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Govt mulls $20bn defence deal with Japan

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Australia is close to buying up to 10 submarines from Japan for as much as $20 billion in a move that would turn the north Asian country into a weapons exporter for the first time since World War II. 

The deal, which senior defence officials said they expect to be signed this year, risks stoking regional tensions since it positions Tokyo as a major guarantor of Australia's security at a time when relations between China and some of its neighbours, including Japan, are strained. 

A purchase of Japanese submarines also sits uncomfortably next to the Abbott government's pre-election pledge last year to build a new fleet at home to help support the nation's struggling ship builders. On Monday, Prime Minister Tony Abbott said his government wanted to support the manufacturing industry, but not at the expense of national security. 

"The most important thing is to get the best and most capable submarines at a reasonable price to the Australian taxpayer," he told reporters. "We should make decisions based on defence requirements, not on the basis of industry policy." 

Toru Hotchi, director of the equipment-policy division at Japan's Defense Ministry, said, "Since Japan and Australia have reached an agreement concerning the transfer of defense equipment and technology in July, we are cooperating in various aspects." He declined to say whether that included submarines. 

Australia sees a submarine fleet as necessary to protect the country's vast maritime borders, as well as to defend sea lanes vital for its raw-materials exports, and to patrol some of the world's largest offshore oil-and-gas projects. 

Canberra has for some time expressed a strong interest in buying Japan's Soryu-Class stealth submarines to replace its own aging Collins-Class fleet of six boats, which face rising maintenance costs as they approach the end of their working lives.

The 4,200-tonne Soryu, or Blue Dragon, is the world's largest diesel-electric submarine, jointly built by Mitsubishi Heavy Industries and Kawasaki Heavy Industries. The boats are driven by an ultraquiet air-independent propulsion system that lets it operate underwater for almost two weeks at a time. 

The Australian-built Collins are among the world's biggest diesel-electric submarines and have longer range, but have been plagued over their 18-year lifespan by issues around noise and reliability. 

A decision to buy the Japanese submarines this year would be sooner than defence analysts had expected, given the government is due to publish a major defence-strategy blueprint early next year. 

While competing French and German submarines hadn't yet been completely ruled out, several senior defence figures told The Wall Street Journal that a decision on the Japanese vessels gained momentum following Japanese Prime Minister Shinzo Abe's July visit to Canberra, aimed at strengthening military ties amid China's regional muscle-flexing. 

"The exact details haven't been finalised," one of the officials said. "But it's very close -- before the end of this year. The Japanese are strong favourites." 

The Soryu submarines can travel for up to 11,000 kilometres before having to return to base. That is a shorter distance than the Australian government had originally hoped for, considering Canberra's wish to safeguard shipping routes through disputed waters in Asia, where China has recently jousted with Vietnam and the Philippines. 

One option Australia has is to shift its submarine port-and-maintenance facilities to Darwin, closer to other countries in Asia, from Perth and Sydney where they are currently situated. Such a base could also give better support to visiting US nuclear submarines, as Canberra looks to deepen security ties with its closest ally. 

It was unclear whether Australia would buy off-the-shelf boats built solely in Japan. Maintenance and possibly some fitout work would be carried out in Australia. 

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Coalition close to buying 10 submarines from Japan, deal could strain Chinese relations.

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Iron ore, coal face chronic price pain: Calderon

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Former senior BHP Billiton executive Alberto Calderon has warned Australia faces a permanent fall in prices for its major ­exports of iron ore and coal as growth in the Chinese economy becomes increasingly driven by private consumption.

And the Yale-trained professor of economics — one of the contenders for the top job at BHP that went to Andrew Mackenzie — said it would be wrong to pin economic hopes on the burgeoning LNG ­export industry because the gas was expensive, and there was a new supply challenge coming from Russia and the US.

Speaking last night at a Bloomberg forum in Melbourne, Mr ­Calderon painted a bleak outlook for Australia’s biggest ­export earners of iron ore, metallurgical coal and thermal coal, with the first two steelmaking raw materials. “On one side, we will see almost no growth in Chinese demand for iron ore, even if there is some growth in steel,’’ Mr ­Calderon said.

“On the other side, we are seeing a wall of iron ore supply being dropped in to the market by the large mining companies. It is not difficult to see why iron ore prices have collapsed and why they will go even lower.’’ Mr Calderon was previously part of BHP’s inner circle. Before leaving last year he was in charge of the ­aluminium and nickel division, as well as corporate development. He also continued on in a special advisory role to Mr Mackenzie for some time. His comments come as iron ore has collapsed from last year’s ­average of $US135 a tonne to a five-year low of less than $US84 a tonne.

Earlier in Sydney, one of Rio Tinto’s top executives warned of a continued challenging environment for thermal coal — the nation’s third biggest export — which is likely to expose a new source of pain for the resources sector.

Australia’s top three exports, valued at more than $100 billion annually, are all under severe price pressure. At its peak, thermal coal was priced at above $US130 a tonne, but it has fallen to around $US66 a tonne for coal shipped through Newcastle. For coking coal, also used in steelmaking, the price has fallen from more than $US300 a tonne to $US110.

Australia’s miners of the bulk commodities have been slashing costs to protect their margins but the price of thermal coal has hit a pricing point where it is expected that around 80 per cent of production is under water. “Coal producers here and around the world have taken a hatchet to their costs to survive and they’ll have to continue to do that over the foreseeable future,” Rio’s global energy boss, Harry Kenyon-Slaney said.

Mr Calderon said that with some certainty it could be that iron ore prices will revert to marginal costs, even overshooting in to the low $US70s for “some years’’.

Many iron ore producers would experience the same sort of pain that had for years characterised the aluminium and nickel industries, both of which China had worked at creating oversupply.

Mr Calderon noted that while 90 per cent of China’s energy growth used to be coal-based, it was now 80 per cent-based on ­nuclear, gas and renewables. “This is very good news for the ­environment and for climate change, not very good (news) for thermal coal,’’ he said.

Iron ore still overshadows metallurgical coal and steaming coal exports, coming in at about $US70 bn ($75bn) annually.

Mr Calderon said oversupply was the key factor in the price collapse. He stressed he was not talking about a contraction of the Chinese economy, rather a change in the mix of commodities required as China moves from its industrialisation phase to a consumer-driven economy. “The composition of growth will change significantly. Investment will not be the major driver of growth, it will be private consumption.’’ As China moves up the GDP per capita curve, there will be more demand for “middle income’’ commodities like copper, meat and corn at the expense of the “lower income’’ commodities of iron ore and coal.

“The challenge for Australia is how to move to the middle income commodities … Now is the time to dismantle the roadblocks to (again) allow productivity to increase and private investment to grow.’’​

This article first appeared in The Australian.

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Former senior BHP executive warns of permanent fall in prices of iron ore and coal.

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Iron ore price at new five-year low

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The price of iron ore has again failed to find support in overnight trade, slipping further away from the $US85 a tonne mark.

Benchmark iron ore for immediate delivery to the port of Tianjin in China is currently trading at $US83.20 a tonne, down half a per cent from its $US83.60 closing mark in the previous session.

