At the IMF and World Bank meetings in Washington last week, the chief economist of the People’s Bank of China identified the country’s property sector, which accounts for 20 per cent of total investment, as the main downside risk for the Chinese economy.

Ma Jun, a former Deutsche Bank economist, told a panel that the real estate sector, state-owned enterprises and local governments were all over-leveraged and that exposure had been increasing at a rapid pace over the past few years.  This rising level of leverage is the key reason for Beijing’s reluctance to open its wallet to prop up a rapidly-slowing economy.

Heightened fear about the Chinese property sector has galvanised analysts and commentators from the start of the year and opinions are polarised. Some are predicting a spectacular asset bubble burst similar to what occurred in Japan and the US, while others are retaining their faith in Beijing’s ability to manage the downturn.

Dr Li-Gang Liu, chief economist for Greater China at the ANZ, takes a close look at the debate in a recent policy brief prepared for Peterson Institute for International Economics, a prominent free market think tank in Washington. The ANZ economist’s paper looks at the history of the sector, identifies the challenges it faces and notes the strong fundamentals that support the industry.

So let’s start with the state of the sector, which is a key growth engine for the world’s second largest economy. New home sales for all Chinese cities, big and small, dropped sharply in the first half of the year and the inventory of unsold new homes has also risen quite dramatically since the fourth quarter of 2013.

It is estimated that it would take anywhere between 14 and 24 months to sell off all existing inventory in Chinese cities. This is in sharp contrast to last year’s buoyant sales and rapid prices increase. The fears are that this could be the inflection point, triggering a wave defaults that could bring down the country’s economy.

However, Liu believes the “fears about the China’s property sector are likely to be overblown,” and he explains why in his detailed policy brief. 

Despite the dramatic expansion of China’s real estate sector, it is still a relative young sector. Widespread private ownership of property didn’t really take off until 1998, and, as a result, mortgages outstanding are only slightly more than 10 trillion yuan or $1.9 trillion. This represents only 14 per cent of total bank loans in 2013.

Unlike the subprime mortgage crisis in the US, the average quality of Chinese mortgages is high, in fact, it has the lowest default rate among all types of loans. It’s not hard to see why, home buyers need to make down payments of at least 30 per cent before qualifying for a loan. In megacities like Beijing and Shanghai, that down payment requirement is 40 per cent.

So in short, Chinese households are much less leveraged than their peers elsewhere, especially when compared with the US. Due to the lack of alternative investment options in the country’s underdeveloped financial markets, many households view property as a good store of value. This has helped to lift the country’s savings to a massive 50 per cent of GDP.

One of the strongest fundamentals that will help support the property sector is the ongoing process of urbanisation in China. The State Council, China’s cabinet, estimates that another 200 million people will migrate from the countryside to cities by 2023, twice the number that made the move since 1990. By the start of the next decade, it’s estimated that China will have an urban population of 920 million, which will lift the urbanisation rate to above 65 per cent.

Despite the explosive growth of concrete jungles in China, the country has a surprisingly low urbanisation rate. At present, only 54.5 per cent of the country’s estimated 1.4 billion people live in cities. If we take out all those people who are not officially registered as urban residents according to the country’s Hukou system, the true urbanisation rate could be as low as 35 per cent. 

Liu believes China’s urbanisation process will provide strong support for both the property sector and infrastructure investment. It’s estimated that around 40 trillion yuan or $7.5 trillion will be ploughed into infrastructure over the next two decades.

Though many analysts point to soaring house prices as a sign of an emerging property bubble, Liu counters this argument by noting that the data is skewed by the huge price increases in first-tier cities like Beijing, Shanghai and Guangzhou.

In fact, the average urban house price is only 5,850 yuan per square metre, according to the official statistics. This means that China has a national price-to-income ratio of 6.1, which is towards the lower end of the international norm of between 6 and 8.

We have all heard, read and watched stories about China’s infamous “ghost cities” and many commentators have seized on that as yet another sign that a property asset bubble is emerging. Liu’s paper puts that observation into historical perspective by arguing that demand for property has outstripped supply over the last ten years.  

“Demand has outstripped supply by 144.6 million square metres per year in the face of rapid urbanisation, which has driven prices higher,” he says.

“While the latest data may reveal a temporary oversupply, inventory does not appear to be a major issue.”

It is prudent to not to downplay China’s property risk, but at the same time, it is equally useful to establish some basic facts about the property sector before we scare ourselves to death. Tomorrow, China Spectator will look at Liu’s assessment of the downside risks to the industry as well as available policy tools. 

As China prepares to open the doors wider to international investors, brokers are worrying that a stampede of buyers could leave some investors stuck in the hallway on day one.

A trading mechanism called the Shanghai-Hong Kong Stock Connect is expected to launch within the next month, allowing international investors to buy stocks in Shanghai, while also giving mainland investors the chance to buy stocks listed in Hong Kong.

But quotas that limit the amount that can be bought and sold, as well as a ban on day trading, mean that trading Shanghai stocks will be very different from what most investors are used to overseas.

And what happens on the first day of trading is anyone’s guess. Heavy buying could mean the daily limit of 13 billion yuan (US$2.12 billion) of net inflows to Shanghai is hit within the opening hours or even minutes, triggering a halt to the mechanism. That could leave some global money managers unable to get in.

“There’ll be a flurry of volatility, particularly as quotas start to get used up,” said Lee Porter, managing director for the Asia-Pacific region at Liquidnet, an institutional brokerage firm. Liquidnet doesn’t expect to trade via Stock Connect on day one, planning to wait until there is more clarity on how the market rules work in practice.

On the launch day, there will be an absence of foreign sellers on the Shanghai-Hong Kong Stock Connect mechanism because shares purchased in China can’t be sold until the next trading day, although existing stocks held by Chinese investors and brokers can be sold via the mechanism on the first day of trade. Rules governing Stock Connect bar holders of Chinese stocks bought under existing quota programs for international fund managers from selling shares via the trading mechanism.

Many fund managers have expressed wariness about investing during the launch of Stock Connect given the uncertainty about whether they will be able to get their orders filled. On a net basis, inflows and outflows should even out subsequently.

“Daily [net] quotas could be an issue in the early days as the traffic will be inevitably skewed to the buy side in both directions,” wrote Schroders Investment Management in a research note last month. “As two-way flows balance out more evenly, [foreign investors] hope that the quotas will be hit less often and be much less of an issue.”

For their part, Chinese investors have snapped up large quantities of Shanghai-listed shares in anticipation of the launch, pushing the Shanghai Composite up about 11 per cent since Stock Connect was announced in April.

Exchange officials introduced measures to prevent so-called “quota-hogging” as part of a series of rule changes announced late last month to facilitate trading, said Scott Sapp, a spokesman for Hong Kong Exchanges & Clearing Brokers had worried that some investors could submit orders to claim a bigger part of the overall quota than they intend to use, potentially exhausting the quota for other investors.

Still, if a crunch occurs on the first day of trading, or in subsequent sessions, causing Stock Connect to suddenly halt buying or selling, brokers’ more sophisticated trading tools may be rendered useless. These include algorithms used to process large block orders for institutional investors to lower the price they pay for stocks.

