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    China posted weak lending figures for October despite a massive capital injection and other efforts by its central bank to spur growth, heaping more pressure on authorities to ease monetary conditions.

    The figures released by the People's Bank of China on Friday are the latest sign of lost momentum for the world's second-largest economy. Growth in investment, factory production, exports and retail sales all slowed in October. The economy grew by 7.3 per cent year-over-year in the third quarter, its slowest pace in more than five years.

    Economic deceleration is making banks more wary of lending and companies increasingly reluctant to borrow or invest, economists said. "Both the supply and the demand for loans are not good," ANZ economist Zhou Hao said.

    A crackdown on lightly regulated informal lending -- also known as shadow banking -- took a toll on lending activity as well, economists said. Bank loans as a proportion of October's total social financing, the broadest measure of new credit creation, increased. But total social financing slowed overall as more banks remained on the sidelines, they added. "This is the price to pay for lower economic risk," Crédit Agricole economist Dariusz Kowalczyk said.

    As economic growth has slowed, the PBOC has turned on the money spigot. In September, it injected 500 billion yuan ($US81.5 billion) into the commercial banking system and in October a further 269.5 billion yuan using medium-term lending facilities, a new tool aimed at meeting temporary liquidity needs. It also routed credit to the agriculture sector and smaller companies.

    In recent months, China's central bank has also made use of pledged supplementary lending, another new tool similar to relending whereby commercial banks receive funding from the central bank on condition they lend it to designated sectors or projects.

    "Because of these steps, expectations were running quite high," said Daiwa economist Kevin Lai. "The weak credit figures were a bit disappointing."

    But use of targeted monetary tools -- designed to ensure that fund go to desired borrowers such as farmers and entrepreneurs rather than debt-saddled property developers, local governments or bloated state-owned companies -- aren't terribly effective, some argue.

    Even with those efforts, "the 770 billion yuan didn't show up," said Mizuho economist Shen Jianguang, who argues that economic reform is best implemented using fiscal and regulatory measures. "They need more transparent signals, like a rate cut or an RRR cut," he added, referring to the amount of reserves that financial institutions keep on hold at the central bank.

    Other economists said it would take time for bank injections to be felt and say that new rules designed to curtail window dressing -- a practice whereby banks temporarily inflate their deposits at the end of a quarter to make their balance sheets look better, temporarily pushed down credit growth.

    According to the PBOC, Chinese banks issued 548.3 billion yuan of new yuan loans in October, down from 857.2 billion yuan in September and below the 626 billion yuan forecast by a Wall Street Journal poll of 11 economists.

    Total social financing was 662.7 billion yuan in October, the central bank reported, down from 1.05 trillion yuan in September. And M2, China's broadest measure of money supply, grew 12.6 per cent at the end of October year-over-year, lower than the 12.9 per cent rise at the end of September, and below expectations.

    China's slowing economy increases pressure on the PBOC to further ease monetary policy, economists said, pointing to relatively accommodative language in the PBOC's third-quarter monetary policy report. "I think we'll see something in December," said Mizuho's Mr Shen.

    While Beijing's recent squeeze on shadow banking has short-term costs, it is a positive long-term development if pressure can be maintained, economists said. Tighter supervision this year saw trust assets under management increase by 6.4 per cent in the first half of 2014 to 12.5 trillion yuan, compared with average growth of 50 per cent annually between 2008 and 2013, according to the China Trustee Association.

    Given credit demand among highly leveraged Chinese companies and high interest rates, however, a crackdown in one shadow banking area tends to see it morph into a new form, economists said. "The shadow banking crackdown is working," said BBVA economist Xia Le. "But financial intermediaries create new ways to make investors feel safer. The demand is always there."


     

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    PBoC figures follow central bank capital injection, add pressure on Beijing.

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    Brent crude held at four-year lows on Friday as supplies are plentiful and the outlook for demand in Europe and China remains worrisome.

    However, it remained firmly below $US80 a barrel Friday morning, at levels last seen in September 2010. As JBC Energy wrote in a note to clients: "It's getting nasty out there."

    Oversupply is still the main issue. "We could identify no specific reason for the sharp fall, besides the bearish market environment that has been pervading the oil market for several weeks now," JBC said.

    David Hufton of brokerage PVM noted that, on the demand side, data on factory output and investment growth in China hit a 13-year low. China's consumption of oil had been a big factor in keeping prices strong, until the country's meteoric growth began to falter.

    Meanwhile, the eurozone economy picked up modestly in the third quarter, recording growth of 0.6 per cent on an annualized basis, but remains the weakest link in the global economy.

    On the supply side, Mr Hufton said that reports over the past weeks from the International Energy Agency, the US Energy Information Administration and the Organisation of the Petroleum Exporting Countries have all pointed in the same direction.

    "The numbers could not be clearer. There will be a huge surplus of oil next year which is concentrated in the first quarter and second quarter," of 2015, he said.

    The price of Brent was slightly higher on Friday but that was largely down to a statistical effect, as the market rolled over to the January Brent futures contract, which was priced slightly higher than the December contract that expired on Thursday.

    The January contract plunged 4.5 per cent or $US3.63 a barrel on Thursday, ahead of the rollover, said JBC.

    Brent crude for January delivery is up 64 at $US78.13 a barrel on ICE Futures Europe. WTI is up 13 cents at $US74.35 on the New York Mercantile Exchange.

    Recently, ICE gasoil for December changed hands at $US700.75 a metric ton, down $US4.25. Gasoline was up 107 points to $US2.0123 a gallon.


     

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    Oil price weighed by supply outlook, worries on Chinese and European demand.

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    Australia's free trade agreement with China will provide further incentive for West Australian exporters to develop their business in Asia, the state's premier says.

    The China-Australia Free Trade Agreement was announced by Prime Minister Tony Abbott and President Xi Jinping on Monday.

