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    Activity in China's non-manufacturing sector increased in May at a slightly faster rate than in the previous month, according to official data.

    A statement from the China Federation of Logistics and Purchasing said China's non-manufacturing purchasing managers' index (PMI) printed at 55.5 in May, after a read of 54.8 in April.

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

    The non-manufacturing PMI covers services including retail, aviation and software as well as the real estate and construction sectors.

    The data are based on replies to monthly questionnaires sent to purchasing executives in 1,200 companies in 27 non-manufacturing sectors.

    The federation issues the data along with the National Bureau of Statistics.

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    Activity outside the manufacturing sector increases during the month.

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    Activity in China's manufacturing sector improved in May but remains in contraction, according to the HSBC China manufacturing purchasing managers' index (PMI).

    The HSBC China manufacturing PMI printed at 49.4 in May, an improvement on the April read of 48.1, but a downward revision on the earlier flash reading of 49.7.

    HSBC chief economist, China, Hongbin Qu, said growth momentum looked weaker in the final figure than the flash reading. 

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    Survey shows manufacturing sector remains in contraction, strengthens from prior month.

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    Australians are split on whether China or Japan is Australia’s ‘best friend in Asia’ but a majority believe the government allows too much Chinese investment, a new poll shows.

    The 2014 Lowy Institute Poll found 31 per cent of Australians were confident China was the nation’s closest ally in the region, against 28 per cent for Japan in a neck-and-neck race. However, 56 per cent of respondents said the government permits too much investment from China.

    In a survey of contrasts, the Lowy poll also found Australians’ feelings towards China were at their equal highest point in a decade, yet almost half the nation (48 per cent) worries China will become a military threat in the next 20 years.

    Foreign investment in general was also a subject of conjecture as most respondents supported offshore funding in manufacturing and financial sectors, but it was the opposite for investment in agriculture and infrastructure.

    Around 50 per cent of Australians were also seen to be against foreign funding for Qantas and the national broadband network.

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    New poll shows Australian feelings towards China on rise, but foreign investment still a concern.

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    Graph for In the shadow of Tiananmen, LinkedIn succumbs to China’s censorship

    The tentacles of Chinese censorship have extended to the US professional social media network LinkedIn on the eve of the 25th anniversary of the Tiananmen Massacre. The reach of Chinese censorship is far wider than previously thought, and includes the international version of LinkedIn as well as people who are located outside of China.

    That the censorship extends outside mainland China, and to English-language users of the site, is concerning -- and exceeds the measures thought necessary for LinkedIn to do business with China. For the larger business world it spotlights a significant operational risk: that the steps required to satisfy and maintain a relationship with Beijing can increase over time.

    The situation was brought to the attention of your China-based correspondent when he was notified that stories he had posted on his LinkedIn account about the detention of Australian artist Guo Jian would not be seen by other LinkedIn members.

    Graph for In the shadow of Tiananmen, LinkedIn succumbs to China’s censorship

    Similarly, British artist Helen Couchman, who lived in Beijing for many years, also complained about how her Linkedin posts were being censored, even though she has been based in Britain since February 2013.

    “I’m very unhappy about it. I think it’s really unprofessional. Especially as I was only sharing things that are already in the public domain,” Ms Couchman told China Spectator.

    “I haven’t put anything like ‘the government sucks’ or ‘it’s very, very bad behaviour’. I haven’t actually expressed my personal opinion, I’ve just shared the facts of the article. I think it’s outrageous.”

    The Daily Beast also reported some Linkedin users in Hong Kong, who are usually outside of the Great Firewall of China, were also affected by the recent crackdown.

    When Linkedin chief executive Jeff Weiner announced the launch of its simplified Chinese website in February, he said in a blog post that “government restrictions on content will be implemented only when and to the extent required and Linkedin will be transparent about how it conducts business in China and will use multiple avenues to notify members about our practices.”

    Many thought at the time Linkedin would only censor its Chinese-language version of the professional social media network. However, in recent days, it seems Linkedin has become more aggressive in censoring user-generated China-related content.

    Shaun Rein, the managing director of China Market Research, who helped Linkedin develop its China entry strategy, hasn’t been allowed to post anything on the social media network without moderation since he posted an interview he did with Bloomberg TV about IBM and the challenges it faces in China.

    “LinkedIn is in a very difficult position. I’m surprised that they’re taking this action, frankly. Who is making these decisions?” he asks.

    What’s happening with Linkedin is a case of self-censorship gone mad. Not only is it killing off discussion between Chinese and foreigners, it’s also affecting the ability of the international community talking to each other about developments in China. The social media site is effectively censoring content generated in China regardless of whether it comes from Chinese citizens or expatriates living there.

    “We've long recognised that offering a localised version of LinkedIn in China would likely mean adherence to censorship requirements of the Chinese government on internet platforms,” LinkedIn China head of corporate communications Viola Wang told China Spectator.

    "These requirements have just recently been imposed upon us within China. We are strongly in support of freedom of expression. But, as we said at the time of our launch in February, it’s clear to us that in order to create value for our members in China and around the world, we will need to implement the Chinese government’s restrictions on content, when and to the extent required."

    LinkedIn is not alone in practicing self-censorship in order to gain access to the Chinese market. Last year, international financial news services company Bloomberg had to spike a number of stories that were critical of the Chinese leadership and a well-connected property tycoon, according to the New York Times.  

    Bloomberg infuriated Beijing authorities when it published a series of stories in 2012 on the personal wealth of the families of Chinese leaders, including the new party leader Xi Jinping. Since the publication of these stories, Bloomberg’s website has been blocked in China and its reporters have been denied long-term residency permits in the world’s second-largest economy.

    Sales of Bloomberg terminals, a main source of revenue for the company, which cost $20,000 per terminal per year, have suffered. Chinese officials have told some state-owned enterprises and research institutions, such as the Chinese Academy of Social Sciences, not to subscribe to terminals.

    How to deal with increasingly stringent Chinese censorship regulation is a sensitive issue for foreign companies that want to operate in the world’s second-largest economy. More and more companies are willing to compromise their standards in order to gain access to the market. Linkedin’s overreach is just of one of many examples lately.

    “You are only good as your last story,” said a senior Wall Street Journal editor in China, referring to the possibility of being censored in the country. Companies can do what Google did by shutting down its Chinese-language internet search in 2010 to avoid of being complicit in aiding and abetting Chinese censors. It was a brave move that few others could afford.

