Activity in China's services sector continued to expand in April, but at a slower pace, according to a private survey.

The HSBC China Services Activity Index printed at 51.4 points in April, down from 51.9 in March.

A read over 50 shows the sector is expanding, while a figure below 50 indicates it is contracting.

HSBC chief economist for China Hongbin Qu said disinflationary pressures became more evident as the input prices index eased to the weakest in 10 months and the index of prices charged contracted.

"Today's release showed that the service sector is still a relatively resilient part of the economy, but it is not expanding at a fast enough pace to offset the manufacturing slowdown," Mr Qu said.

"We think that the economy will continue on a modest path of expansion over the next few months. 

The outspoken founder of Chinese e-commerce company Alibaba, Jack Ma, has thrown down a challenge to the world's global internet giants and put future shareholders in their place as the firm filed for a US stock offer.

In a memo sent to employees minutes before Alibaba filed documents to the US Securities and Exchange Commission for its initial public offering (IPO), Ma described the listing as a "filling station" on the way to future development, according to a copy of it posted by the respected magazine Caijing on its website.

Alibaba declined to confirm the authenticity of the letter, but it was widely quoted by Chinese state media on Wednesday. Alibaba has more than 20,000 employees.

"Fifteen years ago, Alibaba's 18 founders were determined to set up a global internet company originated by Chinese people, with hopes it would become one of the world's top ten internet companies, a company which will exist for 102 years," he said - a life span which would mean it existed in three different centuries.

Alibaba is often described as China's version of Amazon or eBay, since it has elements of both those firms but suited to the domestic market. It took on eBay in China over a decade ago, essentially forcing the US company to retreat.

It operates China's most popular e-shopping platform, Taobao, which is estimated to hold more than 90 per cent of the online market for consumer-to-consumer transactions.

The listing plans indicate Alibaba will raise at least $US1 billion, but analysts say the offer could raise around $US15 billion, putting it on par with Facebook's $US16 billion IPO in 2012.

"After listing, we will still maintain the principle of 'customers first, employees second and shareholders third'," Ma said.

"We believe no matter how difficult the decision, in the past or still in the future, maintaining principles is the greatest respect and protection for the benefit of all," he added.

A diminutive former English teacher, Ma set up Alibaba in 1999, convincing friends to fund him with $US60,000 and picking a recognisable name with the aim of helping small firms "search for treasure" - the meaning of "taobao" - by selling through the internet.

Ma stepped down as Alibaba's chief executive officer last year but remains as chairman to provide strategic direction.

Who is going to be the biggest winner of Alibaba’s blockbuster IPO in the US? The answer is Masayoshi Son, a Japanese businessman of Korean descent who is the chairman of Softbank, a leading phone company in Japan and the US.

Softbank is the largest investor in Alibaba, with more than 34 per cent of shareholding in the Chinese e-commerce giant. Son is expected to turn his initial investment of US$20 million in 2000 into a financial bonanza of US$58 billion once Alibaba is listed. This is a return on investment that would make even Warren Buffett envious.

Son is guaranteed to have to a seat on the board of Alibaba as long as he holds at least 15 per cent of the company, according to the Chinese company’s filing to the US Securities and Exchange Commission.

This is actually a touch ironic considering the poor state of affairs between the two Asian giants. A Japanese businessman is expected to be the biggest financial winner out of the biggest success story for the Chinese corporate sector.

The runner up to winning the Alibaba lottery is in fact Marissa Mayer and Yahoo. The Sunnydale-based ailing internet giant owns 23 per cent of stake in the Chinese e-commerce giant. Yahoo has to sell 40 per cent of its stake in Alibaba due to an agreement with the sale expected to fetch US$10bn. This is a much-needed cash injection for the company, which is struggling to keep up with its rival Google.

In fact, Yahoo’s share in Alibaba accounts for more than 70 per cent of its market capitalisation. Robert Peck, a tech analyst at SunTrust Robinson Humphrey, argues that Alibaba is the most valuable piece of Yahoo, responsible for more than half the price of the stock, according to Bloomberg.

Jack Ma, the charismatic founder of Alibaba is only going to be a distant third in terms of reaping financial benefits from taking the company he founded in his apartment 15 years ago. But his 8.9 per cent share in the company would still make him the richest man in China.

Softbank and Yahoo are not the only foreigners who are minting money from the extraordinary success of the China’s booming internet and e-commerce sectors. South African firm Naspers is the single largest shareholder in Tencent, the most valuable internet company in Asia that is worth close to 900bn Hong Kong dollars. 

Jacobus Petrus Bekker, CEO of Johannesburg-based Naspers, has turned his initial outlay of US$32m in 2001 into nearly US$39bn within 13 years, more than a thousand times Bekker’s initial investment.    

Australian investors like Telstra and the Bassat brothers of SEEK have also done well out of China's fast-growing internet sector.  For example, Telstra bought into Autohome back in 2008 when Sol Trujillo was still in charge of the telco. Telstra’s initial and subsequent investment of $200m in Autohome, the largest car sales portal in China, turned into a $2.2bn profit after Autohome was floated the New York Stock Exchange late last year (Trujillo's parting gift for Telstra: China, December 13).  

The Bassat brothers are also expected to win a significant windfall from the expected listing of Zhaopin, the second largest job site in China of which they own 79 per cent of the shares.

The bigger story is how foreign investors took a punt on Chinese internet start-ups when they were desperate for capital. And their investments are paying off in leaps and bounds now. For example, when South African Bekkers invested in Tencent in 2001, it was only a small loss-making start-up. 

Foreign venture capital has been instrumental in the development of China’s nascent internet industry. Many former start-ups have emerged to become industry giants that are now able to take on their established Western rivals.

