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    Former Chinese mining magnate Liu Han has lost his appeal against the death sentence and is likely to be executed in the next few weeks.

    Liu, the former executive chairman of Hanlong Group, which still owns stakes in Australian companies Moly Mines and Sundance Resources, was found guilty of corruption, extortion and murder charges at a trial which began in April.

    The charges related to a highly-organised crime ring Liu, 51, operated in the Sichuan province for the past three decades.

    Liu, his brother Liu Wei and 34 other associates were found guilty and received a range of punishments ranging from death to nine years in jail.

    The Liu brothers appealed the death sentence on the grounds that Liu Han was one of the Sichuan province’s largest philanthropists and was not involved in organised crime.

    However, a court in the central Hubei province today ruled that the brothers will still be executed, but an exact date has yet to be set.

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    Former executive chairman of mining company likely to be executed in next few weeks.

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    Australia can be friends with both China and the United States, and should stop talking itself into a fight between the two nations, former prime minister John Howard says.

    Mr Howard said he did not share the pessimistic view that a conflict between the superpowers was inevitable.

    "Let's not imagine that China is running around looking for a fight," Mr Howard said in Perth.

    "She has far too many internal domestic problems to deal with.

    "China will assert herself. Every nation that acquires economic strength will enterprise a defence capacity to match it."

    Mr Howard said preserving good relations between the Chinese and the Americans should be the foreign policy objective of the Australian government.

    But he said the nation would always be closer to the US because of history and shared values.

    "We don't have to choose -- we can be friends with both," Mr Howard said.

    "In the end, the things that bind nations together more tightly than trade or even iron ore and coal is, of course, common values.

    "The values that we share in common with the United States are deeper than those that we have with China."

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    Former prime minister says conflict between superpowers is not inevitable.

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    Gao Shan, a former Bank of China branch manager in Harbin, lived a modest life with his wife and daughter in Vancouver, Canada. He kept a low profile in the country, keeping his name off the mortgage, car registration and utility bills.

    His identity and whereabouts were uncovered when he was involved in a car accident. Gao was soon arrested by the Canadian immigration authorities for his failure to report that he was an employee of the Bank of China. He had good reason to hide: he allegedly fled China with $180m stolen from his clients.

    What makes his case more intriguing is his carefully planned exit strategy from China. Before he fled the country, he told his co-workers that his wife was studying in Beijing and his daughter was staying with her grandmother at his hometown. But in fact, his family had secretly moved to Canada and settled in Vancouver.

    Gao is known as a ‘naked official’ in the colourful lexicon of Chinese bureaucratic speak, which means an official whose spouse and children are living overseas permanently. The so-called naked officials are often closely connected with China’s endemic corruption problem and many have either fled or are preparing to leave China with ill-gotten gains.

    The term first appeared in the Chinese media in 2008, when state prosecutors discovered a senior corrupt official was living alone in China and his wife, kid and mistresses had moved overseas. The term naked official has since become popular and even the government acknowledges it officially.

    It is not clear how many naked officials there are in China. One estimate puts that figure at 16,000 to 18,000 former officials who have fled with 800 billion yuan ($140bn), according to the Chinese Academy of Social Sciences, an influential state-affiliated think bank.

    Beijing has just concluded a comprehensive audit of naked officials in the country. All local governments apart from the coastal province of Guangdong remain conspicuously silent about the number of naked officials within their ranks. Guangdong has reported 2190 naked officials whose families are living abroad on a permanent basis.

    The career prospects of these officials are in limbo. They essentially have two choices: move their families back to China or leave their current posts. This is part of Beijing’s unprecedented crackdown on corruption.

    The crackdown could have serious consequences for Australia: of 59 publicly documented cases of naked officials who have fled overseas, seven of them ended up in Australia, including one of the most senior officials on the run, Gao Yan, a former provincial governor of Jilin, party secretary of Yunan and former chief executive of State Grid.

    Australia is clearly one of the top destinations for corrupted Chinese officials. Liu Tienan, a former vice minister of the powerful National Development and Reform Commission, the key economic planning agency was caught last year with a fake Australian passport and $2 million in cash.

    Beijing has recently announced plans to go after corrupt officials who are living overseas. This could put a strain on the China/Australia relationship.

    The Canadian experience is the best guide for Australia here: for years, Beijing has accused Canada of being a safe haven for the country’s financial fugitives. The most high profile was the case of Lai Changxing, who was an alleged smuggler and in the ‘90s was accused of a running multi-billion dollar smuggling operation, as well as bribing senior officials.

    Beijing demanded Lai’s extradition for more than a decade. It became a major headache for Canadian officials as Lai attempted to delay his return to China by dragging it through the court system. He was eventually extradited on the explicit promise that he would not be executed by Beijing. 

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    China's 'naked officials', whose families live overseas, are often closely connected with the country’s endemic corruption problem. The current crackdown is prompting many to flee to countries such as Australia with their ill-gotten gains.

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    The World Trade Organisation has upheld a ruling that China violated international trade rules with restrictions on the export of "rare earths", the minerals used in mobile phones, hybrid cars, flat-screen TVs and other high-tech products.

    In March, the WTO dispute settlement panel found that China's restrictions breach WTO rules. Its ruling followed complaints by the US, the European Union and Japan.

    The Geneva-based WTO's appellate panel on Thursday rejected Beijing's appeal, saying it hasn't "demonstrated that the export quotas that China applies to various forms of rare earths ... are justified".

    China accounts for more than 90 per cent of production of rare earth minerals. In 2009, it alarmed foreign companies by limiting rare earth exports in an attempt to boost its domestic manufacturing base.

    US trade representative Michael Froman said Thursday's decision "marks the end of the line" for the rare earths dispute.

    "By upholding rules on fair access to raw materials, this decision is a win not only for the United Sates, but also for every nation that respects the principles of openness and fairness," Froman said.

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    World Trade Organisation upholds ruling that China violated international trade rules.

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    The New Zealand government is backing moves to attract more Australian Chinese tourists, deemed to have deeper pockets and better educations than the "average Australian".

    China Travel Service has won a $NZ50,000 ($A46,548) grant under the government's tourism growth partnership scheme, which private funding will top up with a further $NZ50,000 to tap what it believes is a relatively untapped market in Australia, which is already New Zealand's largest source of foreign tourists.

    Tourism from mainland China has been one of New Zealand's fastest-growing sources of foreign tourists in the past three years and is the second largest source of foreign visitors.

    The estimated potential from the project targeting Chinese living in Australia, in collaboration with New Zealand Maori Tourism, is a total of $NZ6 million by 2017.

    "The Australian Chinese are perfect visitors to New Zealand because they have higher educations and incomes than the average Australian, and are likely to have developed English skills," says information provided with Thursday's announcement.

    "The challenge is to create a promotional campaign to target this growing segment of the Australian market."

    Some 1.2 million Australians visited New Zealand in the year to February 2014, of whom 478,496 were on holiday. Of the 237,248 Chinese visitors to New Zealand in the same period, 175,504 were on holiday, according to figures on the Tourism New Zealand website.

