There is more than one reason iron-ore miners and steel producers need to scrap the idea that Chinese demand will save them.

The five-year nadir the price of iron ore reached last week reminded investors that the world's biggest consumer of iron ore, China, is slowing down and doesn't need as much ore to forge into steel. There is another thing to be mindful of: China can soon meet part of its demand by turning to its own scrap metal.

China so far hasn't recycled too many of its old cars, appliances or construction material for fresh use in steel, simply because it didn't have many metallic objects idling around. But China's breakneck growth in the past decade should mean more scrap is available.

For instance, cars can be recycled 5 years to 10 years after production, says CLSA's Ian Roper. So the vehicles purchased by consumers in the automotive buying boom that started in 2009 may soon make their way to steel furnaces. China last year boasted 127 million registered cars and trucks on its roads, from 27 million a decade ago, according to data provider CEIC.
The new local supply of scrap is already making its presence felt in trade. Imports of iron-related scrap between January and July fell by nearly half from last year. And they are a fifth of the amount in 2009, when China needed all the steel it could get as the government sought to stimulate the economy.

Mr. Roper estimates that by 2020, China's total scrap supply will reach 200 million tons a year, or about a quarter of what the Chinese government thinks its peak steel consumption will be. Scrap accounted for just 18 per cent of steel use last year.

More scrap should mean that China needs less iron ore to process into new steel, especially because a 40 per cent export duty on scrap keeps this recycled material at home. Of course, China could process that scrap into finished products that it exports abroad, so more Chinese scrap could succeed in hurting steel prices worldwide.

Iron-ore miners and steelmakers may wish that China's old cars and washing machines just rust away. In reality, they are here to stay in one form or another.

Chinese inflation eased to a four-month low of 2.0 per cent in August, which could allow leaders to further ease monetary policy in the world's second largest economy.

The latest data from the National Bureau of Statistics also showed the consumer price index - a main gauge of inflation - rose 2.2 per cent over the first eight months of the year.

The figures come at a time of concern over China's economy as the effects of mini-stimulus measures this year have waned, and fears of a bust in the property sector intensify.

The August inflation figures compare with an increase of 2.3 per cent in July, and was also lower than the median estimate of 2.2 per cent in a survey of 15 economists by the Wall Street Journal.

The government in March set a target of 3.5 per cent for the year.

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.

Since April, authorities have introduced measures to boost the economy, including tax breaks to small enterprises, targeted infrastructure outlays and incentives to encourage lending in rural areas and to small companies.

Despite the August drop, analysts said the outlook is for higher inflation in the coming months as utility prices rise and depleted pig stocks push up pork prices and overall food costs.

Economist Hua Changchun and colleagues at Nomura said in a report that inflation is expected to remain moderate in September, "leaving room for further policy easing".

It will then start to go up and "keep rising to an average of 3.0 per cent in 2015 on tight labour market conditions, the hog cycle and price liberalisation in the utility sector", they wrote.

The data came on the heels of other indicators, including on manufacturing activity, showing continued weakness in the economy and fanning speculation that authorities will unveil new measures to boost growth.

The price of iron ore has fallen further overnight, slumping to a fresh five-year low. 

Benchmark iron ore for immediate delivery to the port of Tianjin in China is currently trading at $US81.90 a tonne, down from its $US82.20 close in the previous session.

The commodity price has fallen more than 40 per cent this year, with only one positive trading day in the past 18 amid jitters over increasing global supply and weakening Chinese demand.

The only silver lining in the iron ore price's fall has been a slide in the value of the Australian dollar. The local unit is trading at a six-month low of US90.96c, down from US91.61c yesterday. 

Ice cream chain Wendys is the latest Australian food company to be gobbled up by a foreign company.

Wendys is being bought for $10 million by a Singaporean company keen to expand the business into Asia.

The ice cream and hot dog maker was established in Adelaide in 1979, and currently has more than 200 stores across Australia and 30 in New Zealand.

It will remain business as usual for customers, staff and suppliers under the new owners, Global Food Retail Group, Wendys chief executive Rob McKay said.

But Wendys had recently endured tough economic times, and this deal will allow the company to take a fresh look at its growth plans, he said.

Its parent company, Global Yellow Pages, said it paid $10 million for Wendys.

"We believe there is a significant potential for the brand to grow and expand in Asia, especially China," chief executive Stanley Tan said.

OTHER AUSSIE FOOD BRANDS GOBBLED UP BY FOREIGN COMPANIES

* Peters Ice Cream now owned by Europe's R&R

* Foster's: Britain's SAB Miller

* Uncle Toby's: Swiss giant Nestle

* Nobby's Nuts and Smith's Chips: US-based PepsiCo

* Arnott's biscuits: America's Campbell Soup

* Aeroplane Jelly: America's McCormick & Company

* Vegemite: US-based Kraft Foods

Perhaps more than any politician in Australia, the Federal Education Minister knows a protest when he sees one.

Since revealing his controversial plans for the higher education sector earlier this year, Christopher Pyne has been the focus of protests across the country.

Just this week his electoral office was surrounded by picketers angry about his proposed reforms at the same time as further details of his own student activist past came to light.

So the minister seemed pleased to be able to visit a university this week without being harangued by dissenters -- even if that meant he had to go all the way to Peking University.

Also known as Beijing University or colloquially as Beida, it was the country's first modern university and as such holds a unique place in the country’s higher education system.

In 1998, some fifty thousand people attended its centennial celebrations. Jiang Zemin, China’s president at the time, delivered a keynote address in honour of the university and its social significance at the Great Hall of the People.

In the speech, he unveiled a plan, dubbed Project 985, which aimed to further boost the university as a leading force in China and the world. The project and its successor Plan 211 saw billions of yuan flow into roughly 100 universities throughout the country to boost research capacity.

The results have clearly impressed our Education Minister as well as giving him cause for concern.

Since introducing his controversial plan for higher education reform to the parliament, the Federal Education Minister has raised the spectre of Chinese and other Asian competitors giving Australia a run for its money.

"Just look at the trajectory. Five years ago, there were no Chinese universities in the world’s top 200 as measured in the Academic Ranking of World Universities. Today there are six” he said in a speech at Peking University this week.

“As Minister for Education in Australia, this keeps me on my toes. But I plan to keep up.”

But it’s how he intends to keep up that is causing controversy at home.

