The possibility of China's renminbi being used in trades on Australia's stock market has moved a step closer.
The Australian Securities Exchange and Bank of China have signed an agreement to develop the Chinese currency for use on local financial markets.
Australian businesses with import and export deals with Chinese companies can already settle their transactions in renminbi.
Under the new agreement, the ASX and Bank of China will look at ways of expanding the use of renminbi in Australian financial markets.
Part of the agreement includes examining ways sophisticated products in the debt, derivative and interest rate markets can be traded in renminbi.
The Bank of China will also act as the clearing bank for renminbi trading in Australia.
ASX managing director Elmer Funke Kupper said the agreement could one day lead to renminbi being used for Australian stock market trades as well.
"We want to be able to list, trade, clear, settle and hold equities and bonds in renminbi as we currently do in Australian dollars," he said.
The agreement follows the announcement of Australia's landmark free trade agreement with China on Tuesday.
A side deal to the FTA was an agreement by the Reserve Bank and the People's Bank of China to create a Sydney hub to trade the renminbi to help open up China's economy to Australian businesses.
Chinese consumer sentiment has hit its highest level this year following positive signals in the housing and stock markets and record e-commerce sales figures, according to a private survey.
The ANZ-Roy Morgan China Consumer Confidence report increased 2 points to 157.1 in November, the highest level in 2014 so far.
All five components that make up the survey rose in the month with attitudes towards the long-term economic outlook seeing the biggest increase.
Consumer confidence varied across the country, rising in Shanghai and Guangzhou but falling in the nation’s capital Beijing.
ANZ chief economist for Greater China Li-Gang Liu said the government’s gradual relaxation of its “purchase limit policy” has seen housing transactions start to rebuild. Beijing is expected to further other efforts to stabilise the property market.
“The November survey results suggest that consumer sentiments bode well for a steady rebound of [fourth quarter] GDP growth” he said.
“China’s stock market also outperformed in the past few months due to expectations of reform dividends and the official launch of the Shanghai-Hong Kong stock connect program” he said.
China’s online sales reached another record high on "Singles Day" this year, with e-commerce giant Alibaba setting a new record of RMB 57bn ($US9.3bn) is sales.
Mr Liu said 278 million packages were delivered during the e-commerce shopping extravaganza - one for every five people in China. He said the result suggests Chinese household consumption has great potential to increase over time.
"In addition, the continuous decline in inflation expectation suggests that China has entered a rapid dis-inflation process, indicating that the easing bias in China’s monetary policy will continue over the next year,” he said.
China is facing a new economic crisis, and it is not about mounting local debt or even a rapidly slowing property market. The crisis in the making is about family business succession in the world’s second-largest economy.
This issue may seem innocuous for many observers, but it is in fact one of the many pressing issues for the country’s economy, which is undergoing a painful process of rebalancing. Why is the family succession issue so important?
We have to start by debunking one of the most enduring misunderstandings about the Chinese economy. Many people think the Chinese economy is dominated by state-owned enterprises, but this could not be further from truth.
Nicholas Lardy, a leading China economist and senior fellow at the Washington think tank, the Peterson Institute for International Economics, estimates private enterprises in China account for two-thirds of total output in China, up from zero decades ago when private business was outlawed in the country.
Chinese official statistics tell a similar story. The country has close to 40 million private businesses and they produce 60 per cent of China’s GDP.
The state sector only accounts for between one third and one quarter of GDP. In manufacturing, which represents about 41 per cent of GDP, state-owned enterprises only account for 20 per cent of output. The overwhelming majority of China’s private enterprises are family owned.
These privately-owned family businesses are facing succession issues roughly at the same time -- an unprecedented phenomenon in the world of family business. All private businesses started more than three decades ago, when China abandoned the Maoist ideological craze in favour of market reform. Those brave entrepreneurs who embraced the market are fast approaching retirement age.
According to a white paper released by Fortune Generation, a magazine affiliated with China Relay, an exclusive club made up of children from the country’s most powerful and richest private sector tycoons, Chinese family business faces a looming succession crisis in five to 10 years’ time.
The succession crisis is happening at a time when China’s privately controlled manufacturing sector is under unprecedented pressure to move away from its labour intensive production model, which is unsustainable in light of soaring wage increases.
Mao Li Xiang, the chairman of Fotile Group, the country’s leading producer of kitchen appliances, warns that the succession crisis has the potential to be more destructive than the global financial crisis. Fortune Generation’s white paper estimates that only 8 per cent of family companies have successfully managed to pass on the baton to the next generation.
Family succession is not an easy issue to deal with anywhere in the world, and the problem is particularly acute in China. Cultural differences between first generation entrepreneurs and their children could not be greater.
Nearly all of China’s elder business people grew up during the depravity of Maoist China, when there was a shortage of everything. Many endured starvation and years of languishing in the countryside for so-called “re-education”. Many of these early entrepreneurs don’t have much formal education. Their successes have relied on their drive, instincts and entrepreneurship.
But, in sharp contrast, 88 per cent of their children have university degrees and 52 per cent of them have studied overseas, including at many leading institutions such as Harvard, Wharton and the London School of Economics.
Anecdotally, members of the overseas-educated second generation often clash with their parents over the management of their companies. The children are keen to introduce advanced Western management systems to their family businesses, against the wishes of their parents. The children’s push to modernise these businesses is often viewed with suspicion, as the parents believe many Western practices are incompatible with the reality of doing business in China.
The first generation entrepreneurs also operate under a very different value system from their children, who have grown up only knowing affluence. Many Western educated second generation children also don’t like dealing with government officials, which is a necessary evil in the Chinese business world.
Kelly Zong, the only child and heiress to the multi-billion-dollar Wahaha fortune recently publicly criticised China’s social ills. “I think we lost our soul. In the US, they have beliefs: Christianity and Catholicism. China has Buddhism, but I don’t think people really believe it in their heart,” she told The Guardian.
Two days after the interview, her father Zong Qinghou, one of China’s most powerful tycoons, rebuked his daughter in the Chinese media saying she was influenced by foreign culture when young, and was not clear about the present situation in China.
The transition is particularly evident in the manufacturing industry; many children who are educated abroad shun the manufacturing sector and prefer to seek opportunities in finance and other “cool” areas. Fortune Generation estimates more than 65 per cent of children whose parents own manufacturing businesses don’t want to be involved in the industry.
This could potentially evolve into a large problem, with economy-wide significance, if China’s family dominated manufacturing sector fails to find enough successors to carry on the businesses. However, it is not all doom and gloom, and there are examples where second generation business people have risen to the occasion, taking on the challenge of running a family business.
