China’s macroeconomic policy will not significantly change due to any one economic indicator, Finance Minister Lou Jiwei said on Sunday.

Lou made the comments, published on the central bank website on Sunday, at a meeting of finance ministers and central bank governors in Cairns.

The finance minister stressed that despite downward pressure on the economy, China’s macro policy would focus on delivering key growth targets, especially employment and inflation figures.

Lou said policies aimed at cutting tax rates for small businesses and reforming state-owned enterprises will help to stabilise growth.

Lou’s remarks follow a slew of disappointing economic data in August that show China's economy is worsening rapidly despite stimulus measures taken by Beijing.

Last week a reported $US81 billion ($A87.6 billion) injection into China's major banks prompted analysts to predict further stimulus measures are on their way.

"We believe Beijing (is) to introduce a slew of other easing and stimulus measures in coming weeks to re-boost confidence and re-stabilise growth," Bank of America Merrill Lynch said in a research note.

New research by the Carbon Tracker Initiative (CTI) today identifies major financial risks for investors in coal producers around the world, from the domino effect of slowing demand growth in China, where thermal coal demand could peak as early as 2016. 

CTI’s latest analysis highlights $US112 billion of future coal mine expansion and development that is excess to requirements under lower demand forecasts. In particular it shows that high-cost new mines are not economic at today’s prices and are unlikely to generate returns for investors in the future. Companies most exposed to low coal demand are those developing new projects, focused on the export market. 

With new measures to cap coal use and restrict imports of low quality coal in China, it appears the tide is turning against the coal exporters. The Institute of Economics and Financial Analysis (IEEFA)’s demand analysis shows how China’s coal demand could surprise people by peaking in 2016 and then decline gradually thereafter, driven by efficiency measures, increased renewables, hydro, gas and nuclear and tougher policies to cut air pollution. 

China’s desire to reduce imports will cascade through the seaborne market, impacting prices and asset values for export mines in the US, Australia, Indonesia and South Africa. The rapid displacement of coal in the US domestic market has seen US producers try and switch to exporting, but that window is already starting to close. 

The implication is that Chinese carbon dioxide emissions may peak before 2020, given that these emissions have historically tracked coal demand so closely. Such a peaking would send a powerful message that all countries can target strong, cleaner economic growth, reduce poverty and manage their carbon emissions at the same time. 

“The world’s coal industry is playing musical chairs with demand – every time the music stops another piece of the market is being taken away.” James Leaton, Research Director, CTI. 

The European Union’s Energy Roadmap to 2050 and the US Environmental Protection Agency’s recent Clean Power Plan show that the construction of new coal plants will be severely constrained in Westernmarkets. Meanwhile, the world’s biggest producer and consumer, China, has indicated a potential coal cap in its next five-year plan starting in 2016. And India has to overcome infrastructure and financial constraints if it wants to import greater volumes of coal. Coal producers around the world are relying on a flawed assumption of insatiable coal demand in China. The business model for coal looks on shaky ground without that demand. 

“King Coal is becoming King Canute, as the industry struggles to turn back the tide of reducing demand, falling prices and lower earnings.” Anthony Hobley, CEO, CTI CTI’s analysis shows that in a low demand scenario the seaborne coal market will account for an average of 850 million tonnes per year over the next 20 years. Such a scenario will require production only up to a breakeven price of $US75/tonne. This means mines with costs higher than this will not provide investors with a decent level of return (Australian Newcastle FOB export coal price was $US68/tonne - 1 August, 2014).

“We see a low demand scenario leading to a $US75/tonne peak break-even price for profitable new development in seaborne markets – companies and investors need to understand their exposure to projects higher up the cost curve," said Mark Fulton, founder, ETA.

The CTI analysis shows that some of the world’s biggest greenfield coal projects in Australia’s Galilee Basin are already out of the money under a low-demand scenario. In the US, the potential expansion of mines in the Powder River Basin also has challenging economics. These areas also require major investment in infrastructure to deliver production to the Pacific market, and new ports on the US West coast and adjacent to the Australian Great Barrier Reef have all faced opposition. 

"The world is changing for the fossil fuel industry, especially the coal sector which is facing a shrinking demand window. Investors want assurances that capital is not being spent on high-cost, high-carbon projects that may not be competitive as global coal demand declines." Mindy Lubber, President, Ceres.

BHP Billiton and Rio Tinto are over-estimating long-term Chinese steel production growth and iron ore prices are unlikely to rise from current depressed levels, according to a senior representative of China’s steel industry.

Li Xinchuang, deputy secretary-general of the China Iron and Steel Association that represents China’s biggest state-owned steel mills, said Chinese steel production, now at about 800 million tones per year, could not grow beyond 900 million tonnes.

“That will be the peak level, we understand it cannot go over 900 million tonnes — we think roughly 800 million to 870 million,” Mr Li said on the sidelines of the International Mining and Resources Conference in Melbourne.

BHP and Rio, who are increasing iron ore production and putting pressure on prices, are both forecasting Chinese steel production will peak at 1 billion tonnes per year or more.

“It cannot, trust me, I have been in the business 30 years,” he said.

Asked whether BHP and Rio misunderstood China, Mr Li said: “Maybe they keep that story for investors, I don’t know.”

Mr Li, who is also president of the China Metallurgical Industry Planning and Research Institute, said the figure was based on previous steel use rates when industrialised nations like the US and Japan peaked in their steel use.

Mr Li said he did not expect prices to rise from current levels of $US81.70 per tonne, a rive-year low.

“My understanding is the price will be around $US80 for a long time because of the volume being produced,” he said.

The average price for iron ore the year to date is now $US105.20 a tonne, down from last calendar year’s average of $US135 a tonne.

A continuation of the current price raises viability questions for the higher-cost producers, with two scalps already claimed by the price slump — the Cairn Hill mine in South Australia and the Roper Bar mine in the Northern ­Territory.

Analysts at Standard Bank said on Friday that the fourth quarter (December) supply-demand balances for the iron ore sector were shaping up to “look relatively ugly’’.

“If (Chinese) pig iron output rates follow patterns of past years and fall, on a volume basis, by up to 5 million tonnes a month, this is likely to have a far greater negative impact on pricing than in past years when Australia’s supply glut was not yet evident,’’ the bank said.

“While some (steel) mills may try to retain higher stocks in anticipation of the March (2015) restock season, others, suffering tighter cashflows, may not enjoy such luxuries and be forced into destocking to prevailing demand conditions, rather than future hopes.’

“As a result, we are more concerned about fourth quarter downward price performance than any prior year for the past decade — apart from the GFC in 2008.’’

Conventional wisdom, like that espoused last week by the ­Bureau of Resources and Energy Economics, has been that iron ore prices will recover to a trading range of $US90-$US95 a tonne over the next five years as China’s steel production rises from about 800 million tonnes to reach 900-950 million tonnes a year.

BREE has not ruled out the possibility of prices falling to the low $US70s for a time.