It is perhaps surprising that Beijing has been relatively sanguine about the foreign influence over some of the leading players in the country’s new economy, including listing on the US stock exchange.

It will be interesting to see whether Alibaba will move its listing to Hong Kong one day to offer Beijing better oversight over one of its star players (Alibaba’s long road home, May 7). 

Follow Peter Cai on Twitter: @peteryuancai



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Hanoi said Wednesday that Chinese ships protecting a deep-water drilling rig in disputed waters in the South China Sea had used water cannon to attack Vietnamese patrol vessels and repeatedly rammed them, causing injuries.

Tensions between the communist neighbours have risen sharply since Beijing unilaterally announced last week it would move the deep-water drilling rig into disputed waters -- a move the United States has described as "provocative".

Vietnam deployed patrol vessels after the China Maritime Safety Administration issued the unilateral navigational warning on its website saying it would be drilling in the South China Sea close to the Paracel Islands -- which are controlled by China but claimed by Vietnam.

Vietnam said China's decision was "illegal", demanded the rig be withdrawn, and dispatched vessels to the area.

Ngo Ngoc Thu, deputy commander of Vietnam's maritime police, told reporters in Hanoi Wednesday that Chinese boats had collided with Vietnamese vessels in at least three separate incidents since the May 3 announcement.

A Chinese plane had also flown low over Vietnamese police patrol boats dispatched to the area in a bid to threaten them.

He said the Chinese "actively used water cannon to attack Vietnamese law enforcement vessels".

"The situation was very tense," he said, adding that "some Vietnamese people were injured by broken glass as a result of the clashes."

"We broadcast a signal asking the rig to leave the area. We have showed that we are patient and self-restrained in the face of Chinese aggressive acts," he said, adding that Vietnam had not dispatched military ships to the area -- only police and coastguard patrol boats.

Vietnam broadcast a video of the alleged ramming incidents.

China claims sovereign rights to almost the whole of the South China Sea, which is believed to sit atop vast oil and gas deposits.

Chinese foreign ministry spokeswoman Hua Chunying reiterated Beijing's position that the rig was in Chinese territory.

"The drilling activity of this rig is within China's territorial waters. The disruptive activities by the Vietnamese side are in violation of China's sovereign rights," she said.

"The drilling activities on the rig are completely legal, and we ask the Vietnamese side to stop their disruptive actions."

The South China Sea is also claimed in part by Taiwan, Brunei, Malaysia and the Philippines.

China and Vietnam, which fought a brief border war in 1979, have been locked in a longstanding territorial dispute over the contested waters, and frequently trade diplomatic barbs over oil exploration, fishing rights and the Spratly and Paracel Islands.

Vietnam's authoritarian rulers have also been struggling to control intense domestic criticism of their handling of relations with China.

Some calls have already gone out on dissident websites for an anti-China protest in Hanoi -- previous protests have been broken up by police and resulted in arrests.

Vietnam expert Carl Thayer said the decision to move the oil rig into disputed waters was "a major change in China's strategy", adding it could be a response to US President Obama's recent Asia tour.

During the tour Obama asserted US support for allies Japan and the Philippines, which are also locked in disputes with Beijing over the South China Sea.

On Tuesday, the United States warned China that the decision to move the deep-sea oil rig into disputed waters in what Vietnam calls the East Sea was a "provocative" step that it was monitoring closely.

Recent international travellers may have spotted a large panda dressed in what appears to be a spacesuit peering down at them in their airport terminal, its chest festooned with Chinese and international corporate logos.

‘Half of the Fortune Global 500 are in my hometown’, proclaims the panda. It’s an advertisement for Chengdu, the ancient capital at the heart of western China’s growth story.

The unsubtle message is that its economy has taken off. Western and central China's economic growth rates overtook the eastern provinces in 2005, off a lower base. These inland regions are increasingly on the radar as Australia continues to build ties with China.

Western China's economic emergence follows a succession of sometimes-tumultuous development drives.

In the 1950s, the Communist Youth League sent 'youth volunteer land reclamation teams' to the Qinghai highlands to ‘convert empty lands into good fields’.

In the mid-1960s, amid heightened Sino-Soviet tensions and increasing US involvement in Vietnam, Mao Zedong relocated industrial production, including whole factories, from coastal areas -- vulnerable to attack by the two superpowers -- to China's west.

A large proportion of China's investment until the early seventies was poured into this 'third front', which reached from Gansu in the north down to Yunnan in an attempt to create a 'secure rear base area'.

Subsequently, reform leader Deng Xiaoping’s developmental strategy was explicitly focused on coastal areas. During the eighties and nineties, the coastal region's share of state investment, FDI and GDP grew at the expense of the central and western regions.

In 1996, Jiang Zemin introduced a policy of 'gradually reducing the gap in development between regions'. Chongqing was named a province-level municipality -- equivalent to Beijing and Shanghai -- the following year.

In 2000 the 'great western development' strategy was launched. Policies to boost western development have included fiscal transfers, investment in infrastructure and tax and loan advantages. Rising labour and land costs along China's coast have also prompted businesses to relocate inland.

Beijing's push to build economic ties with Central Asia has been a feature of the 'Go West' effort. China's premier speaks of 'establishing a Silk Road economic belt'.

Events in Urumqi and Kashgar attract traders from across the region. Major pipelines carry oil and gas from Kazakhstan, Turkmenistan and Uzbekistan to China, which has invested heavily in Central Asia's resource sector.

In 2010, Chinese companies controlled 23 percent of Kazakhstan's oil output. Increasing economic links between Central Asia and western China are part of a broader trend, with the proportion of Central Asia's trade that takes place with the rest of Asia increasing from 16.3 percent in 2000 to 35.8 percent in 2012.

