China's average housing prices fell in July for the third consecutive month, with the decline picking up pace, indicating that the prospects for the housing sector remain grim.

Property developers are under pressure to sell homes quickly amid a supply glut, and have continued to cut prices to lure customers. But many homebuyers remain uncertain and are still waiting on the sidelines in anticipation of further price cuts, data provider China Real Estate Index System said Thursday.

According to a survey of 100 Chinese cities, average new home prices fell 0.8 per cent in July from June, declining faster compared with the 0.5 per cent fall in June and 0.3 per cent decline in May, according to China Real Estate Index System. May's decline was the first month-to-month drop since June 2012.

Out of the 100 cities surveyed, 76 showed a decline in home prices, up from 71 in June.

From a year earlier, average new-home prices rose 4.72 per cent in July, decelerating from 6.48 per cent in June, the survey said.

The latest data come as some local governments started to ease property curbs to boost sales, while some banks are reportedly offering discounts on mortgages to first-time home buyers. Restrictions on home purchases in the larger cities in East China such as Hangzhou, Suzhou and Ningbo were eased in recent weeks.

"In the second half, there could be a short-term rebound in the property market as more cities announce loosening in home purchase restrictions," said analysts at China Real Estate Index System. While the policy easing won't be able to solve the current supply glut problem, it has stabilized expectations to a certain extent, they added.

"In the short term, China can't avoid a correction in housing prices," said a report issued by the Chinese Academy of Social Sciences, a government think tank, earlier this week. The reported highlighted that the country's housing market faces high inventories and high vacancy rates, and that prices may take about two to three years to adjust to the mismatch between demand and supply.

Home prices in China's largest cities also declined. In Beijing, home prices slid 1.6 per cent in July from June and in Shanghai, they fell 0.5 per cent.

In a separate survey of 288 Chinese cities also released Thursday, home prices fell by 0.13 per cent in July from June, when they fell 0.06 per cent, according to another data provider China Real Estate Information Corp.

Many economists and analysts have pointed out that the current downturn in China's housing market poses the biggest downside risk to the economy as its weaknesses could spill over to other sectors such as construction, machinery and metals.

China's government had deliberately put on the brakes on the housing market since 2010, clamping down on credit available to builders and investors to rein in speculative purchases that had fueled unsustainable growth in home prices.

Tightened credit in the housing market posed "significant challenges" to sales in third tier cities, property developer China Overseas Grand Oceans Group Ltd. said in its interim earnings report Thursday. The state-backed firm reported a 23.2 per cent decline in operating profit in the first half this year, but still gave an upbeat outlook for the country's housing market, saying that the country's ongoing urbanization process will continue to drive demand for homes.

Housing sales fell 9.2 per cent in the first half of this year to US$412 billion compared with the same period a year earlier, according to data from the National Bureau of Statistics.

Alibaba Group said Thursday that it hired Google Inc. veteran Jane Penner as the head of its investor-relations operations.

The move comes as Alibaba prepares for its much-hyped stock market debut in the U.S., which is expected in September.

"Jane is an experienced investor-relations professional with strong knowledge of the technology sector and a proven record of building investor trust internationally," Alibaba Chief Financial Officer Maggie Wu said in a news release. "Jane's appointment is part of our broader focus on building a long-term business for the future, and her expertise will be especially important to Alibaba as our company enters this new and exciting phase."

Ms. Penner will take over her position at the Chinese e-commerce giant Aug. 11, and she will be based in San Francisco, Alibaba said.

The executive is leaving her job at Google, which she joined in 2008 from Bear Stearns Cos., the Wall Street firm that melted down just before the financial-system crisis took hold later that year.

Alibaba, which is led by founder and Executive Chairman Jack Ma, has been making a series of big moves, including acquisitions, which have contributed to a delay in its initial public offering process, The Wall Street Journal reported two weeks ago. The listing could raise more than $20 billion.

The company had also been in discussions with the U.S. Securities and Exchange Commission over its IPO paperwork, according to the Journal.

China’s official manufacturing purchasing managers' index (PMI) for July has risen to 51.7 from 51 a month earlier. 

The official figure confirms the recovery reflected in the HSBC flash PMI last week and has beaten the median expectation of analysts surveyed by Bloomberg of 51. 

A reading above 50 on the survey points to expansion, while a reading below 50 indicates contraction.

HSBC China manufacturing PMI has risen to 51.7 in July, an 18-month high, from a reading of 50.7 a month earlier.

Qu Hongbin, the bank's economist in Hong Kong, said the Chinese economy is “improving sequentially” and had registered "across-the-board improvement compared to June."

"Policy makers are continuing with targeted easing in recent weeks and we expect the cumulative impact of these measures to filter through in the next few months and help consolidate the recovery," he added in a statement accompanying the data.

HSBC’s index measures the activity level of small and medium sized manufacturers. And the official PMI focuses on large state-owned enterprises.  

Today’s better than expected PMI reading suggests that manufacturing sector is being supported by more robust foreign demand as well as state-led infrastructure investment and other targeted stimulus measures, according to Julian Evans-Pritchard of Capital Economics.

Chinese President Xi Jinping has just returned from his second state visit to Latin America, having achieved what no other leader could. His dash through Argentina, Brazil, Venezuela, and Cuba has breathed new life into the four struggling economies, while securing unprecedented access to the natural resources China needs. This “win-win” exchange resembles a pattern established by Xi’s predecessor, Hu Jintao. Hu undertook no less than five state visits to the region during his presidency, and delivered China’s 2008 Policy Paper on Latin America.

The policy paper paints an optimistic picture of comprehensive Sino-Latin cooperation. In reality, though, the relationship has focused rather narrowly on trade, and not always to the latter’s advantage. Over 90% of the region’s exports to China are natural resources, such as crude oil, iron ore, copper, and soybeans.

By contrast, around 70% of China’s exports to Latin America are manufactured goods. This exchange has seen two-way trade skyrocket from US$13 billion in 2000 to US$260 billion in 2013, buoying Latin American economies through the GFC. But Latin commentators complain that China has “kicked away the ladder” under their attempts to climb value chains and sustain manufacturing industries. The exchange appears to have been less “win-win” than it may seem, at least until now.

Keen to invest in infrastructure

The main difference between Xi’s visit and those of his predecessor is its focus on a specific set of Chinese infrastructure investments. In 2004 Hu promised that China would invest $100 billion in the region within a decade, but no specific projects were earmarked and years of stagnation bred intense cynicism. The finance finally began to flow in 2010, but its narrow focus on Brazilian and Venezuelan oil extraction (amounting to nearly $40 billion) dashed hopes of Chinese support for broader economic development in the region.