    Bloomberg editor-in-chief Matthew Winkler highlighted the dilemma that many face in a conference call to his reporters: run these sensitive stories and get kicked out of China or practice self-censorship to stay in the game. It is an excruciating question for media executives and journalists, without an obvious answer.

    Media censorship in China is more than a political issue, it is a fundamentally economic and business one as well. International investors and business people need and demand unfettered and uncensored information about the Chinese political economy and business. Governments around the world should raise this issue with Beijing to protect its own citizens as well advancing the cause of freedom in China.

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    China’s efforts to wipe the memory of the Tiananmen Square massacre have extended to the professional social media network.

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    Since Tony Abbott declared “Australia open for business” last October, the government has pushed hard to make Australia attractive to Chinese investors. Abbott, who markets himself as the “infrastructure Prime Minister” raised the prospect of China ­investing heavily in Australian ­infrastructure with Chinese Premier Li Keqiang during his visit to China in April.

    A Free Trade Agreement (FTA) with China, which the government hopes to conclude before November, will likely raise the foreign review screening threshold for private Chinese investors from $248 million to over $1 billion. Trade Minister Andrew Robb has also openly mentioned the possibility of relaxed investment rules, under an FTA, for state-owned investors that have a strong track record in Australia.

    But despite support for Chinese foreign direct investment (FDI) at the highest political levels, Chinese FDI remains unpopular among Australians. Some 56 per cent of Australians feel the country is “allowing too much investment from China”, according to the 2014 Lowy Institute Poll. This number has been almost identical in every Lowy Institute Poll since 2010.

    This should concern a government that wants to attract investment from China, particularly at a time when global competition for Chinese investment is growing. In 2013, Chinese investment flows into Australia decreased for the first time since 2009, while Chinese investment globally grew at between 9 and 17 per cent in 2013 (depending on which statistics are used). Investment flows are inherently volatile. A one-year downturn does not make a trend, but the assumption that Chinese FDI into Australia will continually grow as overall Chinese outward investment grows is a dangerous one.

    While it’s true that decisions on foreign investment are not made by popular opinion, community sentiment does matter. There have been reports that Chinese investors have been cautious about agribusiness investments due to the public debate in Australia. Popular opposition to investment can also leave the suspicion that any decision to block an investment may be done for populist reasons, regardless of the reality.

    The Lowy Poll does not distil why a majority of Australians think too much FDI comes from China. However, in this author’s opinion a number of misperceptions about Chinese investment in Australia seem to colour public thinking.

    First, the perceived amount of Chinese investment is probably bigger than it actually is. Overall Chinese investment in Australia remains small. It accounts for only three per cent of total FDI in Australia, ranking it ninth by country.

    Second, there is a general aversion towards FDI in Australia, particularly in the industries publicly associated with Chinese investment. The 2014 poll results indicate that 60 per cent of respondents were against the government allowing foreign companies from any country to invest in agriculture, or ports and airports. About half of respondents also opposed investment in Qantas, the NBN and resources.

    Much of the opposition to Chinese investment in Australia has focused on agricultural and resource investments, which are both unpopular more broadly as investment industries. In reality, agriculture and agribusiness occupy a very small amount of total Chinese investment in Australia. According to a recent KPMG report on Chinese investment, agribusiness accounted for only one per cent of Chinese investment in 2013. Another KPMG agribusiness report indicated that agriculture accounted for two per cent (in terms of value) of total cumulative Chinese investment in Australia from 2006 to 2012.   

    Perceptions that much of Chinese investment has gone into mining and gas are correct (over 90 per cent from 2006-2012) but this is part of a small Chinese investment footprint overall. Additionally, the makeup of Chinese investment is changing. In 2013, 40 per cent of Chinese FDI in Australia went into power transmission, 24 per cent mining and 21 per cent gas. There has also been a trend towards more private investment and smaller projects.   

    Third, concerns surrounding residential real estate investment sometimes get conflated with business investment. In the past year complaints have reached fever pitch that Chinese investors are buying significant amounts of residential real estate and thus driving housing prices up. Whether this is true or not, it should be treated as a separate issue to business investment, and it isn’t clear the Australian public is making that distinction at the moment. 

    It is important to get the facts of Chinese investment on the table to overcome concerns specific to Chinese investment. But there is a bigger issue in the FDI debate. FDI, including Chinese investment, has benefits for the economy. As Tony Abbott has said himself, foreign investment helped build this nation. Majority opposition to any amount of foreign investment in a number of industries, as indicated in the Lowy Institute Poll, shows that the positive elements of the FDI debate are not resonating with the Australian public.

    A more nuanced and open discourse on the positives and negatives of Chinese FDI may help elicit support for the investment component of Abbott’s “open for business” message.

    Dirk van der Kley is a Research Associate at the Lowy Institute for International Policy. The 2014 Lowy Institute Poll can be downloaded at www.lowyinstitute.org 

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    While the Coalition government is working hard to encourage Chinese direct investment in Australian assets, these investments remains highly unpopular among Australians. Some common misperceptions need to be addressed.

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    Australian coal producers have confronted a challenging 2014 and it may not get better soon, with prominent economist Ross Garnaut warning that China’s demand for thermal coal may already be in decline, The Australian Financial Review reports.

    Mr Garnaut, writing in the forthcoming China & World Economy Journal, reportedly tips thermal coal consumption in China to fall 0.7 per cent per annum through to 2020, leading to a “historic” turnaround in demand from a lift of 13 per cent from 2000-2011 to a 10 per cent decline through to 2020.

    “Australian-based coal producers have made large investments in expanding capacity at home and abroad since the outlook changed in 2011,” Professor Garnaut told The Australian Financial Review.

    “Little of the incremental investment since 2011 will return the cost of capital to shareholders and all of it -­lowers returns to past investments by lowering price. Catching up with reality sooner rather than later will limit the amount of good money that is thrown after bad.”

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    Local coal producers could face further pain if forecast for demand fall eventuates.

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

    The HSBC China Services Activity Index printed at 50.7 points in May, down from 51.4 in April.

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

    HSBC said anecdotal evidence suggested that tough market conditions weighed on services activity growth in the latest survey period. 

    HSBC chief economist for China, Hongbin Qu, said the data showed a relatively big drop in the business expectations index.

    "Both the new business and outstanding business indices were slightly weaker than April," Mr Qu said.

    "The employment index, unchanged over the month, remained at a relatively low level.

    "Coming after the stronger manufacturing PMI reading for May, the slight disappointment in the headline services PMI suggests that growth momentum remains slow and private sector sentiment is weak.