“It could go down that far, but we couldn’t see it being sustained at that sort of price level. We still expect a downturn in price. The peaks won’t be as high and the troughs will be a bit lower,” BREE deputy executive director Wayne Calder told The Australian last week.

This article was first published in The Australian.

China has been hit with a slew of bad economic data in recent weeks, from the slowest pace of factory output in nearly six years to falling home prices.  

Fixed asset investment, which has been one of the strongest growth engines for decades, declined to 16.5 per cent, its slowest pace since China joined the World Trade Organisation in 2001.

This has prompted some to call for aggressive monetary policy support, such as cutting interest rates or lowering bank reserve ratios in order to achieve the official growth target of 7.5 per cent per year. However, the government has been reluctant to open its wallet to stimulate growth.

“China will not make major policy adjustments due to a change in any economic indicator,” said Chinese Finance Minister Lou Jiwei on Sunday at the G20 meeting of finance ministers.

This statement from the Chinese Finance Minister further supports media reports that say Beijing is prepared to accept that growth could come in below its target of 7.5 per cent, and that reform will be prioritised ahead of stimulus, following a top-level gathering at the beach resort of Beidaihe last month.

This should be greeted as good news, although it will exert further downward pressure on iron ore prices (Australia’s most important export earner) as the Chinese government puts structural reform ahead of the inertial need to grow at the official target of 7.5 per cent.

Why is Beijing more relaxed about the pace of its economic growth this time around?

It's important to understand that the government’s bottom line is stable employment and containment of systemic financial risk, such as widespread debt defaults. China’s official growth target is often linked with its employment numbers.

For years, policymakers believed China needed to grow at eight per cent a year to create 20 million new positions for the country’s new graduates and rural migrants. However, two big structural changes have weakened the relationship between the official growth target and the employment situation.

China has more or less reached the so-called ‘Lewis turning point’, where a developing country runs out of its supply of cheap and surplus labour. Real wages for rural migrants have been increasing at double digits for many years, including during the global financial crisis.

This is reducing the pressure for the government to create more jobs. In fact, some factory owners struggle to find skilled workers to fill vacancies at some coastal provinces.

Another big structural change that is taking place is the gradual but steady transformation of a manufacturing-based economy to a more services-oriented economy. Despite the collective obsession with the manufacturing purchasing index (PMI), manufacturing actually accounts for a smaller portion of the Chinese economy than the services sector.

If you look at China’s GDP data, the services sector now accounts for 49 per cent of the Chinese economy. On the other hand, the much-talked about Chinese manufacturing industry is only 41 per cent of the economy (At the service of China's rebalancing, April 21).

The services sector absorbs more jobseekers than the manufacturing sector. According to Cao Yuanzheng, chief economist of the Bank of China, for every one percentage point growth in the economy, it creates 1.8 million jobs.  However, the same pace of growth only created 1.2 million jobs in the past six years, according to an interview with the Southern Weekend, a respected Chinese-language newspaper.

This means that if Beijing wants to create about 10 million new jobs, it needs less than 6 per cent annualised GDP growth to achieve that.

Cao explains the reason that Beijing needs to maintain around about 7.5 per cent growth in the face of a stable employment situation is to prevent a widespread debt default. The government’s effort to rein in the ballooning debt problem cannot be solved within a short period of time, so Beijing needs more time. This requires maintaining a reasonable growth speed.

He says China’s local government debt problem is largely an issue of taxation. Beijing and local governments need to work out a more sensible tax-sharing agreement that clearly delineates fiscal responsibility.

Since a historic tax sharing agreement in 1993, Beijing is receiving a lion’s share of tax revenue while at the same time delegating fiscal responsibility to local governments.

For example, a decade after the tax-sharing agreement, local government revenue accounted for 45 per cent of tax receipts but it was responsible for 72 per cent of expenditure in the country (What’s behind China’s debt spiral, January 13).

Resilient employment numbers and a growing services sector is providing Beijing with the confidence to take its foot off the accelerator at the time when the economy is facing considerable downward pressure. Beijing’s reluctance to stimulate the economy should be taken as a step in the right direction. It’s not easy to shake off an investment addiction. 

After spurring fears of a massive scandal and a global metals selloff, the missing copper at a Chinese port has instead created a morass of global lawsuits.

The suits, that have begun in Hong Kong, Singapore and London, show what happens when complex trade finance deals that are done every day go sour.

Some lawyers have had to dust off old legal books to understand the laws in Hong Kong and elsewhere that govern what appear to be hundreds of millions of dollars in disputed claims.

Carolyn Dong, partner at law firm DLA Piper in Hong Kong, said, "With a relatively large number of parties involved, the structures are highly diverse and, therefore, when things go wrong the litigation may appear convoluted."

Chinese authorities and bankers are investigating whether traders fraudulently used the same stockpiles of metals to secure multiple loans from Chinese and foreign banks. The probe is looking into whether entities linked to Decheng Mining Ltd., based in the eastern port city of Qingdao, illegally pledged the same stocks of commodities multiple times as collateral to get loans from foreign and Chinese banks, according to court documents and executives at banks who made some of the loans.

Decheng is owned by Singaporean national, Chen Jihong, who was detained by authorities as part of the investigation. Mr. Chen is also chairman of Decheng Mining's parent, Dezheng Resources Holding Co. and is a director of Hong Kong-based Zhong Jun Resources Co., which has offices in Singapore.

The operator of Qingdao port has confirmed that authorities are conducting an investigation into fraud.

Neither Qingdao-based Decheng Mining, nor its parent, Dezheng Resources, could be reached for comment.

Many of the legal cases involve banks, which lent money to commodities traders, including Decheng, and took the metal as collateral.

Citigroup Inc. and Swiss-based trader Mercuria Energy Group are engaged in legal proceedings against each other in a London court over payments relating to metals-backed financing arrangements in Qingdao and Penglai worth more than US$270 million.

Impala, the warehousing and logistics subsidiary of commodities-trading giant Trafigura Beheer BV, has filed at least six claims in London against a wide range of parties, including Mercuria Energy Trading and Standard Chartered Bank, to ensure any disputes over its contracts relating to metal held in Qingdao are fought in British courts. Trafigura declined to comment.

South Africa's Standard Bank PLC and Dutch bank ABN Amro Bank NV have also launched cases. In Singapore, ABN Amro won a Singaporean court order for Mr. Chen to pay it US$22 million owed under a loan agreement with Zhong Jun and another of his companies. HSBC Holdings has also launched legal proceedings against Zhong Jun.

Other foreign banks that have exposure to Qingdao are French banks BNP Paribas SA and Natixis SA.

The stakes are high: Foreign banks and commodities houses have exposure to potential losses of close to one billion of dollars while the estimated exposure for Chinese banks stretches into billions of dollars, according to court filings, public statements by the banks and analyst estimates.

Standard Chartered PLC said it has made provisions for about US$175 million in potential losses from a total exposure to Qingdao port of US$250 million. But the bank has described their provisioning as conservative and doesn't expect to realize the full losses it has allowed for.