One such person is Australian-educated Chen Danxia, who is expected to lead the Guangzhou-based Liby Group, the market leader in selling consumer goods such as cleaning agents and personal care products.
She has successfully managed to acquire and rejuvenate an ailing cosmetic brand in Shanghai, adding it to the family fortune. The heiress also took advantage of the global financial crisis to acquire Western brands, including those from Australia.
Nevertheless, the family succession issue is shaping up to be a major economic challenge for China as the country seeks to transform its manufacturing-based industry and redefine the relationship between the state and the private sector.
HONG KONG—Investor interest in the stock-trading link between Hong Kong and Shanghai faded further on the program’s third day of operation.
Foreign investors used only about 20 per cent of the $2.1 billion daily quota for purchases of Shanghai stocks Wednesday, after snapping up the full quota by early afternoon on Monday and using 37 per cent of the daily quota on Tuesday. Interest also dwindled among mainland Chinese investors for Hong Kong shares.
Charles Li, the chief executive of Hong Kong Exchanges & Clearing Ltd. , which operates Hong Kong’s stock exchange, played down worries about a slump in volumes for the program, which was billed as one of China’s grandest market liberalizations in years.
“We are very humble because we know that the market is God, and the market will decide what the market wants to do,” Mr. Li said in an interview.
He said he is confident that trading volumes will pick up over time and highlighted a lack of glitches in the launch as a measure of success.
“If people want to cross the bridge, they are not going to cross the bridge simply because we have a new bridge and they want to make the bridge builders feel better,” he said. “They want to cross the bridge to do their own business and make money, and when their need arises they will cross the bridge.”
Trading began Monday on the Shanghai-Hong Kong Stock Connect, which allows wealthy individuals in China to buy Hong Kong-traded stocks and gives international investors access to $2 trillion worth of shares listed in Shanghai. Before that, only a select group of foreign institutional investors with government permission were able to trade mainland-listed stocks, while Chinese investors were similarly limited from investing overseas.
Fund managers say a general wariness toward Chinese stocks—Shanghai’s stock market had been flagging for years until the stock-link plan was announced in April—and a high financial bar for investing into Hong Kong are among reasons why investors’ interest appears to be limited so far.
The “southbound” part of the trading link, which has opened up Hong Kong-listed stocks such as HSBC Holdings PLC to mainland investors, continued to be less popular than the Shanghai portion.
Slightly more than 2 per cent of the $1.7 billion daily quota for Hong Kong stocks was taken up by the end of Wednesday, compared with 17 per cent on Monday and 7 per cent on Tuesday.
Mr. Li of Hong Kong Exchanges & Clearing said he expects demand from mainland Chinese investors for Hong Kong shares to surge five to 10 years from now, surpassing demand from global investors for Chinese stocks.
While buying has fallen from Monday to Wednesday, fund managers noted that the trading link, which was billed as a momentous opening of China’s capital markets, is still in its early days.
“I consider this scheme a big step forward,” said Caroline Maurer, a portfolio manager at Henderson Global Investors, which manages $124 billion in assets and hasn’t participated in the program yet. “I wouldn’t worry too much about the short-term market sentiment.”
The different investor bases of the two markets have also contributed to the link’s slow start. The Shanghai Stock Exchange is dominated by retail investors who are cautious about trading in Hong Kong, which as an open capital market is dominated by institutional investors from all over the world. An investor in Shanghai who wants to buy Hong Kong stocks also needs to be wealthy, with at least $81,700 in a brokerage account.
“Currently, most of the southbound trading [into Hong Kong] is from retail investors who are taking a wait-and-see approach and see themselves at a disadvantage in a market dominated by foreign institutional investors,” said Zhou Kaikai, an analyst at Suzhou-based Soochow Securities Co.
Confusion over taxation also kept some investors on the sidelines. On Friday, the Chinese government said investors from mainland China buying into Hong Kong stocks wouldn’t have to pay capital gains taxes, putting them on the same level as those buying into Shanghai via Hong Kong.
The tax clarification was a “key issue” for foreign investors, said Kevin Anderson, head of Asia-Pacific investments at State Street Global Advisors.
Some fund managers also cited the short time between the announcement of the launch date last week and Monday’s kickoff.
“Like a lot of other international long-only houses, operationally we are not set for the connect program yet,” said Henderson’s Ms. Maurer.
A spokesman for Franklin Templeton Investments said the firm has to clarify certain legal and regulatory issues before it can join the trading link.
HONG KONG—The top executives at Chinese Internet giants Alibaba Group Holding Ltd. and Tencent Holdings Ltd. are increasing their stakes in a Chinese film and television production company, their latest push into entertainment.
The company, Huayi Brothers Media Corp., said in filings with the Shenzhen Stock Exchange on Wednesday that it will deepen its partnerships with both Alibaba and Tencent, distributing its movies through the two Internet firms’ online platforms. Huayi also plans to jointly produce films with both companies’ movie divisions.
The deals signal the Internet giants’ continued efforts to beef up in online entertainment as they seek to attract more users to their platforms. Alibaba, which dominates e-commerce in China, and its chief rival Tencent, whose main businesses are online games and social networks, have both set up their own movie businesses. In China, the world’s second-largest movie market by revenue behind the U.S., Internet users are watching more movies and other videos online, creating incentives for Internet players to work more closely with film companies.
Huayi, one of China’s top film studios, is involved in a number of major titles such as “Dragon Blade,” a historical drama starring actorJackie Chan that is slated to hit theaters early next year.
As part of the latest deals, Huayi is selling new shares to an investment firm owned by Alibaba Executive Chairman Jack Ma and another Alibaba executive. As Mr. Ma already holds a 4 per cent stake in Huayi, the latest investment will raise the total stake for Mr. Ma and his investment firm to 8.1 per cent, Huayi said.
Meanwhile, an investment firm owned by Tencent Chief Executive Pony Ma and other executives will also increase its stake in Huayi to 8.1 per cent from 4.9 per cent. As a result, both Alibaba and Tencent executives, with each group holding 8.1 per cent, will become the second-largest shareholders in Huayi, only behind the company’s two founders who together hold a 27 per cent stake, according to the filings.
Huayi will raise a total of 3.6 billion yuan ($588 million) from four investors including the investment firms owned by Alibaba and Tencent executives, the company said.
Huayi said Alibaba and Tencent can become investors in movies produced by Huayi by providing 5 per cent to 10 per cent of the total budget of each movie. Huayi also said that it plans to co-produce five films with both Alibaba and Tencent over the next three years.