    "We think policy makers should continue to ease monetary and fiscal policies in the coming months to help support growth.”

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    Activity in China's services sector expands in May but at a slower pace.

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    As Alibaba prepares for what could be the biggest tech company IPO to date, the Chinese e-commerce giant has been counseling employees on how to deal with the roughly $41 billion they could unlock through a New York listing.

    While some staffers have enquired if premium brand BMW sells cars in Alibaba's corporate orange, others may invest windfall stock gains in property in North America or channel funds back into start-up ventures in China, hoping to build future Alibabas, bankers and financial planners say.

    The company, though, has been preparing employees for years on how to manage the avalanche of cash, warning them not to be carried away and splurge on material goods.

    While Alibaba Group Holding Ltd's co-founders Jack Ma and Joseph Tsai are already billionaires, many more paper millionaires could be minted once employees are free to sell shares some time after the IPO.

    Current and former Alibaba employees hold 26.7 per cent of the company, having built up their holdings through stock options and other incentives awarded since 1999, according to securities filings, though these didn't detail the number of employee shareholders.

    The IPO windfall - Alibaba could be worth $US152 billion, according to the average from a Reuters survey of 25 analysts - will be larger than anything China has seen because of the depth of the group's employee ownership and the size of the company.

    Not just managers, but software engineers and staff from sales and marketing and related companies such as Alipay also stand to benefit from selling shares after the IPO.

    Some of the 20,000 employees have already had the opportunity to sell part of their stakes during previous Alibaba structured share sales through so called liquidity programs.

    "The thinking was that if sudden wealth is like venom, giving small doses every now and then was a bit like anti-venom because your company isn't thrown into chaos," said a person familiar with Alibaba's incentive plans who was not authorized to speak publicly on the matter.

    Moving on

    In its IPO prospectus, Alibaba acknowledged its concerns about employee shareholders coming into new-found wealth, and maybe wanting to move on.

    "It may be difficult for us to continue to retain and motivate these employees, and this wealth could affect their decisions about whether or not they remain with us," it said.

    Over recent years, Alibaba executives have discussed with employees how the windfall gains could change their lives, warning them not to splash it all on "glitzy things", said people familiar with those discussions.

    Former chief operating officer Savio Kwan was one of the executives who took part in the talks, the people said, along with external speakers and academics brought in to talk about leadership, personal development and business goals.

    "One thing Jack (Ma) and Savio did was from the early days prepare employees for the effects of having wealth," said Porter Erisman, a former Alibaba vice president and director of "Crocodile in the Yangtze," a documentary about Alibaba's first decade.

    "I remember Savio giving a speech about what money means, and he encouraged people to think of money as something that offered more choices. Those choices don't have to be material goods," he added.

    Alibaba declined to comment for this article.

    How to spend it

    As happened after Facebook's IPO in 2012, the new Alibaba millionaires are seen driving up demand for luxury cars and apartments, giving a boost to the economy of China's eastern city of Hangzhou, where the company is based.

    Facebook millionaires spent some of their cash booking a trip with a private space tourism company and on an exploration of ancient Mayan ruins in Central America, while some Google shareholders cashed in during the internet firm's IPO to travel around the world, start a documentary film business and open a health-conscious cafe, media reported at the time.

    BMW dealerships in Hangzhou have fielded enquiries from Alibaba employees asking if they have models in orange, Reuters Insider television has reported.

    But the Chinese government's austerity campaign is likely to keep a lid on too much ostentatious spending, and because the stock listing will be in the United States most of the money employees receive from eventual stake sales would likely be kept offshore rather than flow back to Alibaba's Chinese base.

    "Check real estate in Vancouver, not so much Ferraris and real estate in China," said a person closely involved with the IPO who was not authorised to speak publicly on the issue.

    Investment bankers and financial consultants predicted that much of the IPO windfall that does return to China would likely go into new technology ventures.

    Hangzhou is in a part of China already known as a hotbed for entrepreneurship. As of last year, the city had more than 560 multi-millionaires and in a decade is expected to rival Los Angeles in the number of so-called ultra high net worth individuals, according to property consultant Knight Frank.

    "There aren't many cases in China where a private company scales from an apartment to more than 20,000 people like that," said another person with direct knowledge of the IPO process. "More than anything, the impact might be in start-ups, with people coming out with money who have been through this and learned."

    Locked-up

    Much of the Alibaba wealth is in the hands of Ma, Tsai and a group of senior executives who make up the so-called Alibaba Partnership.

    These 28 people - 22 from Alibaba and 6 from related companies and affiliates - own a combined 14 per cent of Alibaba, according to the company's filing with the U.S. Securities and Exchange Commission - worth over $21 billion.

    The filing doesn't detail the holdings of top executives such as CEO Jonathan Lu, Chief Financial Officer Maggie Wu, Chief Operating Officer Daniel Zhang, Chief Technology Officer Jian Wan and General Counsel Timothy Steinert. Those five, who with Ma and Tsai are among the 28 partners, appear only as owning less than one per cent of Alibaba.

    The IPO will provide employees their biggest opportunity yet to cash out of their vested stocks once share lock-ups expire.

    The largest previous sell-down was in 2011 when employees sold about $US2 billion worth of stakes to investors including private equity firms DST Global and Silver Lake, according to a statement from those firms and the IPO filing.

    Ma sold $US162 million worth of shares that year, while Tsai raised $US108 million from selling part of his stake.

    In the same year, CEO Lu raised $US37.7 million, CFO Wu sold $US4.99 million worth of shares, and former COO Kwan sold a stake worth $US40.5 million. Sabrina Peng, an early Alibaba employee and former vice president of its business department, raised $US4.6 million in the 2011 sell-down.

    Alibaba's biggest single shareholder, with a 34.4 per cent stake, is Japanese telecoms firm SoftBank Corp, followed by US internet group Yahoo Inc, with 22.6 per cent. Other large shareholders include Silver Lake, DST Global and Singapore state investor Temasek.

    Employees will not be able to cash out of their holdings entirely through the IPO, as most employee stock is likely to be locked up for months, maybe years, people familiar with the listing process said.

    When Alibaba listed its Alibaba.com business-to-business unit in 2007, it was six months before stockholders could sell 40 per cent of the shares held in an employee equity exchange program. For the remaining 60 per cent, the lock-up was for one year.

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    Company warns employees to not get carried away and splurge on material goods.

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    Chinese state media lashed out at Google Inc, Apple Inc and other US technology companies, calling on Beijing "to punish severely the pawns" of the US government for monitoring China and stealing secrets.