“You don’t know when the market may shut,” said the head of electronic trading at an international investment bank. “You cannot guesstimate how soon the quota will be consumed.”

That might mean that at times, brokers would have to ditch their meticulously coded trading programs and call clients to warn them of an impending trading halt, the banker added.

SHANGHAI—China’s central bank cut short-term borrowing costs for banks for the second time in less than a month, a sign that Beijing is under increased pressure to ease monetary conditions to combat a slowing economy.

Analysts say the reductions are likely to have only limited effect, so authorities could have to turn to more-powerful tools, such as lowering benchmark interest rates or reducing the proportion of deposits banks must hold as reserves at the central bank, if the economy deteriorates further.

A cut in the so-called reserve requirement would leave banks with more money to lend.

In a routine money-market operation, the People’s Bank of China cut the interest rate on 14-day repurchase agreements, a kind of short-term loan to commercial lenders, by 0.10 per centage point to 3.40 per cent on Tuesday. This followed a move on Sept. 18 to lower the rate by 0.20 percentage point to 3.50 per cent.

“It shows that the central bank is under rather strong pressure to ease monetary policy as it seems like the government still considers financing costs in the economy too high,” said Gu Ying, interest-rate strategist at J.P. Morgan Chase & Co.

The People’s Bank’s move came a week before China is scheduled to release major macroeconomic data for the third quarter and September. A survey of 15 economists by The Wall Street Journal indicates they believe China’s gross domestic product expanded 7.2 per cent in the latest quarter from a year earlier, slowing from a 7.5 per cent increase in the second quarter, as the pivotal real-estate sector remains depressed.

On Wednesday, China is scheduled to release inflation figures for September. Economists expect the figures to show a 1.7 per cent increase in the consumer-price index, slower than the 2.0 per cent rise in August, the poll indicates.

“While inflation may have come down, real interest rates remain elevated and the PBOC is clearly feeling the pressure,” said Mr. Gu.

Although the latest repo-rate cut has raised hopes of broader monetary easing, the move came after a series of targeted, modest easing measures Beijing has deployed in recent months to help small businesses and public housing, Sue Trinh, a strategist with Royal Bank of Canada, wrote in a research note.

Analysts have said China has so far been reluctant to use more-powerful policy tools because lowering rates more broadly could prompt people and companies to take on more debt, adding to the risks the country’s financial institutions already face.

“The PBOC is indeed in a bind and is constantly balancing the need to protect growth against that to restructure the economy,” said Mr. Gu, adding that if China’s economy keeps weakening, a policy-rate cut would likely be on the cards.

“Fine-tuning measures like cutting the repo rate mostly have a stronger effect on market sentiment. The spillover impact on the real economy is limited, because interest rates in China aren’t fully liberalized yet,” Mr. Gu said.

China’s yuan hit a seven-month high Tuesday, despite gathering signs of a slowdown in the country, downward pressure on the currency and struggling global financial markets.

The rise of the yuan comes as the central bank guides the tightly controlled currency stronger, with analysts saying the moves are meant to discourage outflows on the back of recent poor data and re-emerging doubts over China’s economy.

The central parity rate was fixed at the strongest level against the U.S. dollar in more than a month at 6.1408, despite sluggish industrial production, weak property sales data and volatile trade balance numbers. The People’s Bank of China sets the exchange rate and then allows the yuan to trade 2 per cent above or below it.

“Only when the economy is looking better will they become less fearful of outflows,” said Geoff Kendrick, head of Asian foreign exchange and rates strategy at Morgan Stanley in Hong Kong.

The data has become problematic in the last few months, he said, and that is why “they are keeping the fix stronger and stable.”

Despite downward pressure on the yuan from the increased flow of U.S. dollars into the economy, the currency has appreciated 2.2 per cent since its weakest on April 30 but remains 1.2 per cent weaker for the year.

While China’s imports and exports grew faster than expected last month, the country’s overall trade surplus narrowed to US$31 billion from US$49.8 billion in August, which was below a median forecast of US$42 billion. A lower surplus indicates reduced purchasing of the yuan.

Chinese companies are also adding to the pressure. Data shows Chinese companies have been rapidly building up U.S. dollar deposits by not converting their revenue back into yuan. Companies have been reluctant to bulk up their yuan holdings after unprecedented volatility in the currency earlier this year.

Deposits totaled US$624 billion in August, up 29 per cent from the beginning of the year and a record high. Over the same period last year, deposits rose just 5.9 per cent.

The yuan touched 6.1230 against the U.S. dollar on Tuesday and last traded at 6.1243. A higher number means a weaker currency against the dollar.

Inflation in China fell to 1.6 per cent in September, below analysts' forecasts and the lowest in the world's second-largest economy for almost five years.

The consumer price index (CPI) figures released by the National Bureau of Statistics on Wednesday,represented a slowdown in inflation from 2.0 per cent in August.

It was the lowest since January 2010. Analysts polled by Dow Jones Newswires had predicted 1.7 per cent.

The figures fall well short of the 3.5 per cent annual target set by the government in March, and signal that deflationary pressures are rising.

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

The latest figures give authorities more room to take steps to stimulate the economy, as statistics suggest that Chinese expansion - which stood at 7.7 per cent last year, maintaining its slowest pace in more than a decade - is weakening.

"China's soft inflation profile heightens the risk of deflation, thus requiring further monetary policy easing," ANZ analysts said in a research note.

China's exports and imports both rose more than expected in September, Customs data showed on Monday in a positive signal, but analysts warned that fundamentals remained weak.

Industrial production growth slowed sharply in August to its lowest level for more than five years, official data showed last month, while house prices have fallen for five consecutive months.

Officials are targeting economic growth of "about 7.5 per cent" this year, the same as last year's objective.

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

China's third-quarter gross domestic product figures are due next week.

Last week the World Bank cut its forecast for Chinese growth to 7.4 per cent for 2014 and 7.2 per cent for 2015. The International Monetary Fund left its predictions unchanged at 7.4 per cent and 7.1 per cent but warned of "near-term growth risks", especially in real estate.

China's vast and crucial property sector is struggling in the face of oversupply.

A sharp slowdown in food price increases, from 3.0 per cent in August to 2.3 per cent in September, drove the inflation decline, the NBS said.

The producer price index (PPI) - a measure of costs for goods at the factory gate and a leading indicator of the trend for CPI - fell 1.8 per cent year-on-year in September, the NBS said separately.

The last PPI increase was in January 2012, when it rose 0.7 per cent.

Now entering its third week, its numbers dwindling but its determination and purpose still remarkably strong, the umbrella uprising in Hong Kong has shown its playful side, by bringing ping-pong to the city streets.

Not everybody is impressed. Several days ago, at the Mong Kok protest site, an angry citizen caused a commotion, blaming protesters for having too much fun. The man said he was outraged by the now-viral photos of people eating hotpot and playing ping-pong on the streets. ‘What is democracy?’, he yelled, not expecting a reply. ‘Have you ever seen protesters in other countries playing table tennis and having hotpot when they fight for democracy?’

A crowd quickly gathered, as the misery guts complained loudly about the transformation of Hong Kong’s thoroughfares into a playground. After protesters appealed to him to calm down, police officers led the man away. There were no reported arrests.