The current price represents its lowest level since September 23, 2009 on the back of falls in the order of 40 per cent this year.

The commodity has barely paused for breath during a remarkable retreat over the past two-and-a-half weeks, with just one positive trading session in the last 16 as investors fret about surging supply from majors BHP Billiton, Rio Tinto and Vale at a time when Chinese demand is showing signs of fatigue.

The fall has already claimed two juniors in the iron ore space in Australia and is seen impacting a host of others, including US-based Cliffs Natural Resources, which has chosen an unfortunate time to offload its Australian iron ore assets.

"The big three [BHP, Rio and Vale] are in control, and there's not much you can do about it," Lourenco Goncalves, chief executive of Cliffs said earlier this week.

Analysts have largely been revising their forecasts lower in recent months, though Westpac’s chief economist Bill Evans yesterday bucked the trend by issuing a forecast for prices to rebound above $US100 a tonne next year.

Mr Evans also tipped a “probable jump above $US120 a tonne in 2016, according to The Australian.

A more downbeat assessment has been offered by Alberto Calderon, however, with the former senior BHP executive suggesting the price has further to fall.

“On one side, we will see almost no growth in Chinese demand for iron ore, even if there is some growth in steel,’’ Mr ­Calderon said.

“On the other side, we are seeing a wall of iron ore supply being dropped in to the market by the large mining companies. It is not difficult to see why iron ore prices have collapsed and why they will go even lower.’’

Mr Calderon suggested prices in the $US70s could be seen for the next couple of years.

Should that forecast come true it would represent a major risk to 13 mines in Australia, according to recent analysis from CLSA analyst Ian Roper.

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Commodity fails to rebound, reaches lowest level since September 23, 2009.

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UBS warns on China slowdown

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Australia should be prepared for a significant slowdown in Chinese demand for raw materials and bouts of financial volatility as the US Federal Reserve prepares to lift interest rates, a senior economist says.

“Sure there is lots of work to do on a 20- or 30-year horizon in terms of urbanisation … but for those really banking on China to continue to be a source of growth [in the] commodity sector, it’s not as pretty a picture,” said UBS ­global chief economist Larry ­Hatheway.

Mr Hatheway said China’s strong headline growth rate of around 7.5 per cent masked weakness in areas that mattered to Australian exporters.

“The [Chinese] property sector, which is terribly important for Australia, is in recession on almost every indicator you can look at — construction, demand for materials, iron ore prices, house sales, as well as house prices in many of the cities,” he said yesterday.

“We are seeing the end of an unsustainable boom in property that was unleashed mostly by the easing of policies in early 2009 and extended for several years thereafter.”

He suggested risks were compounded by growing financial risks in advanced countries.

“Fed policy is going to become harder to predict,” he said, flagging the possibility of “rate rage” as investors competed to find out how soon the Fed would increase rates.

“As we move beyond the taper we’ll get less unanimity among Fed members about when and how fast rates should go up.”

He suggested he would bring forward his expectation of the first US interest rate rise in the second quarter of next year if US jobs grew faster than 225,000 a month.

Mr Hatheway said Australia could expect its dollar to decline to US85c, or even as low at US80c, as commodity prices eased, paving the way for a “rebalancing” of the country’s economic growth.

“Foreigners when they look at Australia are asking can it rebalance in a period of extended weakness for raw materials.

“Given comparatively high level of unemployment in Australia, weak household income formation, cutting rates might be appropriate,” he said, suggesting the introduction of “macroprudential” tools to limit home lending could be used to dampen house price growth.

“Can it actually engineer a rebalancing via a weaker currency with what is a very robust property market and relatively elevated property prices,” he said.

Visiting Sydney for internal client presentations, Mr Hatheway dismissed fears US stock prices were built on the Fed’s quantitative easing, noting earnings grew even faster than the S&P500 between early 2009 and 2012.

“I think investors are more comfortable that the US economy is on a sustainable path and reflects better confidence,” he said, pointing to heightened merger and acquisition activity.

This article first appeared in The Australian.

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Bank's chief economist says RBA rate cuts 'might be appropriate' to counter risks.

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Why Australia's relationship with Japan infuriates China

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The week began with China’s Foreign Minister Wang Yi firing an opening shot at the Abbott government by declaring that his country “may not be Australia’s closest friend at the moment” but argued that China “is surely Australia’s most sincere friend”. These comments are clearly a belated riposte to Prime Minister Tony Abbott’s declaration late last year that Japan was Australia’s “best friend” in Asia.

As Business Spectator readers will know, relations between China and Japan have deteriorated considerably over the past five years. In this context, Beijing will not have been pleased about Abbott’s comments officially ranking relations with Japan above that of every other country in the region, including China.

Even if many diplomats do not approve of their leaders ranking relations with one country over another, the reality is that most of the region would agree with Canberra’s decision to elevate the bilateral relationship with Japan amid deepening suspicions and wariness of China.

The first point to be made is that if China is seeking to improve relations with Australia, then taking a dig at a foreign government’s declaration during a time when one is a guest of that country is hardly a productive way to begin.

After all, has any other country in Asia taken a dig at Abbott? The fact is that Australia’s relationship with every other country (including Indonesia) is not worse off -- and in many cases is better off -- than it was prior to the Coalition winning the federal election in 2013.   

Secondly, looking at how the countries and governments relate to each other, Japan’s relationship with Australia is objectively superior to that of China’s in almost every conceivable way.

It is true that China is the largest buyer of Australian commodities, but that is not the essence of friendship and trust between countries. China is the largest trading partner of Japan, Vietnam and India, yet its relationship with these three countries has worsened considerably over the past several years.

Japan is far more important as an investor in Australia -- and Australia in Japan -- than China. Foreign direct investment matters because it is a long-term relationship between economic and commercial entities. Do you have more skin in the game when you frequent a restaurant, or when you actually invest in that restaurant?

One can take other measures of intimacy and friendship: consider the international priorities that reflect both national interests and values. There is barely any difference between the voting directions and positions taken by Australia and Japan at bodies such as the UN, East Asian Summit and other regional forums. The same applies when they endorse or condemn military action by other countries.

That can hardly be said about China and Australia. Japan and Australia see eye-to-eye on almost all human rights and human security issues. This is not surprising since both countries share very similar political systems and moral world views to each other, unlike China.

Australia and Japan also have the same security allies and partners and are close enough to increasingly share sensitive intelligence and military technologies.    

Even if one were to use Wang’s standard of the most “sincere friend”, Japanese government entities, unlike Chinese counterparts, do not hack into the networks of Australian governments, corporations and citizens.

Nor do sincere friends ask each other to ‘choose’ between our decades-old alliance with the US and a relatively new friendship with China, as senior Chinese government and military officials have done in the recent past.

Thirdly, and despite Wang wanting to make an issue out of it, Australia’s favourable view of Japan is replicated throughout the region. A July 2013 Pew Global survey revealed that 90 per cent of Chinese respondents (and 77 per cent of South Korean respondents) viewed Japan unfavourably. But this was against the grain in the region, with 80 per cent of Malaysians, 79 per cent of Indonesians and 78 per cent of Filipinos and Australians viewing Japan favourably.