Last week China signed an agreement to invest $8.6 billion in Brazil, including a railway to transport iron ore and soybeans to Peru’s Pacific coast. Argentina is to receive $7.5 billion, largely for hydroelectricity and railways to improve access to its expanding soybean plantations. Some $4 billion will go to oil production in Venezuela, and an unspecified sum to renewable energy, agriculture, and port development in Cuba.

Xi also attended the sixth BRICs summit in Fortaleza, which established the New Development Bank with a $50 billion fund for further Latin American infrastructure projects. The region’s leaders have lauded the transformative potential of these investments, though many will postpone celebrations until they see the railways, roads, and ports built.

Lesson for Australia

By comparison, China invested $59 billion in Australia between 2006 and 2013, 86% of which was in mining and gas. The main insight we can glean from Xi’s Latin American tour is that China is ready to invest more broadly in infrastructure, especially if associated with agricultural production. This agenda is propelled by the nutritional demands of a projected one billion Chinese city dwellers by 2025, and public anxiety about the safety of food produced in China.

Both in quantity and quality, Australia’s agriculture and food industry is well placed to service China’s growing demand. However, since colonial times, the lack of roads, railways, and irrigation has frustrated attempts to unlock the agricultural potential of the Northern Territory, Australia’s final food frontier.

Xi’s Latin American tour signals that the time is right to assess how Chinese investment could help to solve this problem. From basic infrastructure and irrigation to food processing, canning, and packaging, new opportunities are emerging to steer Chinese investment into value-adding sectors.

To grasp these opportunities will require closer engagement with China to identify mutual interests, dialogue with Latin America about managing large Chinese infrastructure investments, and critically, more sophisticated debate at home about our relationship with China.

Adrian Hearn receives funding from the Australian Research Council Future Fellowship scheme

This article was originally published on The Conversation. Read the original article.

China's official non-manufacturing purchasing managers' index fell to 54.2 in July from 55.0 in June, data from the China Federation of Logistics and Purchasing showed. 

The subindex for services fell to 53.2 from 53.5 in June and the subindex for construction fell to 58.2 from 60.6, the federation said in a news release Sunday. 

The new orders subindex for the entire sector was unchanged at 50.7. 

The federation's official manufacturing PMI rose to 51.7 in July from 51.0 in June, it said Friday. 

A reading above 50 indicates month-over-month expansion while a reading below that figure indicates contraction. The non-manufacturing PMI covers services including retail, aviation and software as well as real estate and construction. 

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

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

Chinese Premier Li Keqiang's decision to release the urban unemployment rate collected by the National Bureau of Statistics using internationally acceptable methods is a step towards greater transparency. But China’s jobless rate is something of a mystery.

Though Beijing regularly publishes the unemployment rate -- its economic growth target of 7.5 per cent is closely tied to this figure -- the data fails to accurately capture the true state of the job market. The official rate has been hovering around 4 per cent, even during the global financial crisis when there were many redundancies.

The Chinese government publishes the so-called ‘urban registered unemployment rate' using the number of unemployed city dwellers who are registered with local bureaus of the Ministry of Human Resources and Social Security. The rate was 4.08 during the second quarter of 2014, the same as the first quarter, according to the ministry.

China’s urban registered unemployment rate figure suffers from several weaknesses. It excludes rural workers, migrant workers in city and unregistered unemployed workers. It does not use an internationally acceptable method of conducting surveys at regular intervals to determine the jobless rate. The rate is only published once every three months, making it difficult for people to keep abreast of the trend.

Though China’s National Bureau of Statistics has been conducting regular surveys of unemployed people since 1995, these figures are only available to the country’s top economic policy planner (the National Development and Reform Commission) and some other ministries, according to Caixin media.

The reason that China has been reluctant to publish unemployment rate using an internationally acceptable survey method is due to persistent internal debate over methodology. For example, statisticians have argued about whether to include migrant workers in their sample pool, according to Zheng Chewei, a research fellow from the Institute of Population and Labour Economics at the Chinese Academy of Social Sciences.    

Many analysts and economists suspect China’s unemployment rate is higher than the official figure. At the end of last month, people’s long-held suspicions were confirmed when the National Development Reform Commission inadvertently released the unemployment rate on its website, but it was swiftly deleted.

According to the deleted data, China’s urban unemployment rate was 5.05 per cent during June, considerably higher than the reported average of 4.1 per cent for the last three years. Soon after the leaked data was made public, Chinese premier Li Keqiang said China would publish unemployment rates for big cities at ‘an appropriate time” to better reflect the country’s job market.

Maintaining a stable job market is arguably one of the most important economic objectives for China, which is undergoing painful structural change. Premier Li said the goal of 7.5 per cent was flexible, and the minimum growth rate acceptable to the government must guarantee sufficient employment.

Chinese finance minister Lou Jiwei also emphasised back in March that “it does not matter whether the GDP grows faster than 7.5 per cent or below 7.5 per cent. What it matters is employment,” he said.

In 2014, Beijing needs to find jobs for 10 million new jobseekers in cities as well as for six million people in countryside. Given the country’s structural transformation, the transparency of Beijing’s data has never been more important in ensuring prosperity and future growth. 

International public relations firm Edelman said it didn't know the whereabouts of its China chief, a week after saying he had been helping authorities with an investigation into one of its subsidiaries.

Chinese authorities visited the offices of the Edelman arm, Pegasus Public Relations Consulting, seeking help with an unspecified investigation on July 24, according to Edelman. China Chief Executive Steven Cao was cooperating with authorities, the company said at the time.

On Friday the company said it didn't know where Mr. Cao was. "We have not been in contact with Steven, so we don't have any further information about Steven's whereabouts," it said in an emailed statement.

Edelman didn't disclose additional information about Mr. Cao's status. He couldn't be reached for comment.

In early July, when a former Edelman business partner, a news anchor for China's powerful state broadcaster named Rui Chenggang, was detained by authorities.

Mr. Rui was a co-founder, along with Mr. Cao, of Pegasus Public Relations Consulting Ltd., which was acquired by Edelman in 2007. Shortly after Mr. Rui was taken away, Edelman released a statement saying the TV host was still a shareholder in the company when it was brought on to help China Central Television at the World Economic Forum in Davos in 2009. Mr. Rui sold his remaining stake in Pegasus to Mr. Cao in 2010, according to Edelman

Mr. Rui couldn't be reached.

Known for his manicured style, fluent English and nationalistic politics, Mr. Rui is one of several senior figures at the state broadcaster's finance news channel, CCTV-2, to be detained in the past couple months.

An official at CCTV as well as state media have said the channel is being investigated for corruption. It comes amid the Chinese government's broader crackdown on corruption, which the country's leaders have acknowledged threatens their hold on power.