    WA Premier Colin Barnett said reducing trade barriers with one of Australia's largest export markets would be especially good news for the state's agriculture and food producers.

    "The new trade agreement between Australia and China will provide incentives for WA exporters to further develop their business with China, and for many, it will encourage them to consider exporting there for the first time," he said.

    Mr Barnett said WA's clean, safe and high quality food was already in high demand in China.

    WA Agriculture and Food Minister Ken Baston said China was WA's most valuable agrifood market in 2013-14, buying more than $1.5 billion worth of products including barley, greasy wool, canola, wheat, pearls, mutton and sheep skins.

    He said reductions in tariffs for exports such as dairy, beef, wine and seafood would deliver greater profits and export opportunities for WA.

    In July, China's Shanghai Zhongfu started developing vast tracts of land in WA's Kimberley region under the second stage of the Ord River irrigation scheme.

    The conglomerate agreed in 2012 to lease the land for up to 50 years.

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    Colin Barnett says reducing trade barriers with China is good news for WA's agriculture and food producers.

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    Hong Kong police will move to evict some of the pro-democracy protesters who have been blocking main roads for more than seven weeks, a statement says.

    Police said they would give "fullest support" to civilian bailiffs carrying out a court order to clear access to a skyscraper in the Admiralty district.

    In a statement late on Monday they pledged "resolute action" against anyone obstructing the bailiffs, saying they could face charges of criminal contempt of court.

    Protesters have been staging sit-ins on three major thoroughfares since September 28, demanding a free leadership election for the semi-autonomous Chinese city in 2017.

    The court order to be enforced on Tuesday, granted at the request of the building owners, relates only to the area around CITIC Tower in the Admiralty business and government district.

    It does not cover the entire area of the sit-in at Admiralty, where demonstrators have pitched a sea of colourful tents across an eight-lane highway.

    But similar court orders have been issued or are being sought for other blocked roads in the city, as China refuses to budge on protesters' demands and public opinion starts turning against the campaigners.

    For the first time since it started the poll in September, Hong Kong's Chinese University found more people opposed the Occupy movement than supported it, according to the South China Morning Post.

    About 67 per cent of all respondents said protesters should go home, it reported.

    A police source quoted by the paper said roads in the Mongkok district in Kowloon would also be cleared this week.

    The protests, which drew tens of thousands at times initially, have dwindled markedly in size.

    China has refused to back down on its insistence that candidates for the 2017 election must be vetted by a loyalist committee, a decision critics say is designed to ensure the election of a pro-Beijing stooge.

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    Civilian bailiffs to carry out court order to clear access to a skyscraper in the Admiralty district.

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  • 11/17/14--14:56: China credit growth slows
  • BEIJING—China posted weak lending figures for October despite a massive capital injection and other efforts by its central bank to spur growth, heaping more pressure on authorities to ease monetary conditions.

    The figures released by the People’s Bank of China on Friday are the latest sign of lost momentum for the world’s second-largest economy. Growth in investment, factory production, exports and retail sales all slowed in October. The economy grew by 7.3 per cent year-over-year in the third quarter, its slowest pace in more than five years.

    Economic deceleration is making banks more wary of lending and companies increasingly reluctant to borrow or invest, economists said. “Both the supply and the demand for loans are not good,” said ANZ economist Zhou Hao.

    A crackdown on lightly regulated informal lending—also known as shadow banking—took a toll on lending activity as well, economists said. Bank loans as a proportion of October’s total social financing, the broadest measure of new credit creation, increased. But total social financing slowed overall as more banks remained on the sidelines, they added. “This is the price to pay for lower economic risk,” said Crédit Agricole economist Dariusz Kowalczyk.

    As economic growth has slowed, the PBOC has turned on the money spigot. In September, it injected 500 billion yuan (US$81.5 billion) into the commercial banking system and in October a further 269.5 billion yuan using medium-term lending facilities, a new tool aimed at meeting temporary liquidity needs. It also routed credit to the agriculture sector and smaller companies.

    In recent months, China’s central bank has also made use of pledged supplementary lending, another new tool similar to relending whereby commercial banks receive funding from the central bank on condition they lend it to designated sectors or projects.

    “Because of these steps, expectations were running quite high,” said Daiwa economist Kevin Lai. “The weak credit figures were a bit disappointing.”

    But use of targeted monetary tools—designed to ensure that fund go to desired borrowers such as farmers and entrepreneurs rather than debt-saddled property developers, local governments or bloated state-owned companies—aren’t terribly effective, some argue.

    Even with those efforts, “the 770 billion yuan didn’t show up,” said Mizuho economist Shen Jianguang, who argues that economic reform is best implemented using fiscal and regulatory measures. “They need more transparent signals, like a rate cut or an RRR cut,” he added, referring to the amount of reserves that financial institutions keep on hold at the central bank.

    Other economists said it would take time for bank injections to be felt and say that new rules designed to curtail window dressing—a practice whereby banks temporarily inflate their deposits at the end of a quarter to make their balance sheets look better, temporarily pushed down credit growth.

    According to the PBOC, Chinese banks issued 548.3 billion yuan of new yuan loans in October, down from 857.2 billion yuan in September and below the 626 billion yuan forecast by a Wall Street Journal poll of 11 economists.

    Total social financing was 662.7 billion yuan in October, the central bank reported, down from 1.05 trillion yuan in September. And M2, China’s broadest measure of money supply, grew 12.6% at the end of October year-over-year, lower than the 12.9 per cent rise at the end of September, and below expectations.

    China’s slowing economy increases pressure on the PBOC to further ease monetary policy, economists said, pointing to relatively accommodative language in the PBOC’s third-quarter monetary policy report. “I think we’ll see something in December,” said Mizuho’s Mr. Shen.

    While Beijing’s recent squeeze on shadow banking has short-term costs, it is a positive long-term development if pressure can be maintained, economists said. Tighter supervision this year saw trust assets under management increase by 6.4 per cent in the first half of 2014 to 12.5 trillion yuan, compared with average growth of 50 per cent annually between 2008 and 2013, according to the China Trustee Association.