The Pew survey is consistent with another one conducted by Ipsos Hong Kong (commissioned by the Japanese Ministry of Foreign Affairs but using methodology determined solely by Ipsos.) Of the 2,144 surveyed in Indonesia, Malaysia, the Philippines, Singapore, Thailand, Vietnam and Myanmar, Japan was nominated as the ‘most reliable’ major country, beating 10 other countries including the US, China, India and several European countries.

Moreover, Wang’s "most sincere friend" claim would have little credibility in the region. In a July 2014 Pew Global survey, 83 per cent of South Korean respondents were ‘very concerned’ or ‘concerned’ that territorial and/or maritime disputes involving China could lead to military conflict. In Japan, the figure was 83 per cent, 93 per cent in the Philippines, 84 per cent in Vietnam, 72 per cent in India, 66 per cent in Malaysia, 55 per cent in Bangladesh, 52 per cent in Indonesia, and 50 per cent in Thailand.

Needless to say, views that China is a “sincere friend” are not widely held in the region. The point is that those criticising Australia for wanting closer relations with Japan rather than China should take a closer look at what is happening throughout the whole region. 

Finally, one should note that governments in China, and to a lesser extent South Korea, have tried hard to use wartime history in demonising modern-day Japan for domestic political purposes; and in China’s case, also for strategic advantage. Many of the countries surveyed in the aforementioned surveys suffered greatly at the hands of the Japanese during World War II.

While governments in most countries have not allowed still-open sores from World War II to colour every interaction with Japan, governments in China and South Korea have done the opposite in recent times by insisting that interaction with Japan be viewed predominately through that wartime lens.

For Beijing and Seoul, this has been for domestic political advantage: taking the genuine war wounds and trauma that still exist in their societies and exploiting these to position themselves as defenders of national slights against a demon country in the neighbourhood.

Beijing has also demonised Japan for strategic reasons -- something the Abbott government is seemingly well aware of. Raising the pre-war spectre of a ‘remilitarised’ Japan is done to restrict regional support for contemporary Japan playing a larger strategic and political role in Asia.

This is to China’s advantage, since the US-Japan alliance is the key bilateral relationship in the US-led regional alliance system. As the most formidable stand-alone Asian power in that alliance system, Japan adds considerable weight to attempts at balancing Chinese power.

A permanently restrained Japan would make Chinese plans to weaken the alliance system and ease the US out of Asia as a strategic player that much easier. In contrast, a reinvigorated Japan, and the reinvigoration of Japanese relationships with the US and security partners such as Australia makes China’s task that much more difficult.

Incidentally, it is for this reason that Seoul allows Japanese wartime atrocities to cast a shadow over its interaction with Tokyo. This move is counterproductive to Seoul’s strategic aim of strengthening the US-led alliance system in the region, even if the South Korean government obtains short-term political pay-offs for doing so. 

In any event, this is the reason why Abbott’s labelling of Japan as Australia’s best friend, and making good a series of meaningful defence and intelligence agreements so annoys Beijing.

Other countries might not choose to rank relationships in the region, but they are almost all supportive and welcoming of not just a more confident and proactive Japan, but also the deepening Australia-Japan defence relationship. With respect to the latter, the US, India, Singapore, Malaysia, Vietnam, the Philippines and Indonesia are doing the same.

Australia needs a good relationship with China. But it should not, and need not, come at the expense of the relationship we want with Japan. 

Dr John Lee is an adjunct associate professor at the University of Sydney, a senior fellow at the Hudson Institute in Washington DC, and a Director of the Kokoda Foundation defence and security think-tank in Canberra.    

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Beijing is demonising Japan for strategic reasons, but the Abbott government refuses to play ball.

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Will Alibaba's unique formula impress investors?

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Jack Ma has always been precocious. When the founder of China’s e-commerce giant Alibaba was only 12 years old he became interested in learning English. This desire was so great that he spent the next eight years riding his bike for 40 minutes every morning to a hotel near Hangzhou’s West Lake to practice his speaking skills with foreign tourists.

Ma’s life fundamentally changed in 1979 at the age of 15 when he met an Australian family by the lake. They spent the next three days together, getting to know each other while playing frisbee. A few years later they invited him to Australia for a month-long summer holiday. Ma says the 31 days he spent there changed his life.

"Before I left China, I was educated that China was the richest, happiest country in the world,” Ma told Inc. magazine. “So when I arrived in Australia, I thought, 'oh, my God, everything is different from what I was told'. Since then, I started to think differently.”

Fast-forward to today and Ma’s company Alibaba is poised to take on the world. That chance encounter with an Australian family proved to be pivotal point that propelled Ma on a path that would see him go from English teacher to the chief executive of the largest e-commerce company on the planet.

Ma and his executives have now embarked on a roadshow throughout the US to reveal how the e-commerce industry is different to what they’ve been told.

After a flurry of deals in recent months, the company has become somewhat of a behemoth, encompassing a wide variety of often seemingly unconnected industries from movies to sports, with their recent purchase of a 50 per cent stake in China's Guangzhou Evergrande soccer team.

At the core of its business is its popular e-shopping platform Taobao, which has more than 90 per cent of the online market for consumer transactions in China. According to its latest filing, the company made a profit of nearly $US2 billion on revenue of $US2.5bn in the quarter ending June 30.

The full extent of the Alibaba ecosystem is mind-bogglingly complex as quartz points -- the company isn’t simply China’s Amazon, it’s also China’s Dropbox, PayPal, Uber, Hulu, ING Direct, and more.

The other crucial part of Alibaba’s sales pitch is to ease potential investor concerns about governance issues at the company and Ma’s now infamous unilateral decision in 2010 to spin-off its online payment service Alipay.

The company’s use of a variable interest entity structure to get around China’s foreign ownership laws is also cause for concern among investors (Is investing in Alibaba too risky? June 25).

Ma is reported to have taken those issues on in a presentation to potential investors in New York yesterday. Some reports indicate that while his defence did not go into a great amount of detail, Ma came off as “charismatic” nonetheless.

Former Alibaba vice-president Porter Erisman recently told China Spectator that the company’s corporate governance structure was adopted to help it from making the same mistakes of other companies that had gone before it.

“The reason we were so determined to do this was because we had watched a number of our competitors follow Wall Street expectations right off a cliff,” he said.

Most of the business-to-business marketplaces that were around in the early days of Alibaba’s existence became bankrupt because they were trying to please investors rather than customers, Erisman says.

At the time, Alibaba was able to vanquish eBay as a competitor in the e-commerce space because, unlike the US competitor, it was not beholden to investor expectations.

“We knew that eBay could not keep their website free because Wall Street investors were going to put pressure on them to generate revenue in the short term but we always knew that we had set the goal that the company would last 102 years not just 102 months” he says.

But Erisman thinks the company has done a poor job of explaining that the structure is about maintaining the company culture that has served them so well and keep the business focused on the long-term.

“Because they’re a Chinese company sometimes, maybe, they’re described as trying to protect the management from the investors,” Erisman says.

“The way I think they should see it is that they’re trying to protect the long-term investors from the short-term investors and the day traders.”