Alibaba said in a separate statement that the investment by its executives is in line with its strategic focus on digital entertainment. In June, Alibaba bought a 60 per cent stake in Chinese film production company ChinaVision Media Group Ltd. and changed its name to Alibaba Pictures Group. Earlier this year, Alibaba also invested in online video company Youku Tudou Inc. by taking a 16.5 per cent stake. Through its Taobao marketplace and mobile apps, Alibaba also runs movie-ticketing services.
In an interview with The Wall Street Journal last week, Alibaba Executive Vice Chairman Joseph Tsai said that entertainment such as movies is one of the areas where Alibaba would seek more alliances with other players.
“You can’t create every single piece of content that’s good. There has got to be other people that can create better content, so we want to partner with them,” Mr. Tsai said.
Tencent, whose biggest business is online games, is also expanding into other areas of China’s entertainment sector such as films. In September, the company launched a movie business division called Tencent Movies+.
In the filings, Huayi said Tencent could develop games based on its movies, while the two firms would also cooperate in online movie distribution.
The investment “solidifies our strategic relationship with Huayi Brothers” and “enables us to create a holistic entertainment platform,” a Tencent spokeswoman said.
Some pro-democracy protesters started to gather late Tuesday night around the Legislative Council building, trying to rally support from larger groups of protesters at the main protest site in Admiralty to occupy the building and block lawmakers from going in the next day.
With the doors to the building locked, however, a group of protesters smashed a glass door and windows with bricks and damaged the metal barricades in the driveway area of the legislature, where dozens of tents have been pitched. Protesters didn't move into the building, but the government canceled morning meetings because of the overnight unrest.
The actions mark a significant escalation in violence after weeks of near inaction from protesters and the government and could further erode public support for the movement, which has seen pro-democracy protesters occupy three areas in Hong Kong for more than 50 days. The protesters haven't won any concessions on their main demand of full public nomination for the chief executive post in 2017, as opposed to only being able to vote for candidates screened by Beijing.
The protesters’ actions overnight come after authorities cleared a small area in compliance with a court injunction, with further clearances expected at another protest site on Wednesday—though by midday no further government action had taken place.
The clearance during the day Tuesday was peaceful, with protesters assisting authorities in removing some barricades. The city sent in unarmed bailiffs, many of them middle-aged men in vests and collared shirts, to clear part of the Admiralty site in what seemed to be an effort to avoid confrontations that have played out in previous weeks and ultimately drew more protesters back out to the streets.
The measures appeared to initially work, and a police official said Tuesday night that bailiffs would continue to take the lead in engaging with the students, while police maintained a more passive support role to the court officers.
But later in the evening, with some protesters attempting to break into the government building, scores of police equipped with shields, batons and helmets charged into the area, resulting in confrontations. Many of the protesters wore masks and construction helmets, and some wore school uniforms. On at least one occasion, protesters charged at the police, who used pepper spray to repel them.
The government said on Wednesday that it offered the “strongest condemnation” on rioters who damaged the legislature. Three police officers were injured and six people were arrested during the incident, it said, adding the police were probing the event and would arrest more people. The government spokesperson said citizens should obey the law when they express their demands, and the government would never allow any violent behavior.
“The protesters have been peaceful for more than 50 days,” said pro-democracy lawmaker Fernando Cheung in comments to local media. “I don’t know what these protesters were trying to do by breaking into [the legislature].” Mr. Cheung said he tried to block the protesters from breaking the glass.
The possibility of further clashes loomed on Wednesday as the city looked poised to move next against a section of the Mong Kok protest site across Victoria Harbour, after authorities published a court injunction in local newspapers on Tuesday ordering the area cleared. Mong Kok has been the site of the most violent and unpredictable of the demonstrators’ three encampments and was the scene of several clashes between demonstrators, opponents and police.
Speaking to reporters Wednesday morning, leaders from the two main student protest groups, Scholarism and the Hong Kong Federation of Students, said it was the government’s intransigence and delay tactics that have pushed protesters to take more drastic steps.
Precise details over how the events overnight began are murky, but some protesters started to gather around the legislature building because of posts circulating on social media asking people to surround the building to block discussion of a law said to curb Internet freedoms. There was no such discussion slated to take place Wednesday.
Alex Chow, secretary-general of the student federation, said he expects the government and its supporters to use the events overnight to “smear” the pro-democracy movement, but acknowledged that better coordination among protesters was needed. Joshua Wong, leader of Scholarism, stopped short of condemning the actions of protesters overnight and said that protesters still share the same overall goal for democracy.
Tensions were also high between the protesters who took action Tuesday night and those camped out in the main tent area in Admiralty. Some have grown resentful of protesters who have for weeks continued to occupy the same areas without taking new action despite the lack of political concessions from the government. A masked protester on a megaphone urged people camping elsewhere in Admiralty to reinforce the crowd around the legislature “instead of playing on their phones.”
“The stalemate status has lasted for too long,” said Susan Mak, a 20-year-old student.
“The road you’re sleeping on—you’re only sleeping on it because someone charged out and took that road. They seem to have a romantic notion of occupying,” she said, directing those comments at the long-term protesters camped out in Admiralty
Australia's agriculture businesses should prepare for more Chinese “tyre-kickers” knocking on their doors after the sealing of a free-trade agreement with China.
Tony Abbott and Chinese President Xi Jinping this week concluded negotiations over a historic free-trade deal, which will dramatically increase market access for Australian farmers, services and manufacturers. Deal-makers are expecting a significant boost in capital flow from China, particularly into the agriculture businesses.
That would see more Chinese parties approaching agriculture businesses, but not always in an effective way, said Darren McCoy, managing director of VC Group, a Sydney-based advisory firm specialising in agriculture transactions.
“They sort of come to the market and think ‘we can do it ourselves’, and have this DIY mentality, or they will send some bright young graduates who have got wonderful English skills but (are) not able to lead their investment strategy,” Mr McCoy said.
“Australian companies need to be able to make the distinction between a serious, well-resourced buyer versus someone who is going to waste their time.”
In the coming weeks, Mr McCoy is taking a private Chinese company on a farm inspection tour in NSW and Victoria to evaluate cropping and livestock investment opportunities.
He has led VC Group in the past three years to work with Chinese clients on acquisitions, joint ventures, supply chain and distribution agreements in Australia.
The firm serves big state-owned companies such as Chinatex Corporation, one of China’s largest textiles, grains and oils traders, as well as private companies and high net worth individuals. Deal value has totalled more than $100 million over the past 12 months for the group, but Mr McCoy said it was never easy to complete a deal, particularly with a Chinese party without a clear strategy in the first place.