As a gesture of respect for their fellow citizens, the ping-pong table was soon removed by protesters, leaving them to concentrate on a much deadlier game: a vicious media assault on everything they stand for by ping-pong propagandists in Beijing.

Last weekend’s open letter to Xi Jinping from representatives of the umbrella movement is an appeal for open dialogue with the ruling powers, whose media attack on Hong Kong appears to grow nastier by the day. ‘The West always brags that its own democracy is a “universal value” and denies there is any other form of democracy,’ notes the influential Communist Party journal ‘Seeking Truth’ or Qiushi. Citing violence and political turmoil in countries like Libya, Afghanistan, Egypt and Iraq, all of which have conducted recent experiments with democratisation, the truth-seeking journal insists that ‘Western democracy’ never suited all countries. ‘Western democracy has innate internal flaws and certainly is not a “universal value”; its blind copying can only lead to disaster.’

The implication of such talk is clear: China’s own system of ‘socialism with Chinese characteristics’ is the best way to govern the world’s most populous nation, the most effective way of dealing not just with unrest in Tibet, Xinjiang and Hong Kong, but a form of one-party government that can lift all citizens of China towards dignity, amidst plenitude. This way of thinking about democracy naturally rounds on every public effort by citizens to carve out spaces that enjoy independence from the octopoid Party apparatus. What we are seeing clearly in this developing Hong Kong crisis is that monitory democracy or what Chinese citizens call jiān dū shì mínzhǔ - free and fair elections plus open public scrutiny and restraint of power, wherever it is exercised – is anathema to the Chinese Communist Party leadership. Their heavy-handed but often subtle media campaign against the umbrella uprising is living proof that they not only dislike monitory democracy. For understandable reasons, they fear it.

According to the CCP counter narrative, itself backed up by heavy censorship of all independent reports on the unfolding crisis in Hong Kong, the uprising is not really a demand for democracy at all. It is (the stock phrases are commonplace) a dangerous conspiracy against the national interest, an assault on the dignity of the state, a threat to social stability, and a violation of the sovereignty and territorial integrity of the People’s Republic of China. During the past several weeks, news websites have been instructed to republish ‘open letters’ lambasting protest organisers and warning that ‘Western democracy is no panacea’. A column in the Communist Party mouthpiece People’s Daily dubs the Hong Kong protests as a form of ‘anti-democracy’ led by a minority of people who are ruining the public interest for their own selfish political views, so trampling all over the basic principle of democracy that the whole people are sovereign.

Commentaries published on the State Council Information Office blast the protest organisers for using ‘populism’ to seduce young people, and for failing to see that ‘street politics’ will never succeed in altering the bottom line: loyalty to the state. CCTV meanwhile tries to discredit the umbrella uprising by using infographics that portray it as ‘an illegal gathering’ backed by ‘foreign forces’, principally the United States. The same slant is surfacing in the extensive media coverage being given to Vice Premier Wang Yang, who warns during his current visit to Russia that Western countries are plotting a ‘colour revolution’ in China.

Online satirists and jokesters have been busily trying to strike back, in support of Hong Kong’s pro-democracy protests. ‘If nearly 1.4 billion people in mainland China are benefiting from the world’s best society’, writes one microblogger, ‘why not share it with Hong Kong’s seven million and Taiwan’s 23 million residents, instead of letting them suffer in the capitalist world under the “one country, two systems” principle?’ Good question! Another satirist with practical intentions notes that if Hong Kong carries on ‘disobeying central government and disturbing social disorder’ then Beijing ‘could simply cut its water supply, leaving them to drink sea-water’. Good suggestion!

Disapproving censors have been lightning fast in their response. Sensitive keywords and phrases on social media platforms such as Sina Weibo and WeChat are currently blocked. Occupy, open umbrella, umbrella revolution, central government, student leaders are among the words on the hit list. So are ‘stand’ (站 zhàn), a word that sounds the same as “occupy” (占 zhàn). Even references to Xi Jinping as ‘Master Xi’ (主习 zhǔ Xí) are forbidden, simply because the phrase, which sounds the same as ‘chairman’ (主席 zhǔxí), conjures memories of Mao.

Then there are the poisonous attacks against the whole of Hong Kong society. One of them, purportedly written by a member of the Hong Kong legislature, and repeatedly re-published, re-titled and re-circulated throughout Chinese media, predicts the enforced humbling of Hong Kong as a global city hub. ‘The real problem is Hong Kongers’ sense of superiority towards mainlanders’, insists the anonymous grubber. Most of them ‘have no awareness of changing patterns of development, and thus are not psychologically prepared for economic restructuring.’

Hong Kong citizens ‘stagnate in muddle-headed confusion’, says the sniper. They resemble ‘peasant farmers unable to see beyond their tiny tract of land’. Yes, peasant farmers. They fail to realise that the rise of mainland China spells an end to their special status. Reform is now imperative, but for that to happen ‘Hong Kong’s economic situation must first fall far below that of China’s coastal cities.’ One thing is clear, says the writer: more effective administration is mandatory. When government behaves like ‘a blindfolded donkey’ led by ‘the millstone of public opinion’ it becomes dysfunctional. Mixing metaphors, the sniper likens Hong Kong’s government to a car without a steering wheel, a ‘reckless’ vehicle thrown this way and that by the ‘potholes’ of ‘public sentiment’. Hence the firm conclusion: ‘Without a steady direction for policymaking, blindly following public opinion means that policy will constantly flip-flop’.

What is the significance of this state-produced propaganda? To what extent are mainland Chinese citizens aware of the Hong Kong umbrella uprising? Is there much sympathy for the umbrella protesters’ main demand (that Hong Kong citizens be granted the right to free and fair elections, and a different way of life)? Or do Chinese citizens mainly blame students, radicals or foreign governments for the disorder, in support of the official view?

The answers to such questions are unclear. Gauging ‘public opinion’ is notoriously difficult in China, where open public communication on sensitive topics is typically restricted. Whether, and to what extent, Chinese citizens believe the official stories is unknown. In any case, whether or not they believe this or that may well be beside the point, simply because, as Václav Havel long ago pointed out in his masterful essay The Power of the Powerless, the prime function of the language of Party officialdom is to silence its opponents, to frame ways of seeing the world by excluding alternative narratives.

When seen in this way, the terms used by Chinese Communist Party-controlled media do in fact become part of the everyday language that Chinese citizens use to discuss and understand social and political issues. But whether or to what extent they believe the official language invented by party propagandists is not entirely relevant. For the main aim of the propagandists is to remind the population who is in charge, to circulate through their daily lives a whole vocabulary through which they are supposed to make sense of the wider world, to smother them under a canopy of deadening silence, to force them to shut their mouths, and to keep their heads down.

Which helps to explain why the umbrella uprising in Hong Kong happened in the first place, why in recent days its supporters have built bamboo barricades, and why they are now desperately fending off police armed with guns and power tools, backed up by masked men working in tandem with taxi drivers and truckers convinced democracy is a dying Western ideal.

This commentary is published on the ABC’s The Drum and is part of a series of radio, television, text commentaries and foreign-language interviews on the Hong Kong umbrella uprising.

John Keane does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.

This article was originally published on The Conversation. Read the original article.