Ma has long maintained that the company’s guiding principle is to put the customer first, employees second and shareholders third. The formula has worked until now and it looks likely investors will buy it.

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The multi-pronged e-commerce offerings of China’s Alibaba and its unique guiding principle could see investors clamour to get a piece of the action.

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Aust personnel serve on Chinese ship

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Two Australian Defence Force medics are aboard a Chinese navy hospital ship on a mission to deliver health services to Vanuatu and Papua New Guinea.

The medical officers, one army and one navy, have joined Peoples' Liberation Army Navy hospital ship Peace Ark on its assistance mission in the south Pacific, Defence says.

The deployment is the result of an invitation from the second-in-command of China's military, General Fan Changlong, during his visit to Australia in July.

It began on August 31 and will end on September 11.

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Two medical officers have joined ta Chinese hospital ship on an assistance mission in the south Pacific.

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China is Ikea's fastest growing market

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Ikea, the world's largest furniture retailer, says its sales are growing globally, with China now its fastest growing market.

The Swedish company says sales rose nearly 6 per cent to 28.7 billion euros ($A43.05 billion) in the year through August. The company has been opening new stores in China, where spending has been on the rise in recent years.

Chief executive Peter Agnefjall said on Tuesday they "continue to see positive signs in consumer spending and it's a great joy to report growth in almost all our markets".

Agnefjall said he saw "great opportunities for continued growth".

The privately-held company gave no more details, and will publish its full report for the fiscal year ending August 31 only in January.

The group has 315 stores in 27 countries.

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Swedish company says sales rose nearly 6 per cent to 28.7 billion euros ($A43.05 billion) in the year through August.

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Alibaba sees mobile games as latest trove

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As Alibaba Group kicks off a U.S. initial public offering that could raise as much as US$24 billion, the Chinese e-commerce company is charging into new areas to keep its growth momentum strong.

Alibaba's latest venture is in mobile games, where in recent months the company has bought a stake in a U.S. mobile-game publisher, teamed up with Chinese and foreign game developers and aggressively hired staff in China as well as other countries such as South Korea.

Alibaba is going into mobile games to boost revenue and stay ahead in China's fiercely competitive Internet market, where its chief rival, Tencent Holdings, has a leading position in online games. In its battle to win over consumers, Alibaba is offering mobile games to keep smartphone users engaged even when they aren't shopping on its e-commerce sites.

For Alibaba and other Chinese Internet companies, the growing popularity of mobile games makes the market too attractive to ignore. China already has more than 350 million mobile gamers -- more than those in the U.S. and Japan combined, according to research firm Newzoo. The firm expects China's mobile-game revenue to nearly triple to US$6.6 billion in 2016 from US$2.28 billion last year, overtaking the U.S. and Japan as the world's largest market. Newzoo projects U.S. revenue in 2016 to reach US$6.4 billion and Japan revenue to hit $6.1 billion.

Alibaba only started offering games through its Mobile Taobao shopping app and Laiwang messaging app in January. But even latecomers have opportunities to build sizable businesses, as the market is still developing, says Vincent Cheuk, a China technology partner at PricewaterhouseCoopers.

Alibaba doesn't disclose its revenue from mobile games. More than 95 per cent of its total revenue of about US$2.5 billion in the second quarter came from its e-commerce businesses. By comparison, rival Tencent, whose main businesses are games and social networks, derived the majority of its $3.2 billion in second-quarter revenue from games played on personal computers and mobile devices.

Alibaba is "very focused on becoming one of the top players," in China's mobile-game market, said Kevin Chou, chief executive of U.S. mobile-game company Kabam Inc., in an interview. In late July, Alibaba agreed to buy a roughly 10% stake in Kabam for $120 million and got a seat on the San Francisco-based company's board.

Kabam, whose shareholders include Time Warner Inc.'s Warner Bros. and MGM Holdings Inc., is known for movie tie-in games. Early next year, Kabam will start distributing a mobile-game spinoff of Warner Bros.' Hobbit series in China through Alibaba's mobile apps. When the latest film in the Hobbit series, "The Hobbit: The Battle of the Five Armies," hits theaters in China, people can play the game and also buy movie tickets on Alibaba's mobile apps, Mr. Chou said.

Alibaba and Kabam have also discussed plans to distribute Kabam games through UCWeb Inc., a Chinese companyAlibaba took full control of in June. UCWeb, which runs one of the major mobile-game platforms in China, will be a significant driver of Alibaba's game business, analysts say.

Last week, a new game in the Angry Birds series from Finland's Rovio Entertainment Ltd. became available on threeAlibaba mobile apps. South Korean game developers Pati Games and 4:33 also say they plan to distribute some of their games through Alibaba's mobile apps in China.

"I heard they [Alibaba] are meeting up with multiple gaming companies here," said an official at a South Korean mobile-game company, which has held talks with Alibaba, but declined to provide more specifics.

Alibaba declined to comment, citing a quiet period ahead of the company's IPO.

Job listings on Alibaba's website now include dozens of game-related positions including programmers, marketers, strategists, data analysts and legal experts.

In Seoul's posh Gangnam district, Alibaba set up a new office a few months ago that focuses on finding South Korean mobile-game partners. It recently hired Coco Hwang, who joined this year from rival Tencent, and Tony Park, a former vice president of Shanghai-based online game company The9 Ltd.

To woo game makers quickly to its mobile platforms, Alibaba is letting them pocket 70 per cent of the revenue generated by each game they supply--more than what many other game platforms offer. Tencent mobile-game executive Bo Wang said in a recent interview that the company's revenue-sharing terms vary for different games, but declined to give specifics.

Alibaba's foray into games still faces challenges. The Chinese company and its partners are trying to figure out how to appeal to Alibaba's app users, who want to shop, not necessarily play games, said Jeff Lyndon, a co-founder of Chinese game publisher iDreamSky, which distributes games through Alibaba, Tencent and other platforms.

One attempt to bridge the shopping-gaming divide is "Nikki UP2U: World Traveller," a game on Mobile Taobao that allows players to dress up characters in various costumes. For this game, Alibaba teamed up with clothing brands that run stores on its Tmall online-shopping site and made it possible for players to buy the same clothes as the ones they pick for the game's characters.

Alibaba needs some time to build up its mobile-game business, even though its large e-commerce customer base is an advantage, said Chang Tianren, an executive at Chinese game publisher Kongzhong.

"Even for Tencent, it took years to build its gaming empire."

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E-Commerce giant aims to keep smartphone users engaged even when they aren't shopping on its sites.

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China deploys troops in South Sudan to defend oil fields, workers

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China began deploying 700 soldiers to a United Nations peacekeeping force in South Sudan to help guard the country's embattled oil fields and protect Chinese workers and installations, a spokesman for the African nation's president said Tuesday.

The airlift of the Chinese infantry battalion to the South Sudanese states of Unity and Upper Nile, the site of the only operating oil fields still under control of the central government in Juba, was expected to take several days, spokesman Ateny Wek Ateny said.

While Beijing's troops will operate under U.N. command, their posting to South Sudan marks a sharp escalation of China's efforts to ensure the safety of its workers and assets in Africa, and guarantee a steady flow of energy for domestic consumption.