“The Chinese approach is usually: show me a project, what’s the price, now let’s argue about the price,” he said. “Whenever we hear ‘can you show me a project’, we will immediately be worried, because they don’t know their strategy.”
On the other end, companies complain a lot about tyre-kickers. “Australian companies get so many approaches from Chinese parties, they sit down and are not sure who they are dealing with — are they dealing with the decision maker?” Mr McCoy said.
“They find someone who can speak English, and whom they can feel happy and comfortable with. But what they are missing is ‘Do you really think this person can get the deal done inside the company?’ That’s the challenge.”
Even when a deal is done, Chinese bidders often end up paying a higher price for assets, as local sellers ask for more to make up for the “completion risk”.
“(They will say) I have got this Chinese party, I don’t know them, I don’t know how they operate, I am concerned about will they actually complete the deal,” Mr McCoy said. “I have seen them (Chinese bidders) pay too much for an asset when there is no other bidder — this is what we called the ‘China premium’.”
BHP Billiton is eyeing a shareholder vote on its multi-billion dollar demerger in May 2015, and has warned China's economic growth rate in the medium term will gradually decline from current levels as the country's economy continues to mature
BHP chairman Jac Nasser told shareholders at the company's annual general meeting the Chinese property sector is slowing but other sectors were showing resilience, and pointed to the growing energy market as an area of opportunity.
Mr Nasser said in the next 20 years around 1.7 billion people are expected to access electricity for the first time, and that BHP's portfolio would benefit as the demand for energy grows.
"We are represented across the major energy commodities in the global energy mix, including oil, natural gas, uranium and high-quality energy coal," he said.
He said he expected China's economic growth to come in above 7 per cent.
At 11.20am (AEDT) BHP shares were 1.68 per cent lower at $32.12, against a benchmark index slide of 0.44 per cent.
Although resources investment in Australia has slowed, production has increased. Mining remained the main contributor to Australia’s economic growth in the 2014 financial year, Mr Nasser said.
"China, together with other emerging markets, will remain a major driver of global growth. This will drive increased demand for natural resources into the future."
Overnight, the iron ore price slumped a further 3 per cent to $US70 a tonne, down from its previous close of $US72.10 and off over 7 per cent across the past two trading days.
Demerger to benefit shareholders: Nasser
Mr Nasser said the rationale for the split - which will demerge BHP's aluminium, manganese, silver and some coal and nickel assets - was that BHP's portfolio had evolved into what the company saw as two distinct companies.
"Our strategy was to direct capital to projects in businesses that delivered the highest returns. This strategy has served our shareholders well," Mr Nasser said.
"US$1,000 invested by you in BHP Billiton 10 years ago is worth US$3,600 today.
"We see benefits for both companies and for all shareholders."
Mr Nasser said BHP can reduce costs and improve the productivity of its largest businesses more quickly if the demerger goes ahead.
"The new company will benefit from its own strategy and systems that will be tailored for a business of its scale," he said.
Mr Nasser said an extraordinary general meeting was planned for May 2015 so shareholders could vote on the demerger.
Shareholders in March will receive documents with full details of the proposed demerger.
Mr Nasser also talked up BHP's potential fifth major commodity Potash, as driving food production through its use as a fertiliser.
Mackenzie focuses on productivity
Chief executive Andrew Mackenzie focused on the importance of lifting productivity, which he said was a major driver of BHP lifting profitability by 10 per cent to $US13.4 billion in 2013/14 despite falls in commodity prices.
He also defended the company's payment of taxes, saying it paid its fair share - $US9.9. billion in taxes and royalties last year - amid a focus on tax avoidance by large global companies recently.
A key focus for South Australia, which is hosting the AGM, is BHP's plans for expanding the massive Olympic Dam which were shelved two years ago.
The company was successfully developing heap leaching technology to process metals at Olympic Dam and would update the South Australian government on progress.
With his country’s economy in mind, Indonesian president Joko Widodo is reciprocating China’s invitation to build stronger relations.
China has been actively inviting southeast Asia’s largest economy to strengthen relations. Following the inauguration of Widodo, who is commonly known as Jokowi, and just days before the APEC Summit in Beijing, Chinese foreign minister Wang Yi visited Jakarta.
For China, Indonesia will be an important partner to manage its relations with countries in the southeast Asia region, grouped in ASEAN. China is involved in territorial disputes with several ASEAN members over the South China Sea.
For Indonesia, China can be a source of finance for infrastructure projects in the archipelago. Indonesia needs around Rp 6000 trillion (or around US$740 billion) for infrastructure development projects in the next five years to achieve 7 per cent-a-year growth in its economy. Indonesia is currently experiencing its slowest growth since late 2009. The government expects 5.8 per cent growth this year, lower than the 6.3 per cent target.
At the APEC Summit in Beijing, Jokowi requested that Chinese president Xi Jinping boost the involvement of Chinese state companies in developing Indonesia’s infrastructure. He also proposed a bigger role for Indonesia in the China-led Asian Infrastructure Investment Bank (AIIB). He suggested the headquarters of the AIIB be in Indonesia.
Some analysts view AIIB as a rival to the Japan-backed Asian Development Bank and thus a driver of change in the US-Japan-dominated status quo in the Asia Pacific. Australia, under pressure from the US, is not joining the AIIB.
What do Indonesia’s closer economic relations with China say about Indonesia’s relationship with the US and its allies?
More China and (not) less America
Indonesia’s intention to forge closer ties with Beijing is a natural result of China’s economic rise. It does not, however, reflect the demise of US and its allies' influence in the region. In contrast, by getting closer to China, Indonesia is inviting balancing acts by US and its allies. By doing so, Jakarta is hoping to broaden its options in various policy arenas.
China is the world’s second-largest economy. Within a decade or two, it is expected to grow into the world’s largest.
Most countries in southeast Asia and beyond want to reap the benefits of China’s rise. But they don’t want to be dominated by a powerful bully. Despite Chinese rhetoric of a “peaceful rise”, its actions are not always peaceful – as seen in recent incidents in the South China Sea.
Even so, ASEAN countries could not resist their big northern neighbour. Vietnam, for example, benefits from trading with China. Trade between Vietnam and China increased tenfold from US$1.2 billion in 2001 to around US$12 billion in the late 2000s.
To balance China’s power, Vietnam joined the US-backed Trans-Pacific Partnership (TPP) discussions. This move allows Vietnam to diversify its economic relations and gain access to a powerful ally.
It should be noted, though, that at the APEC Summit China pushed for the formation of the Free Trade Area in the Asia-Pacific (FTAAP). Many interpret this move as China’s attempt to “neutralise” the exclusionary effect of the US-backed TPP. China is excluded from the TPP.