    Tourism Minister John Key announced the grant along with a $NZ600,000 boost for the Canterbury Tourism Partnership, which will also target both the Australian and Chinese markets as tourism operators in the region seek to recover momentum following the earthquakes of 2010 and 2011 and subsequent rebuild.

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    New Zealand government is backing moves to attract more Australian Chinese tourists.

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    China for the first time placed restrictions on instant-messaging services that have become an increasingly popular platform in the country for discussion and debate.

    Beijing said the restrictions were unveiled to "help build a clean cyberspace" and safeguard national security.

    The rules apply to users with special accounts that let them post messages broadly on chat apps such as Tencent Holding Ltd.'s WeChat and Alibaba Group Holding Ltd.'s Laiwang.

    Such so-called public or official accounts let other users subscribe to message feeds, similar to public pages on Facebook. Businesses and celebrities use the accounts to publicize events and news. Many Chinese bloggers have been migrating to such accounts to spread their views as well, in the wake of a crackdown by the Chinese government last year on other types of social-media platforms. The new rules don't appear to apply to instant messaging between users and their personal contacts.

    The rules require new public-account users to register with their real names and sign an agreement that they will "abide by laws and regulations, the socialist system, national interests, the legitimate rights and interests of citizens, public order, social morality and ensure the authenticity of the information they provide."

    The rules, issued Thursday by China's State Internet and Information Office, also say that only news organizations and other authorized websites will be allowed to post or share political news through public accounts. Accounts that violate the rules can be warned and restricted from posting content or removed.

    Tencent said it would take measures against "offensive and abusive activities" to ensure compliance with relevant regulations. Alibaba declined to comment.

    The restrictions are the latest effort by Beijing to curb the use of social media for public debate and political dissent. China initially let social-media platforms function in a relatively freewheeling manner as a way for the government to monitor opinions and let citizens vent frustrations.

    But the government has been increasing control as dissidents and activists use the platforms for political messages, said Duncan Clark, chairman of Beijing-based technology consulting firm BDA. "In terms of the political and media climate, it's another sign of how strict things are becoming," he said.

    The Chinese government recently blocked several foreign chat applications, including Japan's Line and South Korea's Kakao Corp., on suspicion that they were being used by terrorists to exchange information, Oh Jeong-taek, a deputy director for South Korea's Internet policy bureau said Thursday.

    Last year, the Chinese government targeted Twitter-like microblogging services such as Weibo Corp., following a rise in what it described as a spread of political rumors among users.

    Person-to-person chat applications, as well as those with public accounts, also have been subject to increased scrutiny over the past several months. The Chinese government has said chat apps have played a role in spreading rumors, pornography, and terrorist ideology.

    The new rules could particularly affect small online news operations and blogs that might not be authorized by the government and have been using WeChat to disseminate information.

    "The reason why they are regulating the messaging apps now is the same as for Weibo previously," said Forrester analyst Xiaofeng Wang. "There is some politically sensitive content sent on the apps, and they want to control that."

    WeChat had the largest user base among messaging-app makers in China, with 393 million active users in the second quarter, taking up 87.6% of the market according to Analysys International. Tencent says it has 5.8 million official accounts.

    Tencent said Thursday that it had deleted about 400 official accounts and 3,000 articles that were found to be spreading rumors, plus more than 30,000 public accounts that were selling fake goods. It was unclear whether the deletions were related to the new regulations.

    A Tencent spokeswoman said WeChat, known as Weixin in China, has required real names for official accounts since their inception. She said the rules would apply only to official accounts created in China. The company's shares fell 3.5% in Hong Kong following the news.

    The new guidelines come a month after users of several foreign messaging apps reported service disruptions in China. Many observers at the time had raised the possibility that the Chinese government may have taken steps to limit usage, since the outage followed a massive pro-democracy march in Hong Kong. China's government often blocks foreign websites and smartphone services during sensitive times, such as the recent 25th anniversary of the Tiananmen Square crackdown.

    China only recently informed the South Korean government about the blockage regarding suspected terrorist communications, said Mr. Oh, the South Korean official.

    Some lesser-known messaging apps such as DiDi, Talkbox and Voxer also were affected by China's move, Mr. Oh said. He said Chinese officials didn't provide evidence that suggested that terrorist information was being communicated through the messaging apps.

    China's State Internet and Information Office didn't respond to a request for comment.

    Mr. Oh said the service disruption for Kakao and Naver Corp.'s Line is still in effect. He said users of Kakao in China couldn't add new friends, although people can message one another with existing contacts. In the case of Line, users still can't send messages to each other using the app, he said.

    Line said it is aware of the disruption and is working to restore service. Kakao said it is working to resolve the issue.

    While Line isn't used widely in China, it has proved popular with younger users, many of whom were attracted to the app because of its emoticons, known on the service as stickers. Line has more than 490 million registered users globally. Kakao has more than 150 million registered users world-wide.

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    Beijing says rules aim to 'Help build a clean cyberspace' and safeguard national security.

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    Mars Inc. will unveil a flagship store in Shanghai on Friday in a move to expand its brand in China, where candy makers are heating up competition in one of the world's fastest-growing chocolate markets.

    For closely held Mars, best known for its M&M's chocolates and Mars and Snickers candy bars, the 1,600 square-meter, $10 million M&M's department store, located in Shanghai's version of Times Square, is a first foray into China's retail scene.

    The store straddles the worlds of retail and entertainment. People dressed in M&M's costumes will dance every hour. Products for sale include pick-and-mix chocolates and novelty items like M&M's-themed cellphone covers and T-shirts.

    "Five to 10 years ago, we couldn't have done this because [M&M's] wasn't a big brand in China," said Brian Schiegg, general manager of Mars Retail Group and M&M's World. Now that it is, he said, the brand recognition is strong enough to support sales of M&M's products like backpacks and hair ties, which have been a big part of Mars's growth in the U.S. in recent years. Mr. Schiegg said up to 500,000 consumers visit its four stores in the U.S. and U.K. a month and the average customer spends $30 per visit in the U.S. outlets.

    Chocolate companies are pouring into China, a market where chocolate consumption is still just a fraction of that in the U.S. but is growing steadily. Chocolate sales in China grew 58% from 2009-13, reaching more than 15.01 billion yuan, or about $2.43 billion in 2013, according to market-research firm Euromonitor International. In the U.S., chocolate sales reached $17.1 billion in 2013, up 4% from a year earlier, according to Euromonitor.

    Mars, which also sells Dove chocolates, was among the first foreign chocolate players to move into the Chinese market in 1990. But companies including Hershey Co. and Belgian chocolate maker Godiva have been expanding here in recent years, stepping up the competition. Indeed, Mars is playing catch-up to Hershey, which opened a flagship store in Shanghai in 2008. Nestlé SA acquired Chinese candy maker Hsu Fu Chi International Ltd. in 2011, helping the Swiss food producer bring its Kit Kats and Crispy Shark chocolate wafer bars to new grocery and convenience-store partners in the country.