CCTV has repeatedly declined to comment on Mr. Rui, the relationship with Pegasus and the investigation.

Edelman has described Mr. Rui's role in Pegasus as "a minority, nonactive investor" at the time of the acquisition.

The association with such a high-profile target of President Xi Jinping's anticorruption campaign could nevertheless hurt Edelman in China, where it is one of only a few foreign public relations firms to build up a significant presence, according to analysts.

Edelman said its operations in China haven't been affected by the investigation.

"For now, senior China management is overseeing operations at the company, and business in the country is running as usual," it said on Friday.

Over nearly four years, banks courted China's Tianhe Chemicals Group, hoping to get a piece of the company's expected initial public offering.

During that time, three of those banks hired Joyce Wei, the daughter of the company's chief executive.

The hiring of well-connected Chinese by banks seeking their business came under regulatory scrutiny last year, and Ms. Wei's employment became part of internal investigations at two of the banks, according to people familiar with the matter. All three banks worked for Tianhe at different stages of the IPO process.

When Tianhe finally went public, in a $654 million IPO that was one of the biggest in Hong Kong this year, two of the banks that hired Ms. Wei, UBS AG and Investec, worked on the deal. The third, J.P. Morgan Chase & Co., walked away from the IPO after U.S. regulators began investigating the bank for hiring the children of powerful Chinese. Ms. Wei still works at UBS, the last bank to hire her.

The U.S. probe is based on a law barring bribery involving government officials or heads of state-owned firms, and thus wouldn't apply to Tianhe, which isn't owned by the Chinese government. Nevertheless, the probe has prompted banks to look more closely at a number of hiring decisions, industry insiders say.

Regulators in Hong Kong, whose anticorruption law extends to the private sector, have been monitoring the U.S. investigation and have been asking banks about their hiring practices, these people say. People familiar with the matter told The Wall Street Journal in January that J.P. Morgan had stepped back from the deal to avoid scrutiny over Ms. Wei's hiring.

Conversations with people close to the matter and a number of emails seen by The Wall Street Journal outline how Tianhe's preparations for its IPO and Ms. Wei's employment by the three banks intersected.

J.P. Morgan initially called its program to shepherd connected hires "sons and daughters," according to people familiar with the matter. But its hiring of Ms. Wei proved costly. It bowed to demands from Ms. Wei and her family for more money and perks, according to internal bank emails. Two years into her employment, the bank put her on a performance-improvement program.

As she was being recruited, a J.P. Morgan banker was asked internally whether Ms. Wei's hiring was part of any agreement to secure business for the bank. "Yes, effectively," the banker responded in an email.

There is no indication that the banks' hiring of Ms. Wei--the daughter of Tianhe Chief Executive Wei Xuan and the niece of Tianhe Chairman Wei Qi--is under investigation by regulators.

Tianhe said that the banks were selected fairly and transparently, and that its IPO business was never linked to Ms. Wei's employment.

"Joyce Wei is a licensed professional in the financial industry, and it is normal for her to work in such industry," the company added. Ms. Wei completed her M.B.A. and other degrees in Australia in 2010.

Ms. Wei didn't respond to requests for comment.

Ambrose Lam, chief executive and country head of Hong Kong and China at Investec Capital Asia Ltd., the first of the banks to hire Ms. Wei, said, "There was no connection with [Ms. Wei] and getting an underwriting role."

Investec, which is listed in the U.K. and South Africa, said it employed Ms. Wei as an intern in late 2010. The bank invested a total of $67 million in Tianhe in the form of loans that year, and the loans were converted to a 6.5% stake in the company before the IPO.

Tianhe, based in northeastern China, makes specialty chemicals for clients including the country's giant state-owned energy companies. On its website, Tianhe quotes English romantic poet William Blake to describe its goals and says its theme song "presents the indomitable spirit and moral standards of Tianhe people to the world."

As Ms. Wei started at Investec, J.P. Morgan was fighting to win a role in Tianhe's IPO, which initially was planned for London. "The competition is getting very intense and we need to work every angle," Chris Hsieh, one of the J.P. Morgan bankers courting Tianhe wrote in an internal email.

One of those angles, the emails between bank executives show, was Ms. Wei. In a telephone call described in the emails, Fang Fang, then chief executive of J.P. Morgan's investment bank in China, told Ms. Wei's father that the bank was "impressed" with Ms. Wei and said, "We'd love to talk to her a bit more about what J.P. Morgan can offer as the ideal place to launch her career."

Mr. Fang is under investigation by Hong Kong authorities for his role in J.P. Morgan's hiring practices and has left the bank, people familiar with the matter said. Mr. Hsieh was a managing director at J.P. Morgan and has since moved to Goldman Sachs Group Inc. in Hong Kong. He declined to comment.

As Ms. Wei was being interviewed at J.P. Morgan, a banker involved in her hiring said in an email that the human-resources department wouldn't finalize the hire until "we have secured the deal." It isn't clear from the email whether this refers to the IPO or something else. In response to a question from the bank's compliance department, a different banker said in an email that the hiring wasn't linked to winning business.

The emails show that J.P. Morgan sent Ms. Wei a one-year contract, but she and her family sought a better deal, saying she had competing offers from other banks. J.P. Morgan raised her salary, and Ms. Wei signed on.

Days after Ms. Wei started work in April 2011, the emails indicate, she complained to the bank that she wasn't getting a housing stipend and a bonus as other associates did. A Mr. Wei separately told J.P. Morgan that Ms. Wei would leave the bank for one of its competitors, according to the emails, which indicate Mr. Wei was either her father or her uncle, but leave unclear which.

Mr. Hsieh urged J.P. Morgan to meet those demands, believing that Ms. Wei's departure would "have material impact to our role and economics," according to an email.

Again, J.P. Morgan acquiesced to Ms. Wei's demands. Within months of her hiring, it had given her another raise, a housing stipend and a permanent contract, the emails indicate.

The bank had thought it would be the sole underwriter on the IPO, the emails showed, but while negotiating Ms. Wei's benefits, it had indications that Tianhe had hired three additional banks to run its IPO, cutting J.P. Morgan's potential fees.

"Beautiful--can we return the candidate to sender, maybe rotate amongst the 4 banks," another J.P. Morgan banker wrote. Tianhe ultimately gave up on a London IPO but still planned to list its shares in Hong Kong.

Ms. Wei received mixed performance reviews, getting praise for her language and communication skills and positive attitude but criticism for lack of attention to detail and poor industry knowledge, according to people familiar with the matter. "The associate we hired for you, Joyce Wei--can we make her do some real work or is she a protected species?" a colleague asked Mr. Hsieh in February 2012, according to the emails.