Foreign policy based on national interest
Jokowi has signalled that his foreign policy will be guided by Indonesia’s economic national interest. Consequently, his international relations achievements would be measured by tangible results. This is why Indonesia is getting close with China, but the process will not be without obstacles.
At least three issues will guide Indonesia’s policy towards China. First, Indonesia wants to have more balanced trade with China. Since the 2000s, Indonesia has experienced growing trade deficits. In 2008, Indonesia recorded a trade deficit of US$3.6 billion. The deficit is growing and reached US$7.7 billion in 2012.
Second, Indonesia wants to access funds from the huge Chinese economy to develop its infrastructure. Jokowi’s speeches at the APEC and ASEAN summits illustrated this. At APEC, he elaborated on Indonesia’s development plan and invited APEC economies to invest in infrastructure projects in the country.
China has the economic capacity to provide what Indonesia needs. It has the largest foreign-exchange reserves in the world, amounting to US$2.4 trillion.
This does not mean that Indonesia sees the ADB as less important. Currently, the ADB is the third-largest source of financing for Indonesia’s development, with 15.2 per cent of total financing. Japan, the leading actor in the ADB, is the largest (35.1 per cent) and the World Bank is the second-largest (23.6 per cent). So, rather than a sign of allegiance, Indonesia sees participation in the AIIB as an opportunity to expand its options to fund infrastructure development.
Third, ensuring economic growth, stability and security in the region is important. In this context, the conclusion of a code of conduct in the South China Sea will be on the agenda.
Of course, the task of concluding the code of conduct has never been easy. In May, China deployed an oil rig in disputed waters off the coast of Vietnam, provoking anti-Chinese riots there. In August, the Philippines spotted two Chinese hydro-graphic ships in an area claimed by the Philippines as part of its Exclusive Economic Zone (EEZ).
With China’s increasing economic clout in the region, reaching agreement might be even more difficult.
Shofwan Al Banna Choiruzzad 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.
Your daily digest of the biggest business news in China, translated and summarized every day.
State Council to address cost of funding problem
China’s State Council wants to implement further reforms in the financial market to address the problem of the high cost of funding for small and medium sized business, which form the backbone of the Chinese economy.
Beijing started to tackle this issue in July this year as SMEs have continued to struggle to raise money from the banking sector. The Chinese government wants privately owned banks to play a bigger role in lending to SMEs. It is also seeking to reform state-owned commercial banks’ incentive scheme to encourage them to lend more to SMEs.
China’s state-owned banking system usually favours SOEs and large private companies over SMEs.
The State Council has also released a draft plan to encourage further reform in the country’s notorious state-controlled energy market including in electricity transmission and distribution.
The plan promises to introduce more competition into the energy market. However, it has remained silent on the contentious issue of separating the transmission network from the distribution business in the country’s protected electricity market.
The Vice-Chairman of China’s Banking Regulatory Commission Yan Qingmin says the regulator should be more open-minded and tolerant of the country’s internet finance companies. He says the new development should be tolerated if it does not cause regional risk.
Internet finance companies such as Alibaba, Baidu and Tencent have been putting pressure on the traditional banking sector through better services and higher interest rates. Internet giants have been draining deposits from banks at fast rate.
Former Lehman Brothers boss has a new China venture
Former Lehman Brothers boss Richard Fuld is staging a comeback after the spectacular collapse of his storied investment house that nearly brought down the world’s economy.
According to an interview with Caixin, the former Wall Street Kingpin is expected to announce the acquisition of a stock exchange in the US, which will be used as a platform for Chinese companies to list in America.
The Vice-minister of Industry and Information Technology Shan Bing, says Beijing is considering the option of opening up the country’s fast growing e-commerce sector.
He says to dancing with wolves is good for developing a competitive landscape in China. At the moment, foreign companies cannot control more than 50 per cent of shares in Chinese e-commerce companies. In the future, foreign companies may own up to 100 per cent of Chinese e-commerce companies.
Beijing wants to lift its renewable energy consumption and reduce its coal consumption to 62 per cent of its total energy need at the end of 2020. A new energy plan calls for more natural gas consumption in key industrial belt regions such as Pearl River Delta, Yangtze River Delta and surrounding region of Beijing.
China has recently committed to increase its renewable energy target to 20 per cent of the total energy consumption in a joint statement with the US at the recently concluded APEC Summit.
Chinese local government will issue more local debt
Chinese local governments will expand their debt issuing program next year as the country seeks to spur its ambitious urbanisation drive. According to statistics from the National Audit Office, local governments rely on banks for 56.65 per cent of its financing requirement for infrastructure projects.
Local government and corporate debts are responsible for 3.71 per cent and 6.22 per cent of total funding requirements.
The Ministry of Finance has recently allowed provincial governments to issue their own debt. However, municipal and county governments are still barred from issuing their own debt.
Activity in China’s manufacturing sector has fallen to a six-month low as new export order growth continues to ease in the world’s second largest economy, according to a private survey.
The HSBC China Manufacturing PMI has moderated to 50.0 in the flash reading for November, down from the October final reading of 50.4.
A reading above 50 on the survey points to expansion, while a reading below 50 indicates contraction.
HSBC chief China economist Hongbin Qu said new export order growth continued to ease and led to a below-50 reading for the output sub-index for the first time since May.
"Disinflationary pressures remain strong and the labour market showed further signs of weakening. Weak price pressures and low capacity utilisation point to insufficient demand in the economy” he said.
"Furthermore, we still see uncertainties in the months ahead from the property market and on the export front."
"We think growth still faces significant downward pressures, and more monetary and fiscal easing measures should be deployed.”
The preliminary PMI figure, also called the HSBC Flash China PMI, is based on 85 per cent to 90 per cent of total responses to HSBC's PMI survey each month, and is issued about one week before the final PMI reading.
As Malcolm Cook says, this week's events show that Tony Abbott's strategic policies in Asia have not got in the way of his economic agenda. Mr Abbott has won his free trade agreement with China despite his enthusiastic alignment with Japan and America to resist China's regional ambitions.
So those, like me, who thought it might be otherwise have been proven wrong. When that happens it is a good idea to ask oneself why. Why has President Xi been so warm and generous to Mr Abbott when Mr Abbott has so deliberately opposed himself to China's interests and ambitions? There seem to be three possible explanations:
Beijing doesn't really care much about these strategic/political issues, and their importance is outweighed by the economic value to China of the FTA and the diplomatic value of a warmer relationship with Australia.
Beijing does care deeply about the strategic/political questions, but doesn't think Australia's views matter, so it is willing to ignore what Mr Abbott says on these subjects.