    Mars accounted for 39.6% of China's chocolate sales last year, ahead of Italy's Ferrero SpA, with 11.5%, and Hershey. with 11.1%, according to Euromonitor. Closely held Mars doesn't disclose financial figures.

    Mars hopes the Shanghai M&M's outlet, like the company's four other shops in the U.S. and U.K., will become a tourist attraction. Aside from the costumed M&M's characters, mood-detecting machines guess a shopper's favorite color before they choose candies from the "Great Wall of Chocolate." Customers can have photos taken with M&M's figurines dressed as pandas or warriors.

    Mr. Schiegg said Mars plans to continue to build its brand in China by opening other retail stores and introducing new flavors for the local market, as it does in the U.S., where it sells pretzel and peanut butter M&M's.

    Mars also has been expanding in the U.S. in pet food. It recently bought the Iams and other pet-food brands from Procter & Gamble Co. for $2.9 billion, a move to solidify its position as the world's biggest pet-food company.

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    Mars Inc. to open candy tourist-attraction store in Shanghai for its popular brand.

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    Hong Kong billionaire Li Ka-shing emerged triumphant in a takeover battle for Australian gas-transmission company Envestra Ltd. after a rival bidder agreed to support his 2.37 billion Australian dollar (US$2.22 billion) offer.

    The victory gives Asia's richest man access to a network of pipelines spanning a combined 14,000 miles that distribute natural gas to households and businesses in major Australian cities such as Melbourne and Adelaide. It also adds to a string of offshore deals for Mr. Li in recent years as he disposes of some assets in Hong Kong, and comes just days after it was revealed he was considering a bid for an Irish aircraft-leasing company.

    Mr. Li's Cheung Kong Infrastructure Holdings Ltd. is leading a consortium that offered A$1.32 per Envestra share, which trumped an earlier bid from Australia's APA Group Ltd. and pitted two of Envestra's biggest shareholders against each other.

    Rather than raise its offer, APA said Thursday that it had decided to sell its 33% interest in Envestra to the Cheung Kong-led group. "The cash offer put forward by the consortium well exceeded our valuation of the Envestra business, even at full ownership," said Mick McCormack, APA's chief executive.

    Mr. Li's offer for Envestra places a high value on the company by historical standards. The shares have rarely traded as high as A$1.32, having previously only come close to that level in 2007, just before the global financial crisis took hold.

    In May, Cheung Kong said it would attempt to generate cost savings by combining Envestra's operations with some of its other Australian power assets. Cheung Kong also owns 51% of both SA Power Networks in South Australia state and Victoria Power Networks in Victoria state. Around 80% of Envestra's assets are located in those two states.

    Cheung Kong appears to be paying a relatively large premium for Envestra, based on other recent deals in Australia's power sector, such as State Grid Corp. of China's acquisition of a stake in SP AusNet Ltd., said Nathan Lead, a Brisbane-based senior analyst at broker Morgans.

    "I just wonder if it's part of a bigger roll-up play for them," Mr. Lead said. "They've potentially got an appetite for further investments in the energy infrastructure space."

    In Australia, other potential publicly listed targets could include Spark Infrastructure, already Cheung Kong's partner in Victoria and South Australia. Duet Group also has energy transmission and distribution assets in Victoria and Western Australia states, while state governments have privatization agendas that could spark Cheung Kong's interest.

    Pipelines that connect gas fields to export plants, power generators and homes are typically monopoly assets that can provide steady, regulated returns to investors. APA owns big pipelines to export hubs and cities, while Envestra owns the thousands of "spaghetti" strands that run to separate end-users.

    Australia, the world's 12th-largest economy, has seven gas-export terminals valued at about A$180 billion under construction on its coastline to feed utilities overseas, supporting a need for transmission infrastructure and sparking a spate of deals in the pipeline sector. APA in 2012 paid US$1.36 billion for rival pipeline owner Hastings Diversified, while last year local pension fund QIC Global Infrastructure beat out Cheung Kong to buy the Moomba-to-Adelaide gas pipeline.

    The outlook for domestic use of natural gas, however, remains cloudy after the conservative Liberal-National government last month scrapped a tax on carbon emissions that would have encouraged greater use of fuels that burn cleaner than coal.

    Mr. Li is acquiring Envestra through a consortium that includes two of his other companies: Cheung Kong Holdings Ltd. and Power Assets Holdings Ltd.

    Another company that he controls, Hutchison Whampoa Ltd., snapped up European assets including an Austrian telecom company and a British water utility after the 2008 financial crisis softened asset prices there and weakened the euro. In May, two of Mr. Li's companies agreed to buy an airport parking lot operator in Canada for $397.5 million Canadian dollars (US$366 million).

    In January, Mr. Li raised US$3.11 billion from listing his Hong Kong electricity operations. He also recently sold a stake in his retail business A.S. Watson Co.

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    Rival bidder agrees to back Hong Kong billionaire's $2.37 billion offer.

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    Lowy Interpreter

    As the world prepares to fight for (or against) a global climate change deal at the 2015 talks in Paris, China is quietly prosecuting its own kind of environmental crusade.

    At the infamous Copenhagen climate change meeting in 2009, China was accused of'wrecking' the talks, humiliating other world leaders and blocking any useful agreement. Contrast this with China's domestic record on greenhouse gas emissions:

    If China is so reticent in international negotiations, why is it taking such a proactive attitude domestically? There are three significant domestic motivations for China's actions.

    First, energy supply in China has always been a problem, since strong economic growth hasfueled increasing energy demand. In an attempt to relax the link between growth and energy demand, the Chinese Government has long had a goal to reduce energy intensity (the amount of energy consumed per unit of GDP). To diversify the energy supply base, the Government has supported renewable and nuclear energy development since at least the early 2000s. And since energy makes up about 80% of China's emissions, energy sector reforms have had a significant (but difficult to quantify) impact on China's emissions profile.

    Second, China's extreme air pollution problems are adding a sense of urgency to the need to decouple economic growth from dirty sources of energy.

    The majority of the densely populated eastern seaboard regularly experiences dangerous smog, which has a depressing array of public healthsocial and economic impacts. In the last three years, the public displeasure has been heard by China's leaders, who know the smog problem is one that could eventually destabilise the 'harmony' they have tried so hard to protect.

    Third, the smog problem has combined with long term economic concerns to create headaches for the leadership. On the one hand, economic growth has formed the basis of the Party's legitimacy, and China's leaders have recognised the need for economic reforms to rescue aslowing economy. But at the same time, China's leaders know they cannot follow the emission-intensive development path of much of the developed world.

    China's policy makers are increasingly merging their economic restructuring goals with environmental and energy issues into a new vision for China's future: the so-called 'ecological civilisation'. Nowhere is the connection more obvious than in the 12th Five Year Plan's'strategic industries', of which three out of seven are new energies or environmental industries. China aims to increase the strategic industries' share of GDP from about 3% in 2009 to 15% by 2020.