    Given credit demand among highly leveraged Chinese companies and high interest rates, however, a crackdown in one shadow banking area tends to see it morph into a new form, economists said. “The shadow banking crackdown is working,” said BBVA economist Xia Le. “But financial intermediaries create new ways to make investors feel safer. The demand is always there.”

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    Concerns loom over financial risks, weak domestic demand.

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    SHANGHAI—Chinese state-owned conglomerate Greenland Holding Group said Monday it expects to reach its targeted 20 billion yuan (US$3.27 billion) in overseas revenue this year, and that its overseas revenue will double in 2015.

    Shanghai-based Greenland has been the most aggressive Chinese property developer to expand abroad since 2013, investing a total of US$20 billion purchasing land and other real-estate projects in nine countries including Australia, the U.S., the U.K., Canada and South Korea.

    Greenland, which isn’t listed on the domestic stock exchange, said it is targeting its overseas revenue to make up a larger portion of the company’s revenue, to exceed 25 per cent of its revenue by 2020. It is targeting total revenue of 240 billion yuan this year, which means overseas income currently accounts for less than 10 per cent of the company’s revenue.

    “From the start, Greenland’s international expansion strategy was ‘Only succeed, failure is not allowed’,” said Greenland Chairman Zhang Yuliang. As one of the first Chinese companies to venture abroad, Greenland “hope to prove that Chinese capital and Chinese brand have the ability to assimilate and be rooted in the international market,” Mr. Zhang added.

    These comments come as Chinese investors and builders venture abroad to diversify their operations in the face of a domestic property downturn. But this has created tension in some countries, amid complaints housing prices are rising beyond the reach of local buyers due to the influx of flush Chinese buyers.

    Greenland said its sales in Sydney projects are expected to exceed 4.8 billion yuan this year, while in Canada, its sales from the launch of its project there have reached 700 million yuan. In Los Angeles, it has secured preliminary interest from more than 500 customers, of which 80 per cent are locals, it said in the statement. In London, customers are also interested in buying homes in its Ram Brewery project, with potential sales totaling 525 million yuan, it added.

    Mr. Zhang said in the statement that Greenland has changed its focus to target customers all over the world, from targeting Chinese customers from mainland China when it first started to invest abroad.

    “In the U.S. for example where our development projects are funded by EB-5 visa funding, preliminary calculations show that these projects have created 20,000 jobs,” Greenland said in a statement.

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    Company the most aggressive Chinese property developer to expand abroad since 2013.

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    General Electric Co. ’s China head expects the company to continue posting double-digit order growth in the country despite a slowing economy and a government anticorruption campaign that has delayed approvals for large-scale projects.

    “In the short term, the country is going through some adjustments,” said Rachel Duan, who became GE’s chief executive for greater China in July, the first female or China-born native to hold the position. “We really don’t see that as a longer-term or macro problem.”

    In the third quarter, China’s economy expanded at its slowest pace in five years as the country battled a slumping real-estate market and weak domestic demand. Meanwhile, Beijing’s widening crackdown on corruption has consumed local government resources and slowed project approvals.

    GE employs 18,000 people in China, with some of its fastest growth coming from its health-care, energy and aviation businesses. While the conglomerate is experiencing delays on some projects it is bidding for in China, particularly in the energy and health-care sector, GE expects these to have only a short-term impact on its operations, Ms. Duan said.

    “We are very positive and enthusiastic about what the country is doing” in rooting out corruption because it levels the playing field for all companies, Ms. Duan said.

    The executive also believes the conglomerate is well-positioned to capture the growth of China’s swelling middle class despite headwinds facing China’s economy.

    “The direction the new administration is taking the country is the right one,” she said. The government is “trading the speed of growth for the quality of growth, shifting to more consumer-oriented growth.”

    While China is viewed as a promising growth opportunity for GE, the country has also been challenging. The government’s requirement that foreign businesses work with domestic companies means that it takes longer for ventures to be put together and to mature, GE executives have said.

    GE had targeted US$10 billion in revenue in China from business units including health care, energy and aviation by 2010, but was just halfway there as of 2012, the company has said.

    GE doesn’t regularly break out its China revenue. But the company said that in the latest third quarter, orders across GE’s business units rose 26 per cent in China.

    China “is more of a micro story than macro story now” for companies in the right industries, GE Chief Executive Jeffrey Immelt said during the company’s earnings call last month. Mr. Immelt said that for companies in industries such as aviation and health care, growth is “very robust.”

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    Rachel Duan: Economy’s shift to consumer-oriented growth is ‘right’ direction.

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    School students, flowers, politicians and a trio of baby Tasmanian Devils await Chinese President Xi Jinping during his visit to Hobart on Tuesday.

    Accompanied by his wife Peng Liyuan, Mr Xi's much-anticipated visit is hoped to bring lasting economic benefit to the island state by way of priceless exposure to Chinese investors and tourists.

    Due to touch down at Hobart Airport at about 11am (AEDT), Mr Xi and Ms Peng will be greeted by an official party including Premier Will Hodgman and primary school children armed with gifts of deep red peonies, a flower grown in Hobart and boasting significant links to Chinese culture.

    At Hobart's Government House the couple will meet more students, this time a group from Launceston who the president asked to meet after receiving letters from them urging him to visit Tasmania.

    There will be a tree planting and the Chinese leader will come face-to-face with three infant Tassie Devils, a creature - when mature - that is known for grinding its teeth and growling.

    Mr Xi will travel to Hobart with a small delegation including Chinese government ministers.

    China is already Tasmania's number one international tourist market and trading partner and the state hopes to strengthen those ties through Tuesday's visit.

    A meeting of international investors gathered in Tasmania at the same time as Mr Xi's visit, will be shown business opportunities in agriculture, aquaculture, resources, tourism, education and Antarctic affairs.

