The protests now roiling Hong Kong are about democracy. But there is an undercurrent of another, much older tension: Between Christianity and Communist China.

Hong Kong's churches are playing a quiet but important role in the city's protests, offering food and shelter to demonstrators, with some organizers and supporters citing Christian values as inspiration in their fight.

At least three of the founders of the main protest groups are Christians, including the 17-year-old leader of a student group and two of the three heads of Occupy Central. One of the group's founders is a minister and the city's former Catholic bishop is a vocal supporter.

Churches are deeply embedded into the fabric of Hong Kong society, in contrast to mainland China, where religion is strictly controlled. The Catholic Church established a foothold in the former colony in 1841, the very year that the British wrested control of Hong Kong island from China, with other denominations following soon after. Christian institutions have since become part of Hong Kong's civil sensibility.

While the protests are specifically for democratic elections in Hong Kong, some see a broader struggle to protect that culture from China's communist government as it increases its influence on the city. Christianity has been a visible element of the demonstrations, with prayer groups, crosses, and protesters reading Bibles in the street.

On the other side, some of Hong Kong's top government officials and business leaders are also Christian, including No. 2 official Carrie Lam and former Chief Executive Donald Tsang, who are both Catholics.

The fight for democracy is "a question of the whole culture, the whole way of living, in this our city," said Cardinal Joseph Zen, who retired as head of Hong Kong's Catholic flock in 2009.

Beijing's influence through Chief Executive Leung Chun-ying "brings to Hong Kong the whole culture which is now reigning in China, a culture of falsity, of dishonesty, a lack of spiritual values," said Cardinal Zen, sitting in the cool interior of a church seminary. "We can see that it is coming, so we have to resist."

Some see the gap between Christians and the Chinese government as unbridgeable. "Christians, by definition, don't trust the communists. The communists suppress Christians wherever they are," said Joseph Chan, a political-science professor at Chinese University of Hong Kong and a supporter of the protesters.

Hong Kong's major church organizations have taken largely neutral stances toward the Occupy Central movement. The leader of the Catholic Church, Cardinal John Tong, issued a brief statement Monday urging the Hong Kong government to exercise "restraint in deployment of force" and telling protesters to be "calm" in voicing their grievances. A spokesperson for the city's Anglican Church said in July that it wouldn't encourage its parishioners to break the law.

But some churches are providing aid to protesters. Wu Chi-wai, pastor of Hong Kong's Christian & Missionary Alliance Church, estimates that more than half of the roughly 1,400 Protestant churches in Hong Kong have been organizing ad hoc groups to help the movement. "We have prayers and attendees at sites singing hymns like they would on Christmas Eve," Pastor Wu said.

Vine Church, home to a multinational congregation of about 1,500 people, has been providing first aid, food and refuge to protesters at its Wan Chai headquarters since Tuesday evening. "We're not taking a political stance. We're here to serve the people of Hong Kong," said senior pastor Andrew Gardener, who says his church has been praying for peace in the city.

At the main protest site Thursday, 50-year-old IT consultant Alex Cheng was on a 24-hour fast with several other Christians. Mr. Cheng said he had seen a few Christian groups nearby, although most kept a low profile. Next to him, six friends held hands in silent prayer, as passersby stopped to read their signs, one of which was a prayer for God to "move the government to listen."

The involvement of Protestants and Catholics in Hong Kong's protest movement is an added concern for Beijing, which on the mainland has put in place an elaborate bureaucracy of agencies and state-approved religious bodies to monitor and control religious groups.

Hong Kong churches have long tried to spread Christianity in China. Protestant pastors based in Hong Kong have helped propagate the evangelical brands of Christianity that have alarmed the Chinese leadership in Beijing with their fast growth.

About 480,000 Protestants and 363,000 Catholics live in Hong Kong, a city of about 7.2 million, according to government figures from 2013. Buddhists and Taoists make up the vast majority of the city, the government says. Many Hongkongers have been educated through large networks of Catholic and Protestant schools.

That includes some protest leaders. Joshua Wong, the 17-year-old who is a public face of the rallies, was educated at one of the top Protestant-backed private schools in the city. Now in college, Wong was a 15-year-old student at United Christian College (Kowloon East) in 2012, when he led a movement called Scholarism that defeated the Hong Kong government's plan to introduce patriotic education classes in schools.

Occupy Central leader Chu Yiu-ming is a Baptist minister, while founder Benny Tai is also a Christian. On Thursday, Mr. Tai declined to discuss his faith in detail, but he did call himself a "part time theologian" and said he could "write a thesis" on the topic of Christianity and the protests. "My faith is in the streets," Mr. Tai added.

Wendy Lo, 21, was born in China's Guangdong province but grew up in Hong Kong and became Christian after attending an Evangelical secondary school. The University of Hong Kong linguistics major says her bible study group this past weekend discussed how to interpret a biblical story in light of the protest movement. The chapter they read was about Queen Esther daring to approach the king without his permission.

"The story made me think about speaking up for myself," said Ms. Lo. "If Hong Kong residents don't speak up for ourselves, who will?"

On Thursday night, church volunteers handed sandwiches to protesters, wrapped and sealed with a heart-shaped sticker reading "Jesus loves you."

HONG KONG—Beijing's decision to suspend issuance of travel permits for mainland tour groups bound for Hong Kong is expected to sharpen the blow to tourism in the city, which has been gripped by pro-democracy protests for a week.

The economic hit plays into the Hong Kong government's strategy to resolve the crisis by having police step back from direct confrontations with the crowds and instead wait them out. Authorities expect the protesters will tire or lose support from the wider public, which would suffer most from the business slowdown.

The China National Tourism Administration issued a notice to travel agencies Monday evening advising them to stop organizing Hong Kong-bound tours until further notice, said Jenna Qian, a spokeswoman for the Beijing-based online travel platform Qunar Cayman Islands Ltd. The notice exempted already sold Hong Kong-bound tours, Ms. Qian said.

Tour operators said they believed the change in policy was a result of the Hong Kong protests. It was unclear whether individual travelers were affected.

"It will definitely have an impact on Hong Kong's tourism industry and we don't know how long the measure would last," said Joseph Tung Yao-Chung, executive director of the Hong Kong Travel Industry Council.

Beijing's decision comes after other countries including the U.S., the U.K., Canada, France, Italy, Germany and Australia issued travel warnings regarding Hong Kong, advising tourists to avoid public demonstrations and to follow media reports for updates.

The contribution of mainland Chinese visitors to Hong Kong's HK$296.1 billion (US$38.1 billion) tourist industry is crucial. China accounts for two-thirds of all tourists in Hong Kong, up from half of all tourists a decade ago. The number of Chinese visitors rose to more than 40 million people last year from 8.5 million in 2003, the year Beijing eased curbs on mainland Chinese travel to Hong Kong.

Many of the Chinese visitors come to Hong Kong to spend, packing the city's luxury boutiques in search of high-end apparel and jewellery, especially during the National Day peak travel period, known as Golden Week, which ends Oct. 7.

Allan Zeman, the developer of Hong Kong night life district Lan Kwai Fong, said some retailers at areas near the protests—Central, Admiralty, Causeway Bay, Wan Chai and Mong Kok—have experienced declines in business from 20 per cent to 70 per cent.

"I was in Central yesterday and some of the shops haven't seen a customer all day," said Mr. Zeman, a Canadian who acquired Chinese citizenship several years ago.

Tourism directly contributed about 3.9 per cent of Hong Kong's gross domestic product in 2012, the latest year for which government data were available.

Industry experts said the impact of Beijing's travel curb could be contained if the halt is temporary. Mr. Tung said 10,000 mainland visitors arrive through such groups every day, accounting for roughly 10 per cent of total Chinese tourists, with the rest being individual Chinese travelers who have multiple-entry permits or business-travel permits.

Mr. Tung of the Travel Industry Council said the international attention paid to the protests and the resulting concerns over safety as the standoff continued may have a chilling effect on would-be tourists. "The situation here is like the recent unrest in Thailand. Many foreign travelers are avoiding traveling to Bangkok and that created a major impact on the tourism industry," he said.

Lam Siu Lun, chairman of Hong Kong Travel Agent Owners Association, said demand for accommodation has dropped significantly. "This year we don't have to fight for hotel rooms," he said.

At Big Bus Company (HK) Ltd., which runs bus tours around the city, the number of customers has declined sharply this week.

Normally its tours attract 600 or 700 passengers daily, but this week the number has dropped to 300 to 400 a day, said Roy Chan, a Big Bus manager. Sales are down 30 per cent to 40 per cent this week compared with normal weeks, he said. Big Bus is now trying to attract customers by offering a free night tour to people who book one-day or two-day tours.

The harm to business hasn't been felt by all. Major Japanese travel agencies H.I.S. Co. and JTB Corp. said there has been no effect from the protests on their package tours from Japan to Hong Kong. They said they haven't had any last-minute cancellations and the Hong Kong tours continue as usual.