"All the banks, local and foreign, have been completely taken by surprise," said Jaspal Bindra, head of Standard Chartered's Asian operations, in an interview last month.

At the heart of the deadlock are criminal investigations, claims and counter claims for commodities promised as collateral; claims against warehouse managers and Qingdao port; arguments that agreements have been breached and a testing of insurance policies.

"When there is a default of this nature, there is a spider's web of contractual relations and the risk of the default has been dispersed among the banks, insurers and traders," said Matthew Cox, banking and finance lawyer at Dentons UKMEA LLP in Singapore.

In some cases, banking executives suspect that fake documents were provided to prove that metal promised as collateral was in place. Much remains unclear. Access to storage facilities at Dagang in Qingdao port and at Penglai port remains restricted.

The impact on copper imports, as well as prices, appears to have been modest. China's copper prices haven't changed much since the probe was launched, while imports fell slightly. After an initial hit that pushed copper prices as low at US$6,661 a ton in early June, just after the scandal broke, the price of copper quickly recovered and was last trading at US$6,869 a ton.

For the banks, the suspected fraud is a warning shot. They are revisiting their lending processes and tightening up oversight of which clients they lend to, banking executives say.

Vivienne Lloyd, base metals analyst at Macquarie Securities, said that banks have tightened up on issuing letters of credit which has made it harder for importers to get hold of metal.

"It has definitely changed the conversation around risk in metals financing," Ms. Lloyd said.

Tensions over Hong Kong's political future were laid bare on Monday, as students walked out of classes to demand genuine electoral choice, while scores of the city's business leaders descended on Beijing to meet with Chinese President Xi Jinping and air their own views.

While students waved banners and demonstrated in Hong Kong, a gathering of the city's tycoons told Chinese authorities in the nation's capital that they were deeply distressed over the divisions in the special administrative region, which they fear could threaten the former British colony's status as a politically predictable and stable financial center.

Of particular concern is a threat by one activist group to shut the city's main business district with peaceful civil disobedience.

"They will give a bad impression to the outside--some people might think, 'Wow, Hong Kong is out of control with these kinds of demonstrations,' " said Stanley Lau, a member of the delegation and chairman of the Federation of Hong Kong Industries. "Of course, we don't want to see this happen."

Mr Lau said Beijing also appealed for help during the visit. "Chairman Xi requested that we support the government of Hong Kong, and that with our assistance and support, all these issues will not go in the wrong direction," he said.

In remarks at Beijing's Great Hall of the People, Mr. Xi told the visiting Hong Kong business luminaries that Beijing would support the city's move toward democratization.

Still, he struck a note of caution, saying that when it comes to such overhauls, any efforts must "comply with the interests of the country and Hong Kong, as well as foreign investors."

While China has said the city can begin directly electing its leader in 2017, it has decided that any potential candidates must first be vetted by a Beijing-friendly committee. As students ratchet up their pro-democracy push, Beijing remains uneasy that such campaigns could disrupt the global finance center's reputation for stability.

The Hong Kong Federation of Students said 13,000 people participated in a Monday rally supporting the student boycott. Police said they had no estimate on how many attended.

Hong Kong's tycoons, who collectively dominate the city's economy, all have significant business interests in mainland China and have generally backed or been silent on Beijing's policies. The group--including business leaders in real estate, banking and manufacturing--has significant power in choosing Hong Kong's leaders.

The list of tycoons includes representatives of the city's business organizations as well as members of the Chinese People's Political Consultative Conference, a national advisory body that includes business leaders.

The delegation is led by former Hong Kong Chief Executive Tung Chee-hwa, the scion of a wealthy shipping family.

Local media said the group numbered more than 60 people, making it the largest delegation of Hong Kong business leaders to visit Beijing since 2003, when the city was rocked by large-scale protests after the government tried to pass a controversial national-security law. Mr. Tung subsequently resigned and the legislation was shelved.

In his remarks, Mr. Xi said nothing about Beijing's policies toward Hong Kong has changed. "The central government has not changed and will not change its basic policies in Hong Kong," he said, adding that Beijing "will maintain Hong Kong's prosperity and stability."

Still, many pro-democracy activists--who have come under criticism by many of the city's business elite--have felt betrayed by Beijing's latest stipulations on election overhauls in the city.

The protest movement Occupy Central said it would launch its campaign to disrupt Hong Kong's Central business district in early October to demonstrate against the decision.

The tycoons' visit to Beijing coincides with the start of this week's boycott by Hong Kong students, mostly in university classes.

One member of the business delegation, Lui Che-woo, chairman of construction group K Wah Group and founder of Macau-focused gambling company Galaxy Entertainment Group Ltd., said he believed that instead of boycotting, students should do something constructive for Hong Kong's development.

Among the delegation's members are Asia's richest man, Li Ka-shing, the chairman of Cheung Kong (Holdings) Ltd.; Lee Shau-kee, the chairman of Henderson Land Development Co., and his elder son, Peter Lee.

While the trip provides an opportunity for the business leaders to share their views on the city's political future, it also offers Beijing a chance to make its case to them, said Chinese University of Hong Kong adjunct professor Willy Lam.

"It's a time to also send a message to these big shots telling them that if they don't 100 per cent support Beijing, and do their part vigorously, their business interests in the mainland and Hong Kong might be affected," he said. "Of course, such a message would be subtle."

Mr. Lam said the trip was a reflection of the delicate position in which Beijing finds itself. "They know the Hong Kong community is still very unhappy over the proposed electoral mechanisms. So they need these big guys, who have a lot of prestige and influence, to help convince the Hong Kong public."

Henry Tang, a former government official and unsuccessful candidate for Hong Kong chief executive in 2012, said he was invited by Beijing's representative office in the city to visit the Chinese capital this week.

He emphasized the idea that the city would get a one-person, one-vote system for the first time under Beijing's plan. Critics have said, however, that the choice isn't a genuine one since Hong Kong's voters won't get to nominate candidates.

"I believe Hong Kong's political reform will be among the discussion topics. This is a historical moment for Hong Kong's constitutional development," Mr. Tang said. "We will convey our thoughts to the central government on achieving universal suffrage. We will do everything in our power to help implement one man, one vote. We definitely wish [the political system] to move forward."

Mr. Tang has told local media that he agrees with Beijing's plan for electoral overhauls in Hong Kong.

Mr. Lee, the Henderson Land chairman, told reporters in Beijing that he was strongly opposed to Occupy Central. He said he believes democratic development in Hong Kong should be gradual.

Spiraling iron-ore prices are causing distress for mining companies that invested in a risky corner of West Africa when Chinese demand for the steelmaking ingredient soared, but which are now facing critical funding shortfalls.

Iron-ore prices have plunged almost 40 per cent this year, squeezing margins for high-cost producers. The Ebola outbreak devastating the region has meantime pushed up costs for companies operating in Guinea, Sierra Leone and Liberia.