Beijing does care deeply about these issues and does think Australia's views matter, but it decided carrots will work better than sticks. China's leaders may have calculated that the best way to change Mr Abbott's mind and bring Australia closer to China's views would be to offer soothing words and lavish gifts.
Which of these best explains what has happened this week? The Government probably believes it is option 1, and many others will agree. The consensus in Canberra remains that China is not really serious about challenging the US-led order in Asia, because for Beijing the economy always comes first. Hence Xi has been willing to overlook Abbott's strategic policies in pursuit of an economic win for China.
The problem with this explanation is that everything China has said and done in recent years shows that it is very serious about building a new strategic order in Asia. China's ambitions were absolutely clear from Xi's speech to parliament on Monday. It was equally clear from President Obama's speech in Brisbane that he takes China's challenge to the regional order very seriously indeed. That is exactly what his speech aimed to warn us about, in unusually stark terms.
Others too think the same. Mr Cameron's speech to parliament last week, and Mr Modi's yesterday, made plain their concerns about the strength of China's ambitions, and so did Mr Abe's address back in May. Only in Canberra does a consensus still prevail that China is not strongly committed to driving major change to the Asian order. The weight of evidence is strongly the other way, and that makes option 1 look implausible, especially as the economic benefits to China of the FTA are hardly transformational.
What about option 2? For all the recent boasting about Australia coming out as a big regional player, it is possible that some people, even in the Government, still half-believe that what we say on these big issues doesn't really matter to the main players. A reflection perhaps of the 'adolescence' in our approach to foreign policy that Peter Hartcher has recently described.
But on this issue, at least, we should be in no doubt: Australia seems to have acquired quite a prominent place in regional power politics, as shown by the way Obama, Xi, Modi and Abe have all come here to deliver big geopolitical speeches. It would be unwise to believe that the Chinese do not care about Australia's position on Asia's great strategic questions.
That leaves option 3 as the most credible explanation for what has happened. If that is right, Mr Xi and his colleagues are very serious about their strategic ambitions, and do care what Australia thinks. But they concluded that it would be easy to bring us around to their point of view by offering an FTA and some reassuring words.
If that is what they thought then they seem to have been proved right – at least for now. To judge from what Mr Abbott said this week, and from the response of many of our leading commentators, Australia has taken a long step away from the policies he and they have articulated until now, and towards accepting and endorsing Mr Xi's vision of Asia's future under Chinese leadership. This is just what Mr Obama seems to have feared would happen.
But do the Chinese imagine that Mr Abbott's new-found enthusiasm for their vision of Asia will last for long? If so, they will be disappointed. He already took a step away from it in his exchanges with Mr Modi yesterday. What will he say next time he goes to Washington or Tokyo?
So where do we go from here? On the basis of this week's performance, Malcolm and others seem to think Mr Abbott has created a clear and sustainable basis for Australia's relations with China and our position in the power politics of Asia. I'm not so sure.
Chinese Premier Li Keqiang has demanded a greater role for Beijing in shaping the global internet, despite failing to address his government's censorship of politically sensitive content.
"We believe in an open, transparent and above all safe internet," Li said on the sidelines of a Chinese-created internet conference on Thursday.
"That requires an internet shared and governed by all - all stakeholders equal," he added, in comments made to representatives from US chip maker Qualcomm and professional networking site LinkedIn.
Li met with China's top internet company bosses as well as officials from foreign firms and industry groups in the eastern city of Hangzhou.
His visit was seen as an attempt to raise the profile of the World Internet Conference, which was being held in nearby Wuzhen.
Human Rights group Amnesty International has called the conference an attempt by Beijing to spread its model of strict internet supervision to the world.
China's Communist rulers also block some Western media websites and bar services from internet giants Twitter, Facebook and YouTube.
Li acknowledged the benefit of e-commerce as an engine of China's economy, but called for "order" in the freewheeling internet.
"Without order, the internet would not be a safe and credible place," he said.
Founder of e-commerce giant Alibaba, Jack Ma, told Li of his vision to build a "global version" of Taobao.
The platform currently accounts for over 90 per cent of consumer-to-consumer transactions in China.
Ma is a Chinese internet success story, with Alibaba recently listing on the New York Stock Exchange in the world's biggest IPO to date.
China and "one or two" other countries are capable of mounting cyber attacks that would shut down the electric grid and other critical US systems, according the National Security Agency director.
The possibility of such cyber attacks by US adversaries has been widely known, but never confirmed publicly by the nation's top cyber official.
At a hearing of the House intelligence committee, Admiral Michael Rogers, NSA director and head of US Cyber Command, said adversaries are performing electronic "reconnaissance" on a regular basis so that they can be in a position to disrupt the industrial control systems that run everything from chemical facilities to water treatment plants.
"All of that leads me to believe it is only a matter of when, not if, we are going to see something dramatic," he said.
Outside experts say the US Cyber Command also has the capability to hack into and damage critical infrastructure, which in theory should amount to mutual deterrence.
But Rogers, who did not address his offensive cyber tools, said the nuclear deterrence model did not necessarily apply to cyber attacks.
Only a handful of countries had nuclear capability during the Cold War, he said, and nuclear attacks could be detected and attributed in time to retaliate.
By contrast, the source of a cyber attack can easily be disguised, and the capability to do significant damage is possessed not only by nation states but by criminal groups and individuals, Rogers noted.
In cyberspace, "you can literally do almost anything you want, and there is not a price to pay for it", the NSA director said.
Rogers said the Obama administration is seeking to establish a set of international principles governing military cyber operations, such as banning attacks on hospitals.
Alongside this week’s announcement of a free trade deal between China and Australia came reports of Gina Rinehart’s investment in a Queensland dairy operation to supply infant formula to China. Australia’s richest woman built her fortune on iron ore, but Rinehart’s A$500 million investment makes her a major player in Australian milk formula exports.
Infant formula sales in China have increased more than ten-fold over the last decade and will double again in the next three years, according to Euromonitor. As foreign-produced infant formula can sell for close to A$100 a tin, investors have been scrambling to get a share of the predicted “white gold rush”.
But why the boom? Commentators point to relaxation of China’s one-child policy, the melamine poisoning scandal in 2008 and the rising affluence of a growing middle class. But the often hidden truth is that escalating formula sales are driven by a lack of access to maternity leave and the unethical – even corrupt – marketing of infant formula through the maternity care system.
Although maternity leave is available on paper in China, in practice many new mothers cannot get it. Separation of mother and baby, because of unaccommodating workplaces or employment arrangements, can necessitate formula feeding.