Economic growth in China's west brought with it calls for increased Australian engagement. A 2009 Lowy Institute report, 'Australia's Diplomatic Deficit', identified a mismatch between Australia's 'growing economic and consular interests' in inland China and the concentration of Australia's diplomats along China's coast. The report recommended new diplomatic missions in Chengdu and Chongqing.

Governments are increasingly moving to support Australian businesses and organisations in western China. In 2012 the Victorian government led by Ted Baillieu (for which I worked at the time) led what was then Australia's largest ever trade mission to China.

During that mission, the government announced that it would open a government business office in Chengdu and that Sichuan Airlines would commence direct flights between Chengdu and Melbourne. Victoria also signed a trade and investment MoU with the government of Sichuan province (population: 80 million).

In 2013, the Rudd Government opened a new consulate general in Chengdu, extending Australia's western China presence beyond Austrade's Chengdu and Kunming offices. During the Abbott Government's recent trade mission to China (which included industry events in Chengdu), the government secured an agreement to establish the Australia-Sichuan Trade and Investment Roundtable.

This proactive approach to the region by government is especially important because Australian businesses in western China will often be operating in less developed locations than the more familiar coastal cities, while contending with variable business conditions.

'China 2030', a joint report of the World Bank and China's State Council, found that productivity in western China was less than half the level of the eastern regions. The Economist Intelligence Unit forecasts that urbanisation rates in Yunnan, Tibet and Guizhou will continue to lag behind comparatively wealthy coastal provinces.

However, western China's catch-up development also presents opportunities for Australian businesses. ‘China 2030’ identifies 'green development' as a strategy for western China to catch up with coastal provinces without continuing the environmentally disastrous'clean up later' approach. Australian firms have considerable expertise in fields such as energy efficiency and sustainable urban design with, for example, Melbourne-based architects recently winning a major Chengdu commission ahead of Chinese and international competitors.

The impetus for Australia's deeper engagement with western China goes beyond economics. It’s also about building people-to-people links. Additionally, Western China is a window on how China's leaders see their place in the world.

Much of China's interaction with Central Asia is driven by national security and resource security considerations, including through the Shanghai Cooperation Organization. The growing Australian interaction with western China is likely to bring additional insights into China's foreign relations.

Classical Chinese literature records that the original 'Journey to the West', though far from straightforward, was ultimately worthwhile. As Australia works to strengthen ties in Asia, growing engagement with western China is similarly an effort worth making.

Stephen Minas is a research associate with the Foreign Policy Centre, London.

Persistent fears over the state of the Chinese economy may be soothed by official data out of the Asian nation which showed that the trade surplus, imports and exports all exceeded analysts' expectations in April.

In the month, China's trade surplus was $US18.46 billion ($A19.81bn), ahead of expectations of $US17.3bn.

Exports rose 0.9 per cent in the month against expectations of a 3.5 per cent decline, while imports grew 0.8 per cent ahead of an expected 3.2 per cent fall.

Before the burst of the Japanese real estate bubble in 1990, Tokyo's total land value was about $US4.1 trillion, or 63.3 per cent of US GDP. When Hong Kong’s apartment prices crashed in 1997 the land value for the city was about $US5.7 trillion, or 66.3 per cent of US GDP.

Guess what? Beijing’s land value in 2012 was about $US10 trillion, or 61.6 per cent of US GDP. Do you see the scary parallel now? The vice-president of China’s largest property developer Vanke, Mao Daqing, certainly does. In a leaked speech that is still causing ripples in China he said Beijing’s land value was a very scary number indeed (What keeps China’s biggest property developer up at night 7 May 2014).

“Multiple pieces of evidence suggest that the Chinese property market in 2013 shared many characteristics with that of Japan and Hong Kong before the bursts of their asset bubbles,” Mao said last week at a closed door industry forum. “From the perspectives of the percentage of income that a household spends on housing expenditures, the rapid growth in Beijing and Shanghai is approaching Tokyo and Hong Kong levels before they went bust,”

Analysts and commentators are shifting their attention to the next weakest link in the Chinese economy -- the property sector -- which accounts for 16 per cent of GDP and 33 per cent of fixed asset investments. Wang Tao, the chief China economist for UBS, sees it as the biggest risk to the Chinese economy. Zhang Zhiwei of Nomura believes the sector is facing a major correction and it is no longer a question of if and when, but how much.

However, it is Mao’s penetrating analysis that offers the most worrying insight into the sector. On Wednesday, China Spectator wrote about the rapid build-up of inventory and the high level of leverage of property developers in China, according to the leaked speech.

Mao is putting China’s over-investment in the property sector into a global perspective. In a mature and stable market, an average family owns 1.1 houses and each person occupies 1.1 rooms. If we apply this standard to China, Beijing is still facing a shortage of housing but many other cities are more adequately supplied if we include existing inventories, he says.

Mao uses standard industry measurements such as ‘new units under construction per thousand people’ to illustrate the dire state of over-investment. Between 2009 and 2011, China built 1.85 billion square metres of floor space or 16.27 million residential units. It works out to be 12 new units per thousand people.

That number is about the peak construction level in many developed countries. Mao says though that this number is acceptable but has more or less reached the peak -- and this does not even include other houses under construction that are not built by commercial developers.

If he was to include other housing projects apart from commercial development, China’s housing units constructed yearly per thousand was more like 35 units in 2011. This far exceeds anything we have seen even during the boom years of Japanese and Korean construction, which didn’t exceed 14 units.

“That was a peak without precedent in human history,” Mao said according to the leaked transcript of the meeting.

