013, making it the fifth successive year of improving income distribution. At the same time, the rural-urban gap also narrowed, with urban real disposable incomes rising 9.6 per cent compared with rural incomes which rose 12.4 per cent, compared with 2012.

On the external front, in 2013, China’s exports were up 7.9 per cent over 2012 and imports were up 7.3 per cent. Growth in imports was broadly in line with overall growth in the economy. 

The export performance is noteworthy. China’s currency, the RMB, has been appreciating in both nominal and real terms against most other currencies, while at the same time, strong cost pressures, especially high labour and raw material costs squeeze business margins. China’s continued strong export performance, especially when the world economy remains so sluggish, suggests strongly that China’s manufacturers are making considerable progress in moving up the value-added chain. This has been little commented upon as analysts pore over the recent economic data releases.

All in all, the Chinese government should be well pleased with both its economic management in 2013 and the way the economy performed. It continues to manage to sustain growth while trying to sort out some major structural challenges, such as the heavy reliance on fixed capital formation – especially infrastructure investment – and to renovate the financial system to serve better the bigger, more complex and decentralised economy that China has become.

The challenges facing China’s economic managers in 2014 are well known. Among the most pressing is how to unwind the rapid buildup of debt at the municipal and provincial levels and in the shadow-banking sector. While some of the numbers look scary, the problems are not insurmountable. Importantly, the government and key policymakers and advisers are well aware of these. Official media discusses the issues and policy responses daily. China’s economy, for better or worse, remains largely what has been for many years: one in which the state continues to regulate economic activity through a mix of market and administrative means.

2013 was yet another year that further demonstrated the leadership’s capacity to manage its way through difficult economic challenges, while sustaining internationally high rates of growth.

The pressure for deeper structural reforms, however, is growing. 2014 might well prove to be a much harder year for the policy elite to manage, especially if a too rapid QE taper in the US triggers an unmanageable liquidity squeeze in China. But the leadership has a lot of firepower in its financial reserves and the formal banking system, and a lot of policy instruments at its disposal. Muddling through while maintaining high rates of growth, will still be in 2014 an impressive performance by the standards of most of the world’s major economies.

In the latest sign of trouble in China's loosely regulated shadow-banking sector, angry bank and insurance customers who bought an investment product that they say has since failed appealed to authorities to help them recoup about one billion yuan ($167 million).

The apparent collapse of the product, which customers said was offered by an investment firm through some of China's largest banks and insurance companies, represents one of the most prominent defaults in China in recent years. The case underscores concern among economists and analysts both inside and outside China that loans made by shadow bankers--an assortment of trust companies, securities firms, insurance companies and other private lenders--could be subject to defaults as Chinese economic growth slows.

The product in question involves about one billion yuan in funds raised in 2012 by a little-known investment firm, Beijing Roll-In Investment Co. Beijing Roll-In planned to invest the money in several public housing projects backed by the government in the city of Chengdu, in western China, according to a dozen of its investors interviewed by The Wall Street Journal.

The principal came due at the end of last year, but so far Beijing Roll-In hasn't paid the investors, they say.

Officials at Beijing Roll-In didn't return requests for comment. In a notice posted on its website on Monday, Beijing Roll-In said it had paid investors 100 million yuan in interest that day and would pay another 60 million yuan to them before the Lunar New Year, the most important holiday on the Chinese calendar.

The new year begins on Feb. 1.

On Tuesday, about a dozen investors gathered at a branch of the Beijing Municipal Public Security Bureau, the city's police, and asked the agency to start investigating the alleged default, which has led to the loss of what the investors call their "xue han qian," or blood and sweat money.

An official at the agency said it would investigate the investors' claims.

Officials at China's top banking regulator, which also oversees the shadow-banking sector, declined to comment. In the past, they have said troubles in shadow banking are "manageable" and won't threaten the country's overall financial stability.

"I bought into the product only because it was said to be both principal and interest guaranteed," said He Yujing, a Beijing resident who put in one million yuan in exchange for a 10% advertised return. "But now, not only did I not receive the promised return but also lost my principal."

