Lowy Interpreter

Malcolm Cook and I have been debating why China has been willing to bless Tony Abbott with an FTA when Mr Abbott has so strongly opposed Beijing's political and strategic interests and aspirations in Asia.

Why has President Xi met Mr Abbott's stick with such a juicy carrot, especially when Beijing has been so quick to use the stick itself on other neighbours? (Sam raised the related and important question of why China uses the stick at all when it has so many carrots to offer, to which I have offered an answer separately.)

Malcolm's explanation is that the economic benefits to China of the FTA simply outweigh the costs to China of Australia's position on strategic questions. He does not dispute that those strategic costs are significant, because he concedes both that China is serious about creating a new order in Asia, and that Australia's attitude to this is important to Beijing. He just thinks the economic advantages to China of a FTA with Australia are big enough to counterbalance them.

I'm not so sure. I think it is more likely that Xi and his colleagues believe that wider economic opportunities and kind words will seduce Australia away from its alignment with China's strategic rivals, and encourage us to be more willing to accommodate China's ambitions for regional leadership.

Of course it may be that we are both right to some degree. But it remains important to judge the relative weight of each factor in China's approach to Australia, because the implications for our position in Asia and our future policy depend a lot on which of them predominates.

Malcolm's argument that economic factors predominate in Beijing's decision rests on judgments about the scale of the perceived economic benefits of the new FTA to China. That is hard to judge at this stage, of course, but we need to be careful not to take last week's euphoria at face value.

The evidence suggests that FTAs actually make very little difference to trade flows or GDP growth. Our Government's only word on this is a 2005 DFAT-sponsored study, which was the source of the much-cited figure of US$18 billion boost to Australia's GDP from an FTA with China. Here is what that study said about the impact, had there been an FTA between Australia and China over the past decade:  

In terms of average annual growth rates between 2005 and 2015, the FTA is estimated to increase Australia's real-GDP growth by 0.039 percentage points; and increase China's real-GDP growth by 0.042 percentage points.

Yes, that's right – four hundredths of a percentage point. In other words, the impact on GDP for China, as for Australia, was estimated to be utterly negligible, and there is no reason to believe that the deal that has now been done will have a significantly greater effect. Indeed the Productivity Commission's 2010 report on FTAs strongly suggests that it won't. It concludes that FTAs in general do nothing at all to boost trade or growth.  

But are there other economic benefits? One view is that China values an FTA with Australia to drive reform within China, which might indirectly boost growth. One cannot dismiss this out of hand, but it does seem on the face of it very improbable. The CCP seems to have no trouble driving reform on its own, and if it needs help from outside, why Australia? China has already signed FTAs with many advanced and prosperous countries which pose it no strategic problems. How does adding Australia to the list help?

So from the available evidence there doesn't seem much reason to think that economic motives have been uppermost in Beijing's decision to cuddle up to Tony Abbott. The fact is that this FTA, like others, is much more about politics than economics, in Beijing as well as in Canberra.

And one cannot help but notice that Beijing seems to have secured precisely the political outcome I think they were aiming at. Tony Abbott did, at least while Xi was here, show himself much more open to China's vision of Asia's future than he has ever been before, and he did so in direct defiance of Barack Obama's very plain and stern warnings just two days before Xi spoke in Canberra.

Time will tell whether this proves to be anything more than a passing blip. Tony Abbott may well revert to his previous strategic alignment against China at the next opportunity. If so, it will be instructive to see how China responds. That would perhaps tell us more about its motives and purposes.

In the meantime, it is easy to understand the attractions of Malcolm's interpretation of events. It would be nice to think that Australia's economic weight and sophistication is such an irresistible magnet for China that we can dictate the terms of the relationship and compel it to accept without demur whatever strategic positions we choose to adopt.

Be we would be unwise to assume that this is what is happening. It is at least as likely that the boot is on the other foot, and that China's economy is so important to Australia's future that Beijing can set the terms of the relationship — either by carrot or stick or both — and persuade us to look more kindly on China's aspirations for regional leadership.

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

Hopu might be a little-known name in Australia’s investment community before Paladin Energy unveils its $205 million capital raising on Monday, but the China-based private equity firm has a multi-billion dollar vision for Australia, particularly in agriculture.

“The money is not actually the issue,” said Hopu’s senior managing director Wendong Zhang in a phone interview.