Christine Foo, a Singaporean tourist in her 50s visiting Hong Kong for the city's watch and clock fair, said she wasn't concerned, despite Singapore's issuance of a travel warning for Hong Kong. "We are not being disturbed at all," she said. "The protests in Hong Kong are peaceful, and sometimes we are just rubbernecking."

"It doesn't affect my plan to come and it's easy for me to shop as it's less crowded," said Magan Li, a Chinese tourist who visits Hong Kong frequently from Shekou in neighboring Shenzhen.

William Li, a 22-year-old visitor from Guangdong province, had just arrived Thursday for his three-day trip with an individual visit permit. He said the pro-democracy protests won't be affecting his travel plan.

"They do their own protests, we do our own traveling," he said.

China Molybdenum is seeking to increase the life of its recently acquired Australian copper-and-gold mine, Northparkes, and is considering the acquisition of further foreign mining operations, the head of its Australian mining operation said Thursday.

Northparkes managing director Stefanie Loader described China Molybdenum as "an ambitious and growing international resources company," signaling continued interest from Chinese investors in overseas resources despite a recent shopping spree having yielded numerous bad investments for some companies.

She said the company was pushing to extend the expected life of Northparkes, one of Australia's largest copper mines, beyond its existing 2032 end date, with drilling work under way on land surrounding the mine.

"We are also seeking to acquire and invest in producing and cash-generating resources projects in politically stable countries," Ms. Loader said at a business event in Sydney. She didn't elaborate further.

China has snapped up foreign resources in recent years amid a rapid expansion in its economy, helping to feed its factories and ensure it wasn't reliant on Western powers for raw materials. China's overseas investments in resources climbed to US$53.3 billion last year, from US$8.2 billion in 2005, according to an investment database compiled by the American Enterprise Institute and the Heritage Foundation.

While many major deals, particularly in iron ore, have struggled with high costs or less output than expected, Ms. Loader said the Northparkes project was helping bolster the bottom line of its Chinese owner, particularly after slashing operating costs 20 per cent last year, bolstering margins. It recently reported a 66 per cent increase in first-half profit.

China Molybdenum bought an 80 per cent stake in the Northparkes operation from Rio Tinto PLC last year for $820 million. Rio Tinto, which had acquired Northparkes in 2000, sold the mine as part of its strategy to shed unwanted assets to pay down debt and protect its credit rating.

Japan's Sumitomo Group owns the remaining 20 per cent interest.

China is the world's biggest buyer of copper, used in wires and pipes for industries from electronics to construction. It accounts for about 40 per cent of global demand.

Ms. Loader declined to speculate on the outlook for copper prices. The commodity dropped to a three-month low earlier this week as weaker economic data from China fanned investor concerns the world's No. 2 economy could slow further.

"Commodity prices and exchange rates—they matter a lot to us, but we can't control them," she said.

Northparkes, in Australia's New South Wales state, produces about 55,000 tons of copper a year.

Still, mining executives and analysts are widely upbeat on the longer run outlook for copper, as China's economy rebalances from steel-intensive industrialization toward consumer-led growth, which tends to demand high levels of copper for production of items such as computers and home appliances.

Wall Street Journal

The protests now roiling Hong Kong are about democracy. But there is an undercurrent of another, much older tension: Between Christianity and Communist China.

Hong Kong's churches are playing a quiet but important role in the city's protests, offering food and shelter to demonstrators, with some organisers and supporters citing Christian values as inspiration in their fight.

At least three of the founders of the main protest groups are Christians, including the 17-year-old leader of a student group and two of the three heads of Occupy Central. One of the group's founders is a minister and the city's former Catholic bishop is a vocal supporter.

Churches are deeply embedded into the fabric of Hong Kong society, in contrast to mainland China, where religion is strictly controlled. The Catholic Church established a foothold in the former colony in 1841, the very year that the British wrested control of Hong Kong island from China, with other denominations following soon after. Christian institutions have since become part of Hong Kong's civil sensibility.

While the protests are specifically for democratic elections in Hong Kong, some see a broader struggle to protect that culture from China's communist government as it increases its influence on the city. Christianity has been a visible element of the demonstrations, with prayer groups, crosses, and protesters reading Bibles in the street.

On the other side, some of Hong Kong's top government officials and business leaders are also Christian, including No. 2 official Carrie Lam and former chief executive Donald Tsang, who are both Catholics.

The fight for democracy is "a question of the whole culture, the whole way of living, in this our city," said Cardinal Joseph Zen, who retired as head of Hong Kong's Catholic flock in 2009.

Beijing's influence through Chief Executive Leung Chun-ying "brings to Hong Kong the whole culture which is now reigning in China, a culture of falsity, of dishonesty, a lack of spiritual values," said Cardinal Zen, sitting in the cool interior of a church seminary. "We can see that it is coming, so we have to resist."

Some see the gap between Christians and the Chinese government as unbridgeable. "Christians, by definition, don't trust the communists. The communists suppress Christians wherever they are," said Joseph Chan, a political-science professor at Chinese University of Hong Kong and a supporter of the protesters.

Hong Kong's major church organisations have taken largely neutral stances toward the Occupy Central movement. The leader of the Catholic Church, Cardinal John Tong, issued a brief statement Monday urging the Hong Kong government to exercise "restraint in deployment of force" and telling protesters to be "calm" in voicing their grievances. A spokesperson for the city's Anglican Church said in July that it wouldn't encourage its parishioners to break the law.

But some churches are providing aid to protesters. Wu Chi-wai, pastor of Hong Kong's Christian & Missionary Alliance Church, estimates that more than half of the roughly 1,400 Protestant churches in Hong Kong have been organising ad hoc groups to help the movement. "We have prayers and attendees at sites singing hymns like they would on Christmas Eve," Pastor Wu said.

Vine Church, home to a multinational congregation of about 1,500 people, has been providing first aid, food and refuge to protesters at its Wan Chai headquarters since Tuesday evening. "We're not taking a political stance. We're here to serve the people of Hong Kong," said senior pastor Andrew Gardener, who says his church has been praying for peace in the city.

At the main protest site Thursday, 50-year-old IT consultant Alex Cheng was on a 24-hour fast with several other Christians. Cheng said he had seen a few Christian groups nearby, although most kept a low profile. Next to him, six friends held hands in silent prayer, as passersby stopped to read their signs, one of which was a prayer for God to "move the government to listen."

The involvement of Protestants and Catholics in Hong Kong's protest movement is an added concern for Beijing, which on the mainland has put in place an elaborate bureaucracy of agencies and state-approved religious bodies to monitor and control religious groups.

Hong Kong churches have long tried to spread Christianity in China. Protestant pastors based in Hong Kong have helped propagate the evangelical brands of Christianity that have alarmed the Chinese leadership in Beijing with their fast growth.

About 480,000 Protestants and 363,000 Catholics live in Hong Kong, a city of about 7.2 million, according to government figures from 2013. Buddhists and Taoists make up the vast majority of the city, the government says. Many Hongkongers have been educated through large networks of Catholic and Protestant schools.

That includes some protest leaders. Joshua Wong, the 17-year-old who is a public face of the rallies, was educated at one of the top Protestant-backed private schools in the city. Now in college, Wong was a 15-year-old student at United Christian College (Kowloon East) in 2012, when he led a movement called Scholarism that defeated the Hong Kong government's plan to introduce patriotic education classes in schools.

Occupy Central leader Chu Yiu-ming is a Baptist minister, while founder Benny Tai is also a Christian. On Thursday, Tai declined to discuss his faith in detail, but he did call himself a "part time theologian" and said he could "write a thesis" on the topic of Christianity and the protests. "My faith is in the streets," Tai added.

Wendy Lo, 21, was born in China's Guangdong province but grew up in Hong Kong and became Christian after attending an Evangelical secondary school. The University of Hong Kong linguistics major says her bible study group this past weekend discussed how to interpret a biblical story in light of the protest movement. The chapter they read was about Queen Esther daring to approach the king without his permission.

"The story made me think about speaking up for myself," said Lo. "If Hong Kong residents don't speak up for ourselves, who will?"

On Thursday night, church volunteers handed sandwiches to protesters, wrapped and sealed with a heart-shaped sticker reading "Jesus loves you."

 -- Chao Deng, Charles Hutzler, Joanne Chiu, Nisha Gopalan, Jason Chow and Isabella Steger contributed to this article.

In its latest effort to force further financial discipline on local governments and keep debt levels in check, China's cabinet said that Beijing won't bail them out when they fail to repay their debts and will impose ceilings on their borrowing.

The State Council's move is an attempt to change the behavior of localities, which, researchers and legislators say, have had little incentive to restrain their borrowing because they assume Beijing will eventually bail them out if needed.

The cabinet's statement, issued on Thursday, said that local governments having trouble repaying their debts must reduce the size of construction projects, cut administrative spending, sell state assets or take similar measures to meet repayment obligations themselves.

Local authorities also must report any imminent defaults to higher-level governments in a timely manner, and local and higher-level governments must kick off "emergency response systems" to contain any risks, the cabinet said. The notice said that local officials will be held responsible for failing to curb debt levels.