The Education Minister’s sweeping reforms to higher education would see universities hit with a 20 per cent cut in federal funding, but with the proviso that they can then set their own fees to make up for the shortfall.

He also plans to charge interest paid on commonwealth loans at the government bond rate, rather than inflation.

Pyne is keeping tight-lipped about the negotiations with the crossbenchers and time is fast running out.

Following the speech, Mr Pyne told China Spectator that Project 985 has been central to China’s higher education reform success.

The policy had resulted on an increased focus on research, had lifted funding, lifted standards of entry for students, and improved quality academic activity, he said.

“In terms of its lessons for Australia, the lessons are that you need to continue to have a quality focus. You can’t lose your reputation for quality” he said.

Co-author of the recently released book China’s Rising Research Universities: A New Era of Global Ambition, Robert Rhoads says while the numbers may be impressive, it hasn’t been an unmitigated success story either.

The policy was imposed from the top down from the government and university administrations, which has caused a lot of resistance from university faculty.

China’s push to rapidly improve the sector has resulted in “too much counting of publications versus a focus on high quality.”

“Building a research culture also requires grassroots forms of organisational change” says Rhoads.

“And at times Professors question the change in culture from teaching universities to research and teaching universities.”

But changes are taking place and the numbers of publications and research accomplishments reveal improvement.”

Asked what Australia could learn from Chinese higher education policy, Rhoads says that government funding is crucial.

“Tax revenue is an important source of support to the development of research universities and promoting their role in a nation's economic development” he said.

The increased funding has strengthened academic funding says Rhoades, offering faculty and students better resources and opportunities.

“The lesson to be drawn here is that if national governments wants to see more research and development at universities then they need to fund it” he said.

“These projects put billions of yuan into roughly 100 universities and thus helped to increase research capacity and general support for research.“

In other words, the success of the Chinese project has been dependent on Beijing’s willingness to pour money into the sector -- not de-regulation or lifting fees for students. 

It is not entirely clear what lesson Pyne has learnt during his short trip to China.

He needs to be vigilant about the international reputation of Australian universities as well as the future viability of the country’s largest services export industry.

At a time when the US is opening its doors to Chinese students and the quality of Asian institutions are improving by leaps and bounds, the minister needs to continue the government’s investment and support to maintain the viability of the sector.

East Asia Forum

After more than six decades of conflict over the political status of Taiwan, Beijing and Taipei are taking significant steps toward rapprochement in their relations. Yet how much Chinese influence can Taiwan’s democracy tolerate?

On 25 June 2014, for the first time in over 60 years, China sent a ministerial-level figure on an official visit to Taiwan. Zhang Zhijun, head of China’s Taiwan Affairs Office, spent four days in Taiwan, reciprocating the historic visit of his Taiwanese counterpart, Wang Yu-Chi, to Nanjing in February. The February encounter was the first official meeting between representatives of China and Taiwan’s governments since the end of the Chinese Civil War in 1949.

Official contact between the two governments is the latest sign of the rapprochement that Taiwan’s President Ma Ying-jeou has been trying to foster since coming to power in 2008. But the threat of reabsorption by military force still hangs over Taiwan. Even as economic ties grow closer, Taiwan’s people are still divided on the degree of friendliness their government should offer to their larger neighbour.

Taiwan tops the latest edition of the Bertelsmann Stiftung’s Transformation Index(BTI), which measures developing and transitioning countries’ progress towards democracy and a socially responsible market economy. Taiwan has a strongly developed market economy which suffers from neither barriers to market entry for private enterprise nor structurally embedded social exclusion.

This stands in sharp contrast to its more powerful neighbour: China has the second largest economy in the world, but social exclusion, inequality and poverty are rife. Private business faces huge hurdles in dealing with a weak and arbitrarily applied legal framework.

Even so, Taiwan is increasingly dependent on trade with the mainland. In 2010, two years after Ma was first elected, China and Taiwan established an Economic Co-operation Framework Agreement (ECFA). Since then, trade between the two sides has been liberalised. According to the BTI report, trade with China accounts for around 40 per cent of Taiwan’s exports. Taiwan’s total trade with China amounted to US$165.6 billion in 2013, according to Taiwan’s Bureau of Foreign Trade. And visitors from China are now a key driver of Taiwan’s tourism industry: 2.8 million Chinese came to Taiwan in 2013 and 670 flights go between Taiwan and the mainland every week.

Taiwan’s business leaders support closer economic ties because they stand to profit from them. The ruling party, the Kuomintang (KMT), has always been on the Chinese side of the identity divide in Taiwan. And Beijing has come to believe that the best path to unification, a goal it has not abandoned, is now economic control rather than military incursion.

But the people of Taiwan are not all convinced. Ma’s approval ratings stood at 17.9 per cent in May 2014, which still represented a leap from his dismal 9 per cent rating in November 2013. In March, over 100,000 people marched in Taipei against the ratification of the Cross-Strait Services Trade Agreement (CSSTA), a new trade pact that would further extend Chinese penetration of Taiwan’s market by opening 80 of China’s service sectors to Taiwan and 64 of Taiwan’s service sectors to China. And between 18 March and 10 April 2014, a group of students and activists calling themselves the Sunflower Movement occupied Taiwan’s parliament in protest against the same agreement.

A controversial editorial in the Wall Street Journal in August 2014 said that unless Taiwan enacts the CSSTA, it risks losing out in trade with China to competitors such as South Korea. But other commentators argue that allowing China to invest in sensitive sectors such as telecommunications and print media would enable China to exercise greater influence and to work its will to undermine Taiwan’s political system.

The BTI gives Taiwan a score of 9 out of 10 for freedom of expression and 10 for civil rights, as compared to China’s score of two for both indicators. With China still aspiring to unification, any step towards increased influence could prove detrimental to Taiwan’s well-functioning democracy.

Ma and the KMT aim at rapprochement with China, but not unification. Their argument is that building a good economic relationship with China safeguards Taiwan’s status, since closer economic links would make it costly for China to take over Taiwan by force. As Taiwanese self-identification solidifies more and more, preserving the status quo is the most popular option: almost 55 per cent of the people of Taiwan view themselves as exclusively Taiwanese, rejecting any notion of a Chinese identity.