London Mining, whose Marapa mine has helped transform Sierra Leone's war-shattered economy, on Monday said Glencore had stopped, since Sept. 1, advancing it cash for future iron-ore deliveries.

A spokeswoman for London Mining declined to offer an explanation for Glencore's action. Glencore declined to comment.

Glencore might be seeking to renegotiate a more favorable cash-for-ore deal, analysts have said. Analysts with Liberum Capital said Glencore's move bore the hallmarks of previous episodes when the company has stepped in to rescue—and then take control of—distressed companies. For example, in 2009 Glencore provided Katanga Mining with US$100 million of financing "at heavily dilutive terms for Katanga shareholders," said Liberum.

Compared with other major mining companies, Glencore has relatively little exposure to iron-ore mining. Instead, its trading division makes money by buying and selling the commodity, and then managing the logistics involved in shipping it from West Africa to China.

The company's half-year earnings showed that it traded more than double the amount of iron ore than in the same period a year earlier.

London Mining's deal with Glencore, known in the industry as an off-take deal, is one of its few sources of working capital, though the company said it has separately agreed a two-year, US$30 million, financing plan with the Afreximbank export credit agency. It said it could secure additional funding from other trading firms.

The fall in iron prices to US$80 per ton has been harmful to high-cost companies, like London Mining, operating in challenging environments. London Mining spends around US$89 producing and shipping each ton of ore. The company, valued at over US$300 million just three years ago, has seen its shares plummet nearly 80 per cent this year.

Also on Monday, Bellzone Mining, another London-listed mining company with big prospects in West Africa, suspended its shares as it struggles to conclude a loan agreement for around US$2.5 million with principal shareholder China Sonangol International.

In a statement, Bellzone said it needed the funds in the next few days if it were to continue operations. Without the funding, Bellzone would also be unable to service a previous loan to China Sonangol and would have to hand over the control of the company's key asset, the Kalia mine in Guinea, which it signed over as collateral.

"Glencore and China Sonangol are acting in the same way. They're the guys with the cash and they have the upper hand," said a person who has advised both London Mining and Bellzone.

China Sonangol didn't immediately respond to requests for comment.

East Asia Forum

In October 2013, just before the APEC meeting in Bali, Chinese president Xi Jinping announced the creation of the Asian Infrastructure Investment Bank (AIIB). The bank will be launched this year, possibly when APEC leaders meet in Beijing.

This new development bank can help fill the vast unmet demand for productive economic infrastructure, especially in the emerging economies of Asia. In 2011, the OECD estimated that global infrastructure requirements over the next two decades will cost around US$50 trillion. Biswa N. Bhattacharyay, of the Asian Development Bank(ADB), estimates that developing Asian economies will need to invest US$8 trillion from 2010 to 2020, just to keep pace with expected infrastructure needs.

The supply of savings, much of which is generated in Asia, is more than adequate to begin to fill some of the demand for infrastructure. But not nearly enough of these savings are being channeled to finance economic infrastructure projects with promising economic returns. As Keshav Kelkar points out, the 2008 global financial crisis has diminished the lending capabilities of Western institutions. The World Bank’s lending has plummeted to half of its pre-global financial crisis levels. And, private lending for infrastructure has fallen to one-third of what it was before the crisis.

All Asia Pacific governments should welcome the initiative to set up the AIIB and the opportunity to participate in it. Their participation is not essential for the financial strength of the AIIB. China could have chosen to go it alone or could use the new BRICS bank, which is not open to any other Asia Pacific economy except India. But wide participation may help ensure that the AIIB can expand rapidly its lending to finance badly needed infrastructure projects while ensuring high quality project preparation and execution.

The Chinese government is determined that the AIIB should acquire and sustain its own AAA rating as soon as possible, rather than rely on a (perhaps implicit) underwriting of its capacity to borrow at AAA rates from international capital markets. The most efficient way to achieve this is to create synergy with existing multilateral development banks, especially the World Bank and the Asian Development Bank. These banks are not able to increase their contribution to economic infrastructure significantly, due to the political constraints on expanding their capital base and moving towards forms of institutional governance that reflect 2014 realities. But existing multilateral development banks have the expertise to help prepare high quality projects and attract the interest of institutional investors and sovereign wealth funds that are looking to improve their range of sound investment opportunities.

Tapping into the expertise of experienced development banks is the most efficient — and perhaps the only — way to build the capacity of the new bank to assess and implement a rapidly growing number of projects successfully. Widespread participation by governments who are also significant shareholders in the World Bank and the Asian Development Bank would maximise the potential for synergy.

China made it clear from the outset that any other government would be welcome to be a founding member and help ensure that the design and strategy of the new bank was consistent with best practice. The response has been mixed. The United States could have seen the new bank as an opportunity to help fill the yawning gaps in infrastructure in Asia and, potentially, all of the Asia Pacific. Instead, the feedback from all around the region is that the United States is discouraging others from participating in the AIIB.

Fortunately, the critical mass to launch the AIIB as an inclusive structure is already assured. And it is still not too late for the United States to become a founding member. Australia, among others, can help the United States to perceive the new bank as an opportunity to add a new constructive component to its pivot to Asia.

Andrew Elek is Research Associate at the Crawford School of Public Policy, Australian National University. He was the inaugural Chair of APEC Senior Officials in 1989.

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

Activity in China’s manufacturing sector beat expectations in September to hit a two-month high, according to a private survey.

The HSBC flash China manufacturing purchasing managers' index (PMI)  rose to 50.5 in September, from 50.2 in August.

Analysts had expected the survey to print at 50 in September.

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

HSBC chief China economist Hongbin Qu said the reading presented a mixed picture with new orders and new export orders registering some improvement.

However, the employment index slipped to a five-and-a-half year low of 46.9 as disinflationary pressure intensified.

Mr Qu said that overall the data points to a modest expansion, but that the property downturn remains the biggest downside risk to growth.

"We continue to expect more monetary easing from the PBoC in order to steady the recovery” he said.

"The preliminary PMI figure, also called the HSBC Flash China PMI, is based on 85 per cent to 90 per cent of total responses to HSBC's PMI survey each month, and is issued about one week before the final PMI reading.

The number of Chinese companies exporting "tools of torture" has surged over the past decade, Amnesty International says, with many devices falling into the hands of rights violators worldwide.

More than 130 Chinese firms now produce electric shock stun batons, spiked batons, weighted leg cuffs and other "potentially dangerous law enforcement equipment", up from 28 in 2003, the UK-based rights campaign group said in a report co-authored with Omega Research Foundation.

One company - state-owned China Xinxing Import and Export Corporation, whose products include thumb cuffs, electric shock guns and restraint chairs - had more than $US100 million ($A108 million) in trade with African countries as of 2012, according to the report released on Tuesday.

"China appears to be a leader in the less savoury side of the so-called 'tools of torture' - equipment that we at Amnesty believe is intrinsically cruel," said Patrick Wilcken, Amnesty's security trade and human rights researcher and lead author of the report.