“We see Australia as a very attractive destination for Chinese investment. If we had the right deals, I could see us investing billions and billions of dollars, because it is not just money out of our own fund; it’s actually money out of our LPs (limited partners), as well as other Chinese co-investors.”

Hopu was set up in 2008 by Goldman Sachs banker Fang Fenglei, and has been backed by Goldman and Temasek. It is now the biggest private equity firm in China and has made $18 billion worth of transactions so far.

Hopu has committed to invest about $80 million in Australian uranium producer Paladin Energy, betting on a recovery in the uranium market and nuclear growth in China. 

The commitment to Paladin's capital raising is Hopu’s first investment in Australia, which Mr Zhang hopes will open more doors to other investment opportunities.

“We will continue to have discussions to look at the investment opportunities in the agriculture space,” he said.

“The significance of this Paladin deal is that hopefully this will open more doors to more partners in Australia, both strategic companies and financial investors.”

Hopu is no stranger in the agribusiness space. It has just closed an agriculture business acquisition that involves an Australian state pension fund, Mr Zhang added.

In September, Hopu sealed a $US1.5bn deal with China’s biggest grains trader COFCO Corp to buy a 51 per cent stake in Noble Agriculture. Hopu also introduced a number of international investors to co-invest in the transaction, including IFC of the World Bank, Singapore’s Temasek and Australia’s QIC.

“The idea was for an Australian local partner to work with Hopu and COFCO to even create more investment opportunities in the agriculture space, which relate to grains, beef, wine, dairy products,” Mr Zhang said.

For potential international partners, Hopu’s move could be seen as a strategic play by Chinese capital, especially government-backed initiatives, due to its extensive connections in that country.

China was looking to deploy more capital globally and could become a net exporter of capital for the first time next year, Mr Zhang added.

China’s National Development and Reform Commission, the country’s economic planning agency, has just approved four more railway projects worth 66.2 billion yuan reports Caixin. 

The Commission has approved more than one trillion yuan worth of railway projects since the start of this year.

Railway spending is seen as one of the most important levers for Beijing to stabilise its slowing economy.  

Your daily digest of the biggest business news in China, translated and summarized every day.

China climate chief days emissions deal is about forcing structural change at home

China’s top climate change negotiator says the government wants to use international agreements to force domestic economic change, according to an interview with Caixin.

“The party central committee and the State Council are very clear about our goal. We want to use international conventions to force structural change, to engineer a shift in direction and increase the quality and efficiency of our economic development,” Xie, the deputy chairman of the National Development and Reform Commission told the magazine.  

READ MORE: What’s motivating China to join the global climate change fight?

(Caixin)

Amazon aims to emulate Alibaba success

Amazon China wants to bring ‘Black Friday Sales’ to the country following Alibaba’s stunning success with its ‘Singles Day’ record.

The company says Chinese buyers are able to buy directly from Amazon’s overseas portal, allowing them to buy international brands directly.  

(Caixin)

NDRC approves four more railway projects

China’s National Development and Reform Commission, the country’s economic planning agency, has just approved four more railway projects worth 66.2 billion yuan.  The Commission has approved more than one trillion yuan worth of railway projects since the start of this year.

Railway spending is seen as one of the most important levers for Beijing to stabilise its slowing economy.  

(Caijing)

First batch of private banks to open

The first batch of private-owned Chinese banks are expected to open at the end of this year, according to Shanghai Securities News.

(Caijing)

The chairman of one of China’s largest beverage companies has sought to allay fears about Chinese investment into Australia as he prepares to buy several farm properties near Melbourne.

Zhu Xinli, a Chinese billionaire and the founder of Huiyuan Juice told reporters in Beijing this week that he is eyeing agribusiness opportunities in Australia ahead of a trip to the country with the China Entrepreneur Club.

Mr Zhu said an advance team has already narrowed down the potential investment opportunities to five properties, which are located about three hours from Melbourne by air.

Mr Zhu said he wants to invest in agribusiness in Australia and use his large distribution channels to export Australian goods back to China. 

Huiyuan Juice Group has a market share of around 51.5 per cent of China’s juice market.

Mr Zhu said he hoped the trip would seek to allay fears in Australia of increased Chinese investment.

“Our motivation to come to Australia this time is to see these opposing voices dwindle to a minimum, by showing facts and numbers,” he said.