The cabinet also said it would ban the use of local government financing vehicles -- special companies that have relied on the country's extensive shadow-banking system to raise funds for projects, raising the potential for hidden debts. Beijing has tightened its grip on these instruments over the past two years, fearful that they could shake the financial system in the world's second-largest economy.

"As a knee-jerk reaction, the local governments are likely to be more cautious in terms of spending, which may possibly trigger deleveraging," said Xie Dongming, an economist with OCBC.

Local governments have had a tough time this year repaying debt as fiscal revenue growth has slowed in the face of a weaker national economy and China's property market downturn. China's combined central and local fiscal revenue rose 6.1 per cent in August from a year earlier, compared with a year-over-year increase of 9.2 per cent in August 2013, data from the finance ministry showed.

Almost 40 per cent of the 17.9 trillion yuan in local government debt and guarantees will mature by the end of this year, placing huge pressure on local governments to make repayments, according to a report released by the state auditor late last year.

Beijing has tried repeatedly to rein in local government debt in recent years, but its efforts have often been thwarted by weak incentives, poor fiscal discipline and structural problems. Chief among those is a mismatch between the amount of revenue local governments collect and their mounting social responsibilities. China has given provinces and some cities the authority to issue bonds directly, although analysts say many municipalities could have trouble meeting fiscal-solvency requirements.

The State Council said Thursday that it would determine the maximum amount of debt that local governments can raise in different regions, based on the Finance Ministry's evaluations of their financial health, including their debt levels and fiscal capacities.

The statement didn't specify when the policy would go into effect or how local debt ceilings would be calculated. It also didn't provide any debt-reduction target.

In the long run, OCBC's Mr Xie said, the policy changes would help lower funding costs for the real economy and reduce companies' leverage ratios.

Global demand for steel will grow by just 2.0 per cent this year owing to a rebalancing of the Chinese economy and a slowdown in other emerging countries, the sector's trade body says.

The growth forecast to 1,562 million tonnes in steel use by the World Steel Association is down from the 3.1 per cent rate it forecast in April and the 3.8 per cent recorded in 2013.

"The positive momentum in global steel demand seen in the second half of 2013 abated in 2014 with weaker than expected performance in the emerging and developing economies," the head of the association's economics committee, Hans Juergen Kerhoff, said in a statement.

"The slowdown in China's steel demand reflecting the structural transformation of the economy has contributed significantly to our lower global growth projection," he added.

The WSA now expects just 1.0 per cent growth in China's steel use this year to 748.3 million tonnes, and 0.8 per cent growth in 2015.

"In China rebalancing (of the economy) will continue to act as a drag on steel demand," said Kerhoff.

Falling commodity prices, structural constraints and geopolitical tensions also let to a "major slowdown" in South America and the CIS countries.

The WSA now expects recoveries in the EU, United States and Japan to be stronger, but not enough to compensate for the slowdown in emerging economies.

A drop of 0.4 per cent in US steel use last year is being followed by an upwardly revised 6.7 per cent jump this year thanks to strong growth in the automotive and energy sectors, said the WSA.

Growth is expected to continue at a rate of 1.9 per cent last year.

After growing by 2.1 per cent last year, demand growth is expected to accelerate to 2.3 per cent this year in Japan to 66.8 million tonnes.

In the EU, demand growth is expected to jump from 0.8 per cent last year to 4 per cent this year to 145.9 million tonnes, then slow to 2.9 per cent in 2015.

The WSA now expects steel use to rise 4 per cent in developed countries this year, then slow to 1.7 per cent growth in 2015.

Emerging and developing economies, excluding China, are expected to see a 1.7 per cent increase in demand this year which will then pick up to 4.7 per cent in 2015.

Exhausted Hong Kong demonstrators are debating the next step in their pro-democracy campaign as their numbers dwindled and the city returned to work after a chaotic week of mass protests.

The government had been forced to shut its headquarters on Friday due to the ranks of protesters blocking the access roads, leaving 3000 civil servants at home.

On Monday a knot of protesters kept the entrance to the complex partially blocked with barricades, but opened a narrow section to allow workers to enter.

"I'm happy the protesters opened the barriers today," one female civil servant said as she pushed through. "I need to work!"

In fear of a repeat of ugly scenes a week ago when police unleashed tear gas on the crowds, only a committed core of about a thousand had waged a vigil through the night.

After a public holiday on Wednesday and Thursday, for many in the city Monday was their first day back at work.

With some buses still diverted due to roads occupied by the protesters, highways were gridlocked with traffic and subway trains were packed as frustrated commuters tried to find a different route to work.

"They have to let the cars through as soon as possible - they are blocking the way," said Michael Lau, 25, who rides the tram to work.

Secondary schools in the affected areas also reopened on Monday as the city administration pushed for Hong Kong to get back to normal.

While relieved that they had not been cleared away by police ahead of the government's Monday deadline to abandon the protest sites, tiredness was beginning to show for the few hundred who remained.

"It's good that nothing (no police action) happened but... I hoped that something would happen so we could end this thing quickly," said 18-year-old Otto Ng Chun-lung, a pro-democracy protester and sociology student.

"This is my opinion - because everyone is just exhausted and we can't go long, long, long time."

But some of those on the streets have vowed to stay and others have promised to return later in the day, insisting their campaign was not losing steam after the week-long standoff that has at times erupted into violence.

The protesters are demanding the right to nominate who can run for election as the former British colony's next leader in 2017.

China's Communist authorities insist only pre-approved candidates will be able to run, a system activists dismiss as "fake democracy".

Handed back to Chinese rule in 1997, Hong Kong is governed under a "one countries, two systems" deal that guarantees civil liberties not seen on the mainland, including freedom of speech and the right to protest.

But tensions have been rising over fears that these freedoms are being eroded, as well as rocketing inequality in the Asian financial hub.

Mining giant BHP Billiton plans to overtake rival Rio Tinto to become Australia's lowest cost iron ore producer.

The world's biggest miner says it will not need to build a new iron ore mining hub for at least 30 years as it cuts costs and pursues productivity gains at its four existing Pilbara centres.

President of BHP's iron ore business, Jimmy Wilson, predicts Rio Tinto will respond with more cost cutting as the supply of iron ore begins to outweigh demand.

"Rio's going to improve their business, we are going to improve our business," Mr Wilson told reporters.

"We believe we have some sustainable advantages and our aspiration is to be down the bottom end of that cost curve."

BHP has cut thousands of jobs in recent years during a major cost cutting drive.

The company says it will now be able to produce iron ore, excluding the cost of shipping and government royalties, for less than $US20 ($A21.64) per tonne in the medium term after spending $25 billion on its supply chain over the past decade.

"Our confidence in this approach will enable us to become the lowest all-in cash cost supplier to China," Mr Wilson told analysts on Monday.

BHP says the $US20 figure would be a 25 per cent reduction compared with results achieved in 2014, but insists recent price falls do not change its view about healthy long term demand.

The company plans to expand its exports by 65 million tonnes to 290 million tonnes per annum by the end of full year 2017.

Mr Wilson says the company's current footprint meant that it will not need to build major mining hubs for decades.

"Existing hubs, not new hubs will sustain this business for at least the next 30 years and provide the requisite growth options," Mr Wilson said.

UBS analysts recently estimated that the company's break-even all-in costs are about $US50 per tonne compared to Rio Tinto's $US45 per tonne.

Brazilian iron ore giant Vale recently said it plans to slash cash costs, before shipping, from $US22 a tonne to $US18 within four years.

The iron ore price has plunged 40 per cent this year and was trading at about five-year lows of $US78.90 on Monday.

Mr Wilson also conceded iron ore supply is now set to outpace demand for the first time in a decade following a widespread boost to production in Australia.

He added that higher cost supply was being displaced from the market and prices had weakened.

Chinese steel production was expected to increase by approximately 25 per cent to between 1.0 and 1.1 billion tonnes in the early to mid-2020s.

In light of this, BHP expects to increase production by 20 million tonnes to 245 million tonnes, up from 225 million tonnes.

It then plans to raise the capacity to 275 million tonnes by adding mining fleet at its Jimblebar operations and making productivity equipment improvements at Newman.

BHP's board will soon consider moves to free port capacity to meet its 290 million tonnes per annum goal.

The company recently announced plans to spin off most of its aluminium, coal, manganese, nickel and silver assets into a NewCo as it focuses on its iron ore, copper, coal, petroleum and potash assets.

East Asia Forum

The impact of Chinese demand on global iron ore prices is well known. A less acknowledged consequence of China’s emergence is the transformation of incentive structures in the global shipping market. Dramatic increases in freight rates shifted global iron ore producers’ comparative advantage further in favour of Australian exporters to the detriment of the Brazilians. During the commodities boom, between 2002 and 2008, the freight differential between Brazil–China and Australia–China rates increased to around US$60 per tonne for 150,000–160,000 deadweight tonne (dwt) ships.

Japan’s tenure as dominant market player in the second half of the twentieth century was marked by a gradual evolution of the shipping pricing regime, much of it under Japanese control. In stark contrast, China’s impact on the shipping market has been much more concentrated in time, with an absence of long-term planning and coordination between the Chinese steelmakers and ship owners or operators.