    US companies such as Yahoo Inc, Cisco Systems Inc, Microsoft Corp and Facebook Inc threaten the cyber-security of China and its internet users, said the People's Daily on its microblog, in comments echoed on the front page of the English-language China Daily.

    It is not clear what sparked this latest round of vitriol, nor what information the US firms are alleged to have stolen. But Chinese media have repeatedly attacked American tech companies for aiding the US government's cyber espionage since US National Security Agency (NSA) contractor Edward Snowden revealed widespread spying programs including PRISM.

    Under PRISM, the NSA seized data from companies such as Google and Apple, according to revelations made by Snowden a year ago.

    Chinese state-owned firms have since begun dispensing with the services of US companies such as IBM and Cisco in favour of domestic technology. As a result, Snowden's revelations may cost US companies billions of dollars, analysts say.

    "US companies including Apple, Microsoft, Google, Facebook, etc. are all coordinating with the PRISM program to monitor China," the People's Daily said on its official microblog.

    "To resist the naked internet hegemony, we will draw up international regulations, and strengthen technology safeguards, but we will also severely punish the pawns of the villain. The priority is strengthening penalties and punishments, and for anyone who steals our information, even though they are far away, we shall punish them!" it said.

    Google has already had problems in China this week. On Monday, a China censorship watchdog said Google services were being disrupted ahead of Wednesday's 25th anniversary of the 1989 crackdown on pro-democracy demonstrators around Beijing's Tiananmen Square.

    "We cannot say this more clearly - the (US) government does not have access to Google servers - not directly, or via a back door, or a so-called drop box," said Google Chief Legal Officer David Drummond in an emailed statement on Wednesday. "We provide user data to governments only in accordance with the law."

    Microsoft declined to provide immediate comment. Facebook, Yahoo and Cisco were not immediately available when Reuters sought comment. All of them have previously denied participating in sweeping surveillance efforts.

    Apple on Wednesday referred to its previous statements on the matter.

    "Much of what has been said isn't true. There is no back door. The government doesn't have access to our servers. They would have to cart us out in a box for that," Chief Executive Officer Tim Cook said in an April interview with ABC Television.

    Rocky time

    Facebook is currently blocked by Chinese censors but said last month it may open a sales office in China to provide more support to local advertisers who use the website to reach customers overseas.

    In December, Google, Microsoft, Apple, Facebook, Yahoo and other Internet companies issued an open letter to US President Barack Obama and Congress to reform and introduce restrictions on surveillance activities.

    Even so, US tech companies have had a rocky time in China since the NSA revelations. Just last month, central government offices were banned from installing Windows 8, Microsoft's latest operating system, on new computers.

    But the US has responded with its own measures. In May, the US Department of Justice charged five Chinese military officers with hacking US companies to steal trade secrets.

    The indictment sparked outrage in China and added urgency to Beijing's efforts to promote the development of local information technology (IT) companies.

    Chinese media called the United States "a high-level hooligan" and officials accused Washington of applying "double standards" on issues of cyber spying.

    After the charges were announced, China said it will investigate providers of important IT products and services to protect "national security" and "economic and social development."

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    Google, Apple come under fire with media outlets calling on Beijing "to punish severely the pawns" of the US government.

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    Australian trade is expected to drive economic growth over the next few years, but that won’t occur without a few hiccups, such as in April when our trade balance slipped into deficit. The biggest concern for Australian trade remains its greatest strength -- China -- and our reliance on China leaves us particularly vulnerable if its economy slows.

    Australia ran a modest trade deficit during April -- the first since December -- providing a relatively poor start to the June quarter for trade. The result missed expectations for a $510 million trade surplus.

    The result followed a strong start to the year, which was enhanced further by unseasonably warm weather. The graph below shows the trade balance over a three-month period.

    Graph for The trouble with trading on China's good fortune

    The value of exports fell by 1.5 per cent in April, to be 11.4 per cent higher over the year. By comparison, imports rose by 2.2 per cent in the month, to be 6.6 per cent higher over the year.

    Exports to China rose by 25 per cent over the year to April and now account for almost 40 per cent of all merchandise exports. Exports to Japan and Korea were up by 8.3 per cent and 17.3 per cent respectively over the year. By comparison, our exports to India are down by a third since April last year.

    Graph for The trouble with trading on China's good fortune

    The graph above provides a fair indication of our reliance on China to drive growth. In the national accounts, net exports contributed 1.4 percentage points to real GDP growth -- its largest contribution in five years (A focus on GDP misses the bigger picture, June 4).

    By comparison, the domestic economy performed relatively poorly with gross national expenditure (which excludes trade), declining by 0.3 per cent in the March quarter. It’s fair to say that the beginning of 2014 has been a struggle for many Australians, consistent with a subdued job market and weak wage growth.

    Our reliance on China hasn’t caused us any problems thus far, but recent speculation regarding Chinese property and the economy in general poses a risk that is hard to ignore. On a daily basis there are articles and analyses trying to understand the ‘black box’ that is China’s economy and the state of its financial sector.

    China may be difficult to understand at the best of times. However, the rule -- where there is smoke there is usually fire -- applies to them just as easily as it does to other economies. Needless to say if the Chinese economy does sour, our trade balance will take a hit and the Australian economy will be left with few thriving sectors and limited monetary stimulus available.

    Based on the current outlook for China, trade should remain upbeat over the remainder of 2014. However, the RBA noted on Tuesday in its board statement that it expected export growth to be weaker in the quarters ahead.

    We shouldn’t be too concerned about the trade deficit in April. The monthly trade data is extremely volatile and we could bounce back with a solid surplus next month. Nevertheless, it reinforces how important it is that the economy continues to rebalance.

    March quarter GDP provided a timely reminder that the economy remains too reliant on China and we desperately need a lower dollar to boost spending and investment throughout the non-mining economy. A strong contribution from trade is always welcome but it is not by itself sufficient for a thriving domestic economy.

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    A trade deficit isn't necessarily a cause for concern, but the reliance on China to drive export growth will leave the economy particularly vulnerable in the event of a China slowdown.

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    Australia won't be putting all of its economic and investment eggs into China's basket, Trade Minister Andrew Robb says.

    Mr Robb and Prime Minister Tony Abbott will embark on a trade and investment tour of Canada and the United States next week.

    It will include Mr Abbott's first meeting with US President Barack Obama at the White House.

    Mr Robb will lead a separate business delegation to Ottawa, Toronto, New York and Houston.