But Ma is approaching the end of his tenure: elections are set for 2016, and it is likely that his rivals, the Democratic Progressive Party (DPP), will succeed in winning back the presidency. The DPP has always been a strident voice for independence and its relationship with China has therefore been frosty. But Beijing is well aware of the failing fortunes of the president and it is willing to take extraordinary measures to avoid derailing the economic relationship that it has built with Ma.

In his June visit, Zhang Zhijun met with the DPP mayor of Kaohsiung, Chen Chu, in a move that many saw as the first step towards reconciliation with the hitherto anti-China DPP. The DPP has aspirations to be seen as the party of the people in contrast to the KMT, which they would cast as the party of the rich. But the people want stability and prosperity, and if economic links with China offer a path to that progress, the DPP will have to walk the line between resisting unification and encouraging closer ties. It remains to be seen whether and for how long Beijing will facilitate the balancing act.

Justine Doody writes for the Bertelsmann Stiftung’s BTI Blog and SGI News.

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

Hong Kong's securities regulator has launched legal proceedings against state-owned Chinese conglomerate Citic, former Chairman Larry Yung and four other former directors of the company in an effort to compensate investors for massive losses linked to soured bets on the Australian dollar six years ago.

Hong Kong's Securities and Futures Commission, or SFC, said Thursday that the legal proceeding are against Citic and five former executives and are aimed at compensating up to 4,500 investors in the Chinese company.

Those investors, the SFC said, bought Citic's shares during a period in which the regulator contends that the company was disclosing false information about its financial position.

The case will put the spotlight on a company with impeccable Chinese connections -- Mr. Yung is the son of Rong Yiren, the founder of the Chinese conglomerate and a former Chinese vice president -- and will represent one of the most aggressive actions pursued by the regulator in recent years.

A spokeswoman for Citic didn't immediately respond to a request for comment.

It was unclear why the SFC was only now launching proceedings based on events that took place almost six years ago. Had it waited any longer, however, the SFC would have exceeded a six-year Hong Kong statute of limitations on launching proceedings, a person familiar with the matter said.

In 2008, Citic, then called Citic Pacific, revealed that a bad bet on the Australian dollar involving derivatives would cost the company as much as US$2 billion. Investors subsequently dumped the stock and wiped out two-thirds of the company's market capitalization in two days of trading.

The SFC alleges that Citic and its directors knew about the soured bets for about a month and a half before the company disclosed them to investors. Therefore, the SFC alleges, Citic misled investors when it said in a circular—after learning about the problems but before it disclosed them—that its directors were "not aware of any adverse material change in the financial or trading position" of the company.

After the problems were first disclosed, Hong Kong police and securities regulators began an investigation into the company's affairs. Mr. Yung, the company's well-connected chairman, and Henry Fan, its managing director, were ousted and replaced with bureaucrats from Citic Group, the company's Beijing-controlled parent. Mr. Fan is also among the five former Citic directors the SFC is suing.

In April 2009, Hong Kong police executed a search warrant against the company related to a fraud investigation against the company and its directors, according to an exchange filing. A spokeswoman for the Hong Kong Police didn't immediately respond to a request for comment as to the current status of that investigation.

In November 2012, Simon Chui Wing Nin, former assistant director of finance at Citic, was fined and sentenced to 15 months in prison in a suit brought by the SFC for insider trading. Mr. Chui sold his shares in the company before the Australian dollar issues were publicly disclosed, a Hong Kong court found.

Citic made its disastrous Australian dollar bets in the course of financing investments in Australian iron ore mining that continue to bedevil the company. Citic's Sino Iron mine has cost the company $10 billion so far—roughly four times its initial budget—and has taken more than eight years to develop.

Hong Kong-listed Citic Pacific changed its name to Citic Ltd. last month after it bought out its parent Citic Group's assets in a multibillion-dollar deal hailed by government officials as a step forward in China's overhaul of its sclerotic state sector.

The Hong Kong regulators' action against a large and prestigious Chinese state-owned enterprise comes at a sensitive time in the separately administered territory's relations with Beijing, in which some have questioned the impartiality of Hong Kong officials. Days before Beijing issued a ruling on democratic reforms in Hong Kong last month, Hong Kong's Independent Commission Against Corruptionraided the home of prominent media tycoon Jimmy Lai , who is closely identified with pro-democracy activism, as part of a bribery investigation. The ICAC denied that the investigation was politically motivated.

For much of the past decade, Asian investors spent billions of dollars on iron ore deposits in the Australian outback in an attempt to break BHP Billiton and Rio Tinto’s stranglehold on the commodity. They bet on the wrong type of iron ore.

Companies including China's Ansteel Mining  and Japan's Mitsubishi have halted or scaled back ambitious plans to open up a new mining hub in Western Australia targeting a low-grade ore known as magnetite. Magnetite is more costly to produce than hematite, the type of ore typically found at BHP's and Rio Tinto's mines.

When worries about a global shortfall in iron-ore supply drove prices of the commodity to a peak above US$190 a tonne in 2011, magnetite looked attractive. Much of the Asian investment flowed into Western Australia, estimated to contain 13 billion tonnes of magnetite ore -- enough to meet Chinese demand for around a decade at current rates.

But a fall in iron ore prices to a five-year low below $US83 a tonne is threatening those investments. The most-prominent example of a loss-making magnetite mine is the $US10 billion Sino Iron project in Western Australia developed by Citic Pacific --recently renamed Citic Ltd -- which started up last year.

China's Sinosteel Corp hoped to produce magnetite from the Koolanooka deposit acquired through its $A1.36bn hostile takeover of Midwest Corp in 2008, but progress has been slow.

One thing Asian investors failed to reckon with is the aggressive response of the world's biggest iron ore miners, which have been ramping up output of more profitable hematite ore in Australia's Pilbara region where they have enormous efficiencies of scale. That has triggered concerns about a global glut of iron ore that will take years to clear.

"The future of new magnetite projects in Australia is no longer clear," said Daniel Morgan, a Sydney-based analyst at UBS. "There's a lot of hematite coming into the market, and it can come quicker and at a lower cost."

Magnetite is more common than the hematite that comprises much of the global trade in iron ore, and contains a purer form of iron. But magnetite has a major drawback: The iron tends to be found in thin layers in the earth's crust. That means there is less mineral and more waste rock in what's extracted: magnetite has less than 50 per cent iron content compared with typically more than 60 per cent in hematite.