    It would be remiss not to mention the challenges the Chinese Government faces in actually implementing its environmental and economic goals: reticence of powerful vested interests, legal and administrative hurdles, and generally low capacity on environmental governance, to name a few. Still, on the whole China's domestic concerns are leading it to a 'green' economy at a much faster rate than international pressure could ever hope to achieve.

    Whatever happens in the next round of international climate change talks, China seems to be in the low carbon race for the long haul.

    Originally published by The Lowy Institute publication The Interpreter. Republished with permission.

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    Despite its reticence in international negotiations over climate change, China has been quietly waging its own environmental crusade at home.

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    The establishment of the Asia Infrastructure Investment Bank is a natural progression of Asia's growing role in global affairs. Once developed, the AIIB will fill a niche as a modern international financial institution created by, adapted to, and operating within Asia.

    Australia is uniquely situated to contribute to the development of the AIIB. We must get on board early or risk being left behind. As one example, Hastings Funds Management's successful bid for Newcastle Port with the Chinese state-owned giant China Merchants is representative of the partnerships Australia should be looking to develop. In time such partnerships will reap rewards for both sides.

    Some commentators bemoan the AIIB as a rival to other international lenders, such as the Asia Development Bank and the World Bank. But it is not. The AIIB is more than a Chinese regional power play. No doubt China's frustration at the United States' inability to pass IMF reform is one part of the story. More accurately, the AIIB represents the natural progression of China (and more broadly Asia's role) in financing global development. The AIIB is not a competitor to the other international lenders. It is in a different league, because it is created from within Asia and will operate by its own rules.

    It is this different governance style that will set the AIIB apart. A bank with China sitting at the helm is unlikely to tie its lending to non-economic issues (such as human rights). Jin Liqun, head of the bank's preparatory group under China's Ministry of Finance said recently: "We have confidence that we can build a bank up to high international standards, and will do our best in project evaluation, environment protection, local culture conservation, promoting continuous economic growth and improving people's livelihoods". For better or worse, this will free up the bank to lend pragmatically and in the broad economic interests of the nations in the region.

    But Asia's infrastructure gap, which McKinsey values at $8 trillion over the next decade, is about more than just unlocking finance. The AIIB must fund the right infrastructure projects.

    A tendency for grandiosity and 'ribbon cutting', as is sometimes the practice in the region, could yet derail the bank. For example, there are suggestions the bank will start by building a modern day 'silk road' stretching from Beijing to Baghdad. Such plans are admirable but unrealistic. The Middle East is currently mired in security turmoil. Tying the work of the bank to such a plan may doom it to obsolescence before it can get started. Perhaps a link from Beijing to Berlin is more realistic.

    The AIIB must be more than just a new income stream for well-connected executives of Chinese SOEs. The bank must be open-minded and non-parochial in its selection of worthy infrastructure projects. It must be open to contributions from other countries that have the capacity to help the bank on its initial steps toward good governance and social responsibility.

    Australia has a potentially important role to play. Australia is a developed middle-power with strong institutions. It is also in the right time-zone. Moreover, Australia's current role as President of the G20 puts it at the forefront of global policy on economic growth and infrastructure investment. Prime Minister Tony Abbott, who wishes to be remembered as the "infrastructure Prime Minister", has stated that the G20 should aim for a 2 per cent growth target. Infrastructure investment must be a central pillar of that target.

    Australia's leadership can start by getting the rhetoric right at the G20. There should be an emphasis on cooperation with the AIIB and the New Development Bank rather than competition (as the western media have tended to direct toward the AIIB).

    But Australia's contribution can, and must, come from the private sector too. Australia has deep infrastructure expertise derived from the projects that supported the mining boom. This includes expertise in designing and managing PPPs and other project structures, as well as expertise in innovative project financing, project management, and engineering and construction services. Australia's banks are also well-governed.

    By contrast, China's experience with overseas infrastructure investment has brought mixed results. Transplanting China's expertise into Laos, Myanmar and other Asian developing countries will not necessarily work. Australia can, and should, share its skills and experience through mutually beneficial joint ventures with companies from China and elsewhere in the region.

    Australia confronts an important, but simple bargain. We need foreign investment to fuel our future infrastructure projects. One thing Australia can offer in exchange is expertise in areas relevant to the AIIB. Australia is uniquely situated to contribute to the development of the AIIB, and must get on board early or risk being left behind.

    Edward Kus is a solicitor at an international law firm in Melbourne, Executive Director of the Australia-China Young Professionals Initiative, and a Fellow of the ACYPI Policy Unit.

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    The establishment of the Asia Infrastructure Investment Bank is a natural progression of Asia's role in financing global development. Australia must get on board with it early or risk being left behind.

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    China’s monthly trade surplus has surged to US$47.3 billion in July, nearly tripling year-on year, official data showed on Friday, as exports jumped while imports surprisingly declined.

    Export increased 14.5 per cent year on year to $212.9bn, the General Administration of Customs announced, while imports decreased 1.6 per cent to $165.6bn.

    The surplus far exceeded the median forecast of $27.7bn in a Wall Street Journal survey of 15 economists.  Export growth accelerated from June’s gain of 7.2 per cent and beat expectations of 8.0 per cent.

    The surprising growth in exports is the latest indication of a strong recovery in the country’s manufacturing industry, growing on the back of Beijing’s mini-stimulus package.

    China imported 540 million tonnes of iron ore in the first seven months of 2014, an increase of 18.1 per cent from the same period a year earlier. However, prices declined 14.5 per cent compared to the same period last year, according to official data.

    The country’s appetite for coal waned in the last seven months. The volume dropped by 2.2 per cent year on year while prices collapsed 14.39 per cent. 

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    Exports jumped while imports surprisingly declined, indicating a strong recovery in manufacturing on the back of Beijing’s mini-stimulus package.

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    China says its Anti-Monopoly Law does not discriminate between foreign and domestic companies, as big name overseas enterprises have come under a series of high-profile investigations.

    The Ministry of Commerce issued a statement on Saturday noting that foreign firms such as Microsoft and Mercedes-Benz have been probed as has the Chinese unit of a US food supplier.

    Ministry spokesman Shen Danyang said that anti-monopoly probes were meant to promote fair competition and protect consumer rights.

    He said such investigations were also common practice internationally.

    "Looking back at the past six years after the Anti-Monopoly Law took effect, both domestic and foreign firms have been probed according to the law," he said in a statement, the official Xinhua news agency reported.

    The statement appeared intended to reassure foreign businesses as Shen also made a point of stressing the positive and important role they have played in China's economic and social development for more than 30 years.

    Foreign pharmaceutical companies including Britain's GlaxoSmithKline (GSK) have also been the targets of wide-ranging investigations.

    Others businesses, such as Apple and Starbucks, meanwhile, have sometimes received unfavourable coverage in state media over issues regarding service and pricing.

    On Wednesday China vowed to punish German luxury brand Audi and Chrysler of the United States for "monopoly behaviour".