    China accounts for 30 per cent of Australia's exports and about $151 billion in two-way trade.

    Critics say this leaves the Australian economy open to danger should the Chinese economy slow down.

    But Mr Robb said the argument was misguided, particularly given the interest in Australia from the US, Canada, Indonesia, the Gulf States and Singapore.

    "I've done 28 investment roundtables in 10 countries," he told AAP.

    "They want a stable, certain investment environment.

    "I think we are quite attractive and we are restoring the gold standard for sovereign risk."

    The US had 10 times more invested in Australia than it had in China, and Australia had $30 billion invested in China but $450 billion in the US.

    "I'm very conscious of the fact that the long-term investors - the US, UK, Switzerland and Japan - will continue to be the mainstay of our investment," Mr Robb said.

    "A lot of the growth may come out of China and others but you still need the mainstay.

    "We can't put our eggs in the one basket but it's fair to say we are not."

    The focus of Mr Robb's mission will be pension funds and other investors in North America with an interest in tourism and hospitality, medical research and devices, resources and energy, education and agribusiness.

    "These are five things we feel we are as good as anybody and better than most," he said.

    There was also the potential for investment in some of the $200 billion in potential state asset sales spurred on by the government's offer of a 15 per cent bonus if the money is put back into infrastructure.

    Capital was needed to build five-star hotels to service the growing number of high-spending Chinese tourists.

    Agribusiness investment was essential to growing high-value food and fibre products, processing it and shipping it overseas.

    Mr Robb's next trip after North America will be to Switzerland and the UK.

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    Australia won't be putting all of its economic and investment eggs into China's basket, Trade Minister Andrew Robb says.

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    Australia won't be putting all of its economic and investment eggs into China's basket, Trade Minister Andrew Robb says.

    Mr Robb and Prime Minister Tony Abbott will embark on a trade and investment tour of Canada and the United States next week.

    It will include the Prime Minister's first meeting with US President Barack Obama at the White House.

    Mr Robb will lead a separate business delegation to Ottawa, Toronto, New York and Houston.

    China accounts for 30 per cent of Australia's exports and about $151 billion in two-way trade.

    Critics say this leaves the Australian economy open to danger should the Chinese economy slow down.

    But Mr Robb said the argument was misguided, particularly given the interest in Australia from the US, Canada, Indonesia, the Gulf States and Singapore.

    "I've done 28 investment roundtables in 10 countries," he told AAP.

    "They want a stable, certain investment environment.

    "I think we are quite attractive and we are restoring the gold standard for sovereign risk."

    The US had 10 times more invested in Australia than it had in China, and Australia had $30 billion invested in China but $450bn in the US.

    "I'm very conscious of the fact that the long-term investors -- the US, UK, Switzerland and Japan -- will continue to be the mainstay of our investment," Mr Robb said.

    "A lot of the growth may come out of China and others but you still need the mainstay.

    "We can't put our eggs in the one basket but it's fair to say we are not."

    The focus of Mr Robb's mission will be pension funds and other investors in North America with an interest in tourism and hospitality, medical research and devices, resources and energy, education and agribusiness.

    "These are five things we feel we are as good as anybody and better than most," he said.

    There was also the potential for investment in some of the $200bn in potential state asset sales spurred on by the government's offer of a 15 per cent bonus if the money is put back into infrastructure.

    Capital was needed to build five-star hotels to service the growing number of high-spending Chinese tourists.

    Agribusiness investment was essential to growing high-value food and fibre products, processing it and shipping it overseas.

    Mr Robb's next trip after North America will be to Switzerland and the UK.

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    Trade Minister says nation won't 'put all eggs in one basket', will attract broad offshore investment.

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    The International Monetary Fund's No. 2 official urged China to tamp down expectations for growth and focus instead on addressing weaknesses in the financial and real-estate sectors.

    China should aspire "to what you might call medium-high growth," IMF Deputy Director David Lipton said Thursday in Beijing, where he was conducting an annual review of China's economy.

    "China should not always try to have the fastest possible growth but should have the fastest sustainable growth," he said, in what would be a big change from China's long-running philosophy of developing the economy as rapidly as possible.

    Specifically, Mr Lipton urged China to reduce its target for growth to around 7 per cent, "with a somewhat lower" floor, compared to this year's target of around 7.5 per cent. Aiming for a more moderate pace of growth, he said, would help China take measures that sap growth but make China less vulnerable in the long run, such as reducing the pace of credit growth.

    Early every year, China sets a growth target. For decades, the target was routinely exceeded by the country's double-digit annual growth rate. The last time China missed the target was 1998 during the Asian financial crisis.

    But in recent years, as the economy has slowed, the margin between the targeted growth and actual growth has narrowed sharply. In 2012, China reduced its GDP target from 8 per cent to 7.5 per cent and barely made the lower number, registering a 7.7 per cent GDP gain.

    The targets are taken seriously, Chinese economists and officials say. They are meant as a signal to the provinces of Beijing's priorities. Reducing the target is widely seen as confirmation that China would accept lower growth in exchange for shutting down highly polluting factories and taking other difficult economic measures.

    The central government also uses the target to set policies. In mid-2012, when quarterly GDP growth fell below the target, the government responded with a surge of credit to boost growth, even though it deepened the country's debt problems. In the first quarter of this year, GDP grew at 7.4 per cent, again below the target, leading to a debate about whether the economy needed additional stimulus.

    So far, the government has taken only small steps, including accelerating already planned spending on railways and information technology, targeting small businesses and farms for loans and tightening regulation on so-called shadow banking institutions such as trust companies and leasing firms.

    Mr Lipton made it clear that the IMF doesn't think broad stimulus was necessary.

    "We would suggest that it's best not to return to low interest rates, [more] credit and investment," he said in an interview. "We prefer a more targeted approach to stimulus."

    He said stronger stimulus measures could undermine China's efforts to bring credit growth under control. Indeed, he urged China to reduce its total local-government deficit by one percentage point a year in terms of share of GDP. With smaller deficits, local governments would need to borrow less to operate. But such a move would likely reduce economic growth because governments would have less money to pay for infrastructure and other projects.

    He said China should "find ways to use fiscal levers that support household incomes and [domestic] spending." Those include having state-owned firms pay more in dividends and using that money to pay for social services. Similarly, tax reform that puts more money into the pockets of ordinary Chinese would be a plus, he said.