High-grade hematite -- a reddish colour material -- is often referred to as "direct shipping ore" because of the minimal amount of processing needed before it is loaded on massive ships bound for the blast furnaces of Asian steel mills. In contrast, magnetite -- a black, highly magnetic mineral -- requires expensive infrastructure such as crushers and concentrators to turn it into a material that steelmakers can use.

Already, some Asian magnetite mining ventures have found it impossible to stay afloat. In June, IMX Resources -- which counts China's Sichuan Taifeng Group as a major shareholder -- said it would shutter its majority-owned Cairn Hill mine in South Australia, which produces magnetite and copper, because of falling iron-ore prices. The company this week also sold its Mt Woods magnetite deposit to focus on nickel, graphite and gold exploration in Tanzania instead.

The pullback is especially evident in Western Australia. Three years ago, a Deloitte Access Economics report forecast the state would receive the lion's share of a boost to Australia's economy from the magnetite push, estimated at $A4.5bn in revenue and 4,000 jobs.

Now, many of the biggest magnetite developments in Western Australia are on hold. Japan's Mitsubishi Corp, which as recently as 2012 bought out its joint venture partner in the Jack Hills mine and Oakajee port and rail project for $A325 million, said both projects are delayed indefinitely.

"We think Jack Hills is a good asset, but this isn't a good time to proceed," a Mitsubishi spokeswoman said. "Iron-ore prices are not good."

Last month, Gindalbie Metals Ltd. said it would write down the value of its Karara Mining Ltd. venture with China's Ansteel by $A640m, citing the slump in iron-ore prices as a major reason. That followed Gindalbie's move six months earlier to hand majority ownership of Karara Mining to Ansteel as part of a $A60 million fundraising, after its auditors raised concerns about its ability to stay solvent.

UBS estimates Gindalbie needs an iron-ore price of $US100 a tonne to break even -- double that for Rio Tinto and BHP. Spokespeople for Ansteel and Gindalbie declined to comment.

Analysts say Asian companies aren't likely to dump their magnetite investments even if they are running at a loss, as executives remain concerned about the dominance of a handful of iron-ore miners. Global output by the top five producers -- Vale SA, BHP, Rio Tinto, Anglo American PLC and Fortescue Metals Group -- is expected to rise more than 40 per cent to over 1.5 billion tonnes by 2017.

"We expect mills will be extremely reluctant to raise their reliance on the major producers," said Ian Roper, a resources analyst at CLSA.

Mitsubishi says it isn't giving up on magnetite, since the material has fewer impurities than hematite, and so can make high-quality steel.

Chinese regulators denied allegations made by foreign business groups that China is using its antimonopoly law to unfairly target foreign companies and may be violating its World Trade Organization commitments.

Xu Kunlin, an official at National Development Reform Commission, said at a press briefing Thursday that China treats foreign and domestic companies fairly. The economic planning body found that foreign companies accounted for about 10% of antimonopoly cases in a review of more than 300 instances, Mr. Xu said. He didn't say how long the commission conducted the review.

"We do not target the foreign companies specifically," Mr. Xu said, adding that investigations are conducted fairly and according to law.

Mr. Xu also said that the investigation of U.S. chip maker Qualcomm Inc. is nearing completion and that regulators will meet with the company's executives Friday.

Mr. Xu joined heads of the Ministry of Commerce and the State Administration for Industry and Commerce, three of the main entities that have been spearheading probes and fines of the commercial sector in China, in a rare press briefing to defend their actions after international business lobbies complained of unfair treatment

The U.S. Chamber of Commerce, the U.S. China Business Council, the European Union Chamber of Commerce in China and the American Chamber of Commerce in China all lodged complaints within the last few weeks.

The U.S. Chamber said in a report released on Monday that China's use of its six-year-old antimonopoly law has been subjective and that enforcement agencies have skewed its implementation to favor China's own industrial policy and local companies. It said that discrimination "arguably violates commitments that China undertook when it acceded to the World Trade Organization."

A survey by the American Chamber of Commerce in China released last week shows that 60% of companies f eel less welcome in China than before, a sharp increase from 41% in the previous poll a year ago. In response to a new survey question, 49% of respondents believe that foreign firms are being singled out for attack.

Chinese regulators last month levied fines of $200 million on 10 Japanese auto-part makers for alleged price manipulation and two others probed were exempt from the fine. Audi AG, BMW AG and Mercedes-Benz parent Daimler AG are awaiting possible punishment following similar probes. Microsoft Corp. and Qualcomm Inc. are being investigated for potential monopolistic activity. Regulators earlier this month handed Microsoft a 20-day deadline to explain what they called compatibility and bundling issues with its software.

BMW, Audi and Daimler responded to the investigations by cutting prices. Qualcomm has said it is cooperating with authorities; Microsoft has said that it abides by laws in China and is cooperating with authorities.

Experts believe that Chinese regulators have been trying to curry favor with the general population by tackling high consumer prices in China. But many believe the regulators have used questionable tactics, such as launching probes and advising companies not to seek legal representation, to control product pricing in industries ranging from dairy to auto parts.

Mr. Xu said that some details in the reports by foreign organizations weren't true and that companies have been allowed to bring their own attorneys to meetings. "I welcome you to hire the most famous lawyers in the world," Mr. Xu said, referring to his coming meeting with Qualcomm.

Ren Airong, a director of antimonopoly at the State Administration for Industry and Commerce, said that when probing Microsoft, regulators were frequently outnumbered by the software company's lawyers.

Ms. Ren defended the Microsoft investigation, saying, "Any company, no matter how big or small, if it breaks the law, then we should evenly treat them as those that break the law," Ms. Ren said.

Chinese companies haven't been immune from regulatory enforcement and punitive action. Beijing fined three Chinese cement companies on Tuesday a combined 114 million yuan ($18.6 million) for price fixing.

Chinese regulators denied allegations made by foreign business groups that China is using its antimonopoly law to unfairly target foreign companies and may be violating its World Trade Organization commitments.

Xu Kunlin, an official at National Development Reform Commission, said at a press briefing Thursday that China treats foreign and domestic companies fairly. The economic planning body found that foreign companies accounted for about 10% of antimonopoly cases in a review of more than 300 instances, Mr. Xu said. He didn't say how long the commission conducted the review.

"We do not target the foreign companies specifically," Mr. Xu said, adding that investigations are conducted fairly and according to law.