Said Wan Xia, an investor in the southwestern Chinese metropolis of Chongqing, "the firm hasn't paid us anything."

The customers said Beijing Roll-In raised the money from clients of Ping An Insurance Group Co., Industrial Bank Co.,China Construction Bank Corp. and China Minsheng Banking Corp., among other big Chinese financial institutions. Representatives at Ping An Insurance and the banks that investors said marketed the product for Beijing Roll-In didn't respond to requests for comment on Tuesday.

Firms like Beijing Roll-In are an important part of China's shadow-banking system. They arrange financing for projects, raising money from investors by promising annual returns that can exceed 10%, far higher than bank-deposit rates.

Investments sold through these firms have slipped into default in the past, but investors haven't suffered losses because troubled borrowers have generally been bailed out by the government, enabling shadow lenders to make good on their obligations. However, such bailouts set the government up for wider losses if defaults spread, a growing worry as China's economic expansion slows.

Shadow bankers often lend to borrowers considered too risky for traditional banks, such as debt-burdened local governments, property developers and coal producers. Often, traditional banks and other big financial institutions in China sell investment products on these lenders' behalf as a way to offer higher yields to customers.

The shadow-banking sector is lightly regulated and opaque, and there isn't any official data on defaults on these informal loans. But many analysts expect to see more go bad, potentially harming traditional lenders. "We do not see this as an isolated occurrence and expect to see headlines on similar credit events throughout the year," said Zhang Zhiwei, Nomura's China economist.

The pace of shadow-loan defaults appears to be "accelerating rapidly," analysts at Bank of America Merrill Lynch said in a Jan. 16 report. Many of the defaults so far have involved loans made by so-called trust companies, a pillar of China's shadow-banking sector.

For instance, pressure has been building in recent weeks on a major trust company, China Credit Trust Co., and Industrial & Commercial Bank of China Ltd., China's largest bank by revenue, to bail out investors facing a nearly $500 million hit.

China Credit has been unable to recoup three billion yuan related to a loan that underpins products sold to investors via ICBC branches. It said in a notice to investors last week that it wasn't sure whether they would be repaid when the loan matures at the end of this month. ICBC says it isn't responsible for any losses. China Credit declined to comment beyond confirming the notice.

ChinaScope Financial, a Shanghai-based financial-data provider, estimates that nearly 117 billion yuan worth of trust loans will come due this year. Any loss on these loans could make it harder for shadow lenders to raise new funds to finance their existing obligations as they come due.

The product sold by Beijing Roll-In offered returns of between 10% and 13%, according to the investors. They say a prospectus issued by the company included standard disclosures on risk, but said both investors' principal and interest would be guaranteed by a third-party firm.

"Ping An Insurance really talked up the product, and when they pitched it to me in 2012, they said they were only offering this product to their VIP clients," said Tian Zhu, an investor who bought the product from the insurance company.

Dow Jones Newswires

Bridestowe Estate is a beautiful patch of land, 263 acre large, and covered with lavender on the northern fringe of the Apple Isle. Lately, it has become a pilgrimage site for busloads of Chinese tourists thanks to its most famous inhabitant - Bobbie the bear.

Bobbie is a cute purple-coloured teddy bear stuffed with fine lavender and can also be converted into a virtual hot water bottle with the help of a microwave. It does not stop there. Bobbie has other mystical abilities including curing muscle, back and even period pains, if you believe Chinese social media.

The bear debuted in 2011, though he was popular with tourists, he was not one of the most sought-after items in China - the second largest inbound tourist market for Australia. However, Bobbie became an overnight sensation in China after it was endorsed by a string of famous Chinese actresses on social media including Sun Li and Fan Bingbing.

Sun and Fan are the two biggest celebrities on the Chinese silver screen – the Chinese equivalents of Angelina Jolie and Nicole Kidman. Pictures of them hugging Bobbie have sparked a frenzy amongst their followers. The Tassie lavender bear has become a must-have item for young women in China.