As police attempt to dismantle barricades and re-open roads in Hong Kong, the unprecedented protests that have been going on for some weeks appear to be coming to an end.

Despite a valiant effort by demonstrators to reinforce barricades with bamboo scaffolding and cement, police -- using pepper spray and heavy-handed tactics -- have made relatively easy work of the barriers and some traffic is now beginning to flow again.

It was inevitable that the protests would eventually be cleared away, one way or another. The strategy from Beijing has been to wait the protests out in the hope that the students would tire out and Hong Kong citizens would become increasingly frustrated.

Truck drivers and taxi drivers have been some of the most vocal critics of the protests, complaining that the blocked roads were putting their livelihoods at stake.

Walking through Admiralty on Monday, it was apparent that anti-occupy protestors had become more organised. The two sides argued heatedly outside the legislative council.

While not taking a central role in the protests, ex-pats have still been involved. Among the thousands of posters and fliers festooning the area are messages of support from foreigners.

Standing amongst the protestors on Monday, with a yellow ribbon pinned to his shirt, was UK-born ex-pat Adrian Champion, a teacher in Hong Kong.

Champion, 40, says he wasn’t even aware of the protests until police started employing heavy-handed tactics on the protestors. The police chased protestors into areas where expats hang out, and where he lives.

“At that point, the protests came to me,” he says.

By moving into non-protest areas, it forced expats to make a choice, says Champion.

“They actually used tear-gas on the road outside the police headquarters, which is just down the road from all the open-front bars and clubs. At that point, everybody in the area just swelled out and joined the protests that night.”

Indeed, the views of foreigners, while not playing a central role in the debate, have nevertheless been part of the mix.

Among the thousands of posters and fliers festooning the area are messages of support from foreigners.

An anti-occupy article written by Gerard Millet, a banker and former president of the French Chamber of Commerce, has circulated throughout the business community and was even handed out to protestors by a local man dressed as a clown.

A day after police used tear-gas and pepper spray, the Australian Chamber of Commerce in Hong Kong and Macau put out a press release that has prompted a backlash from Australians in the city.

"The present situation is damaging to Hong Kong's international reputation, may harm Hong Kong's international competitiveness, and is creating an uncertain environment that may be detrimental to investment, to job creation and to Hong Kong's prosperity into the future," the statement read.

“It reads like an article in the People’s Daily” one Chinese Twitter user remarked.

Hong Kong people know a thing or two about the use of vague language. Much of the current discontent in the city is because they were promised “a high degree of autonomy.”

In her 2010 book Underground Front: The Chinese Communist Party in Hong Kong, former legislator Christine Loh argues that the phrasing was an example of “intentional vagueness” cleverly designed to give a sense that Hong Kong would indeed enjoy day-to-day autonomy. 

“Broad generalities are useful to clinch a deal, leaving details to be worked out. Since the devil is in the details, workability and public acceptability depend on the final details.”

One Austcham member, who wished to remain anonymous, said the most frustrating thing about the statement was that none of the members were consulted.

“We’re still not sure about the internal corporate governance steps that were taken for how the media release was drafted,” they said.

“It was nothing more than cowardly kowtowing to perceived CCP backlash.”

The chamber has declined repeated attempts by China Spectator to clarify how the statement was formulated. When pressed if they would respond to the query, one board member replied, “What are you offering in return?”

But Austcham was not alone. Five other business groupings -- including the chambers of commerce of Canada, India and Italy -- took out an ad in Chinese-language media that expressed their “grave concerns about a threat that could potentially paralyze the Central business district.”

According to the Wall Street Journal, the Canadian Consulate in Hong Kong scolded the Canadian chamber, saying it hadn’t been notified of the move. Other chambers have either stayed out of the fray or taken a more neutral approach.

Austcham is the second-largest chamber in Hong Kong after the American chamber, so its view carries some weight.

Back in June, the big four accounting firms took out adverts in Hong Kong newspapers warning that foreign multinationals and investors might leave the territory because of the protests.

Now that UGL, an Australian firm, has been linked to a secret $7 million payment to Hong Kong Chief Executive CY Leung, it doesn't help the Australian community's image if our peak business body is picking sides in a highly contentious political argument.

Foreign Minister Julie Bishop, true to her word that Australia would support liberal democratic values and freedom, urged China to ensure Hong Kongers have a genuine say in their elections.

But perhaps she should remind the Australian business community that they too should do their part.

Hong Kong tycoon Li Ka-shing said on Wednesday that the pro-democracy student protesters in Hong Kong have succeeded in conveying their message, and urged them to immediately return home to their families. 

In his first comments since the protests began nearly three weeks ago, Asia's richest man said he understands the passion conveyed by the Hong Kong students. "But their pursuit should be guided by wisdom; everyone should follow the law," he said in a statement. 

He said since the city's handover to China from the U.K. in 1997, the "one country, two systems" regime has helped preserve Hong Kong's way of life. 

Mr Li, aged 86, is the most conspicuous of Hong Kong's tycoons, who collectively dominate the city's economy and all have significant business interests in mainland China. They have generally backed or been silent on Beijing's policies, and the group -- including business leaders in real estate, banking and manufacturing -- has significant power in choosing Hong Kong's leaders. 

Mr Li, who controls many Hong Kong businesses ranging from supermarkets to a power utility, pleaded for the protesters to remain calm, urging them "not to let today's passion become tomorrow's regret." 

His comments come on the same day that a video depicting police officers allegedly beating a protestor drew public outrage, and offered the potential to inject fresh momentum into the movement.

Student protest leaders walked a fine line on Wednesday after a video of police officers allegedly beating a protester drew outrage but also offered a chance to inject fresh momentum into the flagging movement. 

The video, aired by a local broadcaster, shows half a dozen police officers hauling a person in plastic handcuffs around a dark corner and then taking turns kicking him repeatedly. 

It was shot in the early-morning hours as police harshly beat back a push by protesters to maintain their grip on downtown areas. The overnight melee signalled an escalation in tensions around the rallies, which have paralysed Hong Kong streets for nearly three weeks 

It came after hundreds of protesters took over a tunnel next to the office of the city's chief executive. It appeared a spontaneous action but the ensuing violence forced a response from student leaders who have directed many of the protests. 

Alex Chow, the 24-year-old leader of the Hong Kong Federation of Students, said his group had no role in the storming of the tunnel. It didn't attempt to stop or discourage protesters from the move, "because they couldn't be stopped," Mr Chow said. The student group has consistently taken a hands-off approach toward what it calls "front-line" protesters battling police, leaving the protest movement at times without clear marching orders. 

But the riotous confrontation appeared to give the movement a boost of support, and some protest leaders called for a big rally at the main protest site in the Admiralty district of government buildings on Wednesday night to protest the violence. 

"[We] can't tolerate police brutality anymore. See you in Admiralty tonight," said Joshua Wong, the 18-year old leader of the Scholarism student group, in a Facebook post Wednesday. 

In the evening, protesters surrounded a police station in Wanchai, chanting slogans like "Shame on you, police." 

The harsher tone of the protests this week raises questions about how long the city will allow the grapple over territory in some of the busiest neighborhoods in the world. Flashes of violent radicalism are also increasingly at odds with the demonstration's roots in peaceful civil disobedience. 