Mr. Xu also said that the investigation of U.S. chip maker Qualcomm Inc. is nearing completion and that regulators will meet with the company's executives Friday.

Mr. Xu joined heads of the Ministry of Commerce and the State Administration for Industry and Commerce, three of the main entities that have been spearheading probes and fines of the commercial sector in China, in a rare press briefing to defend their actions after international business lobbies complained of unfair treatment

The U.S. Chamber of Commerce, the U.S. China Business Council, the European Union Chamber of Commerce in China and the American Chamber of Commerce in China all lodged complaints within the last few weeks.

The U.S. Chamber said in a report released on Monday that China's use of its six-year-old antimonopoly law has been subjective and that enforcement agencies have skewed its implementation to favor China's own industrial policy and local companies. It said that discrimination "arguably violates commitments that China undertook when it acceded to the World Trade Organization."

A survey by the American Chamber of Commerce in China released last week shows that 60% of companies f eel less welcome in China than before, a sharp increase from 41% in the previous poll a year ago. In response to a new survey question, 49% of respondents believe that foreign firms are being singled out for attack.

Chinese regulators last month levied fines of $200 million on 10 Japanese auto-part makers for alleged price manipulation and two others probed were exempt from the fine. Audi AG, BMW AG and Mercedes-Benz parent Daimler AG are awaiting possible punishment following similar probes. Microsoft Corp. and Qualcomm Inc. are being investigated for potential monopolistic activity. Regulators earlier this month handed Microsoft a 20-day deadline to explain what they called compatibility and bundling issues with its software.

BMW, Audi and Daimler responded to the investigations by cutting prices. Qualcomm has said it is cooperating with authorities; Microsoft has said that it abides by laws in China and is cooperating with authorities.

Experts believe that Chinese regulators have been trying to curry favor with the general population by tackling high consumer prices in China. But many believe the regulators have used questionable tactics, such as launching probes and advising companies not to seek legal representation, to control product pricing in industries ranging from dairy to auto parts.

Mr. Xu said that some details in the reports by foreign organizations weren't true and that companies have been allowed to bring their own attorneys to meetings. "I welcome you to hire the most famous lawyers in the world," Mr. Xu said, referring to his coming meeting with Qualcomm.

Ren Airong, a director of antimonopoly at the State Administration for Industry and Commerce, said that when probing Microsoft, regulators were frequently outnumbered by the software company's lawyers.

Ms. Ren defended the Microsoft investigation, saying, "Any company, no matter how big or small, if it breaks the law, then we should evenly treat them as those that break the law," Ms. Ren said.

Chinese companies haven't been immune from regulatory enforcement and punitive action. Beijing fined three Chinese cement companies on Tuesday a combined 114 million yuan ($18.6 million) for price fixing.

Car sales in China rose 8.5 per cent in August, the slowest expansion since March, the the China Association of Automobile Manufacturers industry group said on Thursday.

About 1.47 million new passenger vehicles were sold in China last month, up from about 1.35 million vehicles a year earlier, the association said.

The loss of momentum comes as the government steps up anti monopoly probes into foreign carmakers in the world’s biggest auto market.

Authorities announced this week that an affiliate of German carmaker Volkswagen has been fined more than $A44.2 million for price-fixing.

FAW-Volkswagen Sales Company, Ltd, a partnership between the Frankfurt-based firm and Chinese auto maker FAW, has been ordered to pay 248.58 million yuan ($A44.28 million) in penalties for the offence, the Hubei Province Price Bureau said on Thursday in a statement.

The National Development and Reform Commission, one of three Chinese government bodies that investigates monopoly actions, said last month it was probing auto firms including Audi and Chrysler as well as 12 Japanese companies for possible violations.

It is the latest in a series of inquiries in various fields which have raised investor concerns about the business climate in China.

The government last month fined 10 of the Japanese auto parts firms more than $200 million in total for price-fixing, reportedly the biggest-ever such penalties, with one of the companies ordered to pay the highest amount of 290.4 million yuan.

If recessions weren't abolished, we might have one
Alan Kohler
Whether we enter into a recession in the next year or not, it's sure going to feel like it.

The dangerous combination that could end Australia's lucky run
Robert Gottliebsen
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.

The worst is yet to come for our miners
Stephen Bartholomeusz
Iron ore prices will continue to decline as excess supply dramatically increases, eating into the big miners’ profits and bringing smaller miners to their knees.

Why property is no longer a safe bet
Callam Pickering
The drivers that delivered phenomenal gains in the Australian real estate market over recent decades can never be replicated.

Politicians need to follow Turnbull’s lead on China
Peter Cai
Australian politicians need to understand there’s more to China than a multi-billion-dollar trade relationship and assertive foreign policy, but Malcolm Turnbull is the exception to the rule.

You can't weaken democracy to fight terror
Rob Burgess
The more Islamic State influences countries such as Australia to curtail civil liberties and the democratic process, the happier they will be.

Apple's killer appeal lies in meaningful innovation
Supratim Adhikari
The iPhone 6 is here and for Apple, the two-hour presentation overnight wasn’t just about its latest batch of shiny toys -- but also about making a statement that it hasn’t lost its mojo.

Super: it’s the returns, stupid
Alan Kohler
The average annual super return of 6 per cent is nowhere near enough to push Australians away from the pension. Instead of relying on increasing contributions, super funds should just do a better job.

Will Alibaba's unique formula impress investors?
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China's bank lending nearly doubled in August from the previous month, rebounding towards what analysts described as a normal level.

Chinese banks granted 702.5 billion yuan ($A123.88 billion) in new loans last month, the People's Bank of China (PBoC) said in a statement on Friday, nearly twice July's 385.2 billion yuan.

But it was still lower than June's 1.08 trillion yuan and 10.3 billion yuan less than the amount recorded a year ago, PBoC data showed.

Shen Jianguang, a Hong Kong-based economist, said August's figure, although still "relatively low" represented a "close-to-standard" monthly level given analysts' consensus that the government wants to see 10 trillion yuan lent this year.

"It reflected limited relaxing of monetary policy, which was targeted and not aggressive," he told AFP.

Premier Li Keqiang has said that the government would not seek to boost economic growth by pumping up credit growth.

"There is already a large amount of money in the pool. It's impossible for us to continue to rely on issuing new bank notes to stimulate economic growth," Li said this week, according to an earlier report by the state-run Securities Daily.