“Our phone system has gone into meltdown. We can’t put Bobbie on the internet because the demand just overwhelms our ability to supply on a daily basis,” Bridestowe managing director Robert Ravens told reporters at the Asia-Tasmania forum recently.

“It’s caused our staff to be stressed, it’s caused me to stressed and it means we can’t even take a holiday - they chase me all round the planet.”

Bridestowe’s website shows all Bobbies have been sold out - including one bear dressed in a purple Chinese-style satin jacket.

Hundreds of counterfeiters and dealers have sprung to life on the internet, peddling “Bobbie” to desperate buyers.

Bobbie-mania shows the power of social media in China. Despite a recent drop in usage numbers, Sina Weibo ­- the Twitter-like microblog - still has 280 million users. That’s not too far off the population of the United States. Fan Bingbing, one of the A-listers who has endorsed Bobbie, has 3.8 million followers on Weibo alone.

While Sina Weibo is losing a bit of steam, another social media platform Weixin – known outside of China as WeChat - is spreading like wildfire in China and abroad. Since its introduction in 2010, WeChat has more than 300 million users and enjoys a faster adoption rate than Facebook or Twitter. It has more than one million users in Australia.

In recent years, we have seen a large of number of businesses and even politicians rushing to climb abroad the new Chinese social media platforms such as Weibo and WeChat, with tourism boards around the country, universities, and airlines leading the charge.

Outgoing managing director of Tourism Australia, Andrew McEvoy said he expects there will be a shift in the focus of the organisation’s marketing campaigns from traditional advertising to digital and social media platforms.

“The effective use of digital and social media is the battleground for our sector,” he said.

“At the moment, we are spending 70 per cent in mainstream and above-the-line media, but 30 per cent in the digital space. In the next five to ten years, that will probably swap over completely.”

We all know word of mouth is the best way to advertise and the ascendency of social media has made that possible on a large scale. It is especially important for the fast-growing Chinese nation, which is projected to become a one million person and $10 billion market within the decade.

Two recent Tourism Australia campaigns that have been a stunning success in China show how effective social media campaigns can be. When Tourism Australia launched the “There’s nothing like Australia" campaign in June 2012, its promotional video was downloaded 23 million times worldwide including 20 million times in China.

Another Chinese–language promotional mini-series starring two Taiwanese actors was watched by more than 50 million people in China.

At the end of last year, Tourism Victoria also launched its own Chinese social media campaign that tapped into the large Chinese-Australian community in Victoria in an attempt to lure their families and friends to visit Australia.

Social media is a powerful marketing platform for Australian businesses who want to succeed in the China market. It is an especially useful tool for small and medium sized enterprises that don’t have large advertising budgets like multinationals.

Bobbie mania is a lesson for us all.

Over a dozen family members of top Chinese political and military leaders are using offshore companies based in the British Virgin Islands, according to leaked financial documents reported by the International Consortium of Investigative Journalists (ICIJ).

Family members implicated in the use of the offshore accounts include the brother-in-law of president Xi Jinping and the son and son-in-law of former premier Wen Jiabao.

The revelations are based on 200 gigabytes of financial data leaked from two companies in the British Virgin Islands and obtained by ICIJ.

According to the newspaper, the documents do not indicate whether Chinese leadership figures had any involvement in or awareness of the family members’ financial activities.

According to estimates reported by ICIJ, between $1 trillionand $4 trillion in untraced assets have left China since 2000.

The leaks come as Beijing ramps up a much-publicised crackdown on official corruption (China’s uphill battle against corruption 17 January). The campaign, led by President Xi Jinping, is aimed at fighting corruption among high-ranking officials, or "tigers", as well as low-level "flies".

Former Chinese premier Wen Jiabao pleaded innocence over claims that his family amassed huge wealth during his decade in power, in a letter to Ng Hong-mun, a columnist with the Ming Pao newspaper on Saturday.

"I have never been involved and would not get involved in one single deal of abusing my power for personal gain because no such gains whatsoever could shake my convictions," Wen said in the letter.