In 2008, to compete with BHP and Rio Tinto over shipping costs, the shipping company Vale commissioned, at a cost of over US$2 billion, a new line of ‘Very Large Ore Carriers’ (VLOCs), dubbed the ‘Valemax’. The Valemax carrier is the largest bulk carrier ever built: over twice as big as Cape-size carriers (400,000 dwt). Current shipping costs from Australia to China stand at around US$10/tonne, whereas it currently costs around US$22/tonne to ship iron ore from Brazil to China. Direct Valemax trips from Brazil to China would bring shipping costs down to aboutUS$15/tonne.

Vale had 24 out of 35 of these huge carriers built in China, and the rest in South Korea. China’s Export-Import Bank and the Bank of China even financed the project to the scale of US$1.3 billion, so Vale was confident that this step was in the interest of iron ore consumers in China and that these cargoes would be welcomed.

But, on 29 January 2012, the Chinese Ministry of Transport issued a notice specifying that cargo ships with a capacity greater than 350,000 dwt could not dock in Chinese ports, citing safety concerns. Interviews confirm that Vale was taken aback, alongside many Chinese iron ore industry insiders.

The blocking of the Valemax carriers was not the result of coordinated, state-led, revisionist behaviour. It was not a directive coming from the central government or the Chinese Iron ore and Steel Association, or even the large steel SOEs, all of whom favoured the Valemax since it would reduce the overall price of Brazilian iron ore. The opposition, and lobbying, came from Chinese ship owners/operators, led by COSCO (China Ocean Shipping Company), who stood to lose shipping business, and held enough sway with the Chinese Shipowners Association, the port authorities and the Transport Ministry to make this happen. It is testament to China’s weight in global markets that a unilateral move by one Chinese interest group could have such destabilising consequences. The blocking of the Valemax was the result of the fragmentation of China’s iron ore industry, and the highjacking of policy-making by a particular interest group, against broader national priorities.

On 6 December 2011, Shouguo Zhang, Vice Executive Chairman of China Shipowners’ Association, said that ‘Vale is an iron ore producing corporation that obviously lacks experience in ship safety management, ship pollution prevention … [It] holds the cargo to itself and now intends to control shipping tonnage. It is a matter of monopoly and unfair competition which not only harms the shipping interest of mainland China but also that of South Korea, Japan and Taiwan’. It is worth noting that the president of the Chinese Shipowners Association at the time was Wei Jiafu, also president of COSCO.

The Wall Street Journal has spoken to shipping engineers who said that safety concerns cited by the Chinese Transport Ministry were ‘insufficient to cast serious doubt on the safety of Valemax ships. Valemax vessels have docked at ports in such places as Japan, Italy, the Netherlands and the Philippines’. Ralph Leszczynski, head of research at shipping services firm Banchero Costa, said that COSCO’s reaction is natural as ‘the moment a company like Vale decides to build their own ships they are entering the “business turf” of companies like COSCO and they take those companies’ business away’. The ban has been extremely costly for Vale, as the company has had to transfer cargo to smaller carriers in the Philippines at an extra cost of between US$2 and US$7 a tonne.

Industry analysts have ventured that the only way out for Vale, as a concession to COSCO and other Chinese ship operators, would be for it to agree to a charter or sharing solution with the Chinese shipping companies, by transferring Valemax ships for Chinese shipowners to operate.

In December 2013, news of one such five-year ‘bareboat charter arrangement’ with Shandong Shipping Alliance was announced by Vale’s Jose Carlos Martin.

On 10 February 2014, the Chinese Ministry of Transport issued a notice reframing coastal berthing regulations. From 1 July 2014, oversized cargo ships have been allowed to dock in Chinese ports with a capacity not exceeding 250,000 dwt, as long as they match their load with the port’s capacity. Some analysts say this new regulation slowly opens the door to Valemax cargoes docking in China, while the China Shipowners Association reiterated its opposition to 400,000 dwt cargoes ever docking at Chinese ports.

Then on 12 September 2014, in a ground-breaking announcement, Vale revealed that it had reached a ‘framework agreement for strategic cooperation in iron ore shipping’ with COSCO. This is another step towards resolving the almost 3-year-old impasse between the two giants. Following the terms of the agreement, Vale will transfer 4 VLOCs to COSCO and charter them back from the shipping giant for the next 25 years. It also agreed to similar terms regarding 10 more VLOCs to be built by COSCO to transport iron ore from Brazil.

The new agreement between COSCO and Vale will presumably lead to the Chinese Ministry of Transport fully lifting the ban on the Valemax cargoes in the near future.

The Valemax story highlights the role of non-state actors as a determinant of Chinese international procurement behaviour. It also highlights the fact that despite China’s share of global demand, Chinese stakeholders feel powerless in global commodity markets whose rules were established long before Chinese re-emergence. The sheer reach of COSCO’s behaviour demonstrates how important it is to understand Chinese domestic market dynamics, and also points to broader patterns we can expect as China tries to carve itself a position commensurate with its global purchasing power. China’s domestic dynamics have now become a determining feature of the global economy.

Pascale Massot is a PhD Candidate in the Department of Political Science and a Graduate Associate at the Center for Chinese Research, Institute of Asian Research, University of British Columbia.

This article was originally published on East Asia Forum. Read the original article.

On Saturday evening, at the end of the seventh day of ‘Occupy Central’ protests that had paralysed the city, Hong Kong chief executive CY Leung issued a strongly-worded statement to the public. The roads should no longer be blocked, he said, so that schools and workplaces could resume on Monday:

"The Government and the Police have the duty and determination to take all necessary actions to restore social order, so that the government and some seven million people of Hong Kong can return to their normal work and life."

It seemed to be an unambiguous indication that the authorities would take action to remove all road blockades and end the protests before Monday morning. Protesters and observers widely expected the crackdown to come on Sunday night, and the atmosphere on the various ‘front line’ barricades protesters had set up on all the main arterial roads was tense.

Students on footbridges at key locations gazed out into the empty streets, walkie-talkies ready to radio back to base when the anticipated rows of police vehicles and riot police began their approach.

The scale of any operation to clear the roads is going to be large and complex, requiring many hours' work. As well as arresting any remaining protesters, the authorities will have to remove numerous road blocks which the students have had over a week to reinforce; they are now complex constructions of steel barriers, plastic road dividers, rubbish bins and assorted pieces of junk all strapped together with cling film and zip ties.

Then there are the numerous supply station marquees and first aid tents, piled high with supplies. And of course all those umbrellas. Given that the protesters have established bases at Mong Kok in Kowloon and the Causeway Bay shopping district as well as in Central, police resources would be thinly spread across multiple locations if they wanted to clear all sites in one evening.

By around 3am Monday morning, it became clear that the authorities would not be coming; they simply could not get the job done in time.

The administration later back-pedaled and claimed that the Saturday night statement was "not an ultimatum".  However Leung had clearly lost face and significant authority in failing to get the job done.

By Monday evening, the government and the protesters, represented by the Hong Kong Federation of Students were - finally - in discussions after over a week of intransigence by the government who refused to engage the protesters beyond issuing paternalistic edicts.

The two sides have now agreed on a framework for open dialogue as "equals", and the HKFS has vowed to continue their occupation until the government makes tangible concessions.

In the meantime, during Monday the Occupy crowds were dwindling, and by late Monday afternoon only a few hundred protesters remained of what had previously been thousands filling a three kilometre stretch of highway through the middle of downtown Hong Kong.

Although crowds grew again in the evening as work/classes ended, and the resolve of those who were out listening to speeches in the mild and pleasant Hong Kong autumn night seemed as strong as ever, they were nowhere near the numbers of the previous week.

If the administration sticks to what was rumored to be their original approach of sitting the protests out, it seems likely to be an ultimately successful strategy, and police can come in to sweep up any stragglers.

So whether through negotiated resolution, fatigue or creeping lack of interest, it seems likely there will be a peaceful resolution.

The remaining question is what will be the legacy of the Umbrella Revolution for Hong Kong?

There seems little chance of any compromise from Beijing on the protesters' key demands. CY Leung will not resign – after the resignation of inaugural chief executive Tung Chee-Hwa in 2005 following similar popular protests, losing a second chief executive in ten years in similar circumstances would be unacceptable to Beijing.

Nor will Beijing make any concessions on the chief executive election process. So it seems unlikely the movement will produce any real political change.

The events of the past week have also significantly undermined confidence in the government and law enforcement institutions of Hong Kong, with allegations of selective policing, police collusion with organised crime, and interference by mainland interests including by allegedly paying for and organising anti-Occupy activities.

There must be a public enquiry to address these and other questions. This is important not only to assist with the community healing process after what have undoubtedly been divisive and traumatic events, but also to restore confidence in Hong Kong's government and justice system.

At the same time, the Umbrella Revolution will clearly have some positive influences. The protests have fostered a remarkable sense of community in this fast-paced and often isolating city.

A spontaneous utopian society has sprung up in the tent cities around the protest sites, as young people organise rubbish collection and recycling, distribute free food, water and supplies, provide first aid, establish lending libraries, and host public lectures and nightly "sharing sessions" where people gather in groups to discuss their thoughts and feelings on the day's events. It is a degree of humanism many thought Hong Kong incapable of.