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    Chinese President's much-anticipated visit is hoped to bring lasting economic benefit to the island state.

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    New Zealand will try to get dairy farmers a better trade deal with China if it's shown that Australia's new deal is superior.

    However, it's unlikely to be raised with China's president when he visits this week.

    Australia signed a free trade deal with China on Monday which reportedly abolishes tariffs for its dairy industry in four to 11 years, and produces benefits for beef and sheep farmers from the abolition of tariffs ranging from 12 to 25 per cent.

    Australian Trade Minister Andrew Robb described the deal with dairy as "New Zealand-plus", saying restrictions applied on NZ liquid milk, cheese and butter exports won't be imposed on Australia.

    Trade Minister Tim Groser says New Zealand's current deal negotiated in 2008, only abolishes tariffs up to a certain volume, after which tariffs kick in.

    He says these tariffs end in 2019 in New Zealand, and he wasn't sure if Australia had negotiated to end them earlier.

    "If Australia's got this deal without that provision, having negotiated six years on with the evolution in the market, unquestionably New Zealand will start to raise this with the Chinese authorities," he told Radio New Zealand.

    If Australia does have all dairy tariffs removed earlier, Mr Groser said it should help New Zealand try to argue it should have the same.

    The visit of Chinese President Xi Jinping to New Zealand later this week might seem the ideal time to raise the issue, but Mr Groser said that was probably not appropriate.

    "I don't really think we're going to do this during this week with the Chinese president's visit. This has to start off at a lower level than head of government."

    Waikato University Professor Jaqueline Rowarth says the existing deal appears to have a clause allowing New Zealand to try to ratchet up its provisions.

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    New Zealand government unlikely to raise issue when Chinese President visits later this week.

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    Global property developer, China’s Greenland Holding Group, will buy Australian beef, dairy and wine companies for export to mainland China in what could be one of the largest forays into the local agriculture sector.

    The Shanghai-based Greenland chairman Zhang Yuliang, who is in Australia to discuss the free trade agreement signing between Australia and China, said that the group was negotiating to buy major Australian agriculture companies.

    Greenland is a part state-owned entity which last year had global revenue of more than $50 billion.

    Mr Zhang would not divulge the price of any potential deals, but he said that the group would have a local presence in the industry within six months.

    “Due to the economic development Chinese people’s consumption habits are changing,” Mr Zhang said.

    “Our next step is to acquire such kinds of Australian companies and import more Australian (agricultural) products into China,” he said.

    “We are under negotiations (to buy a company) with our Australian counterparts.”

    The free trade agreement to be inked between the countries will cut tariffs for Australian imports to China in agricultural commodities such as dairy, beef and wine.

    The group has made a major entry into the Australian property market in the past 18 months, investing in about $1.4bn worth of projects in Sydney and Melbourne.

    Greenland has joined forces with James Packer’s Crown Resorts to bid for the multi-billion-dollar Queens Wharf casino, hotel and apartment project in the Brisbane CBD.

    The group is battling a consortium led by Echo Entertainment for the project. The Queensland government will select a winning party by the end of the month.

    This article first appeared in The Australian Business Review.

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    Property developer Greenland Holding plans to buy Australian beef, dairy and wine companies.

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  • 11/17/14--16:10: Picking apart the FTA
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    Westpac's senior international economist, Huw McKay, sits down with China Spectator editor, Peter Cai, to dissect the free trade agreement with China.

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    Westpac's senior international economist, Huw McKay, sits down with China Spectator editor, Peter Cai, to dissect the free trade agreement with China.

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    The average price of new homes in 70 Chinese cities continued to fall for the sixth straight month in October, but at a slower pace as some home buyers returned to the market following Beijing's move to loosen mortgage rules. 

    The policy moves, however, have had a limited effect on buoying a sluggish market that is marked by looming inventories, and property developers remain under pressure to cut prices to attract home buyers. 

    On a month-over-month basis, prices in October slipped 0.8 per cent compared with a 1.0 per cent fall in September, according to calculations by The Wall Street Journal. This is the second consecutive month that the average price drop has moderated. 

    On a year-over-year basis, the average price of new homes declined by 2.5 per cent in October compared with a 1.1 per cent fall in September, which was the first annual decline in nearly two years. 

    Many investors are concerned that a prolonged slump in the property market could continue to drag growth in the world's second largest economy. Analysts estimate that real estate accounts for nearly one-quarter of gross domestic product, factoring in construction, cement, steel, chemicals, furniture and other related industries. 

    Excluding public housing, private-sector home prices fell in 67 of the 70 cities in October from a year earlier, up from the 58 cities that posted declines in September. On a month-over-month basis, home prices fell in 69 of the 70 cities in October, unchanged from September. 

    The authorities have recently introduced measures to prop up the housing market. The central bank and banking regulator in late September loosened mortgage restrictions by extending qualification for first-time buyers' preferential rates and terms to existing homeowners. 

    Housing sales in October showed a smaller year-over-year decline compared with September, as more favorable mortgage terms boosted home-buying sentiment. But some analysts warned that those measures won't quickly solve the longer-term issues of excess inventory and rising leverage, and noted that some developers would do well to continue to cut prices to pare down their holdings.

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    Average price of new homes in 70 Chinese cities fell for sixth straight month in October.

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    East Asia Forum

    The past week has seen big breakthroughs in Asia Pacific economic diplomacy. At the APEC summit, Xi Jinping and Shinzo Abe broke the diplomatic ice in the China–Japan relationship. The United States and China paved the way towards extending the successful International Technology Agreement through the WTO. They also did a game-changing deal that will entrench deep cuts to carbon emissions through to 2025–30. China brought trans-regional (as opposed to Eastern and Western Pacific) integration back to centre stage in APEC’s quest for open regionalism. And in Brisbane, the G20 summit has crafted a global recovery strategy around broad-based cooperation on productivity-enhancing reforms and infrastructure investment, re-focused on the WTO and brought climate change back into play.