The deployment marks the first time Beijing has contributed a battalion to a U.N. peacekeeping force, U.N. officials said. In March 2013, China sent some 300 peacekeepers to Mali to protect Chinese engineers building a U.N. camp in the town of Gao.

State-owned China's National Petroleum Corp. holds a 40 per cent stake in a joint venture that operates South Sudan's vast oil fields. The company also operates a 1,000-mile export pipeline that ships crude through neighboring Sudan to Port Sudan on the Red Sea.

More than 10,000 people have been killed and some 1.5 million uprooted from their homes in South Sudan since fighting erupted in December between President Salva Kiir and forces loyal to the former vice president, Riek Machar.

The U.N. Mission in the Republic of South Sudan (UNMISS) is authorized by the Security Council for up to 12,500 troops and 1,323 police personnel. As of July 31, it had a total of 11,389 soldiers, police and military liaison officers.

Under its mandate, U.N. peacekeepers are allowed to use "all necessary means" to protect imperiled civilians at oil installations. If attacked, Mr. Ateny said, the Chinese soldiers are "combat ready and can fight back."

Rebels fighting to depose Mr. Kiir's government have warned Beijing against taking sides in their fight.

"The Chinese should work under the mandate and command of the (U.N.)," said rebel spokesman, James Gatdet Dak. "As long as they stick to that, we shall not have a problem with them."

The greater Sudan region has been a caldron of unrest for the past several years, with the kidnappings of Chinese workers by rebels in Sudan and civil war in South Sudan, which gained its independence from its northern neighbor in 2011.

Sudanese rebels in the South Kordofan region kidnapped dozens of Chinese road construction workers in 2012 and demanded that Beijing use its influence to compel the Khartoum government to halt an offensive against the rebels.

China's National Petroleum Corp evacuated 97 of its staff from South Sudan's oil fields in December, shortly after Mr. Kiir accused Mr. Machar, his former vice president, of launching a coup and fighting broke out. Since then, they have waged an 8-month battle, often over strategic oil fields.

Before the latest fighting in South Sudan flared, the country accounted for 5 per cent of China's crude imports, according to U.S. Energy Information Administration. Output has since plummeted by a third--to 160,000 barrels-a-day--following the outbreak of fighting late last year.

China has sought diplomatically to ease tensions in the region. Beijing's envoys were key to resolving last year's oil export dispute between Sudan and South Sudan, which brought the two former civil war foes to the brink of war.

But the outbreak of the current conflict presents Beijing with a new challenge.

Chinese officials have been working closely with western envoys to help end fighting between Mr. Kiir and his former vice president, even as both sides accuse the other of breaking cease-fire deals.

With few if any private security companies operating in the area, the task of protecting China's state-run companies--and their billions of dollars of investments--has increasingly fallen to the Chinese military.

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Deployment marks sharp escalation in Beijing's efforts to protect interests in Africa.

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Exports of French wine and spirits drop sharply

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Exports of French wine and spirits dropped sharply in the first half of the year, hit by the dramatic slowdown of demand for pricey drinks in China, a setback for a key French export sector.

Exports of wines and spirits--one of France's top 10 exports--fell 7.3 per cent to EUR4.8 billion (US$6.2 billion) in the first six months of the year, according to data released Tuesday by the Federation of Wine and Spirit Exporters.

Exports of wines and spirits to China fell nearly 30 per cent as sales for expensive drinks, such as cognac and Bordeaux wine, tumbled. Chinese consumers have refrained from buying expensive bottles since the Chinese government's austerity campaign banned extravagant gift-giving among officials last year. The crackdown has hit profits at large foreign drink makers, including France's Pernod Ricard SA and Rémy Cointreau SA.

Executives from large drinks makers have predicted Chinese demand to pick up again next year and Pernod Ricard said last month it has seen signs of improvements in the latest quarter.

Exports of spirits fell 9 per cent, dragged down namely by a drop in cognac exports, which has suffered particularly hard amid the Chinese campaign. Rémy Cointreau, which depends for the bulk of its revenue and profit on its flagship Rémy Martin cognac, has been among those hardest hit by the Chinese slowdown as the company saw its profits halve last year.

Exports of wines fell 7 per cent as growth in Champagne exports helped stem some of the declines in high-end Bordeaux wine.

Exports of Bordeaux wine fell 28 per cent in the first half. China has become France's main export destination for wine recently. Between 2009 and 2014, exports of wine to China more than doubled as more wealthy Chinese began to collect French wines.

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Key export sector hit by slowdown in demand from Chinese consumers.

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Chinese not inflating house prices: ANZ

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Asian investors are not to blame for rising property prices in Australia, says the head of ANZ's Australian operations.

Property prices have leapt by more than 10 per cent in the past year, with cashed-up Asian investors and superannuation funds being blamed for fuelling the rises.

However ANZ Australia chief executive Philip Chronican says in his view, most of the problems in the local property market were on the supply side, not the demand side.

"I think the reality is that other than in very small pockets of the country, none of these forces is large enough to drive the market as a whole," he told a business lunch on Wednesday.

Mr Chronican said demand from China for Australian real estate was partly a result of Chinese parents seeking housing for their children while they were studying in Australia.

He said he was aware of the local sensitivity around foreign investment in the Australian property market.

But in an open economy such as Australia's, one could not cherry-pick what sort of investment one wanted to have.

Mr Chronican said that over time, Australian businesses would benefit from an increase in foreign direct investment, especially from China as the financial system in Asia opened up.

ANZ estimated that the stock of Chinese direct investment in Australia could be worth up to $200 billion by 2030.

While the Chinese had been mostly interested in investing in the mining and property sectors in Australia, they would start to turn their attention towards investment in the manufacturing, finance and services sectors.

Mr Chronican also said Australian businesses needed to deepen their engagement with Asia.

He said the main thing holding back Australian enterprises from exploring opportunities in Asia was "fear of the unknown".

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ANZ chief Philip Chronican says Asian investors aren't to blame for rising property prices.

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Asians buyers 'not to blame' for property prices

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Asian investors are not to blame for rising property prices in Australia, says the head of ANZ's Australian operations.

Property prices have leapt by more than 10 per cent in the past year, with cashed-up Asian investors and superannuation funds being blamed for fuelling the rises.

However ANZ Australia chief executive Philip Chronican says in his view, most of the problems in the local property market were on the supply side, not the demand side.

"I think the reality is that other than in very small pockets of the country, none of these forces is large enough to drive the market as a whole," he told a business lunch on Wednesday.

Mr Chronican said demand from China for Australian real estate was partly a result of Chinese parents seeking housing for their children while they were studying in Australia.

He said he was aware of the local sensitivity around foreign investment in the Australian property market.

But in an open economy such as Australia's, one could not cherry-pick what sort of investment one wanted to have.

Mr Chronican said that over time, Australian businesses would benefit from an increase in foreign direct investment, especially from China as the financial system in Asia opened up.

ANZ estimated that the stock of Chinese direct investment in Australia could be worth up to $200 billion by 2030.

While the Chinese had been mostly interested in investing in the mining and property sectors in Australia, they would start to turn their attention towards investment in the manufacturing, finance and services sectors.