In July 2013, two years after Ms. Wei joined the firm, J.P. Morgan placed her on a performance-improvement plan, according to people familiar with the matter. Ms. Wei resigned from J.P. Morgan last Aug. 23.

The move came two weeks after J.P. Morgan disclosed that U.S. regulators were probing its hiring practices in Asia.

There is no indication the two events were related.

Around this period, UBS was told informally by Tianhe that it would be hired to work on the IPO, according to people familiar with the matter.

Ms. Wei was hired by UBS in October. This January, the Swiss bank was officially hired to work on the IPO, according to Tianhe's listing prospectus.

In February, UBS began investigating how Ms. Wei was hired, people familiar with the matter said. The bank suspended Joseph Chee, the head of global capital markets in Asia, and a colleague, Sharlyn Wu, an executive director, according to people familiar with the matter. The internal probe at the Swiss bank focused on the process of hiring Ms. Wei rather than whether she was qualified for the job, a person familiar with the matter said.

Mr. Chee was later reinstated and had a central role in preparing Tianhe's IPO, according to people familiar with the matter. Ms. Wu left the bank.

In June, Tianhe's $654 million Hong Kong IPO was led by UBS, Bank of America Merrill Lynch and Morgan Stanley, which had invested $300 million in Tianhe in March 2012. Investec, which retains most of its stake in Tianhe, played a lesser role as a book runner.

All banks involved earned a commission equal to 2% of the IPO proceeds, while the three lead banks received an additional $2.7 million in fees, according to the prospectus.

Since its listing, Tianhe's shares are up 36.3% to 2.44 Hong Kong dollars (31 U.S. cents) as of Friday, compared with a 7% increase in the Hang Seng China Enterprises Index over the same period.

A strong earthquake in southern China's Yunnan province toppled thousands of homes on Sunday, killing at least 367 people and injuring more than 1,800.

About 12,000 homes collapsed in Ludian, a densely populated county located around 366 kilometers (277 miles) northeast of Yunnan's capital, Kunming, China's official Xinhua News Agency reported.

The magnitude-6.1 quake struck at 4:30 p.m. at a depth of 10 kilometers (6 miles), according to the U.S. Geological Survey. Its epicenter was in Longtoushan township, 23 kilometers (14 miles) southwest of the city of Zhaotong, the Ludian county seat.

Ma Liya, a resident of Zhaotong, told Xinhua that the streets there were like a "battlefield after bombardment." She added that her neighbor's house, a new two-story building, had toppled, and said the quake was far worse than one that struck the area in 2012 and killed 81 people.

"The aftermath is much, much worse than what happened after the quake two years ago," Ma said. "I have never felt such strong tremors before. What I can see are all ruins."

Xinhua said at least 367 people were killed in the quake, with 1,881 injured.

News reports said rescuers were still trying to reach victims in more remote towns Sunday night.

Photos on Weibo, China's Twitter-like social media site, showed rescuers searching through flattened buildings and people injured amid toppled bricks.

U.N. Secretary-General Ban Ki-moon offered "his condolences to the Chinese Government and the families of those killed," according to a statement from his office. The statement said the U.N. is ready to "lend its assistance to efforts to respond to humanitarian needs" and "to mobilize any international support needed."

Many of the homes that collapsed in Ludian, which has a population of about 429,000, were old and made of brick, Xinhua said, adding that electricity and telecommunications were cut off in the county.

The mountainous region where the quake occurred is largely agricultural, with farming and mining the top industries, and is prone to earthquakes.

Relief efforts were underway, with more than 2,500 troops dispatched to the disaster region, Xinhua said. The Red Cross Society of China allocated quilts, jackets and tents for those made homeless by the quake, while Red Cross branches in Hong Kong, Macau and neighboring Sichuan province also sent relief supplies.

Chinese state broadcaster CCTV said the quake was the strongest to hit Yunnan in 14 years.

In 1970, a magnitude-7.7 earthquake in Yunnan killed at least 15,000 people, and a magnitude-7.1 quake in the province killed more than 1,400 in 1974. In September 2012, 81 people died and 821 were injured in a series of quakes in the Yunnan region.

In May 2008, a powerful quake in Sichuan province left nearly 90,000 people dead or missing.

The death toll from an explosion at a Taiwan-invested car parts factory in China has reached 69.

The blast on Saturday in a wheel hub polishing workshop at the Zhongrong Metal Products Co. in Kunshan, near Shanghai, also left nearly 200 injured, state television said, many with severe burns.

The force of the explosion caused metal siding on the factory building to peel back, AFP journalists saw, while state television showed broken machinery and smashed windows.

Kunshan's mayor Lu Jun on Saturday classified the incident as a "serious" industrial accident which a preliminary investigation showed was caused by the ignition of powder or dust from the production process.

Authorities have detained two company officials, the official Xinhua news agency said, but did not name them.

The firm makes parts for car companies including US giant General Motors (GM).

China has a dismal industrial safety record as some owners evade regulations to save money and pay off corrupt officials to look the other way.

US-based China Labour Watch, a workers' rights group, said proper measures could have prevented the accident.

"Safety measures like ventilation systems should have prevented such accumulation of dust particles. This tragedy is a result of lax safety standards in the workplace," it said in a statement.

Dust suspended in the air in the right concentration can cause explosions, according to safety experts, with even materials that do not normally burn in larger pieces becoming explosive in certain conditions.

Kunshan, in the eastern province of Jiangsu and known as a centre for Taiwanese investment in China, was unable to handle the number of burn victims with more than 130 of them sent to hospitals in surrounding areas including Shanghai.

Zhongrong was a contractor for a global supplier of GM, Dicastal, though the US company did not have direct contact with it, GM said in a statement provided to AFP on Sunday.

Chinese state media released a detailed casualty count Sunday for last week's violence in the western province of Xinjiang, with 37 people and 59 attackers killed in the deadliest unrest in months that authorities blame on ethnic separatists.

The official Xinhua News Agency, which had previously said only dozens were killed, reported that attackers armed with knives and axes stormed a police station and government offices in Elixku township last Monday and then moved onto nearby Huangdi township. The agency said 13 people were injured and 215 attackers arrested, and that the dead civilians included 35 Han ethnic majority members and two Uighurs.

The earlier official account was immediately disputed by the U.S.-based Uyghur American Association, which represents the prevalent ethnic group in Xinjiang. It quoted local sources as saying police opened fire on people protesting Chinese security forces' crackdown on Muslims during Ramadan, killing more than 20.

Neither version could be independently verified.