Julian Evans-Pritchard, an analyst with research firm Capital Economics, welcomed the slower credit growth.

"It is necessary to put China's growth on a more sustainable long-run trajectory," he wrote in a research note.

Controversial Chinese technology giant Huawei -- which has been condemned as a security risk in the US and Australia -- is to recruit hundreds of research and development staff in Europe, the president of its French subsidiary says.

"In the next two or three years, we are going to double our researchers" in Europe, who currently number around 800, Francois Quentin told AFP on Friday.

A total of 200 of the new staff, including applied mathematicians and designers, will be based in France.

In July, Huawei was ranked as the world's number three smartphone maker by sales, behind South Korea's Samsung and Apple of the US, according to research firm International Data.

It has 17 research sites in Europe spread across eight countries, including Germany, Finland and Italy, and expects to employ 13,000 people across the continent by 2017.

The Shenzhen-based firm was founded in 1987 by former People's Liberation Army engineer Ren Zhengfei, and is now among the world's top makers of telecommunications equipment.

Washington has long seen it as a security threat due to perceived close links to the Chinese government, which the company denies, and both the United States and Australia have barred it from involvement in broadband projects over espionage fears. It denies such allegations vigorously.

Chinese investment in Aus­tralian agriculture is set to boom, with the Chinese-government owned Beijing Agricultural Investment Fund yesterday committing to spend $3 billion on Australian dairy, beef, lamb and aquaculture assets.

The announcement, witnessed by federal Trade Minister Andrew Robb in Melbourne, ­establishes the Beijing Australia Agricultural Resource Co-operative Development Fund in a joint venture with Yuhu Agriculture Investment.

Mr Robb told the inaugural Dairy Australia Investment forum that the fund was particularly keen to invest in local dairy farms and dairy processing, with a focus on producing and exporting powdered infant milk formula to China.

In a separate move, it was also revealed that a private Chinese company had bought the vast ­Elizabeth Downs cattle station in the Northern Territory from ­National Gallery of Australia president and leading barrister Allan Myers QC.

With the Chinese bidder paying about $12 million for the 205,000ha of land, the deal will not require sign off by the Foreign Investment Review Board, as it falls below the $15m mandatory approval threshold.

The Chinese company also bought the 9000 head of cattle on Elizabeth Downs, located two hours’ drive southwest of Darwin, for an estimated $7m.

It is believed to be the first investment by a Chinese buyer in the northern Australian cattle industry, with Asian demand for beef expected to jump in the near future with the opening this month of a $91m abattoir near Darwin.

However, it is understood the buyer of Elizabeth Downs, who owns golf courses and hotels in Australia, hopes to maximise the property’s investment potential by developing irrigated cropping and tourist facilities alongside the cattle operation.

The moves came as Barnaby Joyce told Chinese producers that Australia’s farmers would pose no threat to their livelihoods if the two countries were, as expected, to sign a free-trade agreement by the end of this year.

Mr Joyce, on his first tour of China as Agriculture Minister, is leading a delegation of almost 40 industry figures who stand to bene­fit if an agreement is signed.

In Harbin, in China’s northeast, yesterday for the start of his tour, Mr Joyce said Australia could never become “Asia’s food bowl” simply because of the size of each nation’s population.

“We are not a threat to China; we will produce premium products to the people of China and they can be reliant on the fact that Australia does not have a hope in Hades of feeding the Chinese population, not even a portion of it,” he said. “If we were to use all of our production, we could not feed just Australia and this province alone, we would run out of food.

“The reality is that Australia feeds about 60 million people at the moment (including exports). Even if we double that to 120 million people, we would not feed even half of the population of our nearest neighbour, Indonesia.

This is the second part of a two-part series. Part one is available here.

A comprehensive plan outlining how China’s policy makers aim to overhaul the country’s state-owned enterprises (SOE) could emerge as soon as October, according to recent reports in Beijing.

Pushing ahead with reform of the state-owned economy was a key theme in the ambitious blueprint for economic reform published at the conclusion of a pivotal meeting of the Communist Party leadership late last year.

Some analysts have been underwhelmed by the detailed policy announcements that have emerged since last year’s “decision.” For instance, the recent announcement of a pilot reform involving a few centrally-controlled SOEs by the State-owned Assets Supervision and Administration Commission (SASAC), the ministry-level body charged with both managing and supervising some of China’s largest and most powerful state owned firms, have led some to conclude that serious reform is no longer on the agenda.

However, it’s still too early to write-off the potential for “top-level” reforms to the SOE sector.  Comprehensive reforms are still on the agenda and they will be guided by significant shifts in top-level policy settings. That said, the implementation of these significant reforms will be both cautious and contested and is unlikely to begin before 2015.

Cautious and Contested

On the sidelines of a meeting of China’s National parliament in March this year, Xi Jinping was quoted as saying that the success or failure of the mixed-ownership reforms (changes that will allow more private capital to invest in state-owned firms) will depend on how exactly they are carried out.

Implementation of SOE reforms will be similar to the recently announced changes to China’s household registration system, another key area of reform that was flagged at last year’s plenum. That is, despite ambitious long-term reform goals, initial changes to policy will be tentative.

This caution is connected to a fear of repeating the mistakes of the last big “privatisation push” which involved the widespread appropriation of state assets at unfairly low prices. Given the politically-sensitive nature of the reforms, the central government wants to be sure that a system is in place to handle the transfer of state assets in a fair and transparent manner.

The push to reform SOEs is also likely to face push-back from local governments and political interests aligned with state-owned firms. Many of the recent attempts to open up more sectors of the economy to competition and to improve the management of SOEs have stalled, with many chalking this lack of progress to the political strength of “interest groups” who benefit from the current arrangements.

Reasons for Optimism

However, there are a few reasons why this latest push to overhaul the state sector might have more success.

Firstly, through his anti-corruption drive and by assuming leadership roles in many of the powerful new institutions charged with driving the reform process, President Xi Jinping appears to have taken firm control of the party’s reform agenda.

For example, senior executives who had served at the top of China’s oil and gas oligopoly and went on to assume very senior political positions have been detained by the party’s powerful discipline inspection commission - including “tigers” such as Zhou Yongkang, who served on the Politburo Standing Committee, and Jiang Jiemin who had moved on to head up SASAC. Many analysts argue that one of the key motivations for these takedowns was to weaken the influence of a major obstacle to reform. The successful removal of these powerful figures will help in overcoming any remaining resistance to the reform agenda.