Like many other things, it is dangerous to overgeneralise in China. First-tier cities like Beijing, Shanghai, Guangzhou and Shenzhen still face an under-supply of housing, and there are signs of sluggish demand recently due to a generally gloomy outlook for the sector.

Third- and fourth-tier cities, which account for 67 per cent of total construction, are roughly building at the national average rate. Mao is most concerned about second tier cities -- mostly provincial capitals -- which account for nearly one third of total construction in China.

Housing units under construction per thousand was 30 in 2011, more than double the international average during their peak development period.  For example, the figure for Hohhot, the Inner Mongolian capital, was 70 for the last three years, while it was 49 for Shenyang, a major provincial capital city in the northeast, and 38 for Xi’an.

“In the past three years, housing construction frenzy has reached its highest peak in human history. For cities that can attract new migrants, it is safe to be building between 20 and 25 new units per thousand people,” he said.  

“But some second-tier cities are building 30 or even 40 units per thousand people every year and we must pay attention to that.”

In summary, Mao believes the level of housing construction has reached its upper limit. He still sees potential in third- and fourth-tier cities in coastal provinces, where living standards are approaching industrialised countries.

However, he is pessimistic about cities with a high level of inventory and can’t see room for any price increases for at least the next few years. Even for the first-tier mega cities like Beijing and Shanghai, prices are among the most expensive in the world. They’re even more dear than Tokyo and New York, two of the most expensive cities in the world.

“We think housing prices are quite reasonable in New York,” he said. This rare insight from one of China’s most influential property sector executives should serve as an alarm bell to people who are concerned about the health of the Chinese property sector.   

This is part two of China Spectator’s coverage of the Mao Daqing leaked speech that has caused shockwaves throughout the country. China Spectator will publish part three of this series on Monday. Read part one here.

Crowdfunding — a way of raising money over the internet from multiple individuals — first started gaining serious traction in the wake of the 2008 global financial crisis when lines of credit from the banks dried up for all but the biggest and safest clients.

Since then, the industry has grown from being a $530 million industry in 2009 to almost $2.7 billion in 2012, according to a study by Massolution, a research company that specialises in crowdfunding businesses.

According to the World Bank, that figure is set to balloon to $US96 billion by 2025. One country — China — will account for $US50 billion of that total.

Despite the massive market potential, American crowd funding giants Kickstarter and Indiegogo have so far been reluctant to test the waters in China -- choosing to focus their international expansion efforts on safer options like the UK, Germany, France and Canada.

Their reluctance is not surprising. The history of foreign tech firms who have tried to gain a foot-hold in the Chinese market is littered with many failures.

Companies that dominate the tech lives of most Westerners such as Facebook, Google, Amazon, Twitter and eBay have made valiant attempts at the Chinese market but have only managed to gain small beachheads.

While the big American players dither, one of Australia’s own crowdfunding start-ups is having a crack at China’s elusive market.

Having already expanded operations to Malaysia and Singapore, Pozible made its first foray into the Chinese market late last month with the launch of its first China-based project, the Gyenno One fitness wristband.

The project smashed its funding target in under a minute. At the time of writing, the project has raised RMB 770,000 ($A132,000) from over 14 countries — 77 times the original funding target.

When asked why Pozible is trying what many other foreign tech companies have failed at before, Chinese-born founder of Pozible Rick Chen says it’s because China is home to him.

“I’m well positioned to get into that market because I know it by nature” says Mr Chen.

“But it's not only because it’s where I'm from, it’s also an emerging market that without no one else in the world can actually compare to.”

Chen feels the time is right for Pozible to make its move in China as other major markets have already become too saturated.

“China on the other hand — because of the language barrier, because of cultural barriers and a few other critical issues — it’s relatively isolated from the rest of the world.”

That isolation has meant that a lot of Chinese innovation that is hidden from view is waiting to be discovered.

According to Chen, China is no longer just about cheap knock-offs and low-end manufacturing goods. He has already lined up a number of innovative products to be launched on his platform including a smart watch for elderly people that monitors the heartbeat and sends out health warnings.

“Shanzhai” or “guerilla” innovation in which local inventors copy and adapt technology from the West has been thriving in China for years.  What has been lacking is a legitimate way for that energy to bubble to the surface.

In many ways, conditions in China are perfect for a boom in crowdfunding.

China’s banking system - though steadily reforming - still makes it hard for budding entrepreneurs to access the credit they need to build up their businesses.

Other similar phenomenon like Group-buying behaviour existed in the Chinese market long before it became well known in the West with the emergence of sites like Groupon.

When that site attempted to enter the Chinese market, local companies cookie-cuttered their model, adapted it and stole away market share before they could even get a proper start.

When asked why the same thing won’t happen to Pozible, Chen says it comes down to the community the site has fostered over its four years of existence.

“A local rip-off can easily get the functions of the site, but they won't get that community of people behind the site” Chen says.

A lack of policy certainty has contributed to the dearth of Chinese companies operating in the sector. Unsurprisingly, when it comes to online financial innovation, it’s fallen to Alibaba to drag China’s policy makers into the future.

In late March Alibaba launched Yu Le Bao, a fund that allows customers to invest in entertainment products. The company claims it’s an insurance product but works in much the same way as a crowdfunding project would.

The Chinese Securities Regulatory Commision announced soon after that it was researching specific regulations for the sector and would announce them soon.

In the meantime, Chen hopes to get create a steady base for Pozible in China and start bringing the competition to the local players.

“That’s what our aim is, if we're not as big as them we shouldn't be too far from what they're doing.” 

China has detained a prominent former journalist for leaking "state secrets", police said Thursday, the latest move to silence critics of the ruling Communist Party ahead of June's 25th anniversary of the Tiananmen Square crackdown.