Xinhua's Sunday report said the attackers had set up roadblocks, slashed at some passengers and forced others to join the attack. Xinhua named the mastermind behind the violence as Nuramat Sawut, whom the agency said is connected to the East Turkestan Islamic Movement. China designates the group as a terrorist organization.

Violence has erupted repeatedly over the past year in Xinjiang as Uighurs bristle under what they say is heavy-handed Chinese policies.

On Friday, police shot dead nine suspects and captured another in Hotan prefecture, two days after Jume Tahir, the imam of China's largest mosque, was killed in Xinjiang, Xinhua reported. In May, attackers in SUVs plowed through a crowd while hurling explosives in the provincial capital of Urumqi, killing 45 people.

Rioting involving both Uighurs and Han Chinese in 2009 left nearly 200 people dead in the region.

China has excluded US-based Symantec and Russia's Kaspersky Lab from a security software supplier list, according to Chinese state media reports.

The five remaining anti-virus software providers on the list — Qihoo 360 Technology Co, Venustech, CAJinchen, Beijing Jiangmin and Rising — are now all Chinese, Official Chinese Communist Party mouthpiece The People’s Daily reported yesterday.

Chinese authorities have stepped up their scrutiny of foreign companies in recent months in what appears to be part of a concerted campaign to limit the use foreign IT products and services.

Last week, China's anti-monopoly agency announced an investigation into US tech giant Microsoft for allegedly operating a monopoly.

That followed an announcement in May this year that Microsoft’s Windows 8 operating system would be banned from all new government computers.

Qualcomm, one of the world’s biggest mobile chipmakers is also being investigated for allegedly using monopoly power in setting its licensing fees.

The increased scrutiny may be connected to a US decision in earlier in May to indict five Chinese military officials on cyber spying charges.

China’s State Internet Information Office  announced in May that it would be placing more stringent checks on IT products and services on the mainland.

The People’s Daily emphasised that the latest decision to exclude Symantec and Kaspersky was not related to allegations by former US intelligence contractor Edward Snowden of snooping by  the US National Security Agency.

East Asia Forum

The experience that Chinese leaders gain in domestic politics has a big impact on how they view and handle international issues. Many China watchers and political analysts often overlook these domestic roots of Chinese foreign policy, particularly in China’s push to reform the international financial system.

The announcement of the establishment of a BRICS Development Bank on 15 July, at the sixth BRICS summit in Brazil, represents an important victory in China’s campaign to reform the world’s financial system and acquire more influence in international institutions. This success comes on the back of persistent Chinese pressure on the West, following the global financial crisis, to allow emerging economies to have a bigger presence in the financial system.

However, analysts are mistaken to frame this quest for greater influence as purely a function of Chinese foreign policy interests. In effect, both the BRICS Development Bank and the broader strategy it complements are rooted in the domestic concerns of reform-minded leaders of the Chinese Communist Party.

Despite its centralised political system, China’s economic reforms were never an easy process and reformers usually met severe resistance from vested interests. When fierce resistance by interest groups threatens or defers policy implementation, Chinese leaders adopt a different tack — leveraging power from an external force or simply creating, directly or by proxy, another similar institution to compete with and put pressure on the existing one to press for change. For example, when reform was mooted for state-owned enterprises (SOEs) there was strong intra-party opposition. Then premier Zhu Rongji, a reformist, responded by promoting China’s accession to the World Trade Organization to attract multinational national corporations to China to compete with SOEs. Ultimately, the SOEs had no choice but to acquiesce to reform.

The same phenomenon is at play in China’s attempts to reform the international financial system. As it emerges as the world’s second largest economy, China sees the World Bank, International Monetary Fund (IMF) and Asian Development Bank (ADB) as no longer reflecting its size and international standing. By partnering with other emerging economies, such as India and Brazil, China actively seeks to demand a commensurate increase in voting rights in the two Bretton Woods institutions (the World Bank and the IMF) at the G20 Summit and other international conferences.

Despite a few amendments, China’s voting share in the World Bank and IMF remains below 5 per cent, which is about a quarter of the US share and only slightly more than half that of Japan. Moreover, in the ADB, the United States and Japan hold the two largest proportions of shares with 12.78 per cent each, while China holds only 5.45 per cent. Chinese frustration is further compounded by the fact that its economy is approximately 1.9 times larger than Japan, which has also handpicked every ADB governor since its inception in 1966.

China became more assertive and less patient in the international arena when Xi Jinping took charge in November 2012. This can be seen in China’s efforts in reshaping the international financial system. Under Xi’s proposed ‘Chinese dream’, China as a major emerging power will no longer passively accept the reform impasse in existing organisations that are dominated by the established economies of the West. That the present system is unlikely to accommodate China was evidenced by the refusal of the US Congress to ratify an IMF reform package.

In response to this situation, and replicating its domestic reform strategy, the Chinese government has worked to set up parallel international institutions to rival the existing Bretton Woods framework and the ADB. To drive this process, President Xi picked Finance Minister Lou Jiwei, who steered the founding of the Chinese sovereign wealth fund, the China Investment Corporation (CIC). The creation of the New Development Bank, and the Contingent Reserve Arrangement, is indicative of this broader strategy and a milestone of Xi’s proactive foreign policy.

It will not be the last.

Lou has indicated clearly that China is committed to creating the Asian Infrastructure Investment Bank (AIIB). The bank is expected to come online with a mandate to challenge the Japan-led Asian Development Bank and thereby craft the Asian financial markets and regional politics in its own image.

That said, China’s motivation to create the BRICS Development Bank and the AIIB is not exclusively aimed at pressing the West and Japan to reform international institutions. China also has substantial interests in spending its oversized US$3.9 trillion in foreign reserves, internationalising the renminbi and securing contracts for its own companies while expanding its political and financial clout. Like many countries, Chinese leaders perceive foreign policy as an extension of their own domestic affairs.

Yizhe Daniel Xie is a graduate student at Graduate School of Asia Pacific Studies, Waseda University in Tokyo and a special correspondent of Yazhou Zhoukan. Previously he worked at Goldman Sachs in Beijing and IBK Securities (Industrial Bank of Korea) in Seoul.

He thanks Tiago Mauricio, a WSD-Handa non-resident fellow at Pacific Forum, CSIS, for his support and comments.

This article originally appeared on the East Asia Forum. Republished with permission.

The Conversation

In what might be termed “fusion finance”, a Chinese private equity company, Hony Capital, has purchased UK restaurant chain Pizza Express for £900m last month.