    Two days earlier anti-monopoly investigators raided a Shanghai office of Mercedes-Benz.

    A Chinese government agency said earlier that it was investigating Microsoft for allegedly operating a monopoly after raiding four of its offices around the country.

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    Controversial rules don't discriminate against foreign companies, Beijing insists.

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    China's annual inflation rose 2.3 per cent in July, official data says, remaining stable from the previous month's result.

    The country's consumer price index -- a main gauge of inflation -- also rose by 2.3 per cent in the first seven months of the year from the same period in 2013, the National Bureau of Statistics said in a statement.

    The result remains well below the 3.5 per cent annual target set by the government in March.

    Overall food prices drove inflation, rising 3.6 per cent from the same month last year, according to the NBS data.

    Moderate inflation can be a boon to consumption as it encourages consumers to buy before prices go up, while falling prices encourage shoppers to delay purchases and companies to put off investment, both of which can weigh on growth.

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    July official data show inflation remaining stable from June, well below govt target.

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    It’s becoming clear that one of the industries that will replace the business of exporting minerals and energy to China, if such replacement turns out to be needed, will be the temporary importing of Chinese people.

    In June about five Boeing 747 loads of seasonally adjusted Chinese tourists arrived in Australia every day. For the year to June, the total was 769,000 -- a record number -- and second only to New Zealanders.

    More importantly, Chinese tourists stay the longest and spend by far the most: $5.1 billion in the year to March, according to Tourism Australia data, or $7,343 each -- double what the Kiwis spend.

    In fact Chinese tourism is beginning to change the world. According to The Economist there were 97.3 million outward-bound journeys from China last year, of which about half were for leisure. They spent more than any other country’s tourists – $US129bn, which was $US43bn more than the next biggest spenders, the US.

    Only 5 per cent of Chinese people own a passport, and most of those only go as far as Macau and Hong Kong. That number is beginning to rise quickly as China’s per capita income grows.

    Obviously Australia is still only getting a small proportion of the travellers at this stage (less than 2 per cent) but a survey of Chinese travellers last month by the accommodation booking website Hotels.com found that while Australia is the 11th most visited destination right now, it topped the destination wish list for the future, just beating France.

    An analyst with investment firm, CLSA, quoted by The Economist, says the number of Chinese tourists is expected to double by 2020, and if that survey by Hotels.com is anything to go by, Australia should get a rising share of that rising tourism.

    So make that a dozen jumbo jet loads of Chinese tourists, every day.

    Surprisingly, it seems that more of them go to Victoria than NSW -- 341,100 to Victoria in the year to March, according to Tourism Victoria, versus 326,170 in the year to May according to Destination NSW’s website.

    And an increasing number of Chinese visitors are making their way to Tasmania, mainly to visit a certain lavender farm at Nabowla in the state’s north-east.

    The Bridestowe Estate lavender farm had the remarkable good fortune to be visited by a Chinese model, Zhang Xinyu, who posted a picture of herself on Chinese social media with Bridestowe’s small lavender teddy bear, Bobbie the Bear, and it went viral.

    Now they can’t keep up: busloads of Chinese tourists arrive every day and are rationed one lavender bear each. The owner, Robert Ravens, told the ABC recently: "It is impossible. Demand exceeds supply by 10 to 1. We do try to make a fair allocation but it really is impossible.

    "We get letters and lots of tearful emails and meltdowns in the store when people can only have the statutory one bear."

    Tourist venues in Victoria that I have spoken to are now getting a constant stream of buses of Chinese tourists, and according to The Economist’s survey, 80 per cent say that shopping is the main part of their trip. They are expected to buy more luxury goods while traveling next year than tourists from all other counties combined.

    It truly is one of Australia’s fastest growing, and most significant, industries.

    Interestingly, looking back through Tourism Australia’s campaigns, there doesn’t seem to have been any directed at China, at least for a while. I’m sure Tourism Australia would say it has been doing its bit to promote Australia in China, but the boom in Chinese tourism seems to have happened spontaneously.

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    Graph for China's mini-stimulus package is not a solution for growth

    East Asia Forum

    A couple of months ago, the Xinhua news agency published three articles on ‘stimulus and reform’ to strongly support the government’s mini-stimulus policy. While acknowledging that the term ‘Likonomics’, as Premier Li Keqiang’s economic strategy has been dubbed, demonstrates a commitment to structural reform, the news agency also blamed it for creating the illusion of a tension between stimulus and reform.

    China’s current macro-control policy, however, deserves closer scrutiny.

    Is it a stimulus policy or a stabilisation policy?

    Professor Lu Feng has written a number of articles recently about macroeconomic policy, making two important points. Firstly, policies aimed at stabilising growth should not be labelled ‘mini-stimulus’. Secondly, under the current circumstances, it is probably better not to stimulate the economy. Premier Li has repeatedly said that it was neither necessary nor feasible to adopt a substantial stimulus policy. ‘No major stimulus policy’ were the exact words used to describe the first pillar of Likonomics, ‘no stimulus’, which does not mean ruling out macroeconomic policy aimed at stabilising growth.

    But nowadays in China, macro policies always try to accelerate rather than to slow growth. Perhaps this suggests that the official target is too high relative to growth potential?

    Another important question is whether the current deceleration in growth is cyclical or structural. The Chinese economy faces significant difficulties for at least three reasons. The first is the slow global recovery and negative consequences from previous stimulus policies. The second is an unsustainable growth model, evidenced by problems such as over-investment and income inequality. And the third is the new middle-income trap challenge. Of the above, only the first factor is cyclical in nature.

    Some fundamental changes in the Chinese economy also confirm that current growth deceleration is mainly structural. It is no longer possible for Chinese exports to continue to grow at more than 20 per cent or more a year because of the sheer size of China’s economy.

    In the meantime, a slowdown in capital accumulation looks permanent, while the labour force is already shrinking. Lu Yang and Cai Fang of the Chinese Academy of Social Sciences estimate the current growth potential at 7.75 per cent. Liu Shijin of the Development Research Center of the State Council puts it at 7 per cent.

    How low can growth go before it becomes intolerable? In order to increase policy flexibility, the government proposed new target bands for growth, replacing previous targets that specified only a single number. The new targets give a range for a growth rate that isn’t so high that it causes major inflation problems or so low that it triggers serious unemployment. This is the trade-off between inflation and unemployment represented by the familiar macroeconomic concept of the Phillips Curve.

    The problem is the lower boundary for growth is probably too high. The official growth target was set at around 7.5 per cent. However, when growth slowed to 7.4 per cent during the first quarter, the government almost panicked. Policymakers fear that there could be major problems with unemployment, financial risk and investor confidence should growth slip below 7.2 per cent, although they have not provided any strong evidence for such a fear. If the government is serious about its new target bands, it should reduce the lower end of its target range.

    The government also experimented with targeted structural measures. For instance, there has been an increase in investment in the power sector, and the reserve requirement ratio for financial institutions lending to small and medium enterprises has been lowered. These policies may help China to stabilise growth and overcome bottlenecks.