Finally, in the face of inevitable disappointment at the political outcome, one can only hope that the legacy the youth of Hong Kong are left with from the past two weeks is not one of cynicism, despair or resentment, but one of hope.

The movement has awakened in an entire generation of Hong Kong youth – a group many dismissed as being politically apathetic – and given them an awareness of and keen interest in their political process and fundamental rights.

When 2047 comes around, this will be the generation who are in charge in Hong Kong, when Beijing's promise of "50 years no change" after the 1997 handover comes up for consideration. It seems the future of Hong Kong is in safe hands.

Antony Dapiran is a Hong Kong-based international lawyer.

Hilton Worldwide Holdings Inc. is selling its flagship hotel, the historic Waldorf Astoria in Manhattan, for US$1.95 billion, illustrating the heated competition --particularly among foreigners -- for famous luxury properties that only a few years ago struggled to fill their rooms.

The Waldorf sale, to Anbang Insurance Group Co. of China, carries the steepest price tag ever for a U.S. hotel, brokers say, although it isn’t the highest on a per-room basis.

Anbang is paying about US$1.4 million per room. Asian buyers in recent years have acquired the Plaza Hotel and the Carlyle Hotel at prices that exceeded US$1.4 million-a-room, according to hotel data tracker STR Analytics.

Not long ago, US$1 million per room was considered the high-water mark.

The Waldorf, which opened in 1931, has 1,413 rooms and covers a full city block on Park Avenue, making the Art Deco landmark one of the largest luxury hotels in the world.

Former president Herbert Hoover and celebrities from Cole Porter to Gen. Douglas MacArthur have called the Waldorf home.

Hilton will continue to operate the Waldorf under a 100-year management contract that begins when the sale closes. Hotel analysts say the pact is about five times the length of a typical luxury hotel-management deal.

Conrad Hilton acquired the hotel and the management contract for the Waldorf in 1949 for US$3 million, Hilton officials said.

Anbang couldn’t be reached for comment.

Chinese buyers, who view high-quality U.S. real estate as a haven for their savings, have led the charge in the race to snap up prestige properties. About a year ago, Shanghai-based conglomerate Fosun International Ltd. bought the 60-story One Chase Manhattan Plaza building for US$725 million, while a Chinese developer was part of a buying group that landed a stake in New York’s General Motors Building last year.

Chinese insurers, meanwhile, are taking advantage of the government’s recent easing of rules governing the buying of real estate abroad.

The scramble for high-end properties has pushed up valuations, and some owners believe prices are near a peak, at least in the short term.

Luxury hotels were hard hit during the downturn, as companies shied away from putting up employees in lavish quarters. That stigma has faded and in recent months business and rewards travel has snapped back.

“I wouldn’t be surprised to see a flurry of activity continue in the luxury end, especially when [potential sellers] see the pricing for the Waldorf and think that we may be near a peak,” says Sean Hennessey, chief executive officer of Lodging Advisors, a hotel consulting firm.

Hilton plans to use the proceeds to acquire other properties, in large part to avoid a hefty tax bill on this transaction, said people familiar with Hilton’s thinking.

The sale ends a monthslong process in which Hilton explored various ways to wring more money out of the Waldorf.

The company considered converting hundreds of Waldorf rooms into luxury condominiums, according to people familiar with the property. In recent weeks, however, Hilton decided to pursue a sale.

But before the hotel company could begin the formal marketing process, Anbang and at least two competing groups offered bids around the US$2 billion mark, these people said.

It is unclear if Anbang plans to convert any of the rooms to private condos, but the insurer is expected to invest in upgrading the infrastructure of the 83-year-old property. The deal is scheduled to close by year’s end.

The Waldorf sale continues the trend of large U.S. hotel operators, including Marriott International Inc. and Starwood Hotels & Resorts Worldwide Inc., selling properties to focus instead on franchising agreements and hotel-management contracts.

Peter Thiel, the billionaire co-founder of PayPal and early investor in Facebook can be forgiven for thinking China doesn’t innovate.

After all, the Chinese e-commerce giant Alibaba Group doesn’t hide the fact that the idea for its own online payment service came from its Silicon Valley predecessor.

In Thiel’s view, which he outlines in his new book Zero to One, innovation comes in two forms: horizontal and vertical.

“Horizontal or extensive progress, means copying things that work -- going from 1 to n,” he writes.

“Horizontal progress is easy to imagine because we already know what it looks like.”

Vertical progress, on the other hand, is harder to imagine because it requires doing something nobody else has ever done. That’s when innovation goes from 0 to 1.

On a global scale, horizontal progress is otherwise known as globalisation, for which China is “the paradigmatic example.”

China’s modern history has been one of directly copying from more developed nations, Thiel argues -- from 19th-century railroads to 20th-century air conditioning, and even entire cities.

“They might skip a few steps along the way -- going straight to wireless without installing landlines, for instance -- but they’re copying all the same,” he writes.

But perhaps most anathema to the techno-libertarian venture capitalist is the meddling hand of the Chinese government in China’s commerce.

“I do think that the Chinese internet has been largely off limits to western investors, it’s been firewalled off,” Thiel told CNN’s Money last month.

“Alibaba is sort of this protected Chinese company – it will do well, but it is fundamentally a political entity that is somehow very deeply connected with the Chinese government,” he said.

Investors will do well if “it continues to stay in the good graces of the Chinese government,” Thiel said, “but it’s fundamentally a political investment.”

For the most part he is right. Alibaba would probably not exist were it not for the example of eBay and Paypal. It certainly doesn’t hurt that Alibaba and its local rivals have been protected from global competition.

However, like most of China’s major tech companies, although Alibaba may have started by cookie-cutting a Silicon Valley concept, it has since evolved into something entirely new.

Up until recently, foreign investors needed only to look to the western analogues of Chinese companies to get an idea of what they were dealing with.

Hence, the short-hand for the Chinese micro-blogging service Weibo has been “China’s Twitter”, search-engine Baidu is “China’s Google” and WeChat is “China’s Whatsapp”.

But following the blockbuster Alibaba IPO last month, a growing number of investors now realise that formula doesn’t work as easily anymore.

For anyone who has dipped into Alibaba’s prospectus and tried to comprehend its complex “ecosystem,” it becomes clear that describing the company as “China’s Amazon” is not only inadequate, it’s entirely inaccurate.

And it’s the next phase in the evolution of Alibaba’s ecosystem that could end up giving Paypal a run for its money.

Last week, Alibaba’s finance arm joined rival Tencent in getting a green-light from regulators to set up a private bank.

Alipay is already the world’s largest mobile payments platform with 100 million users and accounting for up to half of all e-commerce payments in China.

And while Peter Thiel and Carl Icahn have spent a long time lobbying for Paypal to spinoff from its e-commerce parent, Alipay already managed to do that in 2011 and has become a much more sophisticated product in the interim.   

Because China lacks a credit card culture, Alipay has evolved to do more than its American forerunner and has earned more market share in the process.

Alibaba has already made inroads into the country’s financial services sector on the back of Alipay through Yu’e Bao a financial product that offers better returns than traditional deposits (Alibaba and the Chinese banking thieves, February 26).

Paul Gillis, a professor at Peking University’s Guanghua School of Management, told China Spectator the establishment of an Alibaba bank is “a major step for building a separate financial empire that may ultimately list in China".

“It appears to me that the government is using Jack Ma to accomplish reforms that are too difficult to approach directly,” he said.

“Alibaba may help drag the big four banks, kicking and screaming, into the 21st century."

But it’s not just China’s state-owned banks who should be worried. The global mobile payment providers at Amazon, Apple and Paypal will need to look over their shoulders too.

Though the decline in Macau’s monthly gambling revenue accelerated in September, casino shares led the Hong Kong market higher as investors found silver linings in the beaten-down sector.

Gambling revenue in the Chinese special administrative region fell 12 per cent in September to 25.6 billion patacas (US$3.2 billion) compared with a year earlier, government data showed Monday. It was the fourth month in a row of declining revenue, extending a losing streak that interrupted five years of rapid growth that transformed Macau into the world’s largest gambling center.

The casino industry there is now facing a host of headwinds, however, in particular a Beijing-led crackdown on corruption that has caused VIP gamblers to shy away from the baccarat tables.

September’s fall was also Macau’s steepest during the current downturn. Monthly gambling revenue declined an average of 4.5 per cent over the previous year from June through August.

Still, shares of casino companies listed in Hong Kong rose sharply Monday, with Las Vegas Sands Corp. unit Sands China Ltd. climbing 7.1 per cent to 42.95 Hong Kong dollars ($US5.53) and Galaxy Entertainment Group Ltd. gaining 6.6 per cent to HK$48.35. That compares with a 1.1 per cent rise in Hong Kong’s benchmark Hang Seng Index.