This isn’t the first time a Chinese firm has bought up a familiar high street brand, and it certainly won’t be the last. After years of selling goods to the rest of the world, the country’s private sector has accumulated significant wealth. This wealth has to go somewhere and much of it is flowing back overseas. It’s quite difficult to provide a dining experience for hungry Londoners from a factory in Tianjin; you can solve that problem by buying a pizza company in the UK.

The chart below shows the trend. After two decades of growth the inflow of foreign capital to China has remained relatively constant since 2010. During the same years investment abroad by Chinese companies, almost all of them privately owned, nearly doubled. The Economist even predicts that in 2015 Chinese investment in the rest of the world will surpass what the world invests in China.

Where does this outward capital flow go? Since the investment really started flowing nine years ago the two largest recipients, by a long shot, have been Australia and the US, driven by investments in mining and financial assets respectively. Rumour has it that Chinese capital has its eye on mega-properties in New York City and has become the largest foreign property speculator in Manhattan.

After Canada and its shale oil comes the UK. The roll call of British companies with partial Chinese ownership includes several household names such as Barclay’s Bank (Chinese capital holds 3%), BP (if you consider it British, 1%) and Thames Water (9%). We find more serious ownership shares in Weetabix (60%), and three energy companies, Talisman (49%), Emerald (100%) and Petroineos (50%).

As a country’s economic power grows, its companies increasingly grow through purchasing pre-existing assets through “takeovers”. Chinese capital is no exception. Over the past six years, Chinese companies raked in a net US$130 billion in assets through mergers and acquisitions (M&A in the jargon), and the Pizza Express deal is just a tiny slice of this.

Chinese companies have been able to buy up these foreign assets due to the country’s massive export surplus. The popular explanation for how it sustains such a huge surplus year-in, year-out is “cheap labour” – Chinese workers earn far less than workers in North America, Japan and Europe. But if that theory is correct, why does Germany have an even larger trade surplus (about US$270 billion)?

There is another explanation that I discuss in my book Economics of the 1%, and it applies to both countries. The two governments consider maximising net exports as the key to their economic growth, and other considerations take a back seat. I have demonstrated in detail how this idea, known as mercantilism, is behind Germany’s economic policy (and I am not alone ).

The same issue applies in China, where the trade surplus remains deliberately huge. This will mean more cash for Chinese firms and, eventually, more of your local high street will be owned in Beijing.

This article was amended on July 24 to remove a reference to INEOS being 50% Chinese-owned. Refining business Petroineos is a joint venture between INEOS and PetroChina. INEOS itself has no Chinese shareholding.

John Weeks does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.

This article was originally published on The Conversation. Read the original article.

China is using its six-year-old antimonopoly law to put foreign businesses under increasing pressure, a development that experts say will intensify as Beijing seeks greater sway over the prices paid by its companies and consumers.

In recent months, Chinese antitrust officials have launched probes of companies ranging from car makers Audi AG and Daimler AG's Mercedes-Benz to technology firms Microsoft Corp. and Qualcomm Inc., although they haven't always disclosed what they are investigating.

On Monday, Chinese officials gave Microsoft another slap, warning it not to hinder their investigation. A spokeswoman for Microsoft declined to comment.

Experts say China is responding to greater awareness that the prices its people and companies pay for goods from foreign companies are often higher than those in other markets. Chinese consumers pay around $470 for the cheapest version of an iPad Mini with Retina display, for instance, while U.S. consumers can buy one for $399.

Spare car parts are also pricier than they would be in other countries such as Germany, where consumers often buy them from cheaper components suppliers, since in China many car companies insist the parts be sold only through authorized dealers. Prices for those authorized parts in China can be five to 10 times more expensive than if customers were to procure them through nonauthorized channels, estimates Yale Zhang, managing director of consultancy Automotive Foresight.

Some foreign companies cite rising costs for property as the excuse for higher pricing. Some goods are slapped with import and luxury taxes.

Officials "feel Chinese consumers are being exploited," said Marc Waha, a Hong Kong-based partner at law firm Norton Rose.

The greater scrutiny, particularly over the past year, stems in part from the increasing number of Chinese who go abroad and see what people pay elsewhere. Chinese state media reports have criticized Starbucks Corp. and luxury auto makers for the prices they charge in China. Starbucks says high real-estate costs are a factor, while imported luxury cars also face hefty import duties.

Targets in many cases are foreign companies with a commanding presence in their markets who lack direct Chinese competitors.

But Mr. Waha said Chinese companies stand to benefit. For example, companies such as Huawei Technologies Co., which is seeking to sell more smartphones abroad, would benefit from lower prices for Qualcomm's chips, as would state-owned telecommunications companies building out China's fourth-generation, or 4G, cellular network.

"Those lodging the complaints are the Chinese businesses," said Mr. Waha.

A Huawei spokeswoman declined to comment.

U.S. businesses have complained they are being unfairly targeted. The U.S. Chamber of Commerce in May sent a letter to U.S. Treasury Secretary Jacob Lew and Secretary of State John Kerry that cited rising concerns over China's antitrust efforts.

Spokesmen for China's National Development and Reform Commission and the Ministry of Commerce didn't respond to requests for comment Monday.

Chinese antitrust officials argue that Beijing isn't focusing just on foreign companies. In recent years, Chinese regulators have tackled cases involving alleged antitrust activity in the market for a fiery Chinese liquor known as moutai as well as in cement. Not even the best-connected state-owned enterprises have escaped scrutiny: Officials have looked at the hold that telecom titans China Unicom (Hong Kong) Ltd. and China Telecom Corp. have over Chinese home Internet access.

Many of the companies China is targeting have faced antitrust scrutiny elsewhere. Microsoft in years past faced accusations of antitrust violations in the U.S. and Europe. Qualcomm has contended with regulators in Europe and South Korea.

"Qualcomm and Microsoft are not being investigated because they are foreign companies," said Wang Xiaoye, a Chinese antitrust expert who advised on the creation of the antimonopoly law in 2008. "It's because they have market power."

Ms. Wang said the pressure will likely intensify as regulators and become more comfortable with increasingly complex cases.

Once targeted, industries and companies have little choice but to comply. Unlike in other markets, foreign companies can't expect much recourse from the courts, which are controlled by the Communist party.

"Despite all of the reform and progress to date, China is still a command economy driven by a political agenda that seeks to first and foremost legitimize the party in power," said James Zimmerman, former chairman of the American Chamber of Commerce China and managing partner of law firm Sheppard Mullin Richter & Hampton LLP's Beijing division.

Another challenge for foreign companies is that China enforces its antimonopoly law through three different state agencies. The Ministry of Commerce oversees mergers, while the National Development and Reform Commission, China's top economic planning body, oversees pricing issues. The third, the State Administration of Industry and Commerce, oversees nonpricing issues such as production quotas.