    According to a Communist Party reform plan adopted last fall, China's state-owned enterprises are required to increase their dividend payments to 30 per cent by 2020 from the current 5 per cent to 15 per cent,

    "Why wait till 2020?" Mr. Lipton said.

    On currency matters, Mr. Lipton said the IMF continued to view the yuan as "moderately undervalued," a level the fund generally considers to be about 5 per cent to 10 per cent undervalued.

    While he said that the currency has depreciated recently, he added that if China is able to shift its economy so it depends more on domestic consumption, it would tend to lead to an appreciation of the currency over the medium term. In IMF lingo, "medium term" is generally three to five years.

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    IMF's Deputy Director says Beijing should push lower growth target and not offer fresh stimulus.

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  • 06/05/14--06:36: BHP bullish on China steel
  • BHP Billiton Chief Executive Andrew Mackenzie said he sees Chinese steel production totaling 1.1 billion metric tonnes within the next 10 years amid continued economic growth in the country.

    Speaking with reporters in Beijing, Mr Mackenzie also said the mining company could shift its China-based investments over the long-term as the world's No. 2 economy moves away from its traditional emphasis on construction and infrastructure investment.

    "China's urbanisation has a long way to run," he said.

    Last year, China's crude-steel production totaled 779 million tonnes, according to government data.

    In April, He Wenbo, president of bellwether Chinese steel producer Baosteel Group, said the country's crude-steel production could rise 3.8 per cent to 809 million tonnes.

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    Andrew Mackenzie says China's urbanisation has 'a long way to run', tips strong steel production.

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    Chinese authorities have told the Australian embassy in Beijing that detained artist Guo Jian will be will be deported after he serves his 15 days of detention due to an alleged visa related matter.

    In a statement on Thursday night, the Department of Foreign Affairs and Trade (DFAT) said Australian embassy officials visited the 52 year-old artist Beijing that day.

    Mr Guo, a former Tiananmen protestor, was taken from his home in Beijing earlier this week, just ahead of the 25th anniversary of the Tiananmen Square massacre.

    Earlier on Thursday DFAT consular head Justin Brown said that Mr Guo was a “dual national” in response to a question from Senator Peter Whish-Wilson during a senate estimates hearing. Mr Brown also told the senator that in addition to being detained, he was also fined over the “visa irregularity”.

    Dual nationality is allowed under Australian law but not possible under the current Chinese legislation which only recognises one citizenship. Mr Guo’s arrest came soon after he was profiled in a Financial Times article in which he spoke extensively about his experiences at the pro-democracy demonstrations in 1989. 

    “I didn’t believe it, even though I had been a soldier,” Mr Guo told the FT. “In the army I had never seen that sort of violence. Then I saw the tracers and people falling around me -- they were just gone. I suddenly realised, shit, this was war.”

    DFAT said that the Australian government will extend Mr Mr Guo all appropriate consular assistance while detained.

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    Australian-Chinese artist Guo Jian to deported from China after he serves 15 days of detention due to an alleged visa related matter.

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    When Chinese premier Li Keqiang was in Inner Mongolia, a resource-rich province in the north of the country, businesses complained to him about the difficulties -- as well as the high-cost -- of borrowing from Chinese banks.

    This is particularly true for small and medium-sized companies that struggle to get credit from state-owned banks. Premier Li said he would consider selectively lowering the reserve requirement ratio of banks, an important monetary policy tool in China, to inject credit into cash-starved companies.

    Li’s statement has sparked a fresh round of speculation about whether Beijing is prepared to loosen monetary policy to stimulate the economy, which is under significant downward pressure. Many investment banks are predicting an imminent policy easing to help the struggling economy.

    We should be wary about market speculation about monetary easing, and in particular about the kind of credit-fuelled stimulus of the past. Chinese policymakers and financiers are still nursing the hangover from the massive four trillion yuan debt-laden stimulus of the global financial crisis.

    Li’s comment about cutting the reserve requirement ratio was squarely aimed at cash-starved small and medium enterprises and agribusinesses that create more jobs in the country than other sectors. 

    In fact, there is nothing new about what Li actually said. Back in April, the People’s Bank of China lowered the required reserve ratio by 2 per cent, and by 0.5 per cent for rural banks and rural credit unions, whose clients are mostly small businesses.

    Managing the reserve ratio, which is the amount of money that banks need to hold, is one of the most important policy tools for the Chinese central bank. The head of the financial capital department at the PBOC, Ji Zhihong, said the selective lowering of the reserve ratio was designed to address funding shortages for farmers and small businesses.

    This means eligible banks that lend a certain proportion of their balance sheets to small businesses and farmers can hold lesser cash reserves than mandated by the central bank. Ji said the next step for the government was to maintain the current pace of credit expansion, but that it would focus on re-allocating loan structures.

    By that he means the government will ration credit that goes into industries that already suffer from excess capacity, as well as local municipal debts. In fact, financial data shows that loans for the services industry grew 15.5 per cent at the end of April, and at the same time credit growth for industries that suffer from excess capacities was only 5.9 per cent.

    At this stage, Beijing cannot afford to cut off the bloodlines to these industries such as steel, cement, and shipbuilding that employ millions of people.

    “We must not cut off credit completely to industries saddled with excess capacity, local government financing vehicles and the real estate industry,” Ji told  Economic Information, a subsidiary of the official Xinhua newsagency, “At the same time, we must squeeze out the bubbles in inefficient sectors, support good companies and ration credit for inefficient companies as well as improve efficiency in credit allocation.”

    One of country’s leading economists Guan Youqing, who is the deputy head of research at Minsheng Bank, explains why it does not make sense for the central bank to cut the reserve ratio systematically.  Untargeted monetary policy will not address the funding shortage problem for small and medium businesses that are crying out for more credit he says.

    He explains why: China has been maintaining a relatively loose monetary policy in the past, the biggest beneficiaries of which have been the real estate sector, state-owned enterprises and other large companies. But small and medium businesses have to rely on the shadow banking system to satisfy their financing needs.

    If the central bank were to loosen its purse strings again, it risks a repeat of the past. The new credit expansion is most likely to be channelled into the old guard that should not be given any more credit.

    Instead of lowering the reserve ratio to allow banks to flood the market with extra liquidity, the central bank is more inclined to use open market operations such as repo to inject funds into certain sectors. For example, during the first quarter of this year, the central bank injected 100 billion yuan into agriculture and small businesses through a repurchasing agreement.

    The central bank also reportedly lent 300 billion yuan to the China Development Bank last week to help it construct affordable public housing through repo. China International Capital Corp’s chief economist Peng Wensheng argues that the central bank prefers open market operations over fiddling with the reserve ratio.