China's own justice system remains riddled with abuses, campaign groups say, with confessions extracted through torture not uncommon.

While there are few legal prohibitions on its manufacture and trade in China, Wilcken said, such equipment often ends up being sent to "very unsafe and risky situations" across the globe.

Amnesty is "calling on not just China but every country to bolster their regulations on the trade in this equipment, so that licences for trade in situations where there's a high risk for violation should not be issued," he added.

The Amnesty report, entitled "China's Trade in Tools of Torture and Repression", examines some tools that the organisation calls "inherently abusive".

China’s state-owned enterprises (SOEs) profit growth has slowed in the first eight months of 2014 data released by the Ministry of Commerce showed on Monday.

The combined profits of of the country’s SOEs grew 8 per cent year on year between January and August according to the data -- a rise to RMB 1.64 trillion (US$ 267.4 billion) in total.

The SOE profit data follows a slew of disappointing economic data in August that show China's economy is worsening rapidly despite stimulus measures taken by Beijing.

On Sunday, Finance Minister Lou Jiwei dampened prospects of a stimulus boost but highlighted SOE reform as one measure aimed at stabilising growth.

Chinese SOEs are increasingly looking towards Australia for new opportunities as China loosens its restrictions on outbound investment.

Treasurer Joe Hockey issued a fresh invitation to Chinese state-owned enterprises to invest in Australia in late August.

China represents Australia's sixth largest source of inward direct foreign investment at $20.8 billion in 2013.

Hong Kong students have taken their anti-Beijing strike to the government headquarters, with hundreds gathering at the harbourside complex to protest against China's refusal to grant full democracy to the city.

Organisers said 13,000 university students massed at a northern campus on Monday to launch a week-long boycott of classes, a strong showing that breathed new life into the democracy campaign which had been stunned by Beijing's hardline stance.

Activists have said the student protest marks the start of a campaign of civil disobedience to protest against China's plan to vet nominees for the leadership of the former British colony, dashing hopes for full universal suffrage at the 2017 polls.

There were unruly scenes as a group of students rushed towards Hong Kong's leader, chief executive Leung Chun-ying, when he emerged from the building after holding a press conference.

Security officials held the students back as they tried to speak with Leung, and escorted them from the grounds as dozens of media joined the melee.

"We have paid close attention to the demands for the election in 2017 by the university students," Leung had said at the press conference, adding that Beijing's proposals were an improvement on the current state of democracy.

"You can see that he has no intention of having a dialogue with the students," said Alex Chow, chairman of the Hong Kong Federation of Students and one of the activists who ran up to Leung.

Chow threatened an escalation of the protest action if Leung refuses to speak with students within 48 hours.

Despite the warnings, the park outside the Hong Kong government's Tamar headquarters was taking on a carnival atmosphere as protesters trickled in under the summer sun, to attend a program including lectures on the lawns.

The largest stock offer in history has made Jack Ma, founder of e-commerce giant Alibaba, China's richest person with a fortune of $US25 billion ($A27.05 billion), an annual wealth ranking in the world's second-largest economy shows.

"It has been an amazing year for China's best tycoons despite the jitters about the Chinese economy," said China-based luxury magazine publisher Hurun Report in its annual rich list released on Tuesday.

Ma reaped more than $US800 million selling shares in the company he set up 15 years ago as Alibaba listed on the New York Stock Exchange on Friday, based on company filings, with the value of his remaining stake of 7.8 per cent surging to more than $US17 billion by Monday.

Last year, the estimated wealth of the former English teacher turned internet entrepreneur was just over $US4.0 billion, which did not even place him in the top 20.

Alibaba's listing raised a total of $US25 billion.

But only one other Alibaba co-founder, now vice-president of its China investment team Simon Xie, made the rich list, Hurun Report said.

Property tycoon Wang Jianlin, whose Wanda company bought US cinema chain AMC Entertainment, dropped to second place from first last year with a fortune of $US24.2 billion as the deflating of China's real estate bubble chased most developers out of the top 10.

A new face, Li Hejun of renewable energy firm Hanergy, tied for third place with $US20.8 billion, alongside beverage magnate Zong Qinghou of Wahaha.

Completing the top five was Pony Ma of Tencent, operator of China's most popular instant messaging application WeChat, with $US18.1 billion.

Technology commanded half of the top 10. Robin Li of China's dominant search engine Baidu was sixth; Richard Liu of Alibaba competitor JD.com took ninth; and Lei Jun of upstart mobile phone producer Xiaomi was 10th.

Rounding out the top 10 were father and son team Yan Jiehe and Yan Hao of road-builder China Pacific Construction in seventh position and another real estate mogul, Yan Bin of Reignwood, in eighth.

China's real estate and infrastructure industries have been hit by the slowing economy.

The economy grew an annual 7.7 per cent in 2013, the same as in 2012 - which was the slowest rate of expansion since 1999. Gross domestic product growth was 7.5 in the second quarter this year.

Still, Hurun Report said the number of US dollar billionaires in China hit 354 this year, up 39 from last year.

US technology giant Microsoft will launch its Xbox One in China on September 29, becoming the first game console to enter the market in 14 years.

In January, China formally authorised the domestic sale of game consoles made in its first free trade zone (FTZ) in Shanghai, ending a more than decade-long ban.

Microsoft previously said it would start delivery of consoles on Tuesday, but on Saturday announced a delay, potentially until the end of the year, without giving a precise date or reason.

A new statement from Microsoft and its Chinese partner BesTV New Media issued on Tuesday suggested government approvals of games might have contributed to the delay.

"After receiving government approval for the first wave of games, we will launch with the first 10 games now and continue our work to bring more blockbuster games and a broad offering of entertainment and app experiences to the platform in the weeks and months to come," Xie Enwei, General Manager of Xbox China, said in the statement.

The 10 approved games include several sporting titles, such as Forza Motorsport 5 and Powerstar Golf, it said.

Under the rules of the FTZ, set up a year ago to pilot economic reforms, games must pass inspection by cultural authorities, who conceivably could censor content they deem to be obscene, violent or politically sensitive.

Xie said more than 70 titles are in the pipeline to bring to China.

Microsoft beats rivals like Japan's Sony, which makes the PlayStation console, and Nintendo's Wii into the Chinese market, but illegal machines, smuggled into the country, are widely available from online vendors and electronics markets.

In China, Microsoft will sell the Xbox One for 3699 yuan ($A651) or 4299 yuan ($A756) with the Kinect sensor, the statement said.

Those levels are far higher than its US website prices of around $US400 for the basic console and about $US500 with Kinect, which can obey motion and voice commands.

Analysts say Microsoft is targeting high-end users in China with the Xbox One, but the prices might prevent it from reaching a wider market.

Deng Xiaoping may have said to get rich is glorious, but in today’s China it can sometimes be more a curse than a blessing. Just ask Jack Ma.

Thanks to the largest stock offer in history, the founder of e-commerce giant Alibaba has once again shot to the top of the country’s rich list, with a fortune of $US25 billion ($A27.05bn).