Isaac Tsang, a 26-year-old worker at a property-management company who has been out protesting for more than a week, expressed reservations about the tunnel occupation. "We are trying to occupy people's hearts, not occupy more land," Mr Tsang said. 

Jerry Law, a 34-year-old fitness instructor, said he disagreed with the storming of the tunnel. "It gives the government an excuse to use force," he said. "A group of protesters' thinking is becoming increasingly radical and warlike. They aren't thinking of this as a peaceful movement anymore. My only hope is that no one gets injured." 

Occupy Central with Love and Peace, the third main protest organiser which has played a supporting role to the two student groups, denounced the violence Wednesday while cautioning protesters to stick to nonviolent demonstrations. 

Police expressed concern over the four-minute video, and said they had taken action and would conduct an impartial investigation. Hong Kong's security secretary said that the officers involved were reassigned pending an investigation into the incident. 

But moves to clear protesters further are unlikely to stop, with a person familiar with police strategy Tuesday saying they plan to clear other areas. In the past two days, police have cleared a major road in the main business district, and shrunk the area occupied in another protest site, Causeway Bay, following complaints about snarled traffic and lost earnings. 

Hong Kong Chief Executive Leung Chun-ying said the government took the complaint seriously and would use set procedures to handle it. But he also described the protest movement as having "spun out of control" and said it had hurt the city's economic activities. 

"The losses suffered by various Hong Kong sectors as a result of the Occupy movement won't help yield an election arrangement that's satisfactory to all." 

Meanwhile, the prospect for negotiations to resolve the standoff improved. A middleman is arranging a dialogue between the government officials and the Hong Kong Federation of Students, said Raymond Tam, Hong Kong secretary for constitutional and mainland affairs. He said a dialogue will take place if an appropriate arrangement is set. 

A spokeswoman for the student federation said it would address the possibility of renewed talks at the Wednesday evening rally. 

The Hong Kong government called off planned talks last week, saying the students' demands kept shifting. 

The road clearance overnight that triggered the scuffles allowed lawmakers to enter the legislature Wednesday to hold their first full session since the protests begun. During Wednesday's legislative council meeting, pro-democracy legislators grilled Hong Kong security chief Lai Tung-kwok and asked for investigations into possible criminal offenses by the police in the video. 

Protesters' core demands are for freer elections than under a plan by Beijing that effectively ensures no candidate unacceptable to Beijing will be allowed to run for the city's top post. 

One of the clearest signals yet from Beijing came on Wednesday. 

China's most senior official in Hong Kong, Zhang Xiaoming, told pro-establishment lawmakers in the city that protesters were using "radical forms of street confrontation" to pressure Beijing and the Hong Kong government, according to the official China News Service that cited a person with knowledge of the matter. 

"The best means to avoid having all of Hong Kong's residents pay a greater price would be to end 'Occupy Central' as soon as possible," Mr Zhang was quoted as saying during a dinner Tuesday evening. 

 

Chinese investment is flooding into Australia’s dairy industry, with four multi-million-dollar mega-deals in progress that are likely to see Chinese state-owned companies taking big stakes in all Australia’s largest dairy farming operations.

In western Victorian, about 50 dairy farmers between Colac and Mount Gambier have signed individual option deals to sell their farms, worth a collective $400 million, to a secretive ­Chinese-dominated dairy conglomerate being put together by Tasmanian-based property developer Troy Harper.

The 50 farms together run 90,000 cows producing 500 million litres of milk a year, about one-twelfth of Victoria’s total milk supply.

The plan is for the newly aggregated farms to boost their milk production by at least 50 per cent, to supply two new consortiums-owned processing plants to be built in western Victoria that would process and export $700m worth of prized infant milk formula into China and other global markets.

Mr Harper, who describes himself as a private equity facilitator through his company Linear Capital, would only reveal that the Chinese part-owner of the massive new dairy venture was a “major dominant state-owned Beijing-based player” in the food industry, with established brands, trading might and retail power.

He declined to name the Chinese company — there is speculation it is the dominant COFCO Group, China’s largest food processing, manufacturer and trader, or its listed subsidiary China Food — or to name the other global and Australian investors who took up the other 49 per cent of the as-yet unnamed new dairy behemoth.

But Mr Harper said the full extent and details of the deal would become clearer in the next two days. “We have partnered with a major group out of China; this is about putting together a new way of doing things, building a global business and getting a better deal for farmers,” he said yesterday.

“They were looking to try and find a piece of the industry and restructure it so it worked for them; we were asked to (assemble an entity) to supply to the scale of 500 million litres of milk a year; it has taken eight months but we have now concluding (buying) our farms.”

The new business will be Australia’s largest dairy farming company, five times bigger than the large Van Diemen’s Land Company (VDL) in northwest Tasmania, which the state-owned Chinese Investment Corporation came close to buying last year for more than $200m.

It was also confirmed this week that VDL is once again in play. The Australian understands Mike Guerin, a former Elders boss and the former chief executive of VDL until he suddenly resigned early this year, is putting together a group of investors with a Chinese company contributing 51 per cent, to buy VDL’s 19,000ha, 25 farms and 18,000 milking dairy cows owned by NZ’s Plymouth District Council.

Mr Guerin would not comment yesterday. Also in Tasmania, Landmark Harcourts has assembled 12 dairy farms around the Smithton area collectively for sale for $120m.

Landmark property director John Hewitt, who returned last week from China where he was marketing the “North West Dairy Aggregation” cluster to ­potential Chinese bidders, said he had realised last year that no Chinese corporate bidders wanted to talk about property purchases of a scale smaller than $100m.

His cluster of farms, all located close together, runs 12,000 cows producing 60 million litres of milk annually. “The main barrier is not that they are tyre kickers or not interested, but that they only want to spend more than $100m and typically prefer a 51 per cent joint venture deal,” Mr Hewitt said.

Linear Capitals’ Mr Harper said yesterday all his western Victorian farm purchases were locked in, the investment money committed and processing plants already on the drawing board.

He also confirmed the company is also in discussions with the state government to lease the 120-bed former Glenormiston agricultural college at Mortlake as part of the deal, to use as a dairy training and educational facility.

But Farmer Power, the western Victorian rebel dairy group, fears the plan is to fly in Chinese dairy workers on low wages and 457 visas, use Glenormiston as their training and accommodation base before being dispatched to work on the outlying southwest Victorian farms.

Mr Harper promised that local farmers would be the beneficiaries of the Chinese conglomerate deal, as the new company seeks to improve productivity on its farms and builds two new processing facilities.

But for rival dairy processors with factories in the area such as Saputo-owned Warrnambool Cheese & Butter factory at Allendale, Murray Goulburn’s dairy processing plant at Koroit and Fonterra’s Cobden plant, the locking up of the 50 farms with their 500 million litres of annual milk production by the Chinese corporation would lead to a drastic shortage of milk supply.

“I wouldn’t call it a disruption, but a redistribution of milk supply; western Victoria was the only place we could aggregate this number of farms together for the amount of milk needed,” Mr Harper said.