Gao Yu, 70, was "criminally detained on suspicion of providing state secrets to sources outside China", the Beijing public security department said in a message on its verified microblog on Thursday.

Gao, the former deputy editor-in-chief of the magazine Economics Weekly, is a well-known journalist who was named one of the International Press Institute's 50 "world press freedom heroes" in 2000.

Her political writings have seen her jailed in the past. In 1993, she was sentenced to six years in prison on a similar "state secrets" charge.

She was paraded Thursday on state-run China Central Television, in the latest instance of authorities publicly shaming influential critics of Beijing with televised confessions.

It showed her being escorted down a hallway and interrogated by two uniformed police officers.

"I believe what I have done has touched on legal issues and has endangered the country's interests," said Gao, whose face was obscured on the broadcast.

"What I have done was a big mistake. I earnestly and sincerely have learned a lesson from this experience and admit my guilt," she said.

Gao had been missing for the past two weeks, and her associates became alarmed when she did not show up at a private Tiananmen-related gathering she had been scheduled to attend.

According to the official news agency Xinhua, Gao was held on April 24 on suspicion of having sent a copy of a "highly confidential" document to an overseas website last June.

Police seized "substantial evidence" from her home and Gao has "expressed deep remorse about what she did", Xinhua said, adding that she was "willing to accept punishment from the law".

The Xinhua report did not name the document that Gao is alleged to have leaked.

But Gao has written previously on "Document No. 9", a Communist Party internal communique calling for a harsh crackdown on dissent and warning against "perils" such as multi-party democracy and universal values.

The document circulated early last year and its full text was published by a Hong Kong-based magazine last August.

Gao's detention comes amid a crackdown on academics, rights activists and other Communist Party critics ahead of the sensitive June 4th anniversary.

Pu Zhiqiang, one of China's most celebrated human rights lawyers, was arrested on Tuesday "over charges of creating disturbances", his lawyer told AFP, and campaigners say others have also been held.

The US is "deeply concerned" over the reports and has called for their immediate release, State Department spokeswoman Jen Psaki said Wednesday.

Sophie Richardson, China director for Human Rights Watch, said that the recent charges and detentions of activists "lay bare just how little the Chinese government's attitudes towards human rights have changed since 1989".

"A stable society is one in which peaceful discussions of history and accountability are tolerated -- not crushed or criminalised," she said in a statement.

Anu Kultalahti, China researcher at Amnesty International, called Gao "the latest victim of China's vaguely worded and arbitrary state secret laws which the authorities repeatedly use as a smokescreen to target activists".

Campaign groups have also expressed alarm over the rise in televised "confessions" in China, which often take place before the accused is granted a trial or access to a lawyer and appear to be an attempt to deter others.

Chinese-American investor Charles Xue, who regularly posted critiques of the Chinese government to his 12 million microblog followers, confessed on CCTV last September that he had used microblogging to "gratify my vanity".

Xue had been arrested the previous month on charges of soliciting prostitutes, and was released on bail in April pending trial.

Another prominent blogger, Pan Shiyi, was shown in an interview with CCTV where he appeared contrite and warned of the dangers of "casual" online posts.

China's Huawei Technologies has launched its second flagship smartphone, the Ascend P7, as part of its effort to crack the upper tier of the mobile market where Apple and Samsung still rule.

The mobile - billed as the world's slimmest phone at 6.5 mm thick - will go on sale in 31 markets, including Britain, Germany and China, starting this month for 449 euros ($A675) without a SIM card or service contract. It will not be sold in the United States.

Huawei, best known as a maker of telecom network gear where it competes with Sweden's Ericsson, has become the world's third-biggest smartphone manufacturer behind Samsung and Apple only three years after launching its own branded mobiles and tablets.

Its consumer device business, which accounted for about 23 per cent of sales last year, grew nearly three times faster than its telecom equipment business last year.

Huawei's smartphone success was built on selling mid-priced models in the fast-growing Chinese market as well as appealing to price-conscious consumers in western Europe, but the United States has proven tougher to break into.

Its global smartphone market share grew to 4.9 per cent from 4 per cent in 2012, but still lags far behind Samsung's 31.3 per cent and Apple's 15.3 per cent, said market research firm IDC.

With the Ascend P7, which succeeds the P6 launched in June 2013, Huawei hopes to create a hit to rival Samsung's Galaxy S5 and Apple's iPhone 5S, said Shao Yang, vice president of marketing for the consumer business.

"We want to provide a premium product but not charge a premium price," Shao Yang said in an interview.

"Our screen, materials, camera, and power consumption are just as good and sometimes better than the Galaxy and iPhone."

The company aims to sell 10 million phones by early next year, compared with four million sold to date for the P6. To that end, it plans to spend $300 million on global marketing this year to improve its brand image.

The P7 is compatible with high-speed fourth-generation mobile networks that have been rolled out by telecom operators in much of Asia and Western Europe. China and parts of Latin America are building such 4G networks, which allow for at least five times faster web surfing, this year and next.

It has a five-inch touchscreen, as well as an 8 megapixel front-facing camera and a 13 megapixel rear-facing camera designed for low-light conditions.

The 449 euro price tag for the P7 makes it cheaper than Apple's iPhone 5S, which starts at 699 euros in Germany and 709 euros in France. Samsung's Galaxy S5 costs between 580 and 680 euros in major European markets.

China's biggest bank, ICBC, has banned activities related to trading in bitcoin, joining at least 10 other Chinese banks participating in a government crackdown on virtual currencies.

Bitcoin, invented in the wake of the global financial crisis by a mysterious computer guru, is a form of cryptography-based e-money that can be stored virtually or on a user's hard drive, and offers a largely anonymous payment system.