    The success of such measures, however, is dependent on the assumption that the government has sufficient information to act appropriately on these structural issues. Unfortunately, the government’s track record in this area has not been satisfactory.

    The government has tried some differentiated measures for different industries and regions but most of them have failed. While it is useful to experiment with targeted macro-controls, it is important that this experiment does not turn into new industry policy. New policies should include exit strategies and should not restrict competition.

    Is it still possible for China to achieve medium to rapid economic growth in the coming decade? It depends on the policy strategy.

    Long-term growth cannot occur via fiscal stimulus. A recent study by Tan Yuyan of Peking University finds that stimulus policies create more zombie firms and inhibit productivity, profitability and job creation in viable firms. Harry Wu’s work detailing the decline in industrial productivity after the previous stimulus package makes the same point.

    A more effective strategy for achieving relatively rapid economic growth is through accelerating economic reform, which would stimulate productivity growth in the future. For instance, Lu Yang and Cai Fang estimated that reform of the one-child policy and the hukou system of household registration, combined with improvement in human capital, could raise China’s future growth by 1 to 2 percentage points. 

    My own joint study with Ji Yang also discovered that more complete financial reforms could lift growth by 1.4 percentage points. And a study by the International Monetary Fund finds that, if a comprehensive reform program is rigorously implemented, Chinese growth may be lowered by 0.2 percentage points in the near term but may be increased by 2 percentage points by 2020.

    All these studies suggest that it is possible for China to continue with relatively rapid economic growth. But the government has to both accelerate structural reform and tolerate some growth slowdown in the near term.

    This article was originally published at East Asia Forum. Reproduced with permission. 

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    There are China bulls, and then there’s Justin Yifu Lin, the former chief economist of the World Bank. While China bears and their pessimism are the new black in the world of finance, Lin still maintains his bullish view that the country still has the potential to maintain fast-paced growth between 7-8 per cent for another two decades. 

    Lin is arguably China’s most influential economist and enjoys unparalleled access to China’s top economic policymakers including Premier Li Keqiang. Li authored an important book called The Quest for Prosperity, which examines the success and failures of economic policy for developing countries since the Second World War.

    One of his most interesting findings is for those few countries -- only 13 in total -- that have moved up the industrial and technological ladder, these countries have rarely followed the dominant policy descriptions of the time.

    Business Spectator caught up with Professor Lin recently to discuss two main topics confronting China’s economy: the country’s growth potential and reform of state-owned enterprises.

    It is not easy to be a China bull on the country’s growth potential. The economy has slowed considerably from double digit growth to 7.4 per cent this year and the country is also facing the ever-growing problem of debt, both government and corporate. There are scores of analysts predicting China’s own Lehman moment.

    And yet Lin is one of few influential economists who still believe that China's boom has not yet run its full course. His optimism is based on his observations of the development history of four major Asian economies in the last half century and underpinned by the so-called late developing advantage theory. 

    In a nutshell, the theory says that late developing countries can grow much faster than developed economies during the catch-up stage of their development by absorbing and importing advanced technology and know-how, but the pace of growth will slow down as the gap between developed and developing countries becomes narrower.

    Lin points out that China’s per capita income level is only 21 per cent of the US back in 2008, which roughly reflects Japan’s position in 1951, Singapore in 1967, Taiwan in 1975 and South Korea in 1977. These countries had all grew between 7.6 and 9.2 per cent for two decades.

    Lin’s assessment is based on the large gap that exists between China and the US. So, if China follows the growth pattern of these four advanced East Asian economies, there is a good chance that it can still deliver 8 per cent for another 20 years.

    But he added an important qualifier to his otherwise bold prediction. “China has the potential but it does not necessarily mean it can fully utilise that potential. However, if you don’t have that potential, there is no way for you to achieve anything regardless of how hard you may try,” he told Business Spectator.

    Lin admits that China faces many issues including looming environmental disaster. But he argues that China is following the well-trodden paths of other industrialised economies like Britain, Germany and Japan of ‘pollute first and clean up later’.

    “Once we transition from an industrial economy to a post-industrial economic society, our emission and consumption of energy will decline,” he said.

    Another vexing issue for the world’s largest economy is the persistent problem of reforming the country’s state-owned enterprises. One of the big problems for China’s dynamic private sector is access to credit. Big state-owned companies usually enjoy preferential access to cheap state credit at the expense of small and medium sized firms.

    Lin argues it is too simplistic to look at this issue through the simple prism of state-owned companies versus private small and medium-sized firms. “There is a mismatch between China’s real economy and the financial system. The country’s real economy is largely comprised of farmers, small and medium-sized businesses and yet the financial sector is dominated by big banks that prefer to deal with big companies,” he said.

    He says large Chinese private enterprises like Geely, a car-maker that owns Volvo and Huawei, the world’s largest telecommunication equipment-maker, can obtain access to finance without any problems. Yet the problem is not but ownership, but size.

    It is interesting to note that it is difficult for small and medium sized enterprises to obtain access to credit worldwide, including in Australia. And the problem is particularly bad in China: state-owned firms tend to be large corporations while private enterprises are often much smaller. The country still has a relatively under-developed capital market to support small and medium-sized companies.

    He is not ideological when comes to the controversial issue of privatisation of state-owned companies, which is a bit surprising considering he got his doctorate from the University of Chicago, the bastion of free-market economics and home of Milton Friedman.

    “The most important thing for state-owned enterprise reform is competition and creation of a level playing field,” he said. He thinks privately-owned companies should be allowed to compete directly with state-owned companies on equal footing and then let the market decide who the winner is.

    He believes ownership alone does not determine whether a company is well managed and cites the example of Renault and Nissan. Renault is a former state-owned national champion of France and Nissan is a privately controlled Japanese company, but he reminds us that it was Renault who took over Nissan.

    Given Lin’s stature in China and abroad, we should pay more attention to what he says about the economy and its future prospects. 

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    Citigroup Inc. and Swiss-based trader Mercuria Energy Group are battling in a London court over payments relating to metals-backed financing arrangements in China valued at over $270 million.

    Banks have lent hundreds of millions of dollars to commodities traders in China in recent years, using metals such as copper, iron ore and aluminum as collateral. However, evidence suggests that large quantities of metal stored at the eastern ports of Qingdao and Penglai are unaccounted for and may have been used as collateral for multiple loans.

    The case between Mercuria and Citigroup is one of several brought by companies scrambling to limit their exposure to potential losses after the Chinese government launched an investigation into allegations of loan fraud at the ports.

    According to court documents seen by The Wall Street Journal, Citigroup is seeking expedited payments from Mercuria for forward sales of metal stored at Qingdao and Penglai valued at over $270 million, arguing that the closure of the ports as a result of the probe triggered its right to demand early settlement for the financing arrangements.

    Mercuria contends there isn't enough information about the situation at the ports to allow Citigroup to claim early payment and that the bank, which Mercuria argues currently holds title to the metal stocks, should bear any risk relating to them.