Some analysts said Macau’s poor revenue data was still slightly better than expected and that investors also might have been encouraged by a surge in tourist arrivals during China’s weeklong National Day holiday. Visitors to Macau over the first five days of the holiday rose 14 per cent from a year earlier, government data showed Monday. “But whether that will translate into revenue, no one knows,” said Billy Ng, an analyst at Bank of America Merrill Lynch. “I don’t know if the stocks are up today for the right reason or the wrong reason,” he added.

Daiwa Capital Markets said in a report Monday that the Macau market would likely remain poor in October, citing continued weak gambling play from high-rollers and unseasonably low hotel room rates, among other factors.

Casino executives also said the Macau government’s recent decision to further tighten restrictions on smoking in casinos could adversely affect revenue.

Big Aluminium has spent two years shutting smelters to shrink a supply glut that has led to rotten prices.

The strategy has been successful -- for the most part.

This Wednesday, Alcoa Inc., as usual the first U.S. major company to report results for the latest quarter, is expected to post earnings of 22 cents per share, up from 11 cents a year earlier, in part because of higher prices.

But fresh weakness in aluminium prices remains a concern for Alcoa, as some 40 per cent of the company’s sales in the second quarter of 2014 were still related to the production of aluminium and its raw material, alumina.

Raw aluminium had climbed back to over US$2,000 per tonne this summer, from a low in February of around US$1,700 per tonne.

But more recently, aluminium prices have softened. From Sept. 1 to Oct. 1, the spot price for high-grade aluminium on the London Metals Exchange fell 8.8 per cent to US$1,898 per ton. One of the biggest reasons for the recent weakening in aluminium prices, say analysts, is China, which accounts for almost half of global aluminium demand.

Industrial output in China has fallen, and with it demand for aluminium. More Chinese-made aluminium is ending up on export markets. Chinese aluminium exports were up 9.1 per cent in the first eight months, to 3.8 million tonnes, according to Global Trade Information Services. Imports, most of which are scrap, were down 0.7 per cent, to 2.1 million tonnes.

Alcoa’s stock price, benefiting from higher prices and profits, more than doubled, to more than US$17 in September from around US$8 a year earlier. Share prices for Russia’s United Co. Rusal PLC and Norway’s Norsk Hydro ASA -- other global players that along with Alcoa closed smelters and cut capacity around the world -- similarly recovered between in 2013 and 2014. In tandem with the softer aluminium prices, Alcoa shares are down from their September high, but still hovering just above US$15.

While the biggest chunk of Chinese exports consists of semifinished goods such as aluminium plate and sheet, the range of products offered by Chinese exporters is increasing, posing a challenge for Alcoa and others. “Whatever kind of aluminium China exports, it is going to have an impact on supply and demand, and the price,” said Andrew Lane, an analyst for Morningstar Inc.

That is why aluminium companies, increasingly, are looking for businesses that are less vulnerable to encroaching Chinese exports, such as sheet used to make the skin of cars and trucks, and the high-tech alloyed screws and bolts that go into airplanes.

Over the past few years, Alcoa and Novelis Inc., a unit of India’s Hindalco Industries Ltd., and Constellium NV have announced some US$2 billion of investments -- in Iowa, Tennessee, New York, Kentucky and overseas -- to meet growing demand for aluminium sheet used to make automobiles, especially in the U.S. Car makers are hungry for supplies of the metal as they try to meet new fuel-efficiency standards.

In June, Alcoa said it would buy Firth Rixson Ltd., a Sheffield, England, maker of jet-engine parts, for US$2.85 billion.

Last week, Alcoa announced the opening of a US$90 million plant in Indiana that makes aluminium-lithium, an alloy used in the manufacture of passenger airplanes. The Lafayette plant, which has a capacity to generate 20,000 tons a year, in ingot form, makes the kind of product that Chinese aluminium makers aren’t yet able to profitably produce.

Aluminium-Lithium, or Al-Li, alloys have been around since the 1920s, but have caught on recently because they are lighter than conventional aluminium. Metal engineers say that just as aluminium is taking away market share from steel in the automotive industry, aluminium alloys are encroaching on other materials, especially in the aerospace sector. Al-Li alloys can be used to make a variety of airplane parts, and the Indiana plant can make ingots “big enough to make any single-piece component on today’s aircraft,” Alcoa said.

Alcoa is “material agnostic,” said Eric Roegner, the 44-year-old chief operating officer for Alcoa’s castings, forgings and extrusions division, and president of Alcoa Defense, which sells aluminium and other metal parts for tanks, trucks, planes, ships and other military machines.

One example of a product Alcoa now makes that isn’t aluminium is a titanium alloy fastener that absorbs lightning and can attach the carbon fiber skin of an aircraft to a structure made of metals, including aluminium. On average, “planes get hit twice a year by lightning,” said Mr. Roegner.

When Alcoa salespeople and engineers make a pitch to the people who design airplanes and must choose materials to buy for Boeing Corp. or Airbus, they now offer a portfolio that includes all kinds of metals. “Our job is to help our customer develop the best solution,” said Mr. Roegner. “Carbon fiber, nickel, aluminium, we’ll do it all,” he said.

Chilean wines are popular in China. It is not because it is especially suited to the palates of Chinese consumers, but because it can be imported to China duty free. It can be 30 per cent cheaper than its competitors’ products including wine from Australian.

Dr He Lining, a senior executive from the Guangxi Beibu Gulf Investment Group, a powerful provincial state-owned enterprise, says he looks forward to the signing of Australia-China Free Trade Agreement, which is likely to be signed at the end of year.

The company has been importing wines from around the world including Australia, the United States and Chile. He, a former economics professor in the United States, jokingly told Australian reporters: “Maybe I should come and talk to your senators to tell them to sign the free trade agreement.”

“Ten years ago in China, nobody drank wine. Now they are trying wine and high-end food products. Bottled water was a luxury in China many years ago. Now you can buy it anywhere,” he said, “We imported flax seed from Australia. It was considered a luxury before."

A big part of the company’s business is to import high quality food products from abroad, including wine, dairy, lobster from Australia, olive oil from Italy and Spain, peanuts from American states like Georgia, Alabama and Louisiana, as well as canola oil from Canada and the Ukraine.  

Before your correspondent travelled to Guangxi province, he thought the province was poor and underdeveloped.  But the capital Nanning is in fact a bustling boom city of seven million people with picturesque landscapes and good modern infrastructure. Perhaps most striking, the city does not have smog like Beijing and Shanghai.

However, the province does not have the visibility of megacities or Chinese eastern coastal provinces like Guangzhou. The province and the city are banking on the annual China-ASEAN Trade Expo, which is one of the largest in the region to put it on the map for foreign investors and businesses.

China Spectator asked Dr He about some of most challenging economic issues confronting his country, starting with the much discussed local debt problem. 

He thinks the accumulation of debt is inevitable when the economy is growing fast and that it’s necessary to borrow to fund basic infrastructure to encourage growth.  He argues that Chinese borrowing has been largely channelled towards investment rather than consumption, which is much preferable than the US debt-fuelled spending craze before the subprime meltdown.

“As long as the debt is being used for investment and not for consumption,” he says, "If Chinese consumers are borrowing a lot of money to buy Louis Vuitton, that is a problem.

“Companies and governments are mainly borrowing to build infrastructure. I think these are good investments. But this could be a problem but it depends on how you manage it. As long as the economy can grow at a healthy pace, it will not be a problem.” 

Though parts of China arguably suffer from over-investment in infrastructure and real estate, Dr He believes Guangxi, which is a relatively poor developing region of China, still needs continuous investment to bridge the gap with the rest of the country. The city is building a new airport and five new high-speed railways connecting it with other major capitals such as Wuhan and Guangzhou.

“Infrastructure is the prerequisite for a happy life and strong economic development,” he says.

Dr He, who studied economics in Canada and the US says he is more comfortable with China’s current pace of economic growth than the previous double digit breakneck speed.

“I don’t think it is a bad thing,” he says. “Just like when kids are growing, at a certain point, we will grow slower than before and this is very natural and very healthy for the Chinese economy.”

“I think even 7 per cent growth is fast and for a country of China’s size, this is strikingly good. It is not an easy job for China to maintain 7 per cent. We do see slowdown but I feel more comfortable.”

China’s good infrastructure is one of the key ingredients that make the country one of the most successful developing countries. Investing in highways, airports, and telecommunication networks is a good way to kick start the country’s economy, but the next stage is far more challenging.

Beijing is talking up the need to build a more innovation driven economy and transform the country’s manufacturing and infrastructure-based economy.  However, He argues that only private entrepreneurs can make it happen rather than bureaucrats.

“I don’t think anybody knows the answer. If anyone knows how it is to be done it's not bureacrats. It depends on entrepreneurs. Entrepreneurs know how to do that, it’s not about government officials or central planners,” he says.

The bustling city of Nanning with its lush green and 7 million inhabitants is a good example of how often Beijing and Shanghai exercise the tyranny of imagination over our thinking about China. For businesses who are looking for opportunities in China, going regional can be an easier route than the already crowded spaces of Beijing and Shanghai.

Peter Cai travelled to Nanning as a guest of China-ASEAN Trade Expo.