One recent target of antitrust probes has been China's luxury-car market, which is dominated by foreign, especially German, brands. Together, Audi, BMW and Mercedes-Benz have around 70 per cent market share.

An editorial by the official Xinhua News Agency last August said foreign car makers earned exorbitant profits by dominating the market and controlling auto-parts sales.

Many of the car makers are already responding by cutting prices. Mercedes-Benz said late Sunday it would cut the costs of spare parts sold in China by an average of 15 per cent. Last week, Audi announced price cuts for spare parts of up to 38 per cent; Tata Motors Co.'s Jaguar Land Rover PLC said it would reduce prices for three models in its portfolio.

BMW is the only brand that has still not reduced prices, although analysts expect a cut is on the way. BMW declined to comment Monday.

Other probes over the past year have covered everything from baby formula to contact lenses.

In June, China blocked an alliance between three European shipping lines, citing their potential market concentration. Experts compared it to the European Commission's 2001 move to block General Electric Co.'s proposed purchase of conglomerate Honeywell International Inc., using its own nascent antitrust laws, even though both companies were U.S.-based.

McDonald's Corp. hopes within a week to put burgers and McNuggets back on the menu in many of its China stores, two weeks after it cut ties with a Shanghai supplier that allegedly sold the chain expired meat.

The Oak Brook, Ill., company has been working with existing suppliers to increase capacity, a China-based spokeswoman for McDonald's said Monday. McDonald's had to conduct due diligence on new potential suppliers so they would fit the company's "farm-to-fork process," she said. "It takes a longer time for good reasons."

McDonald's restaurants in northern and central China have faced a shortage of hamburgers and chicken products for the past week after cutting ties with Shanghai Husi Food Co., which is owned by U.S.-based OSI Group Inc. That limited customer options to fish sandwiches, fries, pies and ice cream, though fish supplies ran out in many stores.

Chinese authorities accused Shanghai Husi of intentionally selling meat beyond its shelf life to restaurant companies. Five employees at the Shanghai unit have been detained by authorities. Shanghai Husi has apologized, said it is cooperating with authorities and promised a revamp of its China operations.

On Monday, in a Securities and Exchange Commission filing, McDonald's said that because of the issue with the supplier, businesses in China, Japan and certain other markets "are experiencing a significant negative impact to results." As a result of the China supplier issue, McDonald's global comparable sales forecast for 2014 "is now at risk," the company said.

McDonald's disclosure comes less than a week after Yum Brands Inc. said that news coverage of the supplier problem had shaken consumer confidence in China resulting in "a significant, negative impact to same-store sales at both KFC and Pizza Hut in China."

The McDonald's spokeswoman declined to say how many of the company's more than 2,000 restaurants were affected. McDonald's doesn't publicly disclose sales figures for China.

The shortage has exposed the fast-food chain's reliance on OSI, which has been a longtime partner for McDonald's in China. OSI opened its first meat-processing facility in Beijing in 1992 just to serve the fast-food company as it introduced McNuggets and Big Macs to Chinese diners.

Experts said many foreign fast-food chains have relied heavily on OSI because of its large scale, attempting to avoid working with multiple smaller suppliers, which can complicate oversight. Many have lacked contingency plans that are now coming to light.

The shortage comes as McDonald's has been attempting to boost sales in China, tweaking its menu this year to add more local items, such as rice dishes and green-tea ice cream. The chain also beefed up advertising in reaction to food-safety problems that caused sales to slump, something McDonald's executives said was the product of slowing economic growth. Industry insiders said avian-flu scares and concerns about the use of antibiotics also were factors.

McDonald's business in Japan and Hong Kong also has been affected. McDonald's Holdings Co. (Japan) Ltd. said two weeks ago it would cut all orders of chicken products from China for its Japanese outlets, saying Shanghai Husi's products made it to 10% of the company's stores in Japan. Hong Kong banned the import of food products from Husi food plants in mainland China.

Rescuers in southwest China raced against time and the threat of storms to reach survivors after a Sunday earthquake killed at least 398 people and injured 1,800 more.

The rescuers, in a mountainous region of China's Yunnan province, faced blocked roads as they moved toward the epicenter with food, water and other supplies. Rain had ceased, allowing for more supplies to be taken into the worst hit area of Longtoushan, about 14 miles (23 kilometers) to the southeast of the county seat of Ludian.

The military and volunteer groups continued to rush supplies into the quake zone late Monday night and early Tuesday, with transport authorities limiting access to private traffic and marking off express lanes at toll booths for vehicles participating in the rescue and relief effort. In Ludian, streets were lined with military transport trucks and volunteer vans draped with banners bearing relief slogans.

The official Xinhua News Agency said three people were still missing and 230,000 had been evacuated.

Footage aired by state media showed orange-clad rescuers scooping dirt away from those who were buried in a mess of bricks and wood, in some cases saving those who had been trapped for as long as 19 hours.

Some 234 people were pulled from the rubble, the government said.

The quake struck Sunday with a magnitude of 6.1, according to the U.S. Geological Survey. The China Earthquake Networks Center said the earthquake's epicenter was in Ludian county, home to about 266,000 people. Though rural, Ludian is densely populated.

Yang Si, a Ludian resident, said she and her immediate family were 16 miles away from her home when the earth began to shake. Members of her extended family were in the disaster zone when the quake struck, said Ms. Yang, who was rushing home.

"I couldn't reach my relatives by mobile phone and it seems communication has all gone down there. I haven't heard from anybody I know there," she said. "This is truly painful."

China deployed about 11,000 police and firefighters, more than 7,000 soldiers and armed police and eight planes, Xinhua said. The Ministry of Finance said that a 600 million yuan ($97 million) fund had been set aside to pay for emergency relief in Yunnan.

Premier Li Keqiang, who arrived Monday in the disaster-stricken region after trekking more than 3 miles across blocked roads, told the thousands of rescue workers at the scene to exert their energies to the fullest. "If you save one more person, you'll save the happiness of one more family," he said, in a moment captured by cameras for China's big national broadcaster.

Authorities temporarily closed off access to the quake zone Tuesday morning because off large numbers of volunteers pouring in, according to a county government official. Rock slides had blocked portions of the road, and cars were backed up for several kilometers, complicating rescue efforts, the official said.

Casualties from the quake so far have been concentrated among the elderly and the young, according to CCTV. Many of the men in the poor, agriculture-intensive area were out working. Xinhua also blamed poor building construction, as many structures were of built of brick or wood.

Mao Quan, a 24-year-old construction worker based in the provincial capital of Kunming, about 215 miles to the south, rushed home and hiked 12 hours to his home village in Ludian once the roads became impassable. He was relieved to find that his parents and brother, who still live in the village, were unharmed. But he said that most of the homes in his village had collapsed, and no water, electricity or food had reached his area.