East Asia Forum

In September 2014 the Inter-Parliamentary Union released its latest figures on the number of women in national parliaments. Rwanda topped the league with women accounting for 63.8 per cent of parliamentarians in the lower house (or its equivalent). China, however, ranked 62nd out of 189 countries, with women accounting for 23.4 per cent of representatives to the National People’s Congress (NPC) — China’s nearest equivalent to a parliament. Given that the Chinese Communist Party (CCP) has long espoused the idea of equality between men and women and has a well-established, dedicated institution for protecting women’s rights and interests — the All-China Women’s Federation (ACWF) — it is curious that the figures are so unimpressive.

These figures reflect a more general pattern of underrepresentation of women at all levels of the political system. Only two women sit in the current 25-member Politburo and no woman has ever sat in the powerful Politburo Standing Committee. Currently there is only one female provincial governor (Li Bin, governor of Anhui) and only one party secretary of a province or city (Sun Chunlan, currently party secretary of Tianjin city, and previously of Fujian province). In fact, Sun is one of only two women who have ever served as the party secretary of a province. Only 21 per cent of all party members are female and only 23 per cent of all national-level civil servants are women. Further down the system, little more than 1 per cent of village committee chairs are women.

How can this be? Especially given the CCP’s apparent long-standing commitment to gender equality, its large organisational machine for promoting women’s rights and interests, its practical efforts to tackle sexist attitudes and promote equality and, not least, Chinese women’s high economic participation — which hovers around 70 per cent for women between 18–64 years. Unravelling this puzzle reveals a complex array of interweaving causal factors, some of which prevail in other countries and some of which are particular to China’s political system and culture.

First and most fundamental are processes of gender socialisation. Despite ideological campaigns during the Maoist decades to change people’s thinking around gender roles, entrenched gendered attitudes remain amongst both men and women. Women are often described as ‘lacking self-confidence’ or ‘lacking quality’ (suzhi di), or seeing their role traditionally as ‘inside the home’ rather than ‘outside the home’. Such views are also often internalised by cadres in the ACWF and mirrored in the numerous campaigns to enhance women’s self-esteem and ‘improve their quality’. But this focus on the individual woman’s ‘quality’ is problematic — not just because it casts the spotlight on the individual woman as the problem and the solution but more importantly because it masks other issues such as institutional and political factors that shape the way men and women enter formal politics.

China’s political culture is male-dominated. Not only is there male bias in the nomination and selection processes for leading positions in the party/state at all levels, but the career trajectories of men and women are often quite different. Both domestic responsibilities as well as a lower retirement age for women hinder the opportunities of promotion for women. Though the NPC in March 2007 stated thatwomen should account for no less than 22 per cent of all NPC members, such targets have turned out to have a limiting effect, creating an artificial barrier to participation after the 22 per cent target has been reached. Surviving in a male-dominated political system also means playing the cultural games that are laid down by men, such as smoking and drinking heavily. Women are thus caught in a dilemma — if they drink along with men, their reputation might be sullied; but if they do not drink along with the men, then it appears that they are not part of the group, and may forfeit influence and connections.

Apart from these political cultural factors, ‘state-derived feminism’ — which is the theory, ideology, strategy and practice of the ACWF — is also limited in what it can achieve. The analysis of female oppression remains stuck in an unrevised Marxist-Engelsian-Maoist analysis that is no longer able to grasp the gendered effects of an increasingly globalised and marketised economy and society. In addition, the ACWF forms part of the CCP’s institutional machine. Constraints on its autonomy translate into constraints on its room to manoeuvre and its ability to take a more challenging approach to gender inequalities. Though more independent women’s groups have proliferated across China since the Fourth World Summit of Women was held in Beijing in 1995, a restrictive regulatory framework for civil society still limits their effectiveness.

But it is not all doom and gloom. At least China has an institutional infrastructure of expanded laws and regulations advancing gender equality and a dedicated national machinery in the form of the ACWF. This cannot be dismissed too lightly. There is also a new wave of activism amongst China’s young generation of women, which is taking radical action around practical issues like the shortage of female toilets and the discriminatory practices in university entrance processes. All is not lost; but more could be done.

Jude Howell is a Professor at the Department of International Development, London School of Economics.

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

Lowy Interpreter

The smartphone in your pocket embodies today's cutting-edge technology. It is also a product of a global supply chain decidedly old-school in the way it shares rewards.

Two brands, Apple and Samsung, scoop over 100 per cent of the profit pool (the other brands are losing money, giving them negative profit share). Despite all the commotion around their new product launches, they represent only one-third of total smartphone volume. Most consumers can't afford them, so they buy standard products at $100 or even $50. These devices (and Apple iPhones too) are assembled in Chinese factories at negligible profit. Despite China dominating production, its brands together receive only 17 per cent of the industry's $300 billion in revenue, about half that of what Apple and Samsung each pocket. A few other foreign suppliers making semiconductors and other components quietly make huge profits off every smartphone sold.

With 1.2 billion devices sold annually, practically the entire human adult population owns a smartphone, or soon will. Like generic medicines, the ubiquitous device is a stunning example of the democratisation of affordable technology. It is also, from a Marxist perspective, a scourge of winner-take-all capitalist imperialism.

That such a large and important industry is so asymmetrical, with so few winners, raises questions. Why can just a few companies make such extravagant profits while no-one else can? Why are Chinese companies pursuing their profitless existence? How do they survive? And what does Beijing think about all this?

Apple and Samsung are profitable because their prices are higher. Scale helps but is no guarantee of continued success: Nokia once owned the market, and blew it. Because everyone uses the same components and design concepts, the product differences are subtle. The Chinese phones are catching up quickly and eventually the smartphone, like the PC, may 'commoditise'. Consumers pay mostly for the brand, a lazy habit reinforced by Apple and Samsung's vast advertising budgets. For now, they are runaway winners, but their profit margins and market share will erode. They might stumble, as many have before.

The prospect of Apple or Samsung tripping up keeps Chinese companies in the game. The biggest have grown to dominate their home market and have ambitions overseas. Some, like Xiaomi, are genuinely innovative. The Chinese rulemanufacturing too. Still, despite working so hard, they scrape out only a 2-3 per cent margin, at best. The domestic market is abloodbath; everyone aspires to the big league and to outlast the others, ensuring a slow, painful shakeout of the 100+ Chinese players. Exports are more profitable, so lesser-known firms are shipping to India and Africa in amazing quantities, tens of millions of units per year.

It has been observed by trade economists that China captures little value in the total price of an iPhone, with most of the wealth going to Apple itself and other foreigner corporations. Naturally this irks Beijing, all the more so because Chinese consumers love Apple's brand, a fetish ridiculed by the state media. There is a not-so-subtle campaign to wean local consumers from foreign wares. Samsung, facing a 'China storm', already manufactures in Vietnam. In recent times Apple, generating 60 per cent of its incremental growth from China, has been attacked and its service and its security questioned. Beijing has also been slow to certify Apple for its Chinese carriers.

The main alternative to Apple is a phone running Google's free Android operating system. Android runs 80 per cent of all smartphones and is rampant in emerging markets. Chinese consumers and manufacturers have settled quickly for Android too, but Google's dominance doesn't sit well with Beijing. It plans an indigenous 'patriotic' alternative called the China Operating System.