    At the edges of the APEC meeting, China also moved to conclude free trade deals with South Korea and Australia, for both of which China is already the largest trading partner by far.

    The conclusion of the Australia–China free trade agreement during President Xi Jinping’s state visit to Australia this week represents a major step forward in the bilateral relationship. The agreement will serve to deepen integration between the two economies, with substantial efficiency-enhancing liberalisation of trade, services and investment flows. It could also provide a pillar on which to anchor a much broader economic and political relationship that recognises the countries’ common interests in regional and global affairs.

    Australia’s Trade Minister Andrew Robb had put priority on wrapping up the free trade agreement with China for a number of reasons. It was the last of the three big deals outstanding when the Coalition government came to office -- settling with China after doing deals with South Korea and Japan delivered the trifecta. It sorted out anomalies in our huge trade relationship with China that were a hang-over from China’s deals with ASEAN, New Zealand and Chile, Australia’s competitors in important Chinese agricultural commodity markets. In this sense the new agreement serves to correct the discrimination that had crept into our dealings with China because of the preferential deals that others had secured. It also provided opportunity to address the tangle that both the present and former Australian governments had got into over Chinese investment in Australia, and build a more confident and beneficial investment relationship -- though there are still issues about SOEs to be sorted out on China’s place in Australia’s foreign investment regime.

    The agreement is a significant outcome from President Xi’s visit to Australia and the Australian government’s commitment to get the deal done. That it is being cast as a ‘living’ agreement, one that will incorporate review and extension as the commercial relationship between the two countries continues to evolve, though it signals that all issues haven’t been resolved at the first step, does not qualify the achievement.

    Yet, there are many elements in the rapidly evolving bilateral economic relationship between the two countries that cannot readily be enfolded in a traditional free trade agreement of this kind and go well beyond its province, however open-ended its negotiation over time.

    Indeed, while the agreement improves market access and commercial treatment at the margins for both parties, the real foundations of China’s economic partnership with Australia and its partners around the world, including the United States and Japan with neither of whom it has such a preferential bilateral trade agreement, or ASEAN and South Korea with whom it now does, are multilateral and global in character.

    How are we to judge this achievement in economic diplomacy alongside the uncertainties that persist in Australia’s broader dealings with China? Australia’s recent demurral from signing on to the development of the China-instigated Asian Infrastructure Investment Bank left many in the region wondering about both the rigour and the independence of Australia’s assessment of its national strategic interests, and the US President needing to re-assert the consistency in his country’s rhetoric on the US–China relationship. These can be accepted as momentary fumbles and open -- as Australian Prime Minister Tony Abbott has said -- to further consideration, but they raise questions about the big strategic setting in which this latest step forward will have impact big or small.

    As leading Chinese analyst, He Fan, says in this week’s lead essay, Australia is in fact well placed as an important player in the surge of strategic diplomacy around China’s new place in the world. The question is how can Australia leverage more out of its close economic relations with China?

    The world trading system is undergoing a complex and difficult transition. What worries China most in this process is the threat of a backlash against globalisation in our region. Australia, with its strong record of support for trade liberalisation and open regionalism in Asia, can help guide China and other countries through these questions ‘as Asia’s dependable voice’ on the trade regime, in negotiation of a Regional Comprehensive Economic Partnership and in the WTO. And, following the most recent example of Indonesia, joining the AIIB still provides Australia with an opportunity to influence the direction and operation of that new organisation.

    Australia also has an important role to play with China in the global theatre. When China assumes the presidency of the G20, Australia is strongly placed to help it get the right outcome.

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

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    The Australia–China FTA could be an anchor point for a much broader relationship.

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    China’s much-heralded trading connection between Hong Kong and Shanghai has lost some of its shine.

    Although investors flocked to buy shares in Chinese companies when the link opened on Monday, enthusiasm dimmed Tuesday. Orders on both sides of the border fell far short of the previous day’s tally.

    Fund managers blamed the weakness in demand from the mainland on factors ranging from financial hurdles for buyers of the Hong Kong stocks to the continuing pro-democracy protests in the city. On the flip side, a general malaise toward Chinese stocks, the speed with which the program was launched and concerns about corporate governance in China took a toll on demand for Shanghai stocks from Hong Kong, they said.

    On day two of the Shanghai-Hong Kong Stock Connect program, which has opened up Chinese companies valued at US$2 trillion to foreign investors and has been billed as one of China’s grandest market liberalizations in years, just more than one-third of the US$2.1 billion daily quota for Shanghai stocks was taken up. The quota was fully exhausted on Monday.

    Only 7 per cent of the quota for Hong Kong stocks was used, down from 17 per cent on Monday.

    The Stock Connect program doesn’t allow for the same-day selling of stocks, so investors who bought at the launch could only sell Tuesday.

    Stock markets in both cities also fell, reversing some of the gains made since the program was announced in April. Before that, Shanghai stocks had been among the world’s worst performers for three years running. Hong Kong stocks, many of which are mainland Chinese companies, fared better, but generally underperformed their global competitors.

    Fund managers in Hong Kong and London said that while the trading link was a significant opening of China’s markets, they saw no rush to invest through the program, especially since the launch date was announced just more than a week ago. Much of the buying in the past two days of the program has been “trading” rather than fundamental investing in companies, according to Michael J. Mangan, a portfolio manager at Harris Associates LP, which manages US$130 billion globally.

    “Over time, [Stock Connect] will require Chinese companies to improve” their corporate governance and accounting transparency, Mr. Mangan said. He said he doesn’t own any Chinese stocks at the moment but would be interested in the future. Harris Associates is a wholly owned affiliate of Natixis Global Asset Management.

    There are also plenty of existing ways to bet on China, including consumer stocks, which are expected to perform well as the economy rebalances, said Colin Tipping, group investment director at Friends Life, which has £120 billion of assets under management by external fund managers world-wide.