“There are 1.3 billion Chinese crying out for premium Australian products and Australia wants access to a market like China’s."

Canada is set to announce a new program that would enable some prospective immigrants to acquire residency visas by investing at least 1 million Canadian dollars ($890,000) in a venture-capital fund, a scheme some other western countries have used to attract wealthy, mainly Chinese, newcomers.

Ottawa will create an new immigrant class for individuals who could place C$1 million to C$2 million in a VC fund that would in turn invest in start-ups, according to a person familiar with the matter. The government is targeting investments totalling around C$120 million, that person said.

Ottawa scrapped a previous immigrant-investor scheme in February, and cancelled a backlog of tens of thousands of mainly Chinese applicants. That move was seen as another sign that Canada was becoming less welcoming to China and its investment, coming not long after Ottawa shut the door on Chinese state-owned investment in Canada’s oil sands.

Ottawa denied that view, saying the visa program, which granted permanent residency to those who committed C$800,000 to a five-year zero-interest loan to a Canadian province, allowed people to effectively buy their way into the country without making an investment or taking any risk.

In recent years, Canada has let in more immigrants per capita than any other Group of Seven country.

The new venture-capital linked scheme addresses the view that the previous scheme undervalued Canadian permanent residency and enabled some applicants to gain residency without moving to Canada. Canada signalled for the plan in February, but has yet to release any of the program’s details.

A spokesman for Canadian Immigration Minister Chris Alexander said details governing the new venture capital fund are still being finalized and would be unveiled in due course. He declined to elaborate on specific features of the fund.

Under the new program, investors aren’t guaranteed a return from their investment and could face losses depending on the performance of the VC fund’s investments.

The new program comes as VC fundraising declined 29 per cent year-to-date in the third quarter, according to Canadian Venture Capital and Private Equity Association.

Ottawa has encouraged venture-capital investment as way of generating innovation, skilled-job creation and long-term economic growth. The government has earmarked C$400 million for existing and new venture-capital funds as a way to kick-start private money flows into this style of funding, which typically takes bets on early stage or start-up companies. Ottawa also wants the private sector to commit two dollars for every dollar it allocates to VC funding.

Other Western governments have offered residency or passports in exchange for immigrant investment. Under one U.K. scheme, anyone with the intention and means to invest GBP2 million in the country can get a visa. In the past, European countries, including Portugal, Spain, Greece and Cyprus, have allowed investors a residency permit for buying as little as EUR250,000 ($340,950) of real estate.

Last month, Australia offered a faster 12-month pathway to permanent residency for people investing A$15 million ($13.2 million) or more into the country. The Premium Investor Visa program targets investment in higher-risk infrastructure priorities rather than lower-risk sovereign bonds and managed funds. The new visas build on an existing plan—Significant Investor Visas—offering residency in four years for people investing at least A$5 million. As on Nov 24, China accounted for 90.8 per cent of applications, and 87.7  per cent of visas granted.

Your daily digest of the biggest business news in China, translated and summarized every day.

Chinese central bank to meddle less in forex market

The deputy governor of the Chinese central bank has said Beijing has largely withdrawn from regular intervention in foreign exchange, allowing for more flexibility in the foreign exchange market.

“The central bank has significantly reduced its direct intervention in the foreign exchange market,“ Hu Xiaolian said at the Caijing Conference in Beijing.

PBOC widened the trading band of its currency from one per cent to two per cent in March as part of its long-term plan to liberalise exchange rates.

(Caixin)

China needs to focus on quality of growth: senior official

One of China’s leading economic policy makers has urged the government to focus more on the quality of economic growth rather than the speed.

Liu Shijin, the deputy head of Development and Research Centre of the State Council, the Chinese Cabinet, says it is more important to maintain employment, improve people’s livelihoods and enable companies to stay profitable than it is to maintain a certain pace of economic development.

However, Liu also argues that the government should not shy away from stimulus measures if the economy slows down too much.

(Caixin)

Chinese railway freight slows

Chinese railway freight volumes dropped 6.6 per cent in October, according to data from the Ministry of Transport.

Railway freight is regarded as an important gauge of Chinese economic activity. It is part of the so-called Li Keqiang Index, which is used to estimate the true speed of China’s economic growth.