Speculators drove China's bitcoin prices into the financial stratosphere last year, peaking at 7,588.88 yuan (now $A1,324.32) in November, before they crashed following moves by exchanges, financial institutions and the government to rein in the virtual currency.

"From this date, any institution or individual must not use accounts set up with our bank for the deposit and withdrawal ... and transfer of funds for bitcoin and Litecoin trading," the Industrial and Commercial Bank of China (ICBC) said in a statement on Thursday.

Litecoin is another virtual currency.

The move aimed to "protect the property rights and interests of the public, prevent money laundering risks as well as to safeguard the status of the renminbi as the legal currency", ICBC said, referring to China's yuan currency.

China tightly controls the yuan and enforces capital controls, which e-currencies threaten by their very nature.

ICBC threatened to suspend and close bank accounts if clients failed to comply with the new rules.

In its annual financial stability report released late last month, China's central bank labelled bitcoin "a tool for speculation" and warned against risks the e-money could pose to capital flows as well as its possible use in illegal activities, including drug dealing and money laundering.

Last month, the central People's Bank of China instructed banks and third-party payment providers to "completely cut off the capital chain" for bitcoin trading, the Southern Metropolis Daily newspaper reported.

The central bank has so far made no public statement to confirm the action but at least 11 banks have ceased providing services related to bitcoin, according to separate announcements.

They include China's "Big Four": ICBC, Bank of China, China Construction Bank and Agricultural Bank of China.

The moves have hurt the value of bitcoin in China. On Thursday morning, bitcoin was trading at 2,762.00 yuan each on China's largest exchange BTC China, down 12 per cent from April 25 when banks began announcing the bans.

If you didn’t know Jack Ma’s name before this week, chances are you do now.

The company that the former teacher founded out of his Hangzhou apartment in 1999, and of which he remains executive chairman, has announced it will launch one of the biggest floats in corporate history.

Alibaba is the largest e-commerce company in China and some say the world, depending on what figures you look at and how much you trust those figures.

Its services include a business-to-business marketplace (alibaba.com), a business-to-consumer marketplace (Taobao Mall or Tmall) and an eBay-like consumer-to-consumer marketplace (Taobao).

Tmall and Taobao are estimated to have handled $US250 billion in transactions in 2013, making them bigger than Amazon and eBay combined.

This week Alibaba announced its intention to launch an IPO in excess of $US1bn on the US market and one which analysts are expecting could raise as much as $US20bn.

To put that in perspective, Facebook raised $US17bn when it went public in 2012. Visa still holds the record for the biggest IPO in the US when it raised $US19.7bn in 2008.

The Alibaba float is going to face a number of obstacles, and it will be interesting to see if it clears them.

Firstly, Alibaba will have to open up its books. It has already said in the prospectus that it will not file reports and financial statements with the US Securities and Exchange Commission “as frequently or as promptly” as American companies.

The SEC in January issued an outright ban on the Chinese affiliates of the Big Four accounting firms PricewaterhouseCoopers, Ernst & Young, KPMG and Deloitte & Touche for failing to produce audit work papers related to nine US-listed Chinese companies

While Alibaba’s books are audited out of Hong Kong, Chinese secrecy laws still apply.

Under the proposed listing, Ma and other top executives will get to nominate half the board members. The Hong Kong exchange refused to accept the structure because, as we know, boards function better when they are accountable to shareholders.

It is also likely to grate on the US that its own tech companies like Twitter, YouTube, Facebook and Google have all been banned from competing in China and yet allowing Alibaba into the US will give the giant an opportunity to grow even bigger and attach a layer of credibility in the international market that the company would not enjoy operating solely in China.

The US also stonewalled another leading Chinese technology company, Huawei, from the US market and from bidding on US-based contacts because of security concerns.

The Obama administration also publicly took Alibaba to task back in 2012 for the amount of counterfeit goods being sold on Taobao.

However while Jack Ma may come off a little eccentric, for many starch-collared American corporate types the way he does business is very Silicon Valley.

Alibaba employees are known as "Alipeople” and are all given nicknames from characters in kung fu movies. The Financial Times reports that Ma’s nickname is Feng Qingyang, named after a swordsman who was “unpredictable and aggressive”.

He was also ahead of the curve when he launched Taobao in 2003 and refused to charge fees on transactions.

The then-CEO of eBay Meg Whitman called Ma out on the move.

“Free is not a business model. It speaks volumes about the strength of eBay’s business in China that Taobao is unable to charge for its products,” she said. Now, many companies have abandoned fees and eBay’s lost most of its market share in China.

Ever one for a colourful quote, Ma foreshadowed how the battle against eBay would turn out.

“eBay may be a shark in the ocean but I am a crocodile in the Yangtze River. If we fight in the ocean, we lose – but if we fight in the river, we win.”

(By the way, you should check out Porter Erisman’s 2012 documentary on Ma, Crocodile in the Yangtze. It chronicles Ma from 1995 to 2009 and spends a lot of screen time looking at Alibaba’s battle against eBay.)

As the crocodile tries to claw its way onto US shores, don’t expect it to be easy.

But if these aforementioned obstacles can be cleared, then Alibaba’s presence should be something to get excited about. In a country that believes competition enables everyone to bring their A-game, then having Jack Ma and his cohorts in Silicon Valley is bound to encourage some bold and wacky ideas.

Mathew Murphy is a Walkley Award-winning reporter based in New York.

The increase in the consumer price index announced by the National Bureau of Statistics marks an increase on the 2.4 per cent recorded in March.

However, it is below forecasts of 2.1 per cent given by economists in a Bloomberg survey.

The producer price index, which measures costs for goods at the factory gate, declined by 2.0 per cent in April, more than the 1.8 per cent drop economists surveyed by Dow Jones Newswires expected.