    Some firms said the period from when the launch date was announced eight days ago to Monday was too short, preventing some investors from participating.

    By the end of Tuesday, only 38 per cent of the quota for Shanghai stocks had been exhausted. On Monday, demand for Shanghai stocks was so strong that the daily quota of US$2.1 billion was hit by 1:57 p.m. On Tuesday, orders for Hong Kong stocks totaled just US$130.8 million, just more than 7 per cent of the day’s total quota of US$1.7 billion.

    Fund managers said that many Chinese investors who wanted to buy into Hong Kong may have gained access to the market through unofficial channels. They also said a high bar on investing in Hong Kong may have limited activity. Mainland investors must have 500,000 yuan to buy stocks via the program.

    “In order to prevent mainland retail investors from flocking into the Hong Kong market and disrupting the market there, the threshold was set high,” said Yang Delong, a fund manager at China Southern Fund Co. , which manages US$32 billion in assets.

    Mr. Yang also said that high valuations for stocks in Hong Kong have put investors off, as has the city’s recent unsteady economic performance.

    “The ‘Occupy Central’ protests make investors even less optimistic about the prospects of Hong Kong’s economy,” Mr. Yang said.

    The Stock Connect plan opens up 568 Chinese companies to foreign investors, who can buy them via Hong Kong. Mainland investors get access to 268 stocks listed in the former British colony.

    Until the program was initiated, only a select group of foreign institutional investors with permission from Beijing were able to trade mainland-listed stocks, and their investments were subject to quotas. Mainland Chinese investors had to be preapproved to buy into Hong Kong.

    Companies that are now broadly accessible to overseas investors include Kweichow Moutai Co. , a well known maker of Chinese liquor. Mainland investors can now buy shares of e-commerce giantTencent Holdings Ltd. and global banking giant HSBC Holdings PLC.

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    BUENOS AIRES—Argentina’s central bank reserves got another boost on Monday after the government borrowed around US$500 million from China through a currency swap deal signed earlier this year.

    The one-year loan costs Argentina around 6 per cent annually and is part of a US$11 billion currency swap that lets Argentina borrow money to increase its otherwise dwindling hard currency reserves.

    This is the second time Argentina has tapped the agreement. About two weeks ago, it borrowed US$814 million under the swap.

    “Clearly, what this does for Argentina is reinforce the central bank’s reserves—and it began doing so at a time when there was a run on the currency,” said Fernanda Vallejos, a Buenos Aires-based economist and vocal supporter of the government’s economic policies.

    Ms. Vallejos said the currency swap, along with a crackdown on illegal currency transactions and recent government bond sales, has stabilized trade in Argentina’s underground currency market. In the black market, the peso trades for around 13.55 to the U.S. dollar, whereas at banks and exchange houses it fetches around 8.50.

    In September, fear of a currency devaluation had helped push the black market peso to a record 15.95 to the dollar.

    Though in theory the swap could allow Argentina to borrow up to US$11 billion, government officials have played down that possibility and said it is unclear how much the country can actually borrow under the deal.

    “The goal is to reinforce the reserves but also to keep things stable. You have to give that money back in a year, so it wouldn’t necessarily add much stability to borrow all of that money at once, even if that were possible,” said an official who isn’t authorized to speak on the record.

    The three-year currency swap deal allows the two central banks to lend as much as 70 billion yuan and the equivalent in Argentine pesos to each other for up to 12 months. China is Argentina’s No. 2 trade partner after Brazil. The yuan can be exchanged for dollars or euros in international financial centres such as Hong Kong, London or Singapore.

    Argentina needs all the cash it can get to make debt payments, pay for imported fuel and fund social programs. Declining reserves have led the government to limit access to U.S. dollars to both people and companies, especially importers. The government largely banned the sale of dollars three years ago, leading many people and firms to buy dollars in the black market.

    The central bank’s reserves totalled almost US$28.8 billion on Monday, compared with more than US$52 billion in early 2011.

    Argentina is unable to obtain dollars by selling bonds abroad because of a continuing legal dispute with creditors. As a result, the country has become increasingly dependent on exports for hard currency.

    Last month, the government struck a deal with exporters that will see them ship US$5.7 billion in soy and grains in exchange for authorization to export wheat and flour. This deal will bring in around US$1.5 billion more than initially expected this year, officials say.

    The shortage of dollars and a related decline in imports have exacerbated what is thought to be the worst recession Argentina has experienced since its 2001-02 economic crisis. Meanwhile, falling imports have helped fuel inflation, which many economists say totals around 40 per cent annually.

    Analysts expect the economy to shrink somewhere between 1 per cent and 3 per cent this year and continue to stagnate in early 2015.

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    Government borrows about US$500 million through currency swap deal.

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    The largest delegation ever of China’s most influential business leaders is set to visit Australia next month in search of investment opportunities on the back of the freshly inked free trade agreement.

    The group of up to 35 business leaders are members of the China Entrepreneur Club (CEC), a Beijing-based exclusive billionaire club made up of some of China's top tycoons who boast a combined worth in excess of 2 trillion yuan (A$750 billion) or around 4 per cent of the country’s gross domestic product.

    Among the delegation will be Charles Chao, chairman and chief executive of media company Sina, Zhang Yichen of CITIC Capital, Wang Zhongjun of Huayi Brothers, Niu Gensheng, founder of Mengniu Dairy Group, Zhu Xinli of China Huiyuan Juice Group and Ma Weihua, Chairman of the Wing Lung Bank and former president of China Merchants Bank.

    Founded in 2006, the CEC is one of the richest non-profit organisations in China and boasts many influential leaders among its members, including the Chairman of e-commerce giant Alibaba Jack Ma, the world’s richest property tycoon Wang Jianlin and Guo Guangchang who is known as China’s Warren Buffet.