Mr Chronican also said Australian businesses needed to deepen their engagement with Asia.

He said the main thing holding back Australian enterprises from exploring opportunities in Asia was "fear of the unknown".

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Head of ANZ's Australian operations says most problems in property market are on the supply side.

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Beijing confident on 7.5% growth

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China is on course to hit its annual growth target of about 7.5 per cent this year, Chinese Premier Li Keqiang said, as he sought to reassure a high-profile gathering of Chinese and overseas executives that the world's No. 2 economy continues to welcome foreigners and remains committed to reform. 

The comments by Mr Li at a gathering of the World Economic Forum come as more foreign companies in China express worries. Recent polls by business groups show rising concerns about the country's slowing economic growth, the pace of reform and stepped-up enforcement of the country's pricing and antitrust laws. 

"We are committed to pressing ahead with reform even though it is not an easy thing," Mr Li said, speaking in the northeastern Chinese city of Tianjin. "Just like an arrow shot, there will be no turning back." 

In remarks following the speech, he reiterated China's stance that it treats foreign and domestic companies equally when it enforces the law. 

China's economic planners, long used to exceeding targets by a couple of percentage points, have faced tough sledding this year. First-quarter growth came in at 7.4 per cent compared with a year earlier, its slowest pace in 18 months, prompting targeted stimulus measures such as loosened lending and spending on rail and housing projects. 

Second quarter growth rose slightly to 7.5 per cent, but measures of trade, property prices and manufacturing activity show momentum has slipped again, raising questions about the sustainability of Beijing's growth-fanning measures. Some economists expect China to ramp up targeted stimulus measures during the rest of the year to hit the 7.5 per cent target. 

At a separate event, Ma Jun, chief economist at the research bureau of China's central bank, said that while exports and fiscal spending have helped support growth, the flagging property market will drag down investment. 

In his speech, Mr Li said Beijing is pursuing numerous beneficial goals, ranging from expanded green energy and red tape reduction to financial reform and technological innovation. He added that the government has made strides cutting red tape, encouraging service industries and tackling its environmental problems. 

In particular, he said, China has cut its carbon intensity -- a measure of its fuel efficiency -- by about 5 per cent during the first six-months of 2014 compared with a year earlier. He described the fall as "the largest drop in many years." 

Mr Li said that employment -- a major focus of Beijing -- remains solid even as growth has slowed. The unemployment rate in 31 big and medium-size cities was 5 per cent, he said. 

A survey released at the meeting by employment firm ManpowerGroup said employment in China will continue to grow but that the outlook is at its weakest level in five years. "We're seeing higher wages, increased productivity and less demand," Jeffrey Joerres, the company's executive chairman, said in an interview. Higher wages and productivity can boost the economy in the longer-term, but they also put more immediate pressure on hiring. 

China has twice this year lowered the amount of reserves that banks must hold with the central bank in ways that loosen lending for specific industries such as agriculture, Mr Li said. China's broadest measure of money supply, M2, was up 12.8 per cent on year at the end of August, marking the slowest growth in five months. 

Mr Li said China will continue to innovate and push into higher-value industries even as it continues to benefit from and support the global order. "The Chinese economy is resilient and has ample room to grow," he said, adding: "The world need China, and China needs the world." 

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Chinese Premier says nation still on track to hit growth target for 2014.

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Iron ore price in fresh slump

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The price of iron ore has sunk to new depths overnight, losing another 1.2 per cent to hit a fresh five-year low.

Benchmark iron ore for immediate delivery to the port of Tianjin in China is currently trading at $US82.20 a tonne, down sharply from its $US83.20 closing mark in the previous session.

The commodity has now lost 40 per cent on the year and has seen just one positive trading day in the past 17 amid concerns about rising supply from Rio Tinto, Vale, BHP Billiton and Fortescue Metals Group and weakening demand from key customer China.

The latest falls followed a revision to pricing estimates from Goldman Sachs, with analysts at the investment bank suggesting more pain could be in store.

“The price decline has been dramatic, but a weak demand outlook in China and the structural nature of the surplus make a recovery unlikely,” Goldman analysts Christian Lelong and Amber Cai wrote in a note titled ‘The End of the Iron Age’.

“Lower prices for iron ore and steel are unlikely to boost demand in a material way. Instead, the day when steel production in China will peak gets ever closer.”

Goldman, while retaining its forecast of $US80 a tonne for 2015, reduced its 2016 forecast to $US79, from $US82, and its 2017 outlook to $US78, from $US85.

The latest developments have seen Macquarie Bank analysts lower their profit forecasts for BHP, Rio and Fortescue, with the profit hit set to come close to $10 billion over the next two years, according to The Australian.

The one silver lining in the commodity’s retreat this week for local miners has been a similarly large fall in the value of the Australian dollar. The unit is now trading comfortably below US92c after holding above the US93c mark as the initial falls in the iron price were realised in recent weeks.

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Commodity loses more than 1% on lower forecasts, hits new five-year low.

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Hong Kong voting rights on agenda at UN

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The United Nations' human rights body says it will take up the issue of voting rights in Hong Kong, where activists are railing against Beijing's move to vet local candidates.

The Human Rights Committee, which monitors respect of an international treaty on civil and political rights, will hold a public session on the thorny issue on October 23, spokeswoman Elizabeth Throssel told AFP on Wednesday.

The news follows an announcement by China late last month that Hong Kong's next leader will be vetted by a pro-Beijing committee, dashing hopes for genuine democracy in the former British colony.

The standing committee of China's National People's Congress, or parliament, said candidates for Hong Kong's leadership election in 2017 would be chosen by a pro-Beijing committee.

Democracy activists have warned this will effectively ensure that only pro-Beijing candidates can stand for the position and have vowed a new "era of civil disobedience" to fight for greater democratic freedoms in the semi-autonomous financial hub.

The Human Rights Committee's spokeswoman said the UN body was not reacting to recent developments in adding Hong Kong to its agenda, calling it a follow-up to a review of China's rights record conducted last October.

During that review, the UN body urged Beijing and Hong Kong to "take all necessary measures to implement universal and equal suffrage," and gave them a year to report back on how they were implementing that and other recommendations.

On October 23, the committee will hear from China, Hong Kong and a range of organisations before determining whether any progress is being made.

The committee's findings will be made public at the end of the session on October 31.

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Human Rights Committee says it will take up the issue of voting rights in Hong Kong.

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Will CBA’s Maoist Chinese strategy pay off?

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Lankao is a relatively poor county in China. But it has a special place in Communist mythology: it is where the legendary and selfless cadre Jiao Yulu worked and died. His deeds have been eulogized in Chinese propaganda films and literature and by chairman Mao himself. 

While it may be a famous county in China, it's about to become a lot more well known among Australians, thanks to Commonwealth Bank of Australia. The bank recently received a license to operate a fully-owned bank in the county, highlighting its bid to expand aggressively in China’s vast hinterland.

CBA is focusing on two particular regions with its expansion: the Henan and Hebei provinces (Langkao is a county in Henan). The former is an agricultural province with 100 million inhabitants and the latter is the steel-producing capital of the world. The bank is tactically avoiding the crowded markets of Beijing, Shanghai and the eastern seaboard in favour of China’s under-banked and under-serviced regional areas.