During the first ten months of the year, the transport sector grew 7.3 per cent. Railway freight volume increased 2.9 per cent, road and water transport increased 8.8 per cent and 6.7 per cent respectively.

(Caijing)

Transport infrastructure spending up 15.6 per cent

Beijing invested over 1.9 trillion yuan in transport infrastructure projects during the first ten months of 2014, according to data from the Ministry of Transport.

Investment in the railway sector increased 25.2 per cent during the same period. Beijing has been ramping up its investment in this sector to stabilise the slowing economy.

(Caijing)

Chinese dairy industry faces crisis as breeding stock quality declines

China’s dairy industry faces a crisis as the quality of its breeding stock deteriorates, according to the Economic Observer.

Premium quality milk cows only make up 20 per cent of total stock in China and their annual milk production is only 50 per cent lower than American herds.  Chinese dairy farmers are complaining about the bad quality of Chinese breeding stock and how they destroy the quality of imported Australian cows.

The deterioration in the quality has resulted in a large increase in the price of Australian breeding stock from $600 per head to $2,500 per head.

The industry also faces the problem of a skills shortage as university graduates don’t want to move to countryside to work at dairy farms. 40 per cent of dairy businesses in China are reportedly losing money.

(Caijing)

Ministry of Finance defends itself against ‘end of year spending spree’ accusations

By the end of October, Chinese government (both provincial and central) outlays has reached 11.35 trillion yuan. While this might sound like an impressive figure, it means that if the government wants to meet the spending target outlined in this year’s budget, it will need to spend close to 4 trillion yuan (or 26 per cent of the full year budget) in the remaining two months of the year.

Yesterday the official Xinhua News Agency published an article seeking an explanation from officials for why this ‘end of year spending spree’ was occurring and how the government planned to spend 4 trillion yuan in the remaining two months of the year.

In response, an official from the Ministry of Finance denied that this year’s situation qualified as an ‘end of year spending spree’ and said that any unchecked spending aimed at blindly reaching an outlay target would be investigated.

A sharp increase in government spending at the end of the fiscal year has long been a characteristic of China’s budgets. The Ministry of Finance has made efforts in recent years to crackdown on the practice. 

From 2009 to 2013, total government spending at the end of October as a proportion of the total spending outlined in the budget was, 65 per cent, 72 per cent, 77 per cent, 75 per cent and 74 per cent respectively.

(Beijing Times)

Provincial pension reform exposes huge disparities

Three Chinese provinces have released detailed plans to merge their separate urban and rural pension systems into one provincial-level network in November. A total of 27 of China’s 31 provincial-level governments have now announced such plans and some provinces have already started implementing the policy. 

The moves are part of a broader plan to unify the pension system across the whole country by 2020 which was announced by the State Council in April 2014.

However, it will be a long time before a unified and fair pension system emerges as there are huge differences in the amount pensioners are paid -- both across and within individual provinces.

For example, pensioners in provinces like Jilin, Hebei and Anhui still receive the government mandated minimum of 55 yuan a month, an amount that hasn’t changed in five years. In contrast, official residents of Shanghai receive 550 yuan a month. The national average is about 90 yuan a month.

These disparities also exist within individual provinces, with residents of provincial capitals sometimes receiving more than double what other residents of the province are paid. These huge differentials continue to expand as the government contribution that matches an individual’s payments varies across locality, with governments in more developed regions of the country able to contribute more to pension funds.

(Economic Information Daily)

Cleaning up China’s Steel Industry

As part of a plan to eliminate overcapacity along with inefficient and heavily-polluting steel mills, China’s Ministry of Industry of Information Technology (MIIT) has not only released ‘black lists’ of companies that need to close down out-dated mills, but also ‘white lists’ of production facilities that meet the ministry’s requirements.

Earlier this month MIIT published an update to the third edition of this ‘white list’, which was originally published in August. The revised list names 147 steel companies that have been approved as steel producers. This takes the total number of companies that MIIT has included on its approved list since 2012 to 305 companies.

An unnamed analyst is quoted as telling the reporter the list likely represents 85 per cent of the final approved producers list and that it markedly increases the likelihood that companies not on the list will be forced to exit.

Over the past decade, the official process for approving new steel mills has lagged well behind the actual expansion in productive capacity.