"I want to walk the last journey in this world well. I came to this world with bare hands and I want to leave this world clean," Wen said, according to Ng's column published on Saturday.

Wen's letter dated December 27 follows a 2012 New York Times report that claimed his family controlled assets worth at least $US2.7 billion ($A3.07 billion) - a report China vigorously denounced as a smear.

The New York Times was awarded a Pulitzer Prize for its investigation into the wealth of Chinese leadership but has also had its website blocked in mainland China.

With AAP

J.P. Morgan Chase & Co. has pulled out of the $1 billion initial public offering of a Chinese chemical company and won't seek a role in the IPO of a Chinese state-owned train maker, as the bank walks away from deals that could come under scrutiny from U.S. investigators probing its hiring practices in China.

In November, the bank pulled out as an underwriter in the IPO of China Everbright Bank. The deal has come under scrutiny by investigators because J.P. Morgan had employed Tang Xiaoning, son of the chairman of China Everbright Group, which owns China Everbright Bank, The Wall Street Journal reported in August.

Now the U.S. bank has stepped back from two more deals. J.P. Morgan ceded work on the IPO of Tianhe Chemicals, a privately owned maker of specialty chemicals. It was one of two banks with Morgan Stanley handling Tianhe Chemicals' planned 2011 IPO in London, which didn't get off the ground.

Tianhe is considering listing in Hong Kong this year in a deal that could raise $1 billion. J.P. Morgan last month decided to walk away from the Tianhe deal because Tianhe Chairman Qi Wei's daughter, Joyce Wei, had worked for J.P. Morgan.

The bank wanted to avoid being accused of getting the business through her connections, even though it started handling the IPO before she joined the bank, people familiar with the matter said.

Ms. Wei worked at J.P. Morgan from January 2012 until August 2013, data from the Securities and Futures Commission, which regulates brokers in Hong Kong, show. She joined UBS AG in November, another person familiar with the matter said.

J.P. Morgan has also decided not to pitch for a role in the $1.5 billion Hong Kong IPO of Chinese state-owned train maker China CNR Corp., slated for listing in this year's second quarter, one of the people said.

Another investigation by U.S. regulators involves J.P. Morgan's hiring of Zhang Xixi, the daughter of a Chinese railway official, The Wall Street Journal reported in August, citing a person familiar with the situation. The bank was concerned about accusations it got a role in the deal because of improper connections between its staff and the company's management, the person said.

Ms. Wei, who was with J.P. Morgan as a Chinese investment banker, is now an associate of UBS's equity capital markets team, which handles share sales, the person said.

UBS is one of the banks working on the Tianhe IPO this year, though it wasn't immediately clear when the Swiss bank started working on the deal.

The other banks closely working on the IPO of Tianhe, in which Morgan Stanley Private Equity has a stake, are Morgan Stanley and Goldman Sachs Group Inc., other people familiar with the transaction said.

Dow Jones Newswires

Chinese groups are eyeing more Australian hotel purchases after Hong Kong-based Fu Wah International Group bought Melbourne's Park Hyatt hotel for more than $130 million, The Australian reports.

According to the newspaper, CBRE Hotels and CBRE China brokered the off-market deal.

Singapore's largest sovereign wealth fund, the Government Investment Corporation, sold the hotel and an adjoining carpark, after buying the property for $125.7 million in 20013, the newspaper reports.

Fu Wah, controlled by one of China's richest women and self-made billionaire, Chan Laiwa, is looking to diversify beyond its purchase into other Australian destinations, The Australian reports.

Human error likely caused a glitch in China's Great Firewall that saw millions of internet users ironically rerouted to the homepage of a US-based company which helps people evade Beijing's web censorship, sources told Reuters.

Hundreds of millions of people attempting to visit China's most popular websites on Tuesday afternoon found themselves redirected to Dynamic Internet Technology (DIT), a company that sells anti-censorship web services tailored for Chinese users.

The official Xinhua news agency on Tuesday quoted experts as saying that the malfunction could have been the result of a hacking attack, and domestic media was full of speculation along those lines.