But at the Clinton Global Initiative in New York today, Ma told Chelsea Clinton his happiest days were when he was making just $20 a month.

“When you have $1 million, you’re a lucky person,” he told Clinton.

“When you have $10 million, you’ve got trouble, a lot of headaches.”

It’s a common sentiment in China. In fact, it’s the norm for Chinese lottery winners to wear a disguise and alter their voices electronically when they collect their loot.

The winner of an RMB497m (A$91.55m) lottery prize in Shandong province last month was dressed as Mickey Mouse. Preceding him were Batman, Spiderman and the Transformers robots. 

But things get even more dangerous for those on the very top of the heap.

Of those listed in the latest Hurun rich list, released yesterday, two are in prison, two are awaiting sentencing, five are facing corruption investigations and three have simply disappeared.

Getting onto the Hurun rich list isn’t necessarily cause for celebration says Oliver Rui, professor of finance and accounting at the China Europe International Business School in Beijing.

“Political connections play an important role in the economy,” Rui told China Spectator.

“And some of these entrepreneurs get rich with the help of corrupt officials.”

Rui, along with academics Xianjie He, Xiao Tusheng and Michael Firth, has found that investors react negatively towards companies controlled by rich-listers.

According to the research, resentment towards those on the list has real knock-on effects on the value of the companies they run, with many losing significant value in the three years following a listing on Hurun.

The research also found that companies don’t only take a beating from investors. The government, heeding public pressure, also tends to scrutinise the rich-listers more closely. 

Ultimately, business people who get listed “are far more likely to be investigated, arrested and charged compared to other private entrepreneurs”, the authors conclude.

As Xi Jinping’s anti-corruption campaign continues to drag on, more and more business people and their political patrons have been caught in the hunt.

And consumption has become markedly less conspicuous in Xi’s China, with the nouveau riche increasingly admonished for vulgar displays of wealth (Vanity unfair for China’s wealthy show-offs, August 5, 2014).

As the campaign continues apace, an increasing amount of China’s wealthy are packing their bags and getting out of the country.   

According to Hurun, 64 per cent of the country’s millionaires have either emigrated or are planning to in the next few years. Their favourite destinations are the US, Canada and Australia.

But things may be changing. Rui’s research also shows that it’s the entrepreneurs involved in rent-seeking industries who tend to experience more negative consequences.

And as China transforms into a more consumer-led economy, the fortunes of real-estate and infrastructure tycoons are likely to lag, while those at the forefront of the rise of the consumer internet prosper.

Tellingly, this year’s top 10 includes not just Jack Ma but also Pony Ma of Tencent, Robin Li of Baidu, as well as the founders of Xiaomi and JD.com.

“The new economy is less regulated or influenced by the government,” Rui told China Spectator.

“Innovative entrepreneurs can get rich quickly with help from overseas capital markets.”

Perhaps that’s why, when compared with their western counterparts, Chinese people still have more trust in corporations.

According to a survey conducted by CNBC and PR company Burson-Marsteller, 84 per cent of Chinese people see corporations as a source of “hope” compared to just 36 per cent of Americans.

And not betraying that sense of hope will be key to China’s newly-minted billionaires holding onto their wealth and prolonging their success in business.

According to Rui and his colleagues, the best way to avoid falling foul of investors and the government is to engage in strategic philanthropy.

In April, Jack Ma followed the lead of Bill Gates and Warren Buffett to set up a philanthropic trust funded by share options that, after last Friday’s IPO, now amounts to around $3bn.

 “When you have more than $1bn dollars, or a $100m, that’s a responsibility you have, Jack Ma told Chelsea Clinton today.

“It’s the trust of people on you, because people believe you can spend money better than the others.”

The Reserve Bank of Australia has warned the risks posed by debt-loading Chinese banks could rise as economic growth slows in China.

In its bi-annual Financial Stability Review, the RBA said there has been a build-up of debt in China's poorly regulated 'shadow banking' sector.

In the central bank's previous Financial Stability Review in March, it noted concerns about Chinese investors seeking high yielding wealth management products, often marketed through banks, were likely to be exposed to poor quality assets, and more likely to default.

Chinese government restrictions on lending and deposit rates push consumers, such as property developers and local governments, to use informal and non-bank finance which creates off-balance sheet exposures for the financial system, said the RBA in March

In today's statement, the RBA said the concerns over the quality of assets in China have been heightened by recent softening conditions in the residential property market.

"While China has been able to manage a small number of defaults in trust funds and corporate bonds, a more widespread series of private-sector defaults – potentially associated with a sharp correction in property prices – could be more damaging," the report said. 

In a speech earlier this month, RBA Governor Glenn Stevens said the central bank will be keeping a close eye on the Chinese property sector.

Housing prices are falling in many Chinese cities at present," he said.

"This is not unprecedented – it is the third time in the past decade this has occurred."

Mr Stevens said the asset price and credit nexus was the area to watch, rather than monthly export numbers out of China or its long list of reads on manufacturing.

Overlooked amid the excitement over Alibaba's blockbuster IPO on the New York Stock Exchange last week was one of the reasons for the company's smashing debut: The Chinese market it dominates is all but blocked for Silicon Valley rivals like Google, Facebook and Twitter.

That's no small thing now, and it will be an increasingly important issue in the future.

In China, more than 600 million people are online - double the entire US population - and that's not even half of the country's residents.

And not only is it a huge market, it is a fast-changing one that forces Chinese firms to learn to be innovative and nimble, particularly helpful skills as they move into other emerging markets and go up against the Valley's giants.

US internet companies want to expand in China, but they haven't had much success. Some tech firms, most notably Google, have tussled with the government over censorship. Others have run into antitrust issues or suffered from the weak intellectual property laws in China.

"Alibaba's IPO is a good reminder that among the reasons why US firms haven't succeeded in China is that they are largely barred from doing business there," said Erin Ennis, vice president of the US-China Business Council, an advisory and advocacy group for US companies that do business in China.

To be fair, other companies like eBay simply have been outcompeted.

But all these problems for US companies have allowed firms like Alibaba, as well as Baidu, the Google of China, and Tencent, the social networking firm that owns the popular WeChat messaging service, to establish positions in China as market leaders.

Those companies are "sitting on a somewhat protective home market," said Robert Atkinson, president of the Information Technology and Innovation Foundation.

"Their profits and margins are higher than they would be if they had legitimate marketplace competition. They are using that money to finance their overseas expansion."

And they are now among the most valuable internet companies in the world.

Their rise creates new risks to US internet firms beyond missing out on the Chinese market. US companies must also battle these newly emboldened Chinese internet firms in emerging markets like Africa, the rest of Asia and Latin America. These economies will fuel the next cycle of growth for tech firms as their internet infrastructure develops.

"Alibaba already has substantial international reach and they clearly aspire to more," said Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics.

"It will pose a huge challenge to US-based internet firms."