Secondly, SOE reforms are to be implemented at the same time as other major reforms to the economy are being carried out. Some of these reforms will make it easier for private companies to compete with state firms on a more equal footing and thus put pressure on SOEs to be more efficient and competitive. For example, as part of financial sector reforms, the market will play a greater role in setting interest rates and state-owned banks will be exposed to more competition, which will in turn help to reduce the amount of cheap finance available to SOEs. Similarly, planned changes to how key resources are priced will also limit SOEs access to cheap inputs. Likewise, if the government is able to push ahead with reforms to the taxation system that result in local governments being provided with sustainable tax revenue, this too could help reduce their reliance on local SOEs as a source of income and thus reduce their incentive to oppose reform.

Finally, given the weakness in the broader economic environment and the troubled financial positions of many SOEs and local governments, state firms that might have been reluctant to relinquish control, or even a stake, to private investors, now have a powerful incentive to take part in the reform process.

Indeed, it’s exactly on this point of “mixed-ownership reform” that much of the current internal debate seems to turn. Driven by a need to alleviate immediate financing concerns, many state firms and local governments want to limit reforms to a simple broadening of the scope for private capital to investment in SOEs. Those with a broader reform agenda are arguing that the overhaul of the SOE sector has to go beyond simply offering SOEs a new avenue for fund raising and needs instead to involve a major overhaul of the distribution, management and supervision of these state-backed firms.

Whatever the eventual outcome, the release of the guideline policy documents in coming months will be an important turning point as it will determine the terms on which this high-stakes political debate over the optimum level of state ownership is fought. The challenge for the government will be to prevent cautious implementation from slowing momentum to such an extent that reforms stall. 

Paul Pennay is a Melbourne-based writer and former editor of the Economic Observer's English website.

East Asia Forum

When President Xi Jinping arrives in the Indian capital next week, he will become the first leader of a major power to pay a state visit in the Narendra Modi era. It is rare for a Chinese head of state to visit India this early in his tenure. It took Jiang Zemin seven years and Hu Jintao four years to pay their solitary visits to New Delhi.

WSJ

China's financial sector was deemed to be reasonably sound before the global economic crisis erupted in 2008. Today, thanks to rising debt, financial stability is seen as the biggest macro risk to China, if not the global economy. The main culprit is China's rigid use of economic growth targets and incentives that encourage overperformance.

Official targets of gross-domestic-product growth play a central role in Chinese policy making. But rather than serving as a forecast of activity for planning and budgetary purposes, these annual targets have taken on the role of seemingly inviolable performance measures. And the mold seems hard to break. Despite indications earlier this year that the official 7.5 per cent growth target was "approximate," Premier Li Keqiang now affirms that it will be met.

In credit-led economies, such growth targets -- combined with incentives to meet and exceed them -- can lead to an undesirable accumulation of debt, and China's growth since 2008 has increasingly been fed by credit creation. The correlation between credit and GDP growth (the so-called credit intensity of growth) has tripled in the postcrisis period to 0.87, up from 0.28 during the previous eight years.

This has led to a potentially dangerous weakening of financial stability. China's ratio of bank credit to GDP has ballooned to 128 per cent at year-end 2013 from 96 per cent at year-end 2008. Standard & Poor's estimates total financial-sector credit at around 200 per cent of GDP.

The continued prominence of GDP growth rates in China's policy framework is a legacy of the old central-planning days, when everyone had a target to meet. Targets were simple to understand and served as a useful rallying point and benchmark for performance. Although today's economy is hardly recognizable compared with that of 30 years ago, old habits seem to die hard.

There is nothing wrong with targets, per se, but China's targeting framework has no memory. It lets bygones be bygones. Past 'mistakes,' such as unsustainable credit growth, are forgotten as long as the current year's target is met. There is no reward for slowing things down to offset past excesses, and the government's view of social stability seems to require that growth be kept at or above the official rate. Clawing back past excessive GDP and credit growth is simply not part of the model.

So how to achieve better results? Start by targeting a certain level of GDP rather than a certain pace of GDP growth. That way, if a country has a credit-driven burst of GDP growth that breaches the GDP target on the upside, then future GDP growth would need to be slower than the original path until the deviation is corrected. This would require lower credit growth and improve the credit metrics.

The good news is that opinions on GDP growth targets in China are already starting to change. There was a level target embedded in the official goal announced in 2010 to double real GDP by 2020. The implied average growth rate would be 7.2 per cent per year, although official pronouncements do not frame this as an (average) growth target.

Several localities have also begun to drop GDP growth as a performance metric. Their justification is slightly different than ours -- in that it focuses on environmental issues stemming from too-high GDP growth -- but the concern over unwanted spillovers of runaway growth is akin to our view.

China's best-case scenario would be to demote GDP growth from an official target to a budget and planning tool, as is done in most other countries. While the government can influence the level of activity through fiscal, monetary and structural policies, it wouldn't be seen as responsible for delivering a specific minimum growth rate.

This is perhaps easier said than done given China's long and dedicated history of planning. But in an era of credit-led growth, until the government takes some bold steps to move away from rigid and asymmetric growth targets, China's financial stability will continue to be at risk.

Paul Gruenwald is Asia-Pacific chief economist at Standard & Poor's.

This article was originally publish on the Wall Street Journal. Republished with permission. Read the original article here.

A top executive at one of China’s leading state-owned enterprises has been put under investigation on suspicion of corruption, the Communist Party’s Central Commission for Discipline Inspection said on its website.

Sun Zhaoxue, general manager of state-owned Aluminum Corp of China (Chinalco), is suspected of “serious discipline and law violations”, the website said, a euphemism often used to refer to corruption.

Mr Sun, 52, is also the former president of the China National Gold Group Corp, the country’s biggest gold producer.

The official Xinhua news agency also reported that Mr Dai Haibo was no longer the Communist Party chief and executive deputy director of the Shanghai Free Trade Zone.

Authorities set up the FTZ in the commercial city of Shanghai almost a year ago with pledges of reform, including free convertibility of the yuan currency. Mr Dai had been the public face of the project.

Mr Sun and Mr Dai are the latest figures to fall in a graft crackdown launched by President Xi Jinping, who has promised to chase high-profile “tigers” as well as low-ranking “flies” engaged in corruption.