The 17th Asian Games in Incheon, Republic of Korea (or South Korea) concluded over the weekend – not that you would know about it given the lack of reporting of what is a forty-five nation Olympic Committee-sanctioned event in the region.

If Australia was included as it should be – given that the ‘Asian Games’ invites countries as far away as the Middle East – then we would see the results on our back page.

But I digress … The final medal tally emphasised Chinese dominance with 342 medals, 100 more than host South Korea. China won 151 gold medals compared to South Korea’s 79, again second place on this count.

Why is China so good at international meets, remembering that it was placed second behind the United States at the 2012 London Olympics? It largely comes down to ‘who cares more wins’. And when it comes to international events, China cares just about more than any other country that its athletes win medals.

Let’s first dispense with the argument that China’s dominance is largely a function of its population size. If that were true, then India should be doing better than its 11 gold medals and 57 medals overall. Indeed, Kazakhstan with a population of about 17 million people won 28 gold medals and 84 medals overall.

What about the argument that richer countries do better because they have access to better facilities, equipment, tertiary educated professional trainers and other bells and whistles?

There appears to be some truth to this argument. If we look at the 2012 Olympic Games, eight of the top ten countries were rich countries on a per capita basis. The two that are not – China and Russia – are nevertheless economies with the size and scale to pour significant money into their athletes.

As Australia’s sports mad Prime Minister Bob Hawke proved when he dramatically increased central funding for sports, there is a direct relationship between winning gold medals, cricket and rugby world cups on the one hand, and hard cash invested in athletes on the other.

Britain did just that when it exceeded its normal rankings and came third at the last Olympic Games in London – it was preceded by London pouring unprecedented money into ensuring a good performance as host. And likewise China in the funding efforts made to top the medal count at the 2008 Games in Beijing.

So money matters. But so do a couple of non-material factors. Take China and the Democratic Republic of Korea (or North Korea). Despite being an impoverished hermit kingdom, the latter came 7th in the Asian Games, and a very respectable 20th at the 2012 London Olympic Games. Not bad for a country with an entire GDP of about $US40 billion and a GDP per capita of about $US1,800 each year.

If one looks at these two over-achievers, one common factor comes down to political motivations for success. North Korean insecurities about its political-economic system are obvious. But despite its spectacular rise, China still wants to prove to the rich and advanced west that its political-economic system is worthy of praise and respect if not emulation.

Authoritarian governments tend to do this by pointing to tangible symbols of national success: world’s tallest building; world’s biggest shopping mall; world’s fastest train; world’s leading nation in international athletic meets etc.

So the first factor is national ambition, driven by political leaders seeking to prove something to the world.

But mere ambition is not enough. And this is where some unique characteristics of Chinese (and North Korean) society come into play. In countries like Australia, America or the United Kingdom, talented athletes have a range of options. Some sports are purely national in scope (such as Aussie Rules or gridiron) and others are played seriously by only a handful of countries (such as the rugby codes and cricket) and attract limited interest outside those countries.

Importantly, striving for fame, glory and wealth on the sporting field is primarily a private affair, not a national one even if athletes proudly wear the national colours and represent their country.

In contrast, and in making funding decisions, governments in Beijing and Pyongyang begin by first identifying which events offer the most prestige for their country should their athletes excel. They do not first ask which sports the population wants to play and watch in making funding decisions.

Beijing and Pyongyang have identified events such as the Olympic and Asian Games as meets that will deliver international glory to, and respect for, the country.

The next step is to identify events where they can excel and beat the opposition. If one looks at the sports that China does well at, they tend to be the more individualistic technical and artistic ones such as gymnastics, diving and weight-lifting. More than other events and sports, success is about gruelling technical and strength training defined by repetition, and requiring incredible hours devoted to that craft from a very young age.

It is in these sports where the systems in countries like China and North Korea (and before them the former Soviet Union and East Germany with the aid of state-sanctioned steroid and other drug programs) have an advantage.

Take gymnastics as one example. In one investigation of the famous Nanning Gymnasium in China, large groups of children as young as four years old were put through their paces, performing demanding routines on bars, rings and mats. Beyond the pure number of hours spent perfecting these arts, painful techniques which would be unacceptable to most in the west were applied to children crying out in pain as coaches stood on their legs to increase the child’s flexibility and suppleness.

As young children with talent are gradually identified, significant financial incentives are given to the families by the government to push the child into dedicated schools that develop the skills of that child in that particular sporting activity. If parents resist or prefer to use a private coach rather than a state-backed and sanctioned one, government pressure is often placed on the family to reverse the decision.

Meanwhile, the importance of getting to the podium one day is drummed into the young children going through their paces. There is a special emphasis on bringing glory to China by beating Americans for the gold medal at a future international meet.

Although there is now better regulation in China (but not North Korea) as to what coaches and sports schools can and cannot do to protect children, the point is that potential Chinese athletes at a younger age – with the full backing of the state – train harder and longer and endure more pain than those in other countries.

Finally, and at the other end of the scale, successful athletes are handsomely rewarded. China’s Olympic gold medallists are offered significant cash bonuses and luxury apartments. For example, swimmer Sun Yang received an apartment worth about half a million dollars for winning gold at the London Olympics. He was also given about $US400,000 cash. Sun was only one of many gold medallists given substantial property and cash rewards – a significant boon when per capita GDP in the country is still around $US8,000.

China began rewarding successful Olympic athletes in 1984 when it participated for the first time after regaining its seat on the International Olympic Committee in 1979. In 1984, a gold medal automatically earned an athlete 6,000 yuan. This was raised to 15,000 yuan in 1988, and reached 200,000 yuan in 2004. The cash rewards in 2008 and 2012 were not publicised but it is believed to be significantly larger than what was received in 2004. Clearly, such material incentives mean more in a country where earning a comfortable living is still a rarity rather than an expectation as it is in the west.

If hard work and determination is the standard, Chinese athletes certainly deserve all the success they achieve. But the Chinese system -- in particular the state’s motivation and role in backing successful athletes in international events -- is not one able to be replicated in most countries. The next time an Australian gymnast or perhaps even a swimmer is bested by a Chinese competitor, we know why. 

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

The International Monetary Fund has left its forecast for China's economic growth in 2014 unchanged at 7.4 per cent but warns that the world's second-largest economy faces a range of "near-term growth risks", especially in real estate.

Gross domestic product (GDP) growth will slow further to 7.1 per cent in 2015, the IMF said in its latest World Economic Outlook report, citing a probable tightening of credit and ongoing weakness in the property market.

The figures came after the World Bank cut its own forecasts on Monday to 7.4 per cent for 2014 and 7.2 per cent in 2015.

But the IMF's predictions were unchanged from estimates it gave in July, when it downgraded its projections for China's expansion from 7.5 per cent and 7.3 per cent, respectively.

China is a key driver of the global economy and in recent decades it enjoyed many years of double-digit growth, the boom propelling it up world financial tables.

But now the government and analysts say China's economy needs to be rebalanced away from an emphasis on exports and over-reliance on huge and often wasteful state-backed investment projects, towards internal demand.

The transformation is expected to result in slower but more stable and sustainable growth in the long run.

Recent indicators have suggested that growth in China -- which stood at 7.7 per cent in 2013, maintaining its slowest expansion in more than a decade -- is weakening even after authorities took limited stimulatory measures.

China's industrial production growth slowed sharply in August to its lowest level for more than five years, official data said in September, while house prices have fallen for five consecutive months.

Officials are targeting GDP expansion of "about 7.5 per cent" in 2014, the same as 2013's objective.

The goal is normally exceeded, but senior officials have repeatedly sought to play down its significance this year.

Overall growth will be "in line with the authorities' target" in 2014, the IMF said, thanks in part to government spending on infrastructure, but added that "risk stems from a sharp decline in house prices and housing activity".

"Real estate investment has been an important engine of growth in China, and it will be challenging to allow imbalances in the market ... to correct while preventing an excessively sharp slowdown," it said.

"In China's case, the government still has the capacity to absorb and and respond to the types of shocks which triggered crises elsewhere."

Propping up growth through infrastructure spending would "complicate the challenge of rebalancing," the leader said, adding that "slightly lower growth in the future is seen to be a healthy development".

It urged China to reform its financial sector by making its exchange rate more flexible, liberalising bank deposit rates, and boosting spending on the "social safety net" to reduce household saving rates.

"Without a change in the pattern of growth that relies on credit and investment, vulnerabilities will continue to rise," it said.

Failing to do so would threaten Asian expansion, it added.

"Asia's potential growth, which has declined in the last few years, could weaken further, particularly if reform implementation is delayed."

But for the current year, it said, world export growth "is expected to remain strong given the projected rebound in advanced economies and China".

BEIJING—One of China’s biggest financial firms is offering to lend money to home buyers for down payments, part of a trend that could help the housing market but has prompted worry about risks to the financial system.

Ping An Insurance (Group) Co., one of China’s largest insurers and a financial conglomerate, has started offering loans to consumers to cover down payments. A real-estate subsidiary of Ping An last month opened a financing service for buyers at 121 residential property projects across the country, built by developers that include Shimao Property Holdings Ltd. and Greenland Holding Group Co.