    Chinese leaders have been talking up the need to be unfazed by worsening economic conditions and to let the market to play a central role in allocating resources. It would be bad news for the long-term health of the economy to see the central bank loosen its monetary policy at this point.

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    I do not believe Australians fully understand the seriousness of what is happening in the global mining business. Right now it is the Australian mining investment boom that is delivering the good economic figures that Treasurer Joe Hockey boasts about. Next year and in 2016 we will see a rapid decline in mining investment and, worse still, bad news on the mining front is still emerging from many quarters. Mining will still underpin Australia but the huge investment boost is over.

    Normally the changed mining outlook would see the Australian dollar slump, but because our interest rates are so above Europe and the US (and last night’s European cut underlines this), our currency stays high. This makes it even harder to justify new mining projects and intensifies the impact of the price reductions.

    This amazing boom has enabled Australia to go 23 years without a recession. In the post-war decades among developed countries only the Netherlands has beaten that record and they fell over in the global financial crisis.

    Chinese banking scams punctuate the mining fall. At the beginning of this calendar year we saw iron ore prices soar and many believed the boom would continue. But the spike was partly on the back of a Chinese bank trading scam where steel mills could obtain credit by buying ore they did not need. It unravelled and the price slumped.

    For a long time similar Chinese banking scams have involved copper, which was used as security for apartment block building loans. The apartment blocks normally had no tenants. Now this week one of these copper banking games has proved to be a fraud where the same copper was used for many mortgages. The crazy copper game may now end. 

    Longer term, copper will fare better than many other minerals, but there could be short-term pain.

    For me, the full realisation that the mining boom was marching towards its end came just one day short of 17 months ago when I wrote the benchmark comment with the heading China makes a frightening energy shift. The opening said: “Register February 7, 2013 in your diary. That is the day you fully appreciated the new direction China is now taking which will hit the expansion of our coal industry and later may affect other mineral exports.”

    Of course as regular readers of my commentary will recall I based those conclusions on research by Ross Garnaut and his son John Garnaut. As we now know coal prices have slumped. I was reminded of how right the Garnauts were when, in Business Spectator yesterday, we carried the heading China coal demand to fall: Garnaut.

    Ross Garnaut, writing in the forthcoming China & World Economy Journal, predicts thermal coal consumption in China will fall by 0.7 per cent per annum through to 2020, leading to a “historic” turnaround in demand from a lift of 13 per cent between 2000-2011 to a 10 per cent decline through to 2020.

    The essence of what Garnaut was saying in February last year was that China was about to tackle its emissions and air pollution, and coal would be the sufferer. Inevitably iron ore would also be affected. Gas, solar and perhaps nuclear would be the winners. At the time coal miners were engaged in massive, high-cost expansions and did not believe the commentary. Most do now.

    Falling coal demand in China is happening as extra coal supply comes onto the market, including big expansions in Australia. In addition the swing by the US to gas, which freed up US coal from the domestic market to exports, has helped pummel the coal price. At least we had gas.

    But now China has signed a massive, cut-price gas deal with Russia which will make most new Australian gas projects uneconomic and put pressure on long-term returns from the high-cost developments like Gorgon.

    What happens next? It will be very hard to get new projects off the ground and while prices for iron ore and coal remain depressed, returns will be a lot lower than forecast. If PricewaterhouseCoopers is right the next step is lower dividends from many miners.

    According to the Financial Times, PwC believes that:

    “The level of dividends paid by the world’s largest miners is at risk amid weaker commodity prices after companies’ payouts to investors last year amounted to more than double their net profits … The aggregate profits earned by a ‘top 40’ group of the world’s biggest miners by market capitalisation were driven down by impairments and slumped more than 70 per cent in 2013 to $20 billion, the lowest level in a decade … At the same time dividends last year from the same group of companies amounted to $41bn, up from $15bn five years previously. Dividends have become an important tool for miners to try to retain investor support but in the tough times it will be hard to sustain them.”

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    The World Bank believes China's growth rate will move marginally lower over the next two years amid an “uneven” but gradual rebalancing of the world’s second largest economy.

    The China Economic Update tipped a 2014 growth rate of 7.6 per cent, falling to 7.5 per cent in 2015. Both rates are marginally below the 7.7 per cent recorded last year due to a continued Beijing push to move the economy from a construction-related growth model to a consumer-oriented model.

    “The rebalancing will be uneven reflecting tensions between structural trends and near-term demand management measures,” Chorching Goh, the World Bank’s lead economist for China, said.

    While the new reforms will reduce short-term growth, the report applauded the move to a more sustainable growth focus.

    “The proposed reform measures are structural in nature,” Karlis Smits, senior economist at the World Bank and main author of the report, said.

    “In the medium-term, these policy measures will improve the quality of China’s growth -- making it more balanced, inclusive and sustainable and lay the foundation for sound economic development.”

    The report noted a pick-up in economic activity in China over recent weeks, leading to the conclusion the growth rate for the full year will be above the 7.4 per cent mark set in the first quarter.

    “The recent acceleration, which is likely to continue into the next two quarters, reflects robust consumption, a recovery of external demand, and new growth supporting measures, including infrastructure investments and tax incentives for small and medium-sized business,” the World Bank said in a statement.

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  • 06/06/14--00:15: The Week Ahead
  • Graph for The Week Ahead

    Graph for The Week Ahead

    Source: CommSec

    Employment in the spotlight

    If the next move in interest rates is up, not down, a lot will depend on the job market. The Reserve Bank is unlikely to hike rates until it is confident that unemployment has peaked. The RBA may not necessarily expect unemployment to drop markedly, but it will want to be confident that the jobless rate won’t lift markedly in response to a tightening of policy.

    Certainly there are early signs that unemployment has peaked. The unemployment rate fell from 6.1 per cent to 5.8 per cent in March and then held steady in April. At the same time, job advertisements have increased for the past four months, in fact lifting by almost 9 per cent over the period. The net number of new businesses created has also been rising strongly.

    However the Federal Budget has made consumers less confident, spending has softened and building approvals have shown signs of topping out. Business confidence and conditions may have been affected as a result -- we’ll find out on Tuesday when the latest NAB business survey is released.

    Overall, we expect that employment rose by 10,000 in May with the unemployment rate stable at 5.8 per cent.