    “Following successful visits to France and Belgium last year, members of the CEC are seeking genuine business opportunities in Australia and we look forward to meeting business leaders to discuss where these opportunities may lie,” said Maggie Cheng, CEC secretary general.

    The Australian government invited the high-profile group and they are expected to meet with Prime Minister Tony Abbott. The Chinese business delegation has expressed interest in sectors such as agribusiness, aged care, tourism, technology and services, as well as resources and energy.

    The group also plans to meet senior executives from leading Australian companies such as GrainCorp, Telstra, Cochlear, Dairy Australia and Treasury Wine Estate as well as visiting the $6bn Barangaroo South development in Sydney.

    “The visit by the China Entrepreneur Club presents an exceptional opportunity for Australian companies seeking to export or attract investment by connecting with Chinese business leaders at the highest of levels,” said James Hudson, chief executive of the Australia China Business Council NSW.

    Investment rules for Chinese companies were eased on Monday following the inking of the free trade deal with the world’s second-largest economy.

    Under the agreement, private Chinese investment proposals below the $1.08bn threshold will now no longer require Foreign Investment Review Board approval. Before the deal, the cut-off was $248 million.

    State-owned enterprises have traditionally dominated China's direct investment into Australia — especially in large-scale resources and infrastructure projects.

    But changes to the investment threshold for private companies could see increased activity in other sectors.

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    BEIJING—China’s main propaganda mouthpiece is losing its voice.

    China Central Television—long the country’s top television broadcaster—has lost viewers and talent to new digital media and competitive local broadcasters. Companies like BMW AG and McDonald’s Corp. are broadening their advertising spending beyond traditional TV.

    Market-research firm iResearch projects spending on online advertising in China this year will total 148.3 billion yuan (US$24.2 billion) and for the first time surpass TV, which it expects will total 119 billion yuan.

    Internally, a government-led crackdown on graft has led to investigations of a number of executives and on-air personalities, which employees say has hurt morale.

    Meanwhile, stalwarts like Liu Jianhong are leaving. The prominent sports commentator in August became chief content officer for a sports arm of online video provider Leshi Internet Information & Technology Corp. after 18 years at CCTV. “I see the development potential of new media and I think it’s where the future lies,” said Mr. Liu.

    CCTV representatives didn’t respond to requests for comment. It has cited efforts to branch out online, including offering its own apps and online video. It is also increasingly cooperating with China’s regional satellite broadcasters, which are also government-controlled but have been more adventurous in their programming.

    At stake is the broadcaster’s decades long status as China’s top information source. Experts say CCTV must ramp up innovation and overhaul its programming to keep up with both online and regional rivals to follow the country’s rapidly changing media landscape.

    “CCTV is indeed pushing reforms in recent years,” said Zheng Weidong, deputy managing director of research firm CSM Media Research. “But it fails to be as fast and flexible as the provincial satellite channels.”

    In one potential sign of weakness, CCTV says it isn’t disclosing the results of its annual advertising auction, which took place on Tuesday, for a second year in a row. The broadcaster traditionally sells off plum slots adjacent to its top programs to the highest bidder for the coming year. Previously CCTV widely shared the results, which attracted both foreign and domestic companies and were seen by media experts as a barometer of corporate confidence in China’s growing consumer class.

    CCTV’s troubles could affect companies ranging from foreign auto makers to local liquor producers who for years have relied on the broadcaster’s reach. The shift also illustrates the challenge Beijing faces as it tries to keep its grip on Chinese media. China is “an increasingly bottom-up society that’s driven by social media and the Internet,” said Tom Doctoroff, chief executive officer of Asia-Pacific operations for advertising firm JWT.

    The broadcaster still has power. Last year Volkswagen AG recalled more than 380,000 vehicles there following a critical CCTV report, while Apple Inc. Chief Executive Tim Cook apologized after a CCTV report questioned its customer-service practices.

    CCTV is China’s only national broadcaster and has long held a premier place in a country where leaders publicly say broadcast and media outlets should be the “throat and tongue” of the Communist Party. Its annual Spring Festival Gala, a variety show that rings in the Lunar New Year holiday, boasts 750 million viewers. It has channels ranging from sports and news to children’s programming and movies. It is also well-known for its massive two-legged building in Beijing that locals call Big Underpants. Many of its programs consist of somber documentaries, polite variety shows and slow-paced dramas about World War II.

    Increasingly it has faced competition from China’s satellite broadcasters—regional companies controlled by local governments that use satellites and cable to reach a national audience.

    “The Voice of China,” a local version of “The Voice” that is often cited as one of China’s most-watched programs, aired first on Zhejiang Satellite Television. “Swords of Legends” a new martial-arts hit, first appeared on Hunan Satellite Television.

    CCTV doesn’t disclose national ratings figures. But CCTV’s ratings for this year’s Spring Festival Gala fell to below 10 per cent of the viewing public for the first time, according to local media reports. A person involved in its production said the figure was credible.

    Its channels attracted 9.1 per cent of television ad spending last year, down from 9.7 per cent in 2011, according to research firm CSM, while the share that went to provincial satellite channels rose to 26 per cent from 21 per cent.

    Germany’s BMW says it relies more on social media to make an impression on Chinese consumers. McDonald’s said it recently bought a three-minute of advertising in a slot after the CCTV evening news. But it is increasingly expanding to digital and mobile ads, such as electronic stickers of ice-cream cones and striped Ronald McDonald socks that users can send on their phones, a spokeswoman said.

    Shanghai Metersbonwe Fashion & Accessories Co. , a Shanghai clothing company, said it spent 50 million yuan to sponsor a Web-only new talk show called “Let’s Talk” produced by video streaming site iQiyi.com. The show is produced by a group led by Ma Dong, a onetime CCTV producer and anchor who left in 2012.