DIT is tied to the Falun Gong, a spiritual group banned in China which has been blamed for past hacking attacks.

During a daily news briefing, Chinese Foreign Ministry spokesman Qin Gang said he had "noted" reports of Falun Gong involvement, but said he did not know who was responsible.

"I don't know who did this or where it came from, but what I want to point out is this reminds us once again that maintaining Internet security needs strengthened international cooperation. This again shows that China is a victim of hacking."

However, sources familiar with the Chinese government's web management operations told Reuters that a hacking attack was not to blame for the malfunction. They declined to be identified due to the sensitivity of the matter.

They said the incident may have been the result of an engineering mistake made while making changes to the "Great Firewall" system the Communist Party uses to block websites it deems undesirable - such as the DIT site.

The state-run China Internet Network Information Center (CNNIC) said "the attack" on the country's Internet is under investigation, the official CCTV broadcaster wrote on its microblog on Wednesday.

Mystery over how it happened

CNNIC earlier said in a microblog post that the outage, which lasted for several hours, was due to a malfunction in China's top-level domain name root servers.

These servers administer the country's Domain Name Service (DNS), which matches alphabetic domain names with a database of numeric IP addresses of computers hosting different websites, a sort of reference directory for the entire internet.

Instead of matching the names of popular Chinese websites with their proper IP addresses, Chinese DNS servers instead redirected users trying to access websites not ending with the ".cn" suffix to the IP address associated with DIT's homepage.

It was unclear why users were being directed to the DIT site specifically.

Independent tests showed that the source of the malfunction originated from within China, and specifically from the Great Firewall servers themselves.

"Our investigation shows very clearly that DNS exclusion happened at servers inside of China," said Xiao Qiang, an adjunct professor at UC Berkeley School of Information in the US and an expert on China's internet controls.

"It all points to the Great Firewall, because that's where it can simultaneously influence DNS resolutions of all the different networks (in China). But how that happened or why that happened we're not sure. It's definitely not the Great Firewall's normal behaviour."

Checks by DIT suggested a similar root cause for the overwhelming amount of traffic trying to reach the site, said Bill Xia, DIT's founder and a member of the Falun Gong.

"For such a large scale attack just targeting users in China, it can only be done by the Great Firewall," Xia said.

"It's even clearer this is not an attack of all the Domain Name Servers in the world, but the same as the DNS hijacking technologies used by the Chinese government to block websites they don't want."

The outage, which began around 3:15 p.m. local time, redirected roughly one million requests per second to the DIT site, said Xia.

Chinese web service providers have struggled to overcome recurrent performance bottlenecks in the country's massive but often rickety data network. The need to continuously censor domestic content and block foreign websites only complicates the matter.

In addition to fending off hacking attacks, network providers face challenges finding experienced server administrators and dealing with government bureaucracies. Frequently, authorities have overlapping jurisdictions over different aspects of internet services.

China’s worsening smog problem is one the hottest topics of discussions on local media as well as at gatherings of provincial legislatures. Debates at these usually docile places have become animated as party-appointed legislators demand action to solve China’s blackening sky.

Though the ruling party routinely ignore proposals from its rubber stamp parliaments, the environmental issue is such a popular cause that they can no longer afford to brush it aside.

Mayor of Beijing, Wang Anshun, told local legislators last weekend that he would “serve his own head on a plate” if he failed to resolve the environmental problem.  Despite the theatrical language, the seriousness of the issue is beyond doubt.

Not to be outdone, the governor of Hebei province, home to a quarter of China’s steel production, also warned local officials that anyone who dares to defy Beijing’s order not increase steel or coking coal production – even just one extra tonne – would be fired on the spot.

You may be sceptical about party officials’ promise to their rubber stamp parliaments, but futures markets for coking coal, iron ore and steel products in China took it seriously. Prices dropped and especially for coking coal – a key ingredient for steel-making.

What China decides to do about its worsening environmental problem will have serious repercussion for Australian miners like BHP Billiton, Rio Tinto and Fortescue Metals. Despite China’s slowing economy, demand for Australian iron ore -- the biggest export earner -- has been holding up well due the country’s excessive capacity.