And it's not just money that is helping the Chinese firms. It's the expertise they are getting in China itself that could help them move into developing countries, said Rebecca Fannin, founder and editor of Silicon Dragon News.

"As Chinese internet firms step up their expansion overseas, they could gain an advantage against US rivals, due to their large base in China, their experience in dealing with the intense challenges of the competitive and increasingly innovative Chinese market," Fannin said.

There are at least two possible scenarios about how this fight among the global internet companies may play out.

In one, China's slowly liberalising economy may open up and become more friendly to US businesses. Already, the US and China are negotiating a treaty on investment in China and that may lead to further steps to give tech firms the opportunity to grow there.

For that reason, some see cause for optimism.

"The experience US firms have had to date is not a harbinger of what it will be in that market," Ennis said.

Of course, with the head start firms like Alibaba already have, it's unclear how well Google and Facebook and the others will fare. But they are already global brands, and access to the rapidly growing Chinese market would give them at least the chance at tremendous opportunities as they run into slowing growth in the developed countries.

In another scenario, US firms continue to find it hard to do business in China. That could significantly limit their options for future growth and, even worse, nothing would prevent Chinese companies from competing with them in wealthy markets like the US. This is clearly the worst case scenario and one that has to have big Valley internet firms worried.

Friday was Alibaba's day to shine. The real question is whether we just saw the start of Alibaba's decade to shine as well.

Lowy Interpreter

Justin Yifu Lin insists China can grow at 7-8 per cent for another 20 years. A contrarian with a remarkable personal background, the former World Bank chief economist's views influence his country's top leaders and their sense of destiny. What he says matters. How, and how fast, China grows will be highly consequential; far more than many realise.

Foreigners long underestimated China and many still doubt it can maintain Lin's target. The IMF thinks China needs to slow down and some domestic advisers say trend growth may drop to 5 per cent soon. Opinions range from the sceptical Larry Summers, who sees a 'normalisation' looming, to Nobel laureate Robert Fogel, who projects 8 per cent growth continuing until 2040, with China's economy doubling the US and EU combined. China will by then have caught up to the US in average affluence levels (US$85,000), an outcome Arvind Subramaniam imagines in his book Eclipse.

Let's stay well within Justin Lin's timeframe and suppose China grows at 8 per cent in real PPP GDP terms until 2030. That would mean today's US$10,000 PPP GDP per capita will become US$46,000. China by 2030 would be above Germany's present per capita levels, and 50 per cent richer than Koreans today. The relentless mathematics of compounding means that China has 16 years to pile on US$36,000 of output per head, four times more than the leap achieved in the last 30 years of reforms.

If that happens, there will be unprecedented industrial carnage.

Germany and Korea are nations that China seeks to emulate. They have manufacturing companies which dominate globally, both in scale and expertise. The rise of both was industrially disruptive. Germany crushed the British chemical and electrical industries a century ago, and today its car makers pummel European rivals. Korea's giants came to dominate memory chips and shipbuilding by bankrupting overseas competitors. If China continues to rise, Detroit's fate might be repeated 20 or 30 times: Silicon Valley, Basel, Cambridge, Munich, and Nagoya would all be at risk. If China resembles 20 Germanys or 30 Koreas, it will dominate world business with 400 of the world's top 500 companies. 

Of course business isn't zero-sum and others won't stand still. Yet to fulfill Lin's promise China must necessarily relegate most of today's multinational corporations to niches or to extinction. This has happened already in telecoms equipment and wind turbines. China will need many more such cases. Today the equity value of Chinese companies is relatively puny, China has few global brands and quality companies are scarce. The success of Alibaba is deservedly celebrated, and the state basks in its reflected glory (the irony is that Beijing's high-tech protectionism didn't author Alibaba's success, but holds it at risk).

Anyway, Alibaba is less a high-tech company than an e-commerce firm (or simply a 'commerce' firm, as its chairman says) gobbling up 8 per cent of China's entire retailing market. Riding the scooters of cheap deliverymen, it imperilshundreds of thousands of stores in China's labyrinthine bricks-and-mortar economy. This is not to say Alibaba is not innovative; it certainly is disruptive, but in the most prosaic of businesses. That sort of creative destruction will confront many industries, inside and outside China.

China cannot pursue just an export-led strategy — the world couldn't absorb a US$2-3 trillion Chinese annual surplus — so it must develop its domestic economy.

To do so, China has relied on investment, largely funded by credit. Spurred on by Lin's exhortations, Beijing pursues agrowth-at-all-costs approach. John Lee reckons investment is half of GDP and that capital/output, a measure of investment productivity, has deteriorated from 2.0 to 5.5 since the 1980s. True, diminishing returns occur everywhere, and the statistics may be rubbish. But China does still need a lot more capital. The problem is that China's capital is already debt-heavy; the 100 percentage point increase in aggregate debt/GDP in six years is troubling. With its mechanistic approach to growth ('7.27 per cent for the next decade' says one expert), Beijing risks over-reaching. It needs a revolution in productivity, epitomised by Alibaba's asset-light business model. Otherwise Lin's targets might require debt/GDP to increase 10 per cent every year, heading quickly for Japanese levels.

China's energy efficiency, though improving, is poor. On projected trends China could burn half the world's carbon by 2030. Great effort is being made in renewable energy, which figures highly in Beijing's plan for future industrial leadership. Still, more coal continues to get mined. It isn't clear that Beijing will forsake its revered GDP growth target for the sake of global CO2 emissions, but domestically China faces pressing pollution challenges which it will be more motivated to solve. Reportedly Lin favours a 'pollute first and pay later' policy. This boosts growth but is ruinous longer term. A dirty factory that creates $1 of output but costs $1 to clean up generates $2 of GDP and no wealth. Repair activity, like soil remediation, is colossally expensive but ultimately unproductive. It makes people busy now but poor later.

If Justin Lin is right, China will 'rule the world' economically, if not by 2030 then certainly before mid-century. Its domestic economy will far surpass anything on the planet, its companies will tower above all, it will be the prime money-mover globally, it must lead technologically and the West's middle and working classes will be industrially and financially sidelined. If he is wrong, but China's leaders insist on his growth imperative anyway, then China will become highly indebted, parched, polluted and frustrated. That is why I am listening closely to Justin Lin.

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

One of China's state-owned banks has struck a deal with Citigroup to market its first fund to pension funds and retail investors in Europe.

Bank of China Hong Kong Asset Management, which is owned by Bank of China, has moved a US$165 million high-yield bond fund to Luxembourg from the Cayman Islands and has reached a deal for the U.S. bank to distribute the fund.

The move to Luxembourg, along with a structure that complies with European investment regulations, mean that the fund can be widely sold to retail investors and pension funds. Citigroup staff were given presentations about selling the fund last week.

It will mark the first time one of China's state-owned banks has solicited retail and pension-fund investors in Europe to let them manage money. The move marks the start of a broader expansion that BOCHK Asset Management hopes will lead to winning assignments to manage pension-fund investments in Europe, as well as to launching more funds.