Aggressive marketing of infant formula is also a key factor. Recent research identified that 40 per cent of new mothers in China were contacted directly by infant formula sales staff after the birth of their babies and given samples of formula. Sales representatives walk the halls of hospitals to find mothers and recruit doctors and midwives as salespeople.
Advertising exploits the desire of families to promote the prospects of their child. With many babies now an only child of only children, four grandparents plus two parents may believe the future of their family depends on the success of this one precious baby. So marketing that promotes infant formula products (falsely) as enhancing brain development and ensuring academic success has real traction.
Regulatory capacity and social protection policies are lagging behind the emerging needs of the population, especially women, due to extraordinarily rapid economic development. Comparing China with India, a country also experiencing rapid development and urbanisation, an industry report by Euromonitor observed that “the huge disparity in the retail value of milk formula sales between China and India is mainly due to the significant differences between their official regulatory regimes”.
The consequences of “white gold mining” are threefold: for public health, the economy, and women’s rights.
Most important are the effects of a precipitous decline in exclusive breastfeeding from over 60 per cent to less than 30 per cent over the past decade.
Formula feeding increases infection risk. Some assume this is a result of dirty water, but in fact the formula itself helps to facilitate and maintain infection. Even in highly developed countries, babies that are fully formula fed are three to five times more likely to be hospitalised with infections than their fully breastfed counterparts.
Higher rates of formula feeding mean that overburdened Chinese hospitals face higher costs to treat more seriously ill babies and young children. And infant lives are at stake: diarrhoea and respiratory tract infections are responsible for more than half of all infant deaths in China. Formula feeding is also implicated in other high-cost health problems, such as obesity.
The economy suffers from declining breastfeeding. Breast milk has economic value. In Australia, the value of current human milk production levels exceeds A$3 billion a year. In China, Chinese mothers produced about 2.3 billion litres of breast milk in 2012; if all Chinese mothers breastfed in line with WHO recommendations, the country’s annual production value would be US$778 billion, nearly US$530 billion a year higher.
However, the economic value of human milk is presently uncounted in economic statistics. Like other unpaid work that women do, it is invisible and therefore taken for granted by policymakers. Its value is rarely acknowledged, or protected.
Indeed, when formula feeding increases, and breastfeeding declines, measured GDP is seen to go up. Nonetheless, through the provision of high-quality food and preventative health care to infants, breast milk contributes to economic production.
So, the third consequence is that by expanding sales of formula, governments can avoid addressing the needs and human rights of women and children in China. This includes mothers who need to combine paid employment and a career with their role as mothers, such as by breastfeeding. Underfunded and poor-quality maternity care can continue unaddressed.
There is much rhetoric about the benefits to Australia of the latest trade agreement, but this particular dairy milk boom is far from costless.
It raises questions such as who is profiting from this “white gold boom” and who pays its costs? Does Australia not have a duty of care for selling formula to China’s mothers and babies? And will the Australian government take responsibility for ensuring that Australian companies do not unethically exploit the regulatory weaknesses of our neighbours in Asia?
Julie Smith has received funding from the Australian Research Council and the National Health and Medical Research Council.
Karleen Gribble 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.
Chinese Internet giant Alibaba Group Holding Ltd. launched a debut US$8 billion bond sale on Thursday, lowering yields throughout the day amid strong demand from investors for one of the largest corporate bond sales of the year.
Buyers placed more than US$55 billion in orders for the bonds, according to people familiar with the matter. Some investors expected the company to increase the size of the deal given the strong demand, but Alibaba kept the bond sale in line with its initial US$8 billion plan.
The bond sale comes two months after Alibaba made a splash in the U.S. stock market with its record US$25 billion initial public offering. The company said last week that it planned to tap the U.S. bond market for the first time, adding to the record pace of new corporate bond sales in the U.S. this year.
Alibaba offered a five-year bond to yield 0.95 percentage point more than comparable Treasurys. On Wednesday, that bond was suggested to yield about 1.10 percentage points more than similar-maturity Treasurys. Lower yields indicate higher prices.
In contrast, a five-year bond from eBay Inc. recently traded to yield 0.87 percentage point more than comparable Treasurys, according to MarketAxess.
The deal came in six tranches, with maturities ranging from three years to 20 years. Alibaba canceled plans to include a seventh tranche, which was to be a bond with a floating interest rate that matures in five years. The company could have increased the sizes of other tranches based on investor demand.
GUANGZHOU, China— Audi AG is confident it will widen the sales gap between it and its closest competitor this year in China, according to its China chief, as the battle for dominance of the country’s luxury-car market heats up.
Dietmar Voggenreiter, president of Audi China, said Thursday that the Volkswagen AG unit would maintain its leading position by tapping demand for compact luxury cars and high-end sport-utility vehicles while expanding its dealer network step by step.
“We have a better strategic nose,” he said. “We saw the trends earlier.”
Audi is China’s No. 1 luxury auto brand by market share. Mr. Voggenreiter didn’t name a competitor, but the No. 2 is BMW AG. BMW has said it plans to introduce new models and would expand production from current levels of about 300,000 to 400,000 a year if market demand is there. It is also adding an engine plant in China.
Consulting firm IHS Automotive projects Audi will sell more than 140,000 more cars than BMW in China this year. Last year it sold about 120,000 more than BMW, and in 2012 it sold about 100,000 more, data from IHS showed.
In an interview on the sidelines of the Guangzhou auto show, Mr. Voggenreiter said he was confident about the growth potential of China’s premium car market. His comments echoed sentiments expressed earlier by the heads of other foreign luxury-car makers, including Daimler AG ’s Mercedes-Benz and Jaguar Land Rover.
Audi sales for the first 10 months of the year totaled 461,000 vehicles. In 2013, it sold around 490,000 cars.
Mr. Voggenreiter said the trends Audi spotted early included demand for long-wheel-base luxury sedans, identifying the emergence of small, compact luxury cars, and tapping China’s boom in sport-utility vehicles.
He said also Audi’s dealership network was mature and experienced. “That’s one big advantage we have,” he said.
Google is considering bringing a version of its Play mobile-app store to China, a tentative but important step back into a country that Google mostly exited in 2010.
In recent months, Google representatives in Asia told makers of apps for its Android mobile-operating system that it hopes to unveil a new app store in China to help them distribute their apps and games more efficiently, according to two people briefed on its plans.
In Google’s absence, there are multiple Android app stores in China, spawning piracy and prompting many developers to hire large teams just to manage relations with the stores. In the U.S., just two app stores dominate— Apple's App Store for iPhones and iPads and Google’s Play Store for Android mobile devices.
To bring order to the app chaos in China, and boost revenue, Google wants to open a version of its Play Store there, offering a single entry point through which Android apps and games could be distributed, one developer briefed on the plan said.