Since 2005, China approved less than 100 million tonnes of productive capacity, but during that time, production capacity increased to more than 700 million tonnes.

Effectively, a very large proportion of steel capacity was developed outside of official regulatory control and efforts to force unregulated producers to exit resulted in a vicious circle of ever-increasing productive capacity.

It wasn’t until market forces began to kick in that some producers were forced to exit the market.

By some estimates, China produces 200 million more steel than the market needs. Between January to October this year, China produced 685 million tonnes of crude steel and increase of 2.1 per cent on the same period in 2013. This represents a 6.2 percentage point fall in the rate of increase from the previous year.

(National Business Daily)

One of China’s leading economic policy makers has urged the government to focus more on the quality of economic growth rather than the speed reports Caixin.

According to the magazine, Liu Shijin, the deputy head of Development and Research Centre of the State Council, the Chinese Cabinet, says it is more important to maintain employment, improve people’s livelihood, enable companies to stay profitable than it is to maintain a certain pace of economic development.

However, Liu also argues that the government should not shy away from stimulus measures if the economy slows down too much.

The deputy governor of the Chinese central bank has said Beijing has largely withdrawn from regular intervention in foreign exchange, allowing for more flexibility in the foreign exchange market reports Caixin.

“The central bank has significantly reduced its direct intervention in the foreign exchange market,“ Hu Xiaolian said at the Caijing Conference in Beijing.

PBOC widened the trading band of its currency from one per cent to two per cent in March as part of its long-term plan to liberalise exchange rates.

China’s dairy industry faces a crisis as the quality of its breeding stock deteriorates, reports the Economic Observer.

Premium quality milk cows only make up 20 per cent of total stock in China and their annual milk production is only 50 per cent lower than American herds.  

Chinese dairy farmers are complaining about the bad quality of Chinese breeding stock and how they destroy the quality of imported Australian cows.

The deterioration in the quality has resulted in a large increase in the price of Australian breeding stock from US$600 per head to US$2,500 per head.

The industry also faces the problem of a skills shortage as university graduates don’t want to move to countryside to work at dairy farms. 40 per cent of dairy businesses in China are reportedly losing money.

Beijing has invested over 1.9 trillion yuan in transport infrastructure projects during the first ten months of 2014, according to data from the Ministry of Transport.

Investment in the railway sector increased 25.2 per cent during the same period. Beijing has been ramping up its investment in this sector to stabilise the slowing economy.

Meanwhile, railway freight volumes dropped 6.6 per cent in October, according to data from the Ministry of Transport.

Railway freight is regarded as an important gauge of Chinese economic activity. It is part of the so-called Li Keqiang Index, which is used to estimate the true speed of China’s economic growth.

During the first ten months of the year, the transport sector grew 7.3 per cent. Railway freight volume increased 2.9 per cent, road and water transport increased 8.8 per cent and 6.7 per cent respectively.

China’s Ministry of Finance has denied accusations that the Chinese government is set to embark on an end of year ‘spending spree’ reports the Beijing Times.

On Thursday, the official Xinhua News Agency reported that Chinese government (provincial and central) outlays had reached 11.35 trillion yuan by the end of October.

The report noted that a further 4 trillion yuan would needed to be spent in the remaining two months of the year to meet the spending target outlined in this year’s budget.

That amount would be equivalent to 26 per cent of the full year budget.

According to the Beijing Times, an official from the Ministry denied the reports and said any unchecked spending aimed at blindly reaching an outlay target would be investigated.

A sharp increase in government spending at the end of the fiscal year has long been a characteristic of China’s budgets. The Ministry of Finance has made efforts in recent years to crackdown on the practice. 

From 2009 to 2013, total government spending at the end of October as a proportion of the total spending outlined in the budget was, 65 per cent, 72 per cent, 77 per cent, 75 per cent and 74 per cent respectively.

Three Chinese provinces have released detailed plans to merge their separate urban and rural pension systems into one provincial-level network in November reports the Economic Information Daily.

According to the report, Jiangxi, Xinjiang and Henan have now joined a total of 27 of China’s 31 provincial-level governments in announcing such plans, with some already implementing the policy.

The moves are part of a broader plan to unify the pension system across the whole country by 2020, which was announced by the State Council in April 2014.

Unifying the pension system into one national scheme could prove difficult as amounts paid to pensioners varies widely across and within individual provinces.