China may also target lucrative foreign parts suppliers, as it did in cars. Three-quarters of a Chinese-made smartphone's cost are components made by foreign companies, some of which are dominant and outrageously profitable. Beijing's greatest test of wills is against the powerful US semiconductor maker Qualcomm, which earns half its revenues in China. True to form, the chip business is close to a duopoly: Qualcomm and Taiwan's Mediatek dominate. China has its own semiconductor ambitions and is trying to build up a homegrown chip-maker with Intel's help to rival the pair. Qualcomm demands an average 3 per cent IP royalty on the price of every smartphone (even those running MediaTek chips), and more from some Chinese companies. Obviously, with 1-2 per cent profit margins, such a levy would destroy them. So Beijing has blocked all Chinese smartphone makers from paying, while condemning Qualcomm for monopolistic behaviour and for ripping China off: 'You're making money in China and you're hurting China. We won't allow that to happen.'

Qualcomm's lockhold on wireless technology has annoyed many, not just Beijing. Qualcomm has repeatedly tangled with both competitors and customers, and it has a separate ongoing dispute with Huawei over cross-licenses. Beijing uses roughcounter-tactics, especially against IP owners. Effectively, Beijing is shielding its companies from some IP costs that Apple and Samsung are paying.

For now, this policy is creating a segregated marketplace: a royalty-lite zone in China, another in emerging markets where IP enforcement is impossible, and another in developed countries where Qualcomm might block infringing Chinese phones with import injunctions. Because they want to export to the US and EU, some Chinese firms are now building up their own patents. Lenovo bought Motorola for that reason. Elsewhere, however, Chinese brands could overrun the world market, hiding behind Beijing's industrial policy bastion. They will face other challenges but if they succeed the global landscape will look very different within three to five years.

What we see in the smartphone industry is another example of Beijing quietly pressing the scales in favour of its companies, 'leveling the playing field.' The smartphone is likely to be with us for many years. China is determined to be a big part of that future.

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

China’s economic planning agency has stopped approving bond sales by state-owned companies, two people familiar with the situation said Wednesday, cutting off a crucial fundraising channel for firms already struggling with high debt loads and a weakening economy.

The National Development and Reform Commission, one of three agencies that oversee debt sales in China, this week stopped reviewing applications from state -owned enterprises to issue debt, said the two people. They added that it was unclear when the approval process will resume.

The reason for the abrupt suspension is unclear, but analysts said the move is likely linked to a widening anticorruption campaign by Beijing that is starting to spread further into the finance industry. In August, Chinese prosecutors said they were investigating whether the NDRC official who was in charge of bond issues from 2003 to 2006 took bribes.

In a separate move, Beijing also stopped local governments this month from borrowing through so-called financing vehicles as it seeks to better control municipalities’ mounting indebtedness. Until recently, local governments haven’t been allowed to issue debt on their own, so they have created companies, or financing vehicles, to sell bonds on their behalf.

Most analysts expect the halt to be short-lived, but it comes at a sensitive time as the country’s economy slows and financial risks rise. Already the world’s biggest issuer of corporate bonds, China is burdened by high borrowing costs.

China has issued US$419.8 billion worth of corporate bonds this year, more than the US$353 billion raised in all of 2013, according to Dealogic.

“The NDRC will resume reviewing the new bonds in the first quarter of next year at latest, when different levels of governments and enterprises will start to raise money for their new-year projects,” said Chen Long, an analyst with the Bank of Dongguan Co.

The NDRC didn’t respond to requests for comment.

China’s vast but underdeveloped bond market has a complex, and at times confusing, structure. There are three regulators for three different types of bonds issued by corporations and traded in the country.

The NDRC approves sales of so-called enterprise bonds by large, state-owned companies, while the country’s central bank oversees the issuance of short-term bills and medium-term notes. China’s securities regulator approves corporate bonds issued by listed companies and traded on exchanges. State-owned enterprises have some bonds approved by the other two agencies, but the NDRC approves most of their debt.

A total of 617.5 billion yuan (US$100.6 billion) in enterprise bonds regulated by the NDRC have been issued so far this year, out of 9.05 trillion yuan of new bonds in the entire market, according to Wind Info, an information provider.

Worries about risks in China’s corporate debt have intensified in the past year, as the country’s economy slowed and borrowing costs spiked periodically. Beijing has sought to discourage lending to industries saddled with overcapacity and to discipline banks that were aggressive in risky financing.

The slowing economy and weaker profits at Chinese companies are causing China’s corporate debt to become a riskier bet, Standard & Poor’s Ratings Services says.

Signalling growing concern with the weak economy and financial stress, China’s central bank has stepped up efforts to ease monetary conditions and reduce borrowing costs for businesses in the past month.

On Tuesday, the People’s Bank of China cut short-term borrowing costs for banks for the second time in less than a month. The move has triggered hopes for an eventual move to lower the country’s benchmark interest rates, arguably the most powerful form of monetary easing.

The action by the People’s Bank came a week before China is scheduled to release major macroeconomic data for the third quarter and September. A survey of 15 economists by The Wall Street Journal indicates they believe China’s gross domestic product expanded 7.2 per cent in the latest quarter from a year earlier, slowing from a 7.5 per cent increase in the second quarter, as the pivotal real-estate sector remains depressed.

Personal-computer and smartphone maker Lenovo Group Ltd. said it would create a new company in China next year that focuses on selling mobile phones online.

The new smartphone company, which will have a different brand name, is part of Lenovo’s efforts to fend off fierce competition in China from Xiaomi Inc., a local smartphone startup that sells its handsets online while cultivating its fan base through its own software, services and entertainment offerings. Xiaomi is also known for being marketing savvy, engaging with consumers through online forums and social networks.

Lenovo said in a statement Wednesday that it will continue to sell Lenovo-branded phones in China through local carriers and retailers.

The new smartphone company, which will start its operation April 1, 2015, won't only sell devices online but will also offer applications and focus on consumer engagement, Lenovo said.

Lenovo, which last year overtook Hewlett-Packard Co. as the world’s largest PC maker, has been quickly expanding its smartphone business for the past year. In the second quarter, Lenovo was the world’s fourth-largest smartphone maker by shipments behind Samsung, Apple and Huawei Technologies Co., according to IDC.

Lenovo and Xiaomi are two of the biggest smartphone makers in China, both selling more phones in the market than Samsung Electronics Co. or Apple Inc.

In recent quarters, Lenovo and Xiaomi have been competing intensely against each other for the number-one position by shipments.

Lenovo’s plans to set up a new mobile phone business comes as the company is in the process of completing a $2.91 billion acquisition of Motorola Mobility in the U.S.

But Lenovo said that the new smartphone company will be a China-focused company.

More than 82 million people in China still live on less than about $US1 ($A1.08) a day, a senior official says, despite a decades-long boom that made it the world's second-largest economy.

China's official poverty standard is an annual income of 2300 yuan ($A405), close to the long-used benchmark of $US1 a day.

More than 82 million people were living on less than that at the end of last year, senior government development official Zheng Wenkai told reporters.

The World Bank's own definition of poverty is $US1.25 a day, and Zheng said China's poor would rise to more than 200 million if "international standards" were applied.