"We definitely want to establish our brand as one of the best for China fixed-income and equities investments," said Au King Lun, chief executive of BOCHK Asset Management. "We want to bring our brand and expertise to Europe." He said the fund would start with pension funds and then expand to include retail investors.

Since China loosened regulations restricting foreign investors from buying Chinese securities, more European investors have begun to allocate portions of their assets to China funds. Asset managers have responded.

Figures from Lipper, a Thomson Reuters data provider, show that €11.8 billion (US$15.2 billion) has flowed into China-focused bond and equity funds in Europe in the last five years, although net flows this year have been negative. The five biggest funds have combined assets under management of €12.6 billion.

Ashmore Group, a specialist in emerging-market investments, opened three new China funds to European investors earlier this month. "Very few people would have no exposure to America. Now, investors are increasingly saying, 'I want some of my money in a dedicated Chinese exposure [fund]'," said Christoph Hofmann, head of distribution at Ashmore.

Asset managers have only recently started to open China-focused funds that are compliant with European regulations that allow them to be marketed widely across the continent. "It's very new," said Mr Hofmann. "[It] gives people access to an asset class they couldn't access before."

Until the opening of BOCHK Asset Management's new fund, however, China's banks hadn't taken advantage of the trend.

The fund will invest in offshore renminbi high-yield bonds, but because that market isn't liquid enough for the "very sizable" fund that Bank of China wants to create, it will also have to buy dollar bonds, using currency hedges that will deliver performance as if the bonds were denominated in the renminbi, or yuan. It aims to deliver an 8 per cent yield to income-seeking investors in European markets by capitalizing on the growing use of the yuan by corporations that want to trade with China.

Dr. King planned to spend Monday and Tuesday in London for the fund's launch. He said that investors require education, because the asset class is new.

Citigroup's role is to market the fund and future funds, which Bank of China can't do because of its relatively small presence in Europe. "We are very pleased to have this partnership with Citi and think this is the best way for us to expand in Europe because Citi has a bigger footprint in Europe," said Dr. King. He said that BOCHK Asset Management funds could eventually come to the U.S., but that regulations in Europe made it easier to start in Luxembourg.

BOCHK Asset Management has US$7.7 billion in assets under management, mostly based in Hong Kong.

A Chinese court sentenced Ilham Tohti, an economist and prominent ethnic-rights campaigner, to life in prison, delivering an unusually harsh punishment for a scholar seen by many rights activists as a moderate voice for the country's Muslim Uighur minority.

The court in the northwestern region of Xinjiang also ordered all his assets seized, the official Xinhua News Agency said.

Li Fangping, one of Mr. Tohti's lawyers, said the scholar was prevented from making a statement after the verdict was read. "He seemed to want to stand up and say something, but the police rushed him out of the room. He shouted 'I don't accept this!' while being dragged away," Mr. Li said.

Phone calls to the court's press office rang unanswered Tuesday.

Mr. Tohti, a professor of economics at Beijing's Minzu University, has been a fierce critic of China's ethnic policies, particularly in Xinjiang, the site of increasing tension between Uighurs and the country's dominant Han Chinese. Still, scholars and other activists widely describe him as a moderate who argued against pursuing independence for the region.

Human-rights groups criticized the length of the sentence, which Mr. Tohti's lawyers had earlier said could range anywhere from 10 years to life in prison. Mr. Tohti's lawyers also said the order to seize his personal property was unusual.

"It's a shocking verdict, extremely harsh even by China's standards," said Maya Wang, a Hong Kong-based researcher for Human Rights Watch. "By handing down a life sentence, the government is burning its one and only bridge to moderate Uighurs in China. This will only exacerbate the heightened Han-Uighur tensions."

Human-rights activist Hu Jia said the verdict was the latest of several that punished moderate voices of dissent on a variety of subjects, such as stopping official corruption. "The government is saying there is no room for even moderate criticism," he said.

The European Union in a statement on Tuesday said it "deplores that the due process of law was not respected" in Mr. Tohti's case and called for his immediate release. Several Western countries, including the U.S., have condemned Mr. Tohti's arrest.

Asked about Mr. Tohti's case at a daily press briefing on Tuesday, Chinese Foreign Ministry spokeswoman Hua Chunying said China is a country ruled by law and "we are always opposed to other countries interfering with our judicial independence."

The separatism charges largely relate to Uighur Online, a website that Mr. Tohti started in 2005, which became a source of news about Uighur issues following deadly ethnic riots in the Xinjiang capital of Urumqi in 2009. Xinhua, citing Tuesday's verdict, said the scholar "bewitched and coerced young ethnic students" into working for the site and participating in a criminal syndicate.

Mr. Tohti denied the charges during his trial last week, according to a transcript made public by his lawyers. "I have never thought of splitting the country and have never participated in any separatist activities, much less organized a so-called separatist group," he said.

The sentence comes at a time of surging violence between Uighurs and Han Chinese, including a bloody clash in western Xinjiang near the end of the Muslim holy month of Ramadan in which dozens were killed. Uighurs have long chafed at Han immigration into Xinjiang and what many describe as discriminatory economic and cultural policies imposed by Beijing. Continuing tension has helped fuel rising interest among some Uighurs in more conservative forms of Islam, according to scholars. That in turn has led authorities to clamp down harder in Xinjiang, including stepping up campaigns against long beards and veils.

Experts who follow Xinjiang describe Mr. Tohti as a figure who enjoyed credibility among both Uighurs and Han Chinese intellectuals in Beijing. His arrest and trial demonstrates a hardening of attitudes in Beijing in the face of rising ethnic violence, said Sean Roberts, an expert on Xinjiang at George Washington University.

"Rather than encourage nonviolent avenues for Uighurs to voice their discontent through people like Tohti, it appears that [China] is heading in the opposite direction, only silencing even moderate voices and using strong-arm tactics to control any Uighur political expressions," he said.

Mr. Tohti, 44 years old, was taken from his Beijing home by police in mid-January and subsequently brought to the Xinjiang Regional Detention Center in Urumqi. He staged a hunger strike early on in his detention to protest being deprived of halal food, according to his lawyers. He was later placed in leg irons and denied delivery of warm clothing sent to the detention center by his family, they said.

The detention center hasn't responded to repeated requests for comment.

In a video interview conducted by Chinese activist Zeng Jingyan after the 2009 riots in Urumqi, Mr. Tohti said he knew he might someday face prison.

"In the beginning, I didn't give it too much thought," he said. "I knew at the time that I might face some setbacks. I even thought I might be sent to prison for 10 or 20 years. I think I can handle that because I've always been prepared for it."

Mr. Tohti has two sons, five and eight, who live with his wife in Beijing. His also has a daughter, 20-year-old Jewher Tohti, who is a student at Indiana University. His wife, Guazaili Nu'er, makes 2,500 ($407) a month as a librarian at Minzu University, according to the daughter. Both Ms. Tohti and Ms. Nu'er declined to comment on Tuesday.