    Neither company is thought to be under suspicion of any wrongdoing in relation to the alleged fraud.

    "The purpose of the proceedings is to determine the rights and obligations of both parties under contractual arrangements they have relating to metal that is affected by the ongoing situation in Qingdao and Penglai," Mercuria said in a statement.

    Citigroup declined to comment on the court case.

    The case is due to be heard between late November and early December, Mercuria said.

    In a hearing in London Friday, the energy-focused commodities trader opposed a proposal by Citigroup to expedite proceedings and to hold a trial as soon as Oct. 20, arguing for more time to gather information about the situation in Qingdao and Penglai, the court documents show.

    Western banks have been shut out of warehouses in both ports, making it difficult to assess companies' exposure to the suspected fraud. The situation has already sparked a string of lawsuits as companies seek to protect themselves against potential losses.

    Africa's largest bank, Standard Bank Group Ltd., and China's largest securities firm, Citic Resources Holdings Ltd., are among the companies that have filed lawsuits in China. Earlier this month, Standard Chartered PLC, which is conducting a separate lawsuit in Hong Kong to get control of stocks of metals in Chinese warehouses, said it had put aside $174 million in part to cover the fallout of the suspected lending fraud.

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    Citigroup and swiss-based trader Mercuria Energy Group are battling in a London court over payments relating to metals-backed financing arrangements in China valued at over $270 million.

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    Chinese e-commerce company Alibaba Group Holding Ltd. is rolling out a powerful new incentive to attract luxury brands: removing some listings from its online shopping sites.

    Like many premium brands, Burberry PLC had been fretting about a flood of discount Burberry products--some of them fakes--on Alibaba's two big marketplaces, which accounted for 80% of China's estimated $300 billion in online shopping last year. Burberry hadn't authorized any of those vendors to sell its goods.

    Alibaba would do its best to get those products off its sites if Burberry opened its own shop on Alibaba's online mall, Burberry was told, according to people familiar with the talks. Burberry opened a store on Alibaba's Tmall in April.

    Interviews with nearly three dozen sellers, brands and analysts indicate that Alibaba has recently taken similar steps for other high-profile Western brands, including Estée Lauder Cos., hoping they would embrace Tmall, China's main online venue for big brands. Alibaba has promised that once they open their own stores, it will purge goods sold on Tmall by retailers not authorized by the brands or do more to fight fakes on Taobao, Alibaba's online huge online bazaar, according to people familiar with the matter.

    Alibaba has been eager to woo high-end brands ahead of a listing on the New York Stock Exchange that is expected to be one of the largest initial public offerings in U.S. history. The presence of luxury brands lends a luster that can draw shoppers, other brands and potentially investors.

    Before Burberry opened its Tmall store, more than 50 vendors--none of them authorized by Burberry--sold the brand's products on the site. All those goods had disappeared from the site around the time Burberry's store opened, according to a study run for The Wall Street Journal by e-commerce analysis firm YipitData, although two resellers of Burberry perfumes returned in July.

    Alibaba told many shops on its sites that they had to stop selling the U.K. brand's products. It blocked some stores from posting Burberry items, and checked more frequently to make sure vendors weren't using Burberry copyrighted images, sellers said.

    "Tmall is having a change of strategy," said Vincent Wong, chairman of Hong Kong-based Pompei Holdings Ltd., which specializes in selling luxury items at discounted prices and was told to pull Burberry-branded goods from its Tmall shop. "When a global brand opens its store, we are not allowed to display that brand."

    Alibaba's offer to crack down on gray-market goods for brands that open Tmall stores provides a powerful incentive for brands to join the site, said Scott Galloway, chief executive of L2 Inc., a New York-based research firm. Alibaba's websites are a door to China's 300 million online shoppers. In 2012, the combined transaction volume of Taobao and Tmall topped one trillion yuan, or about $160 billion, more than Amazon.com and eBay combined.

    Until now, most high-end brands had resisted opening storefronts, some saying their images could be tarnished by the bargain-basement atmosphere of Tmall, a sprawling marketplace with 70,000 vendors, where so-called gray-market' resellers thrive.

    Such vendors buy brand-name goods--often from distributors outside China--and resell them at discounted prices without the companies' authorization. Many brands frown upon the practice, which is restricted in some countries. Such sales are generally permitted in China, and Alibaba has typically allowed them. By comparison, the sale of counterfeits is illegal in China and online platforms must remove these listings in a timely manner once they have been notified about them, said Haifeng Huang, who specializes in intellectual-property issues at law firm Jones Day.

    Alibaba's intervention can be extremely effective.

    Nearly four dozen Tmall shops sold Estée Lauder beauty products earlier this year. But around the time Estée Lauder opened its Tmall store in May, all third-party products had vanished, according to YipitData. Estée Lauder's opening also benefited its sister brand, Clinique, which had opened a Tmall shop last year: All third-party sales of Clinique products also disappeared from the site in May.

    In contrast, the number of third-party vendors selling products from Gucci, which doesn't have a Tmall store, rose to 69 in June from 63 in April. Third-party vendors of Giorgio Armani SpA and Ralph Lauren Corp.--two other brands without a Tmall store--also increased. Gucci and Ralph Lauren declined to comment. An Armani spokesman said the company "engages in various activities around the world to protect [its brands'] integrity," but isn't commenting on the situation in China.

    In July, Gucci, Yves Saint Laurent and other luxury brands under Kering SA filed suit against Alibaba, saying that the Internet company's shopping, marketing and payment platforms "knowingly make it possible for an army of counterfeiters to sell their illegal wares." Two weeks later, the luxury brands withdrew their claims against Alibaba, saying in a joint statement with Alibaba that the parties had "agreed to work together in good faith. to further reduce counterfeiting of Kering brands."

    Alibaba declined to comment on its dealings with luxury brands. Burberry referred to its April news release, saying that the Tmall store offers the "purest articulation of the Burberry brand on any of the Alibaba platforms to date." A spokeswoman for Estée Lauder said the brand was "pleased with our relationship with Tmall China thus far and look forward to continuing to expand this relationship."

    Brands also have complained about counterfeits on Alibaba's other website, Taobao, an online bazaar with eight million sellers offering 800 million products. Alibaba has stepped up efforts to deal with the issue, and in the past has signed agreements with Coach Inc. and LVMH Moët Hennessy Louis Vuitton SA, among others, to crack down on fakes.

    People familiar with Alibaba's marketplaces said its efforts to eliminate unauthorized sellers while recruiting brands to Tmall have intensified in recent months.

    In December, Alibaba signed an agreement with the British government and said it would remove gray-market products for U.K. brands that opened official shops on Tmall, according to a spokesman for the country's Trade & Investment division. The French and Italian governments have also signed agreements with Alibaba, but haven't said whether Tmall promised to clear gray-market goods.

    Some Western mass-market brands that already had Tmall shops, such as Nike Inc. and New Balance Athletic Shoe Inc. also are starting to see gray-market goods cleared away, according to YipitData. That pushes more sales to their official stores.