A Google spokeswoman declined to comment.
The company’s efforts are at an early stage and face significant obstacles, including stiff competition. Google would be entering “very late into a heavily populated market with very strong major players,” said Mark Natkin, managing director of Chinese research firm Marbridge Consulting.
Among the Chinese companies that run popular Android app stores are computer-security firm Qihoo 360 Technology, search-engone Baidu and online gaming and social-networking company Tencent Holdings Ltd.
Google would likely need to partner with a Chinese company to help it host apps and games in data centers in the country, say the people familiar with its plans. It might also have to build separate user identification and payment systems, added one of these people.
Working with a Chinese partner that would run the app store and split revenue with Google might help the company with censorship issues, said a former Google executive.
News of Google’s effort was earlier reported by technology website The Information, which said Google has discussed its plans with handset makers such as Huawei and ZTE and wireless carriers that must provide billing services.
A ZTE spokesman declined to comment. A Huawei spokeswoman said she was unaware of any discussions with Google but said “the entry of a key industry player” would benefit Chinese smartphone users.
Former executives say Google is eager to get back into China, the world’s largest smartphone market by shipments. Google’s Android operating system powers the vast majority of those phones, but Google isn’t profiting because its apps, including the Play Store, aren’t officially available.
Google abruptly ceased most operations there in 2010 following cyberattacks against Gmail users and disagreements with the government over censorship of search results.
Google makes money from the Play Store by keeping a percentage of sales generated by app and game makers. It is one of the company’s fastest-growing businesses, contributing to 50 per cent year-over-year growth in Google’s “other” revenue in the third quarter.
“We have a lot of partners in China and we work and meet with them,” Google Senior Vice President Sundar Pichai, who oversees Android, said in an October interview with The Wall Street Journal. “We work with a different set of constraints in China, obviously, so it’s tough to predict how that will evolve. We are committed to serving the market the best we can.”
Mr. Pichai described the app ecosystem in China as “very dynamic,” adding, “It’s a bit of a Wild West. But we are there to support it.”
Juro Osawa and Gillian Wong contributed to this article.
Former Lehman Brothers boss Richard Fuld is staging a comeback after the spectacular collapse of his storied investment house that nearly brought down the world’s economy.
In an interview with Chinese business publication Caixin this week, Mr Fuld confirmed that he has acquired the Jersey City-based National Stock Exchange.
The former Wall Street kingpin said he will team up with Suzhou Kaida Venture Capital and use the exchange as a platform for Chinese companies to list in America.
The 130-year old exchange stopped trading in May this year due to low activity. On its last day of activity it handled around 13 million shares, or about 0.2 per cent of all US stocks traded.
Almost 200 Chinese companies have gone public around the world this year, raising approximately US$52bn.
According to data from Dealogic, Chinese companies that have listed in the US have outperformed those that have listed in Hong Kong this year.
When asked about the Lehman collapse in the Caixin interview, Mr Fuld, who is nicknamed the “Gorilla of Wall Street” for his legendary temper, lashed out at an unnamed US journalist accusing them of accepting bribes.
The 2008 global financial crisis was sparked by the Lehman Brothers collapse, which shook the global financial sector to its core.
In a separate interview with China’s Global Times, Fund said he thought Chinese companies had run into trouble in the US because they don’t understand what is expected of them when they float there.
“Some of them had inadequate accounting and legal standards” he told the paper.
"But the press blew the problems out of proportion. Because of that, the exchanges shut their doors to Chinese companies."
Mr Fuld told the Global Times the people he has met in China so far have embraced him warmly.
“Whether Chinese partners will trust me or not is up to them” he said.
Your daily digest of the biggest business news in China, translated and summarized every day.
Iron ore miners under pressure
Nearly 20 per cent of Chinese iron ore miners are losing money according to a new survey from the National Bureau of Statistics. The country has 3447 large and medium sized iron ore mines which are under increasing pressure as the price of iron ore hovers around $70.
The average break-even cost for Chinese iron ore miners is around $80 per tonne, significantly higher than major Australian producers like BHP and Rio Tinto.
(21st century)
Cai Hongping bows out
Cai Hongping, a veteran Chinese investment banker has resigned as the Asia Chairman of Deustche Bank, signalling the end of an era of hyperactive Chinese IPO activity.
Cai’s reported departure follows the resignation of Levin Zhu from China International Capital Corp, one of the largest domestic investment banks recently. Cai has been instrumental in bringing in private Chinese companies to international capital markets.
The press report speculates that the departure of Cai and Zhu signals the era of large-scale Chinese IPOs is over.
(Caixin)
Government offers incentives to cushion blow to workers
The Chinese government will offer financial incentives to companies from sectors that suffer from the chronic problem of excess capacity if they don’t lay off workers during the process of restructuring.
One of Beijing’s top priorities is to address the problem of excess capacity in sectors such as steel, cement and pleated glass. According to the government work report, Beijing plans to cut 27 million tonnes of steel and iron production and 42 million tonnes of cement.
Beijing is worried about social unrest if steel mills and other factories lay off too many workers.
(Caixin)
China’s GDP is larger than official number: Economist
Li Yining, one of China’s most influential economists says China’s GDP is larger than what is officially reported.
Li, a professor of economics at Peking University, says GDP has been underestimated in rural China where things such as housing construction are not included in the calculation. Private companies also tend to under report their revenues to avoid paying taxes, he says.
The professor, whose students include Premier Li Keqiang, has urged the central government to abandon its GDP growth target.
(Caixin)
Government pushes for more private banks
Beijing is encouraging private capital to set up small and medium sized banks and other financial services companies to fill the gap in lending to the country’s SME sector.
The move is part of Beijing’s broader strategy to support SMEs. The government is also cutting taxes and fees for the sector.
(Caixin)
State Council moves on rural land reforms
Beijing plans to implement a better land title and registration system over the next five years to better protect farmers against land acquisitions from local governments as well as property developers.
Land acquisition is one of the most contentious social issues in China. Local governments often collude with property developers to forcibly acquire land from farmers without adequate compensation.
(Caijing)
Government to end salt monopoly
Beijing will end its government monopoly over sales of salt in a move that is designed to introduce more competition into the industry. The Ministry of Industry and Information Technology announced the decision on state-owned broadcaster CCTV.
Mao Li Xiang, the chairman of Fotile Group, the country’s leading producer of kitchen appliances, warns that the succession crisis has the potential to be more destructive than the global financial crisis. Fortune Generation’s white paper estimates that only 8 per cent of family companies have successfully managed to pass on the baton to the next generation.