To date CBA has 15 wholly-owned or controlled county banks.

When the CBA board visited China recently it didn’t even go to any megacities, instead it visited cities that few people had heard of before such as Zhengzhou, Shijiazhuang and Jiyuan. 

Simon Blair, the group executive in charge of international financial services, explains to China Spectator why the bank is pursuing this regional strategy.

“Foreign banks are tightly controlled in terms of ownership structure if they play in the traditional space like trade finance,” he says. “But you can still do a lot more by being a bit more flexible by looking at owning 80 or 100 per cent of county banks.”

Though foreign banks account for less than 2 per cent of total banking assets in China, Blair thinks there is more opportunity for foreign banks than many  commentators realise. One area that the bank has identified is the credit-starved small and medium-sized enterprise sector.

Chinese SMEs are struggling to access credit in China despite their explosive growth and contribution to the economy. Analysts estimate their funding costs to be about 15 per cent, significantly higher than the central bank’s official rate of 6 per cent (China’s SMEs struggle to jump the credit hurdle, August 28).

Blair explains CBA’s regional strategy, which focuses on the banking needs of SMEs and agribusiness, is aligned with Beijing’s national economic agenda, which is also becoming increasingly focused on SMEs as well as central provincial areas and agriculture.

“Historically, SMEs haven’t had a great opportunity to access lending” he says. “What we are trying to do in Asia is focus on SMEs and that is where we can add value.” Blair explains there are certain misconceptions about the banks strategy.

“A lot of people when they hear about our strategy in China, because county banks are in small locations, people often think about them as the Albury-Wodonga's of the world,” he says. But many regions where CBA operates in the country are cities with more than one million inhabitants.

CBA’s regional strategy can be compared to Mao’s guerrilla tactic of using the countryside to encircle and finally capture the cities. Chinese telecommunication giant Huawei has effectively adopted this strategy to conquer both domestic and overseas markets.

One of the biggest issues for analysts looking at Chinese banks at the moment is about their deteriorating credit quality. Almost no one believes Beijing’s official claim that Chinese banks are able to maintain a national average of non-performing loan at about 1 per cent of their banks.

Blair, who sits on the board of Hangzhou City Commercial Bank -- which is 20 per cent owned by CBA -- gives China Spectator his views on the official non-performing loan figure.

“Do I actually think the Chinese national average is still one? I would say it is a bit optimistic,” he says as diplomatically as he can. “There are other places where NPL figures may not be accurately reported.”

The banker explains that there is no doubt that the non-performing loan ratio has been under a lot of pressure lately. However, he says CBA is monitoring these figures “very, very closely” at its partially-owned banks -- Hangzhou City Commercial bank and Qilu Bank -- and he is confident Hangzhou Bank’s NPL of 1.4 per cent is accurate.

Apart from watching out for non-performing loans, another big challenge for CBA in China is to keep a close eye on the two Chinese banks. One of them was hit by a massive scandal in 2011 when its management was cleaned out after the discovery of a $227 million commercial paper fraud.

CBA is trying to strengthen credit and risk management infrastructure at these two banks, including sending executives to work there. Currently, the head of retail banking at Hangzhou Bank and the head of SME banking at Qilu Bank are CBA employees on secondment. Until recently, the bank had also appointed a chief risk officer to Qilu.

“As a result of that, we have a pretty good idea of what is going on. Not all foreign banks with this type of strategic partnership have executives working in there,” he says.

Of the big four banks, CBA alone has adopted an unusual China strategy by focusing on regional opportunity. It is interesting to see whether its Maoist strategy would work.

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Commonwealth Bank’s guerrilla tactics of circling provinces before zeroing in on the cities is an unusual approach to take in its Chinese expansion. And it just might work.

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The dangerous combination that could end Australia's lucky run

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Fasten your safety belts -- Australia is set for a ride we have not experienced for decades. In blunt terms, we will either see a sharp fall in the dollar or we will run into a recession.

If Stephen Bartholomeusz is right about the extent of looming iron ore capacity excesses and former chairman of the Federal Reserve Alan Greenspan is right about what's going to happen in China, then we are in for a rough ride.

Australia was always going to face a tough time given the end of the mining investment boom, the government’s closure of automotive manufacturing and the retrenchments coming from corporate labour shedding. But we had some pluses, including infrastructure spending.

But now comes a dramatic slump in iron ore revenues. Australia rides on the back of iron ore, coal and gas. Gas prices are linked to oil, which is falling. But the position in iron ore is more serious. 

The iron ore price has already fallen 40 per cent, but Stephen Bartholomeusz’s commentary reveals staggering overcapacity looming for the industry, which could see the price fall much further before stabilising at low levels (The worst is yet to come for our miners, September 10). Last night the metal fell again (Iron ore price in fresh slump, September 10).

Bartholomeusz totals the truly enormous expansions coming in the iron ore pipeline: Brazil’s Vale will lift production by 130 million tonnes a year by 2018; Rio Tinto and BHP Billiton combined plan to add a similar tonnage to their already greatly-increased outputs; Gina Rinehart’s Roy Hill will lob 55 million tonnes on the market starting next year. Including other projects, we are looking at an extra 350 million tonnes.

It looks like the market is already oversupplied by 100 million tonnes and that China will not exit iron ore production, so cutbacks in Chinese production will be minor.

If the Chinese economy continues to boom as anticipated, then we would be looking at a temporary problem.

But former US Federal Reserve chairman Alan Greenspan is warning all who will listen that China’s debt bubble is going to burst.

Greenspan explains that China's debt has become over-leveraged, with the overall level of debt rising from 140 per cent of its GDP to 230 per cent of GDP. The country requires ever-larger amounts of public debt to fuel its growth rate.

China’s remarkable gains in productivity and standards of living were all achieved with borrowed capital and technology. Greenspan points out that no Chinese companies feature on the annual lists of the world’s most innovative companies -- nearly half of those lists are made up of American companies. This is leading to a narrowing productivity gap between China and the US, which is putting serious pressure on the Chinese economy.

Greenspan says the reality is that China is hitting the ceiling and its growth rate must slow. The Chinese hierarchy is acutely aware of this and, according to Greenspan, plans to allow a number of companies go into bankruptcy.

Most of the institutional lending in China has been backed by the government but there is a substantial amount of shadow banking that does not have the same backing. The Chinese government is about to let some companies know 'the hard way' that it will not act as their guarantor. Greenspan alerts us to look out for Chinese company defaults in the future, perhaps in its "seriously overextended" steel industry or elsewhere in its manufacturing sectors.

Greenspan believes that a correction in China (if handled correctly) could be good for China in the longer term, but naturally Greenspan does not link this belief with the implications of excess iron ore production.

I do not think Australian markets (and our currency) are ready for the combination of excess iron ore production and a China downturn.  

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The nation was always going to face a tough time with the end of the mining investment boom, but if these two predictions prove correct it will be a much rougher ride than expected.