    In April, 12.6% of Nike athletic shoes sales on Tmall came from the brand's flagship store. That percentage had nearly doubled by July, according to YipitData.

    Nike said the brand has devoted "considerable resources" to fighting gray-market goods offline and online, including working with Tmall to address the issue.

    Dan McKinnon, senior counsel of trademarks and global brand protection at New Balance, said the company has spoken to Alibaba "many times" about its concerns about gray-market goods and counterfeits on its shopping platforms. This year, the company noticed fewer gray-market New Balance shoes on Tmall, he said. The percentage of New Balance sales on the site coming from the brand's store climbed to 69% from 57% between April and July.

    Analysts said it may be harder for Alibaba to crack down on unauthorized sales for things like sneakers, since unlike the luxury firms, mass-market brands often have authorized distributors on Tmall, making it harder to winnow out the problem shops. Doing so might also hurt Tmall's sales and traffic.

    "They need to clean their ecosystem to please the highest-end brands, but on the other hand, the counterfeit and gray-market goods generate a good amount of sales," said Alex Misseri, head of e-commerce at digital-consulting firm Razorfish.

    For the gray-market vendors, the selective bans on sales of some brands has been frustrating.

    Yuen Wong left his job at an electronics company to open a Tmall store called X2C with two partners in May, selling Western brand-name goods such as Michael Kors and Armani watches. But he said Tmall told him that he may not be able to sell products from any brands that open an official store. To cope, he plans to increase the number of brands he offers to as many as 50,000 in the next year, from 2,000 now.

    "In an ideal scenario, they don't want people like us, they want the brand owners," Mr. Wong said. "They allow people like us because it generates sales and demand."

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    Labels that open Tmall stores get help in curbing unauthorized vendors.

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    Japan's foreign minister and his Chinese counterpart held long-awaited discussions on relations between the countries late Saturday in Myanmar.

    The talks between Japan's Fumio Kishida and China's Wang Yi were the first held by the countries' foreign ministers since Japanese Prime Minister Shinzo Abe took office in late 2012.

    "We had a long, relaxed talk. We discussed how to improve of our relationship," Mr. Kishida told reporters without elaborating. A spokesman for the Japanese foreign ministry declined to provide details about the meeting.

    The two ministers are visiting Naypyitaw, Myanmar's capital, to participate in the Association of Southeast Asian Nations' foreign ministers meeting taking place over the weekend.

    Ties between the two Asian superpowers have remained chilly since Japan in 2012 effectively nationalized privately owned islets, which both Tokyo and Beijing claim.

    Bilateral tensions took another turn for the worse in late 2013 when Mr. Abe visited Tokyo's Yasukuni Shrine, a war memorial that China views as a symbol of Japanese militarism.

    China has asked Japan for reassurances that Mr. Abe won't pay another visit to the shrine before Beijing would make any sort of attempt at reconciliation.

    Also at the Asean summit, Japan said it would extend low-interest loans to Myanmar valued at Yen10.5 billion ($103 million) for the developing nation to upgrade its communication networks linking Yangon, Mandalay and Naypyitaw. This is in addition to a loan of Yen51 billion that Tokyo promised the Southeast Asian nation in March 2013.

    In the Thilawa district near Yangon, Myanmar's largest city, Japanese companies are participating in an infrastructure development project that aims to boost capacity of power generation and handling more goods in exports and imports.

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    Discussions were first held by countries' foreign ministers since Japan's Shinzo Abe took office.

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    The United States on Sunday pressed its case for a freeze on hostile acts in waters contested by China and its Southeast Asian neighbours, but said it did not want to "confront" Beijing over its strategy in the region.

    US Secretary of State John Kerry is pushing for an agreement to end all actions that risk further inflaming regional relations, following several tense encounters in the disputed South China Sea this year.

    Washington's top diplomat is touring the region despite a slew of major international crises in other parts of the world as the US looks to reinvigorate alliances in the Asia-Pacific as part of President Barack Obama's "pivot" east.

    Speaking in Myanmar's capital Naypyidaw, after an ASEAN Regional Forum, Kerry said talks with his Southeast Asian counterparts and the Chinese foreign minister were fruitful.

    "I think we will see some progress on the South China Sea based on the conversations we have had here," he told reporters as he prepared to leave Naypyidaw late Sunday.

    The forum brought together Southeast Asian foreign ministers and key partners, including the US, Australia, China, India, Japan, South Korea, Russia and the European Union.

    A senior US administration official said concern among its Southeast Asian allies about "Chinese behaviour was at an all-time high".

    But the official insisted there would not be a "showdown" between the two world superpowers.

    "We don't want to confront China. But we have a series of interests and principles that drive our approach in the region where they diverge with China," the official said.

    Kerry on Saturday formally put forward Washington's proposal to cool maritime tensions based on claimant states agreeing to step back from actions that could "complicate or escalate disputes".

    The US waded in to the South China Sea row following a series of maritime incidents between China and rival claimants, including Beijing's positioning of an oil rig in waters also claimed by Vietnam which sparked deadly riots in the Southeast Asian nation.

    - Code of conduct -

    China claims sovereignty over almost the entire sea, which lies on key shipping routes and is believed to be rich in mineral and oil deposits.

    But its claims overlap with ASEAN states Brunei, Malaysia, the Philippines and Vietnam, as well as Taiwan.

    US officials hailed American influence in ASEAN talks that began Friday, saying it had helped the bloc issue a united statement on the sea issue, which has previously seen friction between some member states with maritime claims and supporters of China.

    Kerry said discussions underlined the "importance of negotiations on a binding code of conduct" to govern the bitterly-contested sea.

    While China says it is not the aggressor in the disputed waters, Foreign Minister Wang Yi on Saturday warned that "the Chinese side is bound to make clear and firm reactions" if provoked.

    In a statement released by the Chinese embassy in Myanmar following Saturday's talks between Kerry and Wang, Beijing welcomed "the constructive role" played by the US in regional affairs, adding that it "hopes that the US can respect China's legitimate rights and interests in this region".

    As the forum ended, Indonesian Foreign Minister Marty Natalegawa said discussions with China had been positive.

    "The Chinese side has spoken of the need to have an early conclusion to the code of conduct," he told reporters.

    "Which is in stark contract to the recent past when they were not even willing to talk about it," he said.

    - 'Guns and butter' -

    Earlier Sunday Kerry also seized the chance to reassure his Japanese and South Korean counterparts over the US' commitment on a range of other security concerns, particularly over nuclear-armed North Korea.

    The US has called on Pyongyang to release two American citizens facing trial in North Korea and urged its nationals to avoid travel to the reclusive state.

    Pyongyang has also sent Foreign Minister Ri Su-Yong to attend the Southeast Asian meetings.

    The US said the impoverished state could not expect international economic assistance at the same time as pursuing nuclear weapons and conducting missile tests.

    "North Korea can't have both guns and butter," the State Department official said.

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    US pushes for an agreement to freeze hostile acts in waters contested by China and its Southeast Asian neighbours.

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