    Interestingly, while these results should encourage, unfortunately many people don’t believe the jobs data. For some, it’s the definition of employment. According to the survey conducted by the Bureau of Statistics, someone is classified as “employed” if they “worked for one hour or more for pay, profit, commission or payment in kind in a job or business, or on a farm (comprising employees, employers and own account workers).”

    If it only takes an hour of work for someone to be classified as employed, then that clearly overstates the level of unemployment. Or does it? The same definition has been in place for over 20 years. So if unemployment has been understated, it’s been understated over the entire period.

    And one of the best ways to cross-check the jobs data is to use the Census results – a “population” survey rather than a “sample” survey. At the time of the Census on August 9 2011, the proportion of people that reported that they were over 15 years of age, in the workforce and unemployed was 5.6 per cent. The unadjusted monthly unemployment estimate in the Labour Force Survey in August 2011 was 5.1 per cent while the seasonally adjusted estimate was 5.3 per cent. In other words, the results were very close despite numerous differences in the scope and methodology of the two surveys. Bottom line: we can have confidence in the monthly job numbers.

    The other indicators

    In a number of states and territories there is a holiday on Monday to usher in the week. On Tuesday, the April home loan data is released together with the NAB business survey and job advertisements. Business confidence probably fell in response to the Federal Budget. But the hope is that job ads continued their recovery in May.

    On Wednesday the monthly consumer confidence report is released and investors will hope that the economic growth data injects a little more confidence into the mindset of Aussie consumers.

    On Thursday, the Reserve Bank releases latest data on credit and debit card lending. And on Friday, the broader lending finance data is released, covering housing, personal, commercial and lease finance.

    Overseas: Chinese economic data in focus

    In the coming week, Chinese economic data takes centre stage. On Sunday June 9, the May trade figures are released – data that can be readily reconciled by reference to similar trade data published by other major advanced economies. That is, one country’s exports are another country’s imports. Economists are tipping the trade surplus to rise from US$18.5 billion to around US$23 billion in May.

    The Chinese inflation figures are published on Tuesday – both producer and consumer prices. Inflationary pressures are well contained at present. And on Friday, Chinese activity indicators for May are published – covering investment, production and retail sales. Little change is expected from the April growth readings.

    In the US, the week kicks off with the employment trends report on Monday followed by wholesale sales & inventories on Tuesday together with weekly chain store sales. The monthly Federal Budget is on Wednesday with the usual weekly data on housing finance activity. None of these indicators are important for investors.

    Investor interest picks up on Thursday though when retail sales data for May is released. Economists expect sales to have risen by 0.4 per cent in the month after relatively flat results in April.

    Also on Thursday the weekly data on jobless claims is issued. The job market continues to improve.

     And on Friday in the US, data on producer prices or business inflation is issued together with the early estimates of consumer sentiment for June. Economists are betting on a modest 0.2 per cent lift in core or underlying producer prices.

    Sharemarkets, interest rates & the Aussie dollar

    The longest period of stable cash rates in Australia was a 19-month period from December 1994 to July 1996. Interest rate markets are betting that fresh records will be set early in 2015. Currently the overnight index swap (OIS) market is broadly tipping stable rates for the next year. Over the next nine months, pricing suggests an 8 per cent chance of a rate cut, while there is a 9 per cent chance of a rate hike in 12 months’ time.

    Craig James is chief economist at CommSec. Watch his economic insights for the coming week here.

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    Chinese state media lashed out at Google Inc, Apple Inc and other US technology companies, calling on Beijing "to punish severely the pawns" of the US government for monitoring China and stealing secrets.

    US companies such as Yahoo Inc, Cisco Systems Inc, Microsoft Corp and Facebook Inc threaten the cyber-security of China and its internet users, said the People's Daily on its microblog, in comments echoed on the front page of the English-language China Daily.

    It is not clear what sparked this latest round of vitriol, nor what information the US firms are alleged to have stolen. But Chinese media have repeatedly attacked American tech companies for aiding the US government's cyber espionage since US National Security Agency (NSA) contractor Edward Snowden revealed widespread spying programs including PRISM.

    Under PRISM, the NSA seized data from companies such as Google and Apple, according to revelations made by Snowden a year ago.

    Chinese state-owned firms have since begun dispensing with the services of US companies such as IBM and Cisco in favour of domestic technology. As a result, Snowden's revelations may cost US companies billions of dollars, analysts say.

    "US companies including Apple, Microsoft, Google, Facebook, etc. are all coordinating with the PRISM program to monitor China," the People's Daily said on its official microblog.

    "To resist the naked internet hegemony, we will draw up international regulations, and strengthen technology safeguards, but we will also severely punish the pawns of the villain. The priority is strengthening penalties and punishments, and for anyone who steals our information, even though they are far away, we shall punish them!" it said.

    Google has already had problems in China this week. On Monday, a China censorship watchdog said Google services were being disrupted ahead of Wednesday's 25th anniversary of the 1989 crackdown on pro-democracy demonstrators around Beijing's Tiananmen Square.

    "We cannot say this more clearly - the (US) government does not have access to Google servers - not directly, or via a back door, or a so-called drop box," said Google Chief Legal Officer David Drummond in an emailed statement on Wednesday. "We provide user data to governments only in accordance with the law."

    Microsoft declined to provide immediate comment. Facebook, Yahoo and Cisco were not immediately available when Reuters sought comment. All of them have previously denied participating in sweeping surveillance efforts.

    Apple on Wednesday referred to its previous statements on the matter.

    "Much of what has been said isn't true. There is no back door. The government doesn't have access to our servers. They would have to cart us out in a box for that," Chief Executive Officer Tim Cook said in an April interview with ABC Television.

    Rocky time

    Facebook is currently blocked by Chinese censors but said last month it may open a sales office in China to provide more support to local advertisers who use the website to reach customers overseas.

    In December, Google, Microsoft, Apple, Facebook, Yahoo and other Internet companies issued an open letter to US President Barack Obama and Congress to reform and introduce restrictions on surveillance activities.

    Even so, US tech companies have had a rocky time in China since the NSA revelations. Just last month, central government offices were banned from installing Windows 8, Microsoft's latest operating system, on new computers.

    But the US has responded with its own measures. In May, the US Department of Justice charged five Chinese military officers with hacking US companies to steal trade secrets.

    The indictment sparked outrage in China and added urgency to Beijing's efforts to promote the development of local information technology (IT) companies.

    Chinese media called the United States "a high-level hooligan" and officials accused Washington of applying "double standards" on issues of cyber spying.

    After the charges were announced, China said it will investigate providers of important IT products and services to protect "national security" and "economic and social development."

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