    Meanwhile, China’s corruption campaign has put CCTV under intense scrutiny. According to the Central Commission for Discipline Inspection, eight staffers at financial news channel CCTV-2 have been detained by the prosecutors, including Guo Zhenxi, the chief director of the channel, and Rui Chenggang, one of the country’s best-known financial news anchors. They couldn’t be reached for comment. In China, the authorities have broad powers to detain both suspects and potential witnesses to alleged wrongdoing.

    Several “well-known staffers” with CCTV-9, the documentary channel, and CCTV-8, the TV drama channel, have also come under scrutiny, according to CCDI, which didn’t disclose details.

    “In the past, you could easily get reimbursed by 10,000 to 20,000 yuan per month with any receipt you have,” said one staffer who worked in CCTV-4 as a producer for more than a year and left recently to join a local media production company. “Now you can only get 1,000 to 2,000 yuan covered at most.”

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    Tourism Australia and China Southern Airlines have committed to spending a further $4.2 million on an advertising push in China, Australia’s fastest growing and most valuable inbound market. 

    The agreement was signed on Monday by Tourism Australia managing director John O’Sullivan and China Southern Airlines president Mr Tan Wangeng at Parliament House, in a ceremony attended by Tony Abbott and China’s President Xi Jinping.

    The money will go towards funding a range of tourism campaigns and promotional activities in mainland China under the There’s Nothing Like Australia banner in a bid to further boost demand.

    There were 789,300 visitors from China in the 12 months to September 30, an annual increase of 10.5 per cent, according to Tourism Australia.

    Figures recently released by Tourism Australia suggest that annual spending by Chinese visitors to Australia could rise to $13 billion by 2020.

    China Southern Airlines carried 20 per cent of all Chinese tourists into Australia in the year ended September 2014.

    “In the past five years, the airline has increased its capacity by more than 500 per cent to Australia opening up direct access between China and Sydney, Brisbane, Melbourne and Perth."

    On Monday, national carrier Qantas also struck a landmark deal with China Eastern to form a joint venture aimed at growing the number of flights between Australia and the Chinese mainland.

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    Money to be spent on tourism campaigns, promotional activities in mainland China.

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    NSW Treasury Corporation (TCorp) has launched a RMB 1bn bond issue, the first issue by an Australian sovereign or state issuer.

    TCorp mandated ANZ Banking Group and Bank of China to lead the inaugural RMB bond issue.

    The issue was launched today for a targeted minimum of RMB 1 billion and for a tenure of one year.

    The launch follows an announcement by the Reserve Bank and the People's Bank of China to establish official renminbi (RMB) clearing arrangements in Australia.

    The RMB is now the eighth-most traded currency in the world but only one per cent of Australian trade with China is currently settled in the currency.

    Last year the yuan overtook the euro as the world's second-largest trade currency after the US dollar.

    TCorp’s Chief Executive, Steve Knight, said closer financial and trading ties between Australia and China will see opportunities grow significantly.

    “TCorp has seen strong levels of investment from the Asian region in our Australian dollar bonds and issuance in Renminbi bonds will provide an opportunity to expand and diversify this investor base.”

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    The RMB 1bn bond issue is the first by an Australian state or sovereign.

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  • 11/18/14--17:41: China business news digest
  • Beijing to relax investment rules

    China’s central government is set to significantly relax its control over investment projects, allowing greater autonomy for local authorities and companies. It is the second time that the state council, the country’s cabinet, has revised its guidelines.

    The number of projects that require approvals from the central government have declined 40 per cent in 2014. Beijing has eliminated the number of projects that require approval by 76 per cent over the last two years.

    The government is also set to relax its rules on outbound investment, allowing greater flexibility for Chinese companies to invest abroad.

    (State Council Guidelines)

    Housing prices decline eased

    The average price of second-hand homes in major cities have stabilised after months of decline. Prices for second-hand homes in Beijing increased 0.3 per cent after five months of decline, and prices in Shanghai, Guangzhou and Shenzhen have stabilised.

    Of 70 major cities, second-hand house prices fell in 64 cities, six less than the previous month. Two cities experienced flat growth and another two experienced modest increase in price.

    The average price of new homes in 70 major cities continued to fall for the sixth straight month in October, but at a slower pace as some home buyers returned to the market Beijing’s move to loosen mortgage rules.

    (Caixin)

    Anti-graft commission plans its third round of tour

    The powerful head of the Chinese Communist party’s feared discipline inspection commission has announced its third inspection tour to crack down on corruption.

    Inspection groups will visit government ministries and departments such as the Ministry of Culture, Ministry of Environment Protection and large state-owned enterprises like China Southern, China Unicom and Shenhua Group

    (Caijing)

    Greenland eyes overseas expansion

    Greenland, one of China’s largest property developers wants to expand its footprint abroad, aiming to raise its overseas revenue to 25 per cent of the company’s total income.

    The developer has already invested in $20 billion worth of projects overseas, which include more than 100 hotels. The company estimates its overseas revenue would reach 20 billion yuan this year, 5 per cent of the estimated 400 billion yuan income.

    The chairman of the company also wants to diversify into other sectors such as agribusiness, health care and other areas to meet the demands of Chinese consumers.  

    (Caijing)

    China’s water pollution problem worsens

    50 per cent of China’s water system and 40 per cent of major state-owned water reservoirs are polluted, according to a special Xinhua investigation.

    The report says Beijing residents are afraid of using tap water and major urban centres like Beijing are experiencing chronic water shortages.  60 per cent of China’s underground system is classified as “bad” or “very bad”.

    300 out of 657 cities in China are classified as experiencing water shortage according to the United Nations.

    (Xinhua)

    Ministry of Finance is relaxing rules on bank employees holding shares

    The Ministry of Finance is reportedly considering relaxing the tough 2009 rule which forbids state-owned banks and financial services companies to offer share incentives schemes to its executive employees.

    Beijing introduced the tough rule in 2009 after a popular backlash against lucrative equity-based incentive scheme for bank executives. The Chinese government flagged its intention to change the rule at the end of 2013 as part of its comprehensive reform package.

    (Caixin)

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