China's long push toward financial reform is bumping up against a more pressing national goal: boosting growth.

The world's second-largest economy is faring worse than previously thought, with government stimulus measures proving too short-lived to counter a real-estate downturn and flagging factory output. Over the weekend, China reported a sharp drop-off in industrial production during August to 6.9%, year-over-year, the slowest pace of growth since the 2008 global financial crisis.

Beijing has sought to avoid large-scale stimulus programs that would spur short-term growth at the expense of longer-term reform efforts, with banks, companies and local governments still carrying a mountain of debt from the massive lending used to bounce back from the crisis.

The government tried a limited stimulus this year, steering loans to public housing and railways. But for the first time since 1998, China may fall short of meeting its annual growth target, set at 7.5% this year. Beijing now must decide whether to employ more dramatic measures, such as cutting interest rates, or simply accept slower growth and fewer new jobs, economists say.

"There's a bottom level they won't tolerate," said Julian Evans-Pritchard, an economist with Capital Economics. "But we haven't hit it yet."

A recent showdown illustrates how easily financial reform can lose out to the demands of political leaders struggling to meet GDP growth targets.

China's central bank has long pushed for reforms intended to spur competition among state-owned banks and put more money in consumers' pockets, two long-term goals embraced by top government leaders.

Toward that end, the People's Bank of China put together a plan to offer banks discounted loans, along with the freedom to decide how to lend the money. The idea was to encourage banks to make more loans to commercial enterprises instead of relying on low-risk government-directed projects. The program also would give banks a financial cushion when China lifts the interest-rate cap on bank deposits in the next two years, another reform goal.

But the program's debut loan instead followed a familiar script, The Wall Street Journal found, sending 1 trillion yuan, about $162 billion, to the China Development Bank: The politically connected institution had lobbied top government leaders to lower its funding costs for slum clearance, Chinese officials and economists with knowledge of the matter said. China's State Council, the government's top decision-making body, directed the central bank to make the loan--at 4.5%, far lower than current rates--to stimulate the economy, the officials said.

Unlike the U.S. Federal Reserve, China's central bank, known informally as yang ma or "Big Mama," doesn't operate independently and for decades directed banks to make politically approved loans.

Media officials at China's central bank and the China Development Bank didn't respond to requests for comment.

With economic growth stalled, China's leaders have made clear the central bank's priority is stimulating the economy--even at the risk of delaying or reversing efforts at financial reform.

"The PBOC is making a heroic but schizophrenic effort to maintain momentum on financial market reforms while alleviating political pressure to support growth by using targeted interventions," said Cornell University economist Eswar Prasad, who tracked China's economy for the International Monetary Fund.

The new lending facility--called Pledged Supplemental Lending--allows banks to bid for central bank loans of a year or longer. Interest rates for the loans are intended to eventually serve as a medium-term benchmark rate, according to Zhang Xiaohui, head of the central bank's monetary policy department, during remarks to economists in May.

China's central bank hasn't publicly confirmed the new bank lending program, but government and banking officials described it to the Journal. The central bank hopes that by keeping quiet about the lending facility it can revamp the program when pressure from leaders ease, officials said, and turn it into an instrument of financial liberalization.

The central bank also feared that word of the trillion-yuan loan--made in April--would signal to the market that it backs a broad stimulus plan to pick up the sagging Chinese economy, which could trigger further investment in Chinese real estate, despite a glut of unfinished apartments.

The new lending facility dovetails with the central bank's goal of removing government limits on bank deposit rates. China's central banker, Zhou Xiaochuan, has pledged to liberalize deposit rates by the spring of 2016--seen as a crucial reform. The move would push banks to compete for customers by offering the best terms.

Bank-deposit rates are now capped at 3.3%, providing a cheap source of bank funds. Higher rates would likely force banks to better analyze risks and, economists say, make banks more likely to lend to private borrowers--who would pay higher rates--than to state-owned firms that have been their mainstay customers. Economists say the shift could hurt short-term growth.

Chinese banks that oppose the reforms worry about shrinking profit margins, according to Chinese and Western officials, including Nicholas Lardy, a China scholar at the Peterson Institute for International Economics. "Those benefiting from [economic] distortions lobby against change," he said.

Ms. Zhang, of the central bank, mapped out a plan at the May session to stick to the goal of gradually relaxing rates on deposits. The new lending program, she said, was central to the plan, according to people who attended.

"The central bank's ability to influence market rates...may be the most crucial success-or-failure factor for interest-rate liberalization," she said, according to a transcript of her remarks viewed by the Journal.

Since Communist Party leader Xi Jinping took office in 2012, the central bank has seen its influence on monetary policy grow. Mr. Xi returned for a third term the central bank's governor, Mr. Zhou--a longtime reform advocate--even though Mr. Zhou had reached the bank's retirement age of 65.

So far, Mr. Zhou has fended off calls to cut interest rates and broadly stimulate the economy, fearing such moves would add to China's debt load. But his ability to fight off such demands may diminish over the coming months as the leaders worry more about spurring growth.

The influence of China's central bank still has sharp limits. At the moment, its orders are to help prop up the economy. UBS China economist Tao Wang said, "That was the command."

The economy slowed sharply after a decent second quarter as China's heady, high-growth era, which lasted 30 years, gives way to diminished expectations.

"No one expects GDP of 10% growth anymore, but there is also much uncertainty about how the transition away from the investment-led model will play out," said research firm Gavekal Dragonomics in a note.

In recent weeks, the economic horizon has darkened. The property market, which has struggled all year with a glut in residential construction, contracted further. The August data suggest that the effect of China's real-estate slump is starting to spread. Economists estimate about a quarter of the economy is tied to real estate, adding in everything from building materials to appliances. Conditions weakened in August for such related industries as steel, glass, cement, furniture and washing machines, according to the statistics bureau.

Any more bad news will test the government's pledge not to open wide the stimulus taps. "We believe the priority of the policy makers now is to prevent the property market from evolving into an economywide crisis," said Mizuho economist Shen Jianguang. "We're reaching a moment of truth."

At a dingy, cluttered courtyard in southern Beijing, 40-year-old Sun Suqiong said business was the worst he had seen in a decade selling doors, windows, railings and pipes. Sitting at his shop with four napping employees and no customers, he echoed investors world-wide: "I'm not sure about the future."