"The poverty-stricken population not only suffer from low income but also face various difficulties in getting drinking water, roads, electricity, education, medical care and loans," he said at a press conference Tuesday.

Most of them live in areas prone to natural disasters or with inadequate infrastructure, and lifting them out of poverty is "a tough nut to crack", added Zheng, vice director of the State Council Leading Group Office of Poverty Alleviation and Development.

Over 30 years of reforms have led to an economic boom in China, which displaced Japan as the global number two in 2010, behind the US.

But per capita GDP in the country of 1.36 billion people was just $US6,767 last year, less than 13 per cent of that in the US, the state-run Global Times newspaper said on Wednesday.

More worrying is the country's widening income gap, which was highlighted in a Peking University report earlier this year pointing out that the top one per cent of households in the Communist-ruled country controlled more than one third of its wealth in 2012, while the bottom 25 per cent controlled just one per cent.

China power consumption rose by 2.7 per cent year-on-year in September, the second worst reading in the past 18 months.

The figures represent a sharp reversal from August when electricity consumption was down 1.5 per cent.

Electricity consumption data is is an important gauge of economic activity in China where official GDP statistics are often unreliable.

Chinese industry accounts for 70 per cent of overall electricity consumption in the country and high energy intense sectors are responsible for 50 per cent of the total industrial electricity consumption.

Inflation in China fell to 1.6 per cent in September, below analysts' forecasts of about 1.7 per cent and the lowest in the world's second-largest economy since January 2010.

China's central bank cut short-term borrowing costs for banks, the second time in about a month, on Wednesday.

It's also the second month for Chinese inflation to fall, with some analysts pointing to the downward trend as reason to expect more monetary easing.

China's banks stepped up their lending in September, but analysts say more monetary easing is needed to bolster the weakening economy.

Domestic banks extended 857.2 billion yuan ($A151.3 billion) in new loans, the People's Bank of China (PBoC) said in a statement on Thursday, up more than a fifth from the 702.5 billion yuan lent in August.

The September figure also beat a median forecast of 745 billion yuan from a Wall Street Journal poll of 15 economists.

Analysts attributed the rebound in new lending to China's "targeted" easing introduced earlier this year, which included cuts in reserve requirements for some banks.

Last month also saw the PBoC pump 500 billion yuan into the country's top five banks in a bid to boost lending to small businesses and kickstart the economy.

"New loans have recovered to the normal level, probably reflecting the ongoing targeted easing by the PBoC," ANZ economists Liu Ligang and Zhou Hao wrote in a research note.

But total social financing, a broader gauge of credit in the overall economy, remained "lukewarm", they said.

Social financing stood at 1.05 trillion yuan for September, the PBoC said, down from 1.4 trillion yuan for the same month a year ago.

"This suggested that the de-leveraging of shadow banking activity continues," ANZ said.

Authorities have sought to crack down on "shadow banking" - a huge network of lending outside formal channels and beyond the reach of regulators, including activities by online finance platforms, credit guarantee companies and microcredit firms.

Separately, the central bank also said China's foreign exchange reserves slipped to $US3.89 trillion ($A4.2 trillion) at the end of September, from $US3.99 trillion at the end of June.

China has the world's largest foreign exchange reserves, the bulk of which are believed to be held in US dollars.

China's banks stepped up their lending in September, but analysts say more monetary easing is needed to bolster the weakening economy.

Domestic banks extended 857.2 billion yuan ($A151.3 billion) in new loans, the People's Bank of China (PBoC) said in a statement on Thursday, up more than a fifth from the 702.5 billion yuan lent in August.

The September figure also beat a median forecast of 745 billion yuan from a Wall Street Journal poll of 15 economists.

Analysts attributed the rebound in new lending to China's "targeted" easing introduced earlier this year, which included cuts in reserve requirements for some banks.

Last month also saw the PBoC pump 500 billion yuan into the country's top five banks in a bid to boost lending to small businesses and kickstart the economy.

"New loans have recovered to the normal level, probably reflecting the ongoing targeted easing by the PBoC," ANZ economists Liu Ligang and Zhou Hao wrote in a research note.

But total social financing, a broader gauge of credit in the overall economy, remained "lukewarm", they said.

Social financing stood at 1.05 trillion yuan for September, the PBoC said, down from 1.4 trillion yuan for the same month a year ago.

"This suggested that the de-leveraging of shadow banking activity continues," ANZ said.

Authorities have sought to crack down on "shadow banking" - a huge network of lending outside formal channels and beyond the reach of regulators, including activities by online finance platforms, credit guarantee companies and microcredit firms.

Separately, the central bank also said China's foreign exchange reserves slipped to $US3.89 trillion ($A4.2 trillion) at the end of September, from $US3.99 trillion at the end of June.

China has the world's largest foreign exchange reserves, the bulk of which are believed to be held in US dollars.

China's overseas investment almost doubled year-on-year to $US9.79 billion ($A10.59 billion) in September, the government says, again exceeding incoming funds even though they recovered from multi-year lows.

Foreign direct investment (FDI) - which excludes financial sectors - into China came in at $US9.01 billion for the month, the commerce ministry said, up only 1.9 per cent year-on-year but a significant improvement on August's $US7.20 billion, which was the lowest since July 2010.

China has been actively acquiring foreign assets, particularly energy and resources, to power the world's second-largest economy, with firms encouraged to "go out" and make overseas acquisitions to gain market access and international experience.

Overseas direct investment (ODI) was up 90.5 per cent in September, and officials have said it could exceed FDI this year.

For the first nine months total ODI stood at $US74.96 billion, up 21.6 per cent, with FDI at $US87.36 billion, down 1.4 per cent.

Over the period, Chinese investment into the European Union soared 218 per cent to $US9.0 billion, the ministry said.

It leaped 150 per cent into Japan, while also going up 69.7 per cent into Russia and 19.5 per cent into Hong Kong, the ministry added, without giving totals.

It was up 28.2 per cent to $US3.95 billion into the US.

Ministry spokesman Shen Danyang attributed the rapid growth in ODI to "strong market forces" - China's need to invest abroad and demand from destination countries - along with policy support from Beijing and foreign governments.

"We believe China's overseas investment and co-operation will maintain a fast development momentum in the future," he said.

A Chinese-led consortium was the only group to enter a bid for a high-speed train project connecting Mexico City and the central city of Queretaro, the transport ministry says.

The China Railway Construction Corp on Wednesday presented a $US4.3 billion ($A4.65 billion) plan to build the trains and 210-kilometre railway, the ministry said in a statement on Thursday.

The project is part of President Enrique Pena Nieto's decision to bring back passenger trains, which all but disappeared more than a decade ago, except for some tourist lines.

Pena Nieto has also sought to forge closer trade ties with China, hosting President Xi Jinping during a state visit in 2013.

The transport ministry said 16 companies decided not to make a proposal, including industry giants Mitsubishi of Japan, Alstom of France, Bombardier of Canada and Siemens of Germany.

The Chinese-led consortium, which includes four Mexican firms, was the only one to make a proposal by Wednesday's deadline.

The transport ministry said it will decide whether to accept the offer on November 3. The government expects construction to start in December and operations to begin in 2017.

The project aims to carry 23,000 passengers per day at speeds of up to 300 kilometres per hour.