Citigroup is advising Cheung Kong on its takeover bid for gas distributor Envestra which is also the subject of an offer from its biggest shareholder APA, advised by Rothschild, Data Room reporting has discovered.

A group of Cheung Kong companies offered $1.32 a share for Perth-based Envestra, which controls 24,100 kilometres of a network for gas distribution. At 1.58 pm Envestra shares had surged 20.5 cents, or 18 per cent, to $1.335.

Cheung Kong’s bid is worth $4.04 billion on a total enterprise value that includes $2.06bn of net debt and $1.96bn of equity, according to Bloomberg data. Billionaire Li Ka-shing’s Cheung Kong Group is Envestra’s second-biggest shareholder with a 17.5 per cent stake.

APA, has a 33 per cent stake, and made a takeover offer for Envestra - which is  is being advised by Goldman Sachs - in December now valued at $1.32 a share.

Cheung Kong can block APA’s takeover offer for Envestra as it requires 75 per cent approval and APA cannot vote on its own offer.

Cheung Kong needs only 50 per cent of Envestra’s shareholders to accept its takeover offer, but it requires Foreign Investment Review Board Approval and wants to conduct due diligence.

Four of the eight Envestra’s directors, who are not employees of APA or Cheung Kong, will meet to consider both takeover proposals. A May 13 vote on the APA takeover will be postponed.

Last year, Citigroup promoted Sydney-based Philip Graham to co-head of Asia Pacific energy, power and utilities investment banking. The investment bank has advised on several deals with value over $10bn, including fund manager QIC’s acquisition of the Moomba to Adelaide Pipeline System from APA and Santos' sale of its 40 per cent stake in the Gladstone liquifieid natural gas project to Malaysia’s Petronas.

(Reporting by brett.cole@businessspectator.com.au)

(Editing by miranda.maxwell@businessspectator.com.au)

Japanese health minister Chikara Sakaguchi said rather melodramatically in 2002 that "if we go on this way, the Japanese race will become extinct", referring to the country’s exceedingly low birth rate and rapidly ageing society.

Japan’s fertility rate dropped below 2.1 -- the replacement level needed to maintain the population -- in the 1980s. It averaged between 1.27 between 2005 and 2010. Under the most pessimistic scenario, Japan’s population would drop to only 45 million at the end of this century, the same as in 1910 Meiji Japan.

The population decline in Japan is also one of the key contributing factors to the country’s economic decline since the 1990s. This cautionary tale weighs heavily on the mind of China’s top executive from the property sector Mao Daqing, who is the deputy chief executive of Vanke, China’s largest property developer.

Mao’s recent speech about the frothy Chinese property sector is still sending shock waves across the country.  China Spectator has covered his leaked speech at a closed door discussion forum last week (What keeps China’s biggest property developer up at night, May 7; Alarm bells are ringing on China’s property bubble, May 9).

Today’s column will examine Mao’s concern about two headwinds against the sector and the Chinese economy more broadly in medium to long term. 

Vanke has been looking at China’s demographic change for the last year on the behalf of the central government. The research results as revealed by Mao in the leaked speech are scary, to say at the least.     

Between 2028 and 2033, Chinese citizens older than 60 years would number between 390 million and 440 million. In addition to that, the country would also need to look after another 270 million people. That number includes 40 million disabled and 230 million underage people.

What it means is that in less than 16 years time, the country’s 700 million working-age people need to support roughly the same number of old, young and disabled people. By way of comparison, more than 900 million working-age Chinese are looking after 500 million people today. And that is going to change dramatically in the next two decades.

What does it mean for the Chinese economy? It simply means that the number of jobs will shrink, the country has to take on more debt, innovation will suffer and mobility within corporations is also set to decline.  There is no better example of this than Japan, the once-vibrant economic power house that has been weighed down by its greying population.

However, China would be lucky to be in Japan’s situation. There is a real danger that China may become old before it gets rich. Though Japan is marching into its third lost decade, the living standard has hardly suffered in the country. A British MP said while visiting Japan: "If this is recession, I want one."

"Japan’s economic structure back then is much better than today’s China. According to our economic model, it is almost impossible to imagine the growth in 2030’s GDP would be based on technological innovation. If that is not the case, the country would be in a lot of trouble," Mao said, according to the leaked transcript of his controversial speech.

He says the Chinese property sector will reach its upper ceiling within the next 18 years.

Mao was also critical of China’s loose monetary policy and especially under the administration of Hu Jintao and Wen Jiabao, who led China before Xi Jinping and Li Kiqiang took it over last year. He said China’s economic growth for the last decade or longer was based on credit expansion.

A lot of that money has flown into property sector and building infrastructure. Though property developers have benefitted greatly from loose monetary policy, it is not healthy for the development of the country’s economy.

"Everyone seems to be hazy and a bit like the after-effect of taking drugs. It is very hard to get rid of that addiction. Consequently, people need more money and more stimulation and are feeding land-revenue based local finance," he said.

Mao is critical of Chinese economists who are more or less wedded to the idea that there is a lot of headroom for the Chinese GDP to grow due to the need to invest in infrastructure. But the country's fundamental problem is precisely its excessive investment in fixed assets and infrastructure.

From a perspective of efficiency of investment, putting money into infrastructure is the worst possible option. However, if you invest all these money into private enterprises and innovative companies, the situation will be much more different, says Mao. Though the government is tightening credit supply, it is not clear if the government is channelling the money into the right area.

Analysts calculate that if state-owned enterprises can bring their level of efficiency and productivity to that of their private counterparts, China’s GDP could add another two per cent. That means an additional 11 trillion yuan or $1.9 trillion, which is larger than Australia’s GDP.  