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Delayed iPhone release highlights Apple's challenges in China

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China is one of Apple’s biggest markets by sales and a major growth driver. But when it comes to its new iPhones, the country will have to wait, highlighting the difficulties the technology giant faces in getting its China strategy right.

The Cupertino, California, company on Tuesday unveiled its new iPhone 6 and iPhone 6 Plus, which have larger screens than previous models. But while Apple said its new smartphones would go on sale Sept. 19 in the U.S. and some Asian and European markets, it didn't list China as one of countries where they would be immediately available.

It's a change from when Apple launched the iPhone 5S last year and the device was available through major carriers in China at the same time as the U.S.

Apple's Beijing-based spokeswoman declined to comment on the reason for the delay. She said the company sees China as a key market and is trying to get the new iPhones there as soon as possible.

China's Ministry of Industry and Information Technology, which approves among many things the import of mobile devices into the country, didn't list the new smartphones among devices approved for sale as of Wednesday. Officials didn't respond to a request for comment.

A moderate delay likely wouldn't hurt Apple's sales in China because of the brand's cachet and because the bigger screens are attractive to Chinese consumers, analysts say. Greater China, which includes Hong Kong and Taiwan, generated US$5.94 billion in revenue for Apple during the fiscal third quarter ended June 28, up 28 per cent from a year earlier and making up nearly 16 per cent of its total revenue. That compares with US$14.58 billion in the U.S. and US$8.09 billion in Europe.

"Apple may face limited supplies initially and could want time to build up the phone's new electronic wallet function there," said Sandy Shen, an analyst at Gartner.

Other analysts speculated that the delay could be due to a recent cut in handset subsidies from Chinese mobile carriers, potentially weakening demand.

Apple has faced increasing competition from rival Samsung, which was faster to offer the larger screens that many Chinese consumers like for streaming TV shows and playing games. It is also facing growing competition from local manufacturers such as Xiaomi and Lenovo, which are offering phones with increasingly competitive hardware at budget prices.

Apple also is under growing scrutiny from labour conditions among its suppliers, and faced criticism in government-run media for its warranty practices and for its location tracking feature, with the official China Central Television labelling it a security threat. Apple has said it closely monitors labour conditions among suppliers and apologized for its warranty practices. It also says it doesn't track iPhone users.

Still, the U.S. company has increased its market share in the world's largest smartphone market after broadening sales channels. In December, it unveiled a deal to offer phones through China Mobile Ltd., the world's largest mobile carrier. Its share of the Chinese smartphone market rose to 6.5 per cent in the second quarter from 4.9 per cent the year before, according to IDC, making it the country's No. 6 smartphone maker.

"The country's impact on the global smartphone market has continued to increase given its large population, and its shipment growth is still relatively fast compared to the mature markets in the West," said Kitty Fok, a Beijing-based analyst at IDC.

Apple has been criticized in the past by customers for being slow to launch products in China, a phenomenon that has led to a flourishing gray market in iPhones bought elsewhere, typically in Hong Kong.

Hong Kong retailers said they expected the delay would reignite gray-market demand.

"We have seen keen interest in the iPhone 6 among Chinese customers," said Lo Lau, who operates a smartphone store in Hong Kong's bustling Mongkok neighbourhood. Mr. Lau said he expected sales of gray-market iPhones to jump between 20 per cent and 30 per cent as a result of the delayed mainland launch.

Apple's new products were the most-discussed topic on Chinese social-media service Sina Weibo on Wednesday. "The iPhone 6 Plus will kill all the big-screen Android devices to become the new must-have for rich people," wrote Wang Guanxiong, a well-known tech marketing expert.

Still, for many users, the most noteworthy element of the release was the translation of "Bigger than Bigger," Apple's slogan for the new phones, on the company's mainland China website. Many said it sounded awkward in Chinese. "Can't Apple afford to hire someone with a basic education to handle the translation?" asked one Weibo user.

Some posted their own slogans in response, among them "Really Damn Big," "Just Big," and "If You Say It's Not Big, You're Not Being Objective." One user, taking a dig at Apple for following Samsung in offering bigger screens, suggested "More Samsung Than Samsung."

There are no prices listed on Apple's mainland China website yet, but the company's Hong Kong website lists the 16-gigabyte iPhone 6 at 5,588 Hong Kong dollars (US$721) and the 16GB iPhone 6 Plus at HK$6,388. That's more expensive than the comparable Samsung Galaxy S5, which typically sells for less than 4,000 yuan (US$652) in China, and the Mi 4, produced by China's Xiaomi, which goes for about 2,000 yuan.

"Here are three reasons I won't be buying the iPhone 6," read one popular post on Weibo, with a photo attached that repeated the Chinese character for "poor" three times.

The Apple spokeswoman declined to comment on the responses.

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Decision to hold off on world's largest smartphone market marks departure from previous launch.

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China Internet regulator to Qualcomm: 'we should make money together'

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China's top Internet regulator publicly challenged the president of Qualcomm saying half the company's revenue comes from China and that "we should make money together."

The comments Wednesday from Lu Wei, China's minister of cyberspace affairs, come amid an investigation into the U.S. chipmaker by Chinese antimonopoly officials. Qualcomm has said it is cooperating.

Mr. Lu was speaking during a session on the Internet at the World Economic Forum in the north-eastern Chinese city of Tianjin. Paul Jacobs, Qualcomm's executive chairman, sat to his left. Mr. Jacobs declined to comment on a question from a Chinese reporter about the antimonopoly probe.

Mr. Lu responded instead, pointing to the revenue Qualcomm reaps from the China market. "It demonstrates that China is a good place to make money," he said.

Mr. Jacobs laughed and extended his hand to Mr. Lu, who shook it but then further pressed his point.

"I tell you we should make money together," Mr. Lu said. "You should make money with close business and partnerships."

Chinese customers accounted for 49 per cent of the US$24.87 billion in revenue that Qualcomm reported for the fiscal year ended Sept. 29, according to the company.

Qualcomm makes both processors and wireless modem chips used in smartphones. Much of the San Diego-based company's profit comes from charging patent royalties to handset makers.

Mr. Lu said that foreign companies in China should respect Chinese law and "protect and safeguard" China's national and consumer interests. He quoted Premier Li Keqiang telling foreign business leaders during a meeting at the forum that China's antitrust investigations are being conducted "according to law and regulation."

His comments come as U.S. and European business groups complain about what they describe as bullying tactics by Chinese antimonopoly regulators. They said some officials have warned foreign companies against involving their foreign lawyers and made it clear that resistance would result in harsher penalties.

"What we don't allow is this -- you have a market in China, you're making money in China and you're hurting China," Mr. Lu said. "We won't allow that to happen."

In response, Mr. Jacobs said Qualcomm is working with some 90 Chinese companies there and that the company is seeking mutually beneficial outcomes.

"Win-win is the ultimate goal," Mr. Lu said.

"We are not going to change our open policy. That is why the Internet is growing so quickly in China."

However, he stressed that companies need to follow Chinese rules.

The probe into Qualcomm is being conducted by China's National Development and Reform Commission, which oversees enforcement of the pricing aspects of the antimonopoly law.

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Comments at economic forum come amid antimonopoly investigation into chip maker.

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