Beijing has been trying to curb this issue since 2005 without much success. During this time, Chinese steel production has more than doubled, from 470 million tonnes a year in 2005 to about one billion tonnes in 2013.

Its output is seven times larger than Japan’s, the world’s second largest producer.

China’s excessive capacity is not only holding up demand but also squeezing the steel industry’s already razor thin profit. Between January and November last year, the industry only made a collective profit of 16 billion yuan, or $3 billion.

Its profit margin was about 0.48 per cent, the worst performer of all industrial sectors in China. Actually, if you strip away its side businesses such as raising pigs, growing vegetables and providing plumbing services, it was only 0.17 per cent.

Why do they put on new capacity when demand and profit are declining?

We have to understand how local Chinese officials get promoted in order to answer this question.  Forget about communism, the ruling ideology of the party is GDPism and that means growing your local economy at all costs.

Performance of local GDP is the most important component of local cadres’ KPIs. As a result, they compete ferociously for investment projects and are especially keen on large industrial projects that involve a lot of investment and high output.  And steel industry is one of the favourites.

Local governments often provide cheap land, subsides and financial guarantees to lure investors. They also turn blind eyes to producers’ poor environmental records. Consequently, China has built massive over-capacity in many sectors including steel, aluminium, wind turbines, solar panels and ship building.

Beijing’s efforts to rein in these rapidly expanding industries have been met with great resistance from local governments. Are they going to be more effectively in curbing excessive capacity this year? This is the big question for Australian mining industry.

There are three reasons I think they will make a difference this year.

Firstly, the worsening environment problem is putting a lot of political pressure on Beijing and local governments to tackle big polluters. Though we may take officials’ solemn promises to serve their heads on a plate with a pinch of salt, it is also clear that the environment has become a big galvanising social issue that they cannot ignore.

Even an authoritarian state has to respond to public demand.

Secondly, the powerful Organisation Department of the Communist Party of China, which is responsible for promoting officials, is changing rules to make cadres more mindful of environmental and excess capacity issues.

That is a powerful incentive for officials to change their behaviours as their careers are dependent on it.

Last but not least, Beijing’s effort to rein in the local debt problem will certainly make banks more reluctant to lend to industries already under pressure from Beijing to reduce their capacity.

Ultimately, China will have to find a delicate balance between structural reforms -- closing down inefficient factories and tackling environmental issues -- and maintaining growth, which involves propping up troubled industries (Beijing reforms race rising debt, January 21). 

Reuters

China must increase spending on emission cuts and clean technologies by 2 trillion yuan ($330 billion) to do its fair share to halt climate change, a report by Beijing's Central University of Finance and Economics said.

It urged the government to raise money from carbon markets to fund investments.

The report's conclusion contrasted with China's official policy that the main responsibility for ramping up action against climate change rests with developed nations.

China, the world's biggest-emitting nation, has already pledged to spend 520 billion yuan to help prevent global temperatures from rising more than 2 degrees, according to Chen Bo, co-author of the report.

But that is only a fifth of what is needed if China – trailing only the United States on the list of history's biggest carbon emitters – is to shoulder a proportionate burden in global efforts to stop climate change, the report said.

The main responsibility for ratcheting up the extra funds should fall on the government, it said.

"Public funding is essential to address climate change problems, and without a clear signal on CO2 emissions, mitigation projects are not financially attractive to investors," said the report.

It called on the government to use carbon markets to auction CO2 permits to help raise climate revenue.

Over the past seven months, five regional pilot trading schemes have launched in China, with plans to roll out a national market later in the decade.

One of those markets, southern Guangdong, auctions 29 million permits annually to participating firms, but the revenue is not earmarked for climate change spending.

The report, which has been submitted to the State Council, China's cabinet, said the state-owned China Development Bank should set up a green investment department to stimulate private and public investment in climate-related projects.

It further urged the financial market to develop products and mechanisms to draw further funds.