However, the silver lining to Mao’s gloomy outlook is the apparent determination of the Chinese leadership to break away from the old business model.

"I personally believe they are saying goodbye to the policy practices of the last decade or longer from both economic and political reform perspectives," Mao said.  

As Chinese President Xi Jinping completed his tour of Xinjiang province last week and vowed“resolute measures” against “violent terrorists,” explosions tore through crowds at Urumqi’s largest train station.

The suicide bombing in the provincial capital of China’s far western Xinjiang Uyghur Autonomous Region left three dead (including two perpetrators) and 79 injured.

This is just the latest in a string of coordinated attacks and deadly civil disturbances that have killed more than 300 since the outbreak of mass riots in Xinjiang in the northern summer of 2009.

Meanwhile, Tibet and neighbouring provinces have been rocked by a spate of more than 125 self-immolations in the same period.

According to China’s state-controlled press, the most menacing dangers for the Chinese state and society are external: Familiar, if unjustified, fears include Washington’s strategic ‘pivot’ to Asia and Japanese ‘remilitarisation.’

Yet the task of maintaining social stability and internal order among diverse ethnic minority provinces is far more daunting than the imagined threats of US containment or Japanese aggression. And the evidence is mounting that the CCP is failing to rise to the challenge.

The vast territories of China’s west, encompassing the Tibetan Plateau, the Tarim Basin and Dzungaria, have resisted Chinese imperium for millennia.

During the Western Han Dynasty (202BCE - 8CE) the central government claimed nominal authority over Xinjiang through a protectorate, and established partial control over the territory during the Tang Dynasty (618CE - 907CE). But it was not until the mid-18th century that the Qing Dynasty (1644CE - 1911CE) was able to finally reassert Chinese power in Xinjiang.

Tibet fell to the Mongolian Yuan Dynasty (1206CE – 1368CE), and 300 years later was incorporated into the Qing Dynasty. However, it regained its independence between the fall of the Qing Dynasty and its annexation by the People’s Republic of China in 1951.

Beijing’s intermittent rule over these western territories means that the impact of the attempted sinicisation of the indigenous populations was minimal.

In cities like Kashgar, situated near the Kyrgyz and Tajik borders, the Uyghur-speaking Turkic Muslims are ethnically, linguistically and culturally distinct from the Chinese-speaking Han that make up more than 90% of China’s overall population.

The resulting sense of division from Han China is conveyed in everyday conversation: Uyghurs in Xinjiang will casually refer to the predominately Han eastern parts of China as the “mainland.”

Despite the proven potential for these ethnic, linguistic and cultural cleavages to provoke mutual suspicion and violence, Beijing regularly adopts clumsy and imperious policies that inflame tensions.

There are reports of Muslims in Xinjiang being forced to face the Chinese flag during prayers, while sources in Tibetan-populated provinces say that a photograph of the Dalai Lama can result in incarceration, beatings and even torture.

Authorities in Xinjiang have also launched paternalistic campaigns that encourage Muslim women to abandon headscarves and caution Muslim men against growing beards.

Moreover, there is anecdotal evidence of institutionalised discrimination towards Tibetans and Uyghurs, as well as systemic labour market biases against ethnic minorities.

Notwithstanding affirmative action policies in the state sector, a 2011 study of income inequality in Urumqi found that Uyghur workers in private businesses earn 52 per cent less than their Han counterparts.

Ham-fisted and draconian CCP policies are certainly not cause for apologetics when civilians are murdered, much less what Chinese Foreign Ministry Spokesperson Hong Lei has labelled ‘connivance of terrorists.’

Last week’s attack in Urumqi and similar violent acts should be condemned, and the tragic loss of life that they cause mourned.

Nevertheless, for the sake of China’s social stability, as well as the rights and welfare of Uyghurs, Tibetans and other ethnic minorities, incidents of unrest and violence should prompt deep introspection in Beijing about its attitudes and policies towards the western provinces.

Mencius, the great Confucian scholar, once observed: ‘Practise benevolent government and the people will be sure to love their superiors and die for them.’

Beijing must relearn this old lesson.

Successive Chinese dynasties won the west through conquest and subjugation. But unless Beijing can govern benevolently and truly tolerate China’s diversity, it may lose its western regions to instability and insurrection.

Dr Benjamin Herscovitch is a Beijing-based Research Fellow at The Centre for Independent Studies.

Oslo has faced public criticism for its decision to snub the Tibetan spiritual leader, who was in Norway to commemorate the 25th anniversary of his Nobel Peace Prize.

Instead, the spiritual leader was received in parliament by several members of the cross-parliamentary committee for Tibet, which includes the governing right-wing parties.

"After four years, we find ourselves in a situation where there is no political contact with Chinese authorities. This makes a dialog on difficult matters like the climate or human rights impossible," Prime Minister Erna Solberg told public broadcaster NRK.

"It is therefore a necessary sacrifice in order to show China that it's important for us to have a dialog with them."

Beijing stopped all high-level contact with Norway after the Nobel Peace Prize was given to Chinese dissident Liu Xiabobo in 2010. The Nobel Committee is independent from all political power, although its five members are appointed by parliament.

China has warned on multiple occasions about the consequences of meeting the Dalai Lama, who they consider a "separatist".  

But Norwegian commentators have slammed the government's decision not to meet him, accusing it of "cowardice" and putting economic interests before human rights.

No members of Norway's government -- including the foreign minister and president of the parliament, who have both headed the parliamentary committee for Tibet -- will meet the Dalai Lama during his three-day visit.

The leader, who said he was "an admirer of the democratic system", was received at the main entrance of Parliament following discussions over whether he should be made to enter through a back door.

The meeting was held in a screening room, rather than an official reception room.