"There aren't any relief supplies sent to our village yet, as the relief is still focusing on saving people," Mr. Mao said.

As in previous earthquakes, the rush to provide relief led to traffic accidents. Around 2 a.m. on Tuesday, one military transport vehicle crashed into the highway median, spilling bottles of water, instant noodles and other supplies across the pavement. Other relief cars continued to rush by as the driver sat bloodied by the side of the road. A banner on the side of the truck read, "Everything in service of disaster relief."

The quake was the strongest to hit the temblor-prone region in 14 years, state media said. By Monday afternoon, the official People's Daily said via its social-media account, citing local medical personnel, that most of the injured had been transferred to secure locations.

Stations offering charging facilities and the ability to make phone calls were set up Monday, along with hotlines for relatives seeking information about loved ones.

Meanwhile, the earthquake caused a landslide that in turn blocked a local river, causing serious flooding that brought down more than 50 buildings and forced many residents to flee, state media said.

The People's Daily posted photos of orange-clad rescuers taking a short break amid rubble. Other images posted by state media showed camouflage-dressed officers carrying babies and victims out on stretchers or by piggyback.

The region is prone to quakes. Xinhua said the nearby city of Zhaotong was hit by a 5.7-magnitude earthquake in September 2012, leading to 80 deaths and hundreds of injuries.

In 1974, a 7.1-magnitude quake in the city killed more than 1,400 people, it said.

The HSBC China Services Business Activity Index dropped to its lowest point since the series began in July.

The index printed at 50.0 in the month, a sharp drop from a fifteen-month high of 53.1 in June.

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

Chief economist, China and co-head of Asian economic research at HSBC, Hongbin Qu, said the result for July was the lowest such reading since the series began in November 2005.

"The weakness in the headline number likely reflects the impact of the ongoing property slowdown in many cities as property related activity, such as agencies and residential services, see less business," he said.

"Meanwhile, the employment and business sentiment indices remain stable. In the coming months, we think the service sector may get some support from the recovery in investment."

Mr Qu said today’s data shows the need for continued policy support to “offset the drag from the property correction and consolidate the economic recovery.”

The MH-17 tragedy and Moscow's behaviour in Ukraine underscore the risks of the strategies revisionist powers are deploying to subvert the status quo from Eastern Europe to the South China Sea. While these strategies are diverse in their methods and objectives, they are marked by the same central assumption: so long as the stakes are escalated gradually and without overt use of force by the revanchist state, the leading democratic powers will remain irresolute in defence of distant interests.

This assumption, however, is based on a misreading of how democratic politics interacts with security dynamics, and risks breeding a false confidence among rising powers that ignores the unnerving rapidity with which democracies can shift their security perceptions and strategic direction.

The past year has seen commentators decry the apparent success of revisionist powers in using 'salami tactics' (see Yes, Prime Minister clip above) to challenge the status quo enjoyed by Western democracies. Iterative extensions of territorial claims and increased support for proxy actors to subvert existing authority serve to gradually undercut previously frozen disputes without providing Western states an easy target in response.

Rising powers have come to perceive — correctly, in the short run — that pluralism renders democracies conflict-averse. Citizens tend to be apathetic towards distant events which appear to have little relevance to their lives. For democratic leaders, the political costs of firm action thus tend to stymie firm strategy. Such situations are clearly dangerous for democracies, since they frustrate the ability of political leaders to decisively reorient strategy to deter further aggression from revanchist powers.

Yet the situation is equally dangerous for revisionist states.

Initial successes can encourage revisionist leaders to conflate apathy among democratic publics with an unwillingness to react to perceived security threats. In doing so, they may walk blindly into actions which cross a line. Where is this line? It is difficult to specify because of the subjective nature of threat perceptions and the complex social dynamics of mass politics. Many transgressions may have no political effect, before one event interacts with a society's political imagination to generate a step-change in the collective worldview. 

For example, Germany misjudged US isolationist sentiment prior to 1917 as an aversion to war. Similarly, many in Germany were convinced that London lacked the will to follow through on its commitments to Poland in 1939. Four decades on, Argentina assumed that post-imperial Britain lacked the spine to challenge a fait accompli in the Falklands. Then in 1990, Iraq vastly underestimated the will of Washington to defend its interests in the deserts of Kuwait. 

So the risk is not that the developed democracies will march into conflict with Russia or China after some predictable accumulation of provocations. Rather, the risk lies in the fact that the complex nature of democratic popular sentiment means we cannot effectively judge the political ramifications of any given security event until we observe the way it merges with or diverts from the strategic narrative. 

The MH17 tragedy may or may not galvanize sufficient political will in democratic states to change the political calculus in Europe. But who is to say how government, media, and social perceptions will evolve, and how it will affect calls for action in, say, Britain and the Netherlands, but also attitudes towards Russia in bordering states such as Finland and Sweden which are weighing the prospects of NATO affiliation? Moreover, if Putin continues his efforts to destabilise eastern Ukraine, MH17 is unlikely to be the last tragedy with collateral damage to the West. Another such shock could tip the balance of Atlantic sentiment. 

In East Asia, the risks generated by the behaviour of the revisionist power are similar, though you wouldn't think so to read much of the commentary. Concerns are rife regarding Washington's willingness to defend its strategic position in the face of Beijing's creeping territorial aggression. Hindsight bias is strong here: there is a tendency to derive the likelihood of US reaction to the next Chinese action from its past performance. Given Washington's timid response to Chinese coercion towards the Philippines and Vietnam, commentators argue that US defence commitments to the region are in doubt.

But assessments of Washington's resolve cannot be reduced to a sum of its previous actions. Indeed, awareness of this fact is what has thus far constrained Beijing's coercion. 

The risk is that out of accident, hubris, or domestic political pressure Beijing continues to escalate confrontation in the region to the point that it results in a sustained exchange of fire and loss of life at sea between China and its neighbours, especially Japan.

Should this occur, the shift in political, economic, and media atmosphere in the US would likely render inaction impossible. The disruption to regional trade driven by skyrocketing insurance rates and fuel costs, the reverberating question of epochal challenge to US global leadership, and nationalist pressures from Congress could produce a shock to the security perceptions of the US public, constraining the president's latitude dramatically. Even if the Administration preferred to stay clear of such a conflict, the democratic context is likely to demand from the White House robust action to constrain Beijing's maritime influence. 

That crises have unpredictable effects  on public sentiment in democracies isn't a startling revelation. But it is one that revisionist powers need to grasp as they fray the boundaries of the strategic status quo.