Subsidies from Ping An and the developer, as well as collateral from the borrower, can reduce the down-payment loan rates to as low as zero, the lender said. Another unit of Ping An, peer-to-peer lending website lufax.com, will provide funding for the loans, according to the company.

Such loans are unusual in China. Homebuyers are required to put down deposits of at least 30 per cent for a first property and 60 per cent for subsequent purchases if they still have mortgage balances.

“The lending could help buyers who are short of enough funds for down payments, and those who want to buy bigger houses, to move into their new apartments earlier,” said Ping An in a statement.

The program is aimed at people like Julia Zhu, a 26-year-old working for an auto firm, who is seeking to buy her first apartment in Beijing. She said she plans to use her parents’ two properties as collateral to borrow the down payment from Ping An.

“The developer said the lending is interest-free for a year as long as I have sufficient collateral to guarantee,” she said. “It helps me fix a temporary funding shortage.”

The offering makes Ping An the most high-profile Chinese company yet to offer to finance down payments, though the frequency of such offers isn’t clear. Previously, some smaller property developers have offered similar programs.

Some local governments, including the southern Chinese cities of Shenzhen and Guangzhou, have issued notices warning that such practices violate the central bank’s requirements on down payments.

The programs come as China’s property market continues to slump. Housing sales in China fell 10.9 per cent in the first eight months of the year, despite the efforts of developers and local governments. Economists warn that the sagging market is the biggest threat to the nation’s economy, which recently has shown signs of weakness.

It isn’t clear where such programs stand with regulators. Officials at the People’s Bank of China, China’s central bank, and the China Banking Regulatory Commission didn’t respond to requests for comment.

China is much more cautious than the U.S. when it comes to mortgages. Though the ratio is rising, mortgage debt is equivalent to 18 per cent of China’s gross domestic product, just a third of the U.S. level of 55 per cent. Chinese homeowners can’t access home-equity loans to finance their other consumption needs.

Some economists say that programs to finance down payment could add to debt that is already plaguing China’s housing and financial sectors as a result of a huge lending push the government instigated during the global financial crisis. Experts warn that mortgages with low down payments, or none, were a contributor to the U.S. housing-market bust.

“It’s very dangerous to raise leverage in the housing market, especially when home prices start to fall,” said Yao Wei, an economist at Société Générale. Buyers with little or no equity in their homes can wind up owing more than a property is worth, making it difficult to sell if they find themselves unable to meet their mortgage payments as the market weakens.

Banks would be left with souring debts.

“Loosening down-payment requirements will definitely add risks to property developers and China’s financial system, though such practices are still sporadic. I think the government will step in if it becomes widespread,” said Zhang Fan, an economist at Malaysian bank CIMB.

A customer-service employee with Ping An’s real-estate unit said home buyers using other properties as collateral could get a loan with a maximum value equivalent to their down payment. Ping An said buyers pay a certain amount up front to get their loans. Annualized interest rates range from 10 per cent for loans backed by collateral to 16 per cent for those that aren’t.

Ping An said it could control the risks. Historical data from its peer-to-peer unit suggested that it can cap the proportion of bad loans at 2 per cent.

A Chinese company with global food ambitions is buying a majority stake in an Italian olive oil maker, even as it extended a deadline to buy control of an Israeli dairy company.

China’s Bright Food Group Co., which bought U.K. breakfast cereal maker Weetabix Food Co. two years ago, said on Tuesday it is acquiring a majority stake in Italian olive oil maker Salov Group.

The Shanghai-based food company didn’t disclose how much it is paying or the size of the stake it is buying in closely-held Salov, which sells brands such as Sagra and Filippo Berio.

But the deal comes as the acquisitive state-controlled company extended its deadline to acquire Israeli dairy company Tnuva Food Industries Ltd. to Jan. 5, its second three-month extension of a billion-dollar transaction that was expected to close two months ago. It said the extension was because the Shanghai company has yet to submit all the documents needed to the Chinese regulators vetting the deal.

Bright Food hasn’t disclosed how much it is paying for the Tnuva stake, but people familiar with the matter said earlier the transaction valued Tnuva at around US$2.4 billion.

Shanghai-based Bright Food agreed to buy 56 per cent of Tnuva in May. It first extended the closing deadline to Oct. 5 from the end of August and has now pushed it back again.

Buying Tnuva would give Bright Food, which already sells its own-brand milk at home, a premium-dairy offering that would play in to China’s increasing middle class and urbanization.

Bright said in a statement Tuesday that it plans to help Salov, which generates €330 million (US$416M) in annual revenues, boost production of olive oil and its sales in China. The country spent US$184 million on imported olive oil last year, 9.3 per cent more than in 2012 and up from just US$1 million a decade earlier.

Before buying the 60 per cent stake in Weetabix two years ago, Bright Food in 2011 acquired Manessan Foods, which sells Albatros bread and Laughing Cow cheese in some international markets and confectionery items such as Jelly Belly in Australia.

The delay in acquiring Tnuva follows revenue declines at the Israeli firm in the months since the deal was signed. Tnuva lowered the prices of the cottage cheese and “sweet cream” it sells because the government began regulating prices of those products this year. Tnuva’s revenue from January to June dropped to 3.45 billion shekels (US$937.7 million) from 3.59 billion shekels in the same period a year earlier.

Israeli news reports say that Shanghai-based Bright Food has sought a lower price for the stake it is buying from Apax Partners. Bright Food spokesman Pan Jianjun said Tuesday the price remains the same at the moment.

Apax and investment partner Mivtach Shamir Holdings Ltd., an Israel-based investment company, purchased a 77 per cent stake in Tnuva for more than US$1 billion in 2008, according to Apax.

Bright Food isn’t alone in acquiring foreign assets as a way of appealing to the increasingly urbanized Chinese consumer. In China, many Western brands are perceived as having better quality or possessing advanced technological know-how. Last year, Shuanghui International, since called WH Group, acquired U.S. pork processor Smithfield Foods Inc. in a US$4.7 billion transaction.

Bright Food has long said it wants to diversify its businesses, which apart from dairy, include producing and selling spirits, sugar, and the chewy White Rabbit candy, a household name in China. The firm has 3,300 retail stores across China.

Yum Brands Inc. said its sales in China fell 14 per cent at restaurants open more than a year during its August quarter, hurt by the latest scare about food safety in the country.

However, outside China, the parent company reported stronger same-store sales at its KFC and Taco Bell divisions.

For the current year, Yum lowered its estimate for per-share earnings growth to between 6 per cent and 10 per cent, from its previous estimate for growth of at least 20 per cent. The company cited expectations that China same-store sales will continue to improve but will be negative during the current quarter.

Yum warned in late July that reports about a Shanghai supplier intentionally selling meat beyond its shelf life to fast-food companies were weighing on sales at its KFC and Pizza Hut locations in China. At the time Yum said that although the Shanghai supplier’s owner, U.S.-based OSI Group, wasn’t a major supplier to Yum’s restaurant chains, its brands had been affected by extensive news coverage.

During the latest quarter, its China division revenue fell 9.5 per cent to US$1.84 billion and segment operating profit dropped 40 per cent to US$202 million. In China, sales at stores open at least a year fell 14 per cent in the latest quarter, wider than expectations for a 13 per cent drop, and included a decline of 14 per cent at KFC and 11 per cent at Pizza Hut.

In a news release Tuesday, Yum said that while China sales have been recovering, they remain negative. The company also said, “Our brands have proven resilient over time and we expect this to be the case with this situation as well.”

The latest food scare in China -- Yum Brands’s largest market -- came as the company had been recovering from concerns related to KFC chicken suppliers in China nearly two years ago.

For the period ended Sept. 6, Yum Brands reported a profit of US$404 million, or 89 cents a share, up from US$152 million, or 33 cents a share, a year earlier. Excluding refranchising gains, a year-earlier write-down of its Little Sheep casual dining stake in China and other items, per-share earnings rose to 87 cents from 85 cents.

Revenue decreased 3.2 per cent to US$3.35 billion.

Analysts polled by Thomson Reuters expected per-share profit of 88 cents and revenue of US$3.45 billion.

World-wide restaurant margin fell 2.7 percentage points to 14.9 per cent.

Outside China and India, Yum’s KFC division system sales rose 6 per cent and operating profit rose 16 per cent. Sales at stores open more than a year increased 4 per cent in emerging markets, 3 per cent in developed markets and 2 per cent in the U.S.

Pizza Hut division system sales were flat, while sales at stores open more than a year fell 1 per cent and operating profit declined 2 per cent. Sales at established stores rose 3 per cent in emerging markets but were offset by declines of 1 per cent in developed markets and 2 per cent in the U.S.

Yum’s Taco Bell division, which is mostly in the U.S., reported system sales rose 4 per cent and operating earnings climbed 14 per cent. Breakfast sales drove 3 per cent sales growth at U.S. stores open more than a year.

The company’s India division recorded system sales growth of 14 per cent, on stronger volume that was partly offset by a 4 per cent decline in sales at locations open more than a year.