China's central government has approved 12 new free trade zones (FTZ) after opening the first one in Shanghai last September, according to the official news agency Xinhua.

Tianjin Municipality and Guangdong Province have already been given the green-light to set up the FTZs, the report said, citing an unnamed source.

The remaining 10 are as yet unknown.

A group of central government departments will conduct a joint survey of the proposed zones "in a process that may last more than a year, Xinhua said.

"China sets no limits on FTZ numbers and no timetables on building them, as long as they meet the requirements of an FTZ" the unnamed source told Xinhua.

Authorities set up an FTZ in the commercial city of Shanghai in late September with pledges of reform, including free convertibility of the yuan currency.

But a lengthy "negative list" of what is barred in the zone and an open-ended deadline to introduce financial reforms have made foreign firms hesitant to set up there, analysts say.

With AAP.

Conditions in china's manufacturing sector have hit a six-month low in January, according to a leading survey,

HSBC's flash China manufacturing purchasing managers' index printed at 49.6 in the month, after a read of 50.5 in December, and below economists' expectations of a 50.3 reading.

Any reading above 50 indicates expansion, while a reading below points to contraction.

HSBC chief economist for China Hongbin Qu said the "marginal contraction" in China's manufacturing sector was "mainly dragged by cooling domestic demand conditions".

"This implies softening growth momentum for manufacturing sectors, which has already weighed on employment growth.

"As inflation is not a concern, the policy focus should tilt towards supporting growth to avoid repeating growth deceleration seen in first-half 2013."

The HSBC flash PMI data is published monthly ahead of final PMI data, based on 85 per cent to 90 per cent of survey responses, providing an early indicator of manufacturing sector operating conditions.

Listed financial services giant AMP Capital has raised $2.2 billion for its debut fund under a joint venture with China’s largest insurance group, China Life.

AMP says the amount raised, as it capitalises on the country’s booming wealth-management market, is the highest by an inaugural fund in China in the past decade. It also marks China Life’s first mainland joint venture with a foreign funds management partner.

The 11.9 billion renminbi was raised among domestic Chinese investors in an initial public offering this month.

The mutual fund, called China Life AMP Money Market Fund, will invest in domestic-listed equities and fixed income. It will focus on short-term investments like liquid short-term bonds and cash deposits on behalf of both retail and institutional customers. The minimum investment threshold will be 1,000 renminbi.

It is run by China Life AMP Asset Management Company, a joint venture between AMP Capital (15 per cent) and China Life Asset Management Company (85 per cent), minted in September last year.

The rapid growth of wealth management in China presents significant opportunities for funds management. Total assets under management in the mutual fund industry in China reached $0.8 trillion in 2013, according to the Asset Management Association of China, and is expected to grow at 15 per cent a year to reach $1.6 trillion in 2017.

“It will appeal to investors who are looking for both yield and liquidity,” said AMP Capital Chief Executive Stephen Dunne.

The fund “would analyse macroeconomic factors, monetary policy and credit supply to make a judgement on the trend of the yield curve while taking into consideration liquidity and the risk profile of different instruments," Dunne said.

AMP planned to launch more investment products for domestic Chinese investors, he said.

AMP and China Life Insurance (Group) Company signed a memorandum of understanding for strategic cooperation in August 2009.

The Australian dollar has fallen sharply on the release of manufacturing data from China that missed expectations and printed at a six-month low.

At 1243 AEDT, shortly before the release of the data, the Australian dollar was trading at 88.37 US cents.

At 1246 AEDT, the local currency fell as low as 88.02 US cents.

The HSBC flash China manufacturing purchasing managers' index printed at 49.6 in the month, after a read of 50.5 in December, and against expectations of a print of 50.3.

Meanwhile, Australian bond futures prices were lower.

At 1200 AEDT, the March 2014 10 year bond futures contract was trading at 95.850 (implying a yield of 4.150 per cent), down from 95.865 (4.135 per cent) on Wednesday.

The March 2014 three-year bond futures contract was at 96.950 (3.050 per cent), down from 96.970 (3.030 per cent).

With AAP