Jilin, Hebei and Anhui provinces have maintained the government-mandated level of 55 yuan per month for five years.

In contrast, residents of Shanghai receive 550 yuan a month. The national average is about 90 yuan a month.

Disparities also exist within individual provinces, with residents of provincial capitals sometimes receiving more than double what other residents of the province are paid.

Your daily digest of the biggest business news in China, translated and summarized every day.

Chinese central bank to meddle less in forex market

The deputy governor of the Chinese central bank has said Beijing has largely withdrawn from regular intervention in foreign exchange, allowing for more flexibility in the foreign exchange market.

“The central bank has significantly reduced its direct intervention in the foreign exchange market,“ Hu Xiaolian said at the Caijing Conference in Beijing.

PBOC widened the trading band of its currency from one per cent to two per cent in March as part of its long-term plan to liberalise exchange rates.

(Caixin)

China needs to focus on quality of growth: senior official

One of China’s leading economic policy makers has urged the government to focus more on the quality of economic growth rather than the speed.

Liu Shijin, the deputy head of Development and Research Centre of the State Council, the Chinese Cabinet, says it is more important to maintain employment, improve people’s livelihoods and enable companies to stay profitable than it is to maintain a certain pace of economic development.

However, Liu also argues that the government should not shy away from stimulus measures if the economy slows down too much.

(Caixin)

Chinese railway freight slows

Chinese railway freight volumes dropped 6.6 per cent in October, according to data from the Ministry of Transport.

Railway freight is regarded as an important gauge of Chinese economic activity. It is part of the so-called Li Keqiang Index, which is used to estimate the true speed of China’s economic growth.

During the first ten months of the year, the transport sector grew 7.3 per cent. Railway freight volume increased 2.9 per cent, road and water transport increased 8.8 per cent and 6.7 per cent respectively.

(Caijing)

Transport infrastructure spending up 15.6 per cent

Beijing invested over 1.9 trillion yuan in transport infrastructure projects during the first ten months of 2014, according to data from the Ministry of Transport.

Investment in the railway sector increased 25.2 per cent during the same period. Beijing has been ramping up its investment in this sector to stabilise the slowing economy.

(Caijing)

Chinese dairy industry faces crisis as breeding stock quality declines

China’s dairy industry faces a crisis as the quality of its breeding stock deteriorates, according to the Economic Observer.

Premium quality milk cows only make up 20 per cent of total stock in China and their annual milk production is only 50 per cent lower than American herds.  Chinese dairy farmers are complaining about the bad quality of Chinese breeding stock and how they destroy the quality of imported Australian cows.

The deterioration in the quality has resulted in a large increase in the price of Australian breeding stock from $600 per head to $2,500 per head.

The industry also faces the problem of a skills shortage as university graduates don’t want to move to countryside to work at dairy farms. 40 per cent of dairy businesses in China are reportedly losing money.

(Caijing)

Ministry of Finance defends itself against ‘end of year spending spree’ accusations

By the end of October, Chinese government (both provincial and central) outlays has reached 11.35 trillion yuan. While this might sound like an impressive figure, it means that if the government wants to meet the spending target outlined in this year’s budget, it will need to spend close to 4 trillion yuan (or 26 per cent of the full year budget) in the remaining two months of the year.

Yesterday the official Xinhua News Agency published an article seeking an explanation from officials for why this ‘end of year spending spree’ was occurring and how the government planned to spend 4 trillion yuan in the remaining two months of the year.

In response, an official from the Ministry of Finance denied that this year’s situation qualified as an ‘end of year spending spree’ and said that any unchecked spending aimed at blindly reaching an outlay target would be investigated.

A sharp increase in government spending at the end of the fiscal year has long been a characteristic of China’s budgets. The Ministry of Finance has made efforts in recent years to crackdown on the practice. 

From 2009 to 2013, total government spending at the end of October as a proportion of the total spending outlined in the budget was, 65 per cent, 72 per cent, 77 per cent, 75 per cent and 74 per cent respectively.

(Beijing Times)

Provincial pension reform exposes huge disparities

Three Chinese provinces have released detailed plans to merge their separate urban and rural pension systems into one provincial-level network in November. A total of 27 of China’s 31 provincial-level governments have now announced such plans and some provinces have already started implementing the policy. 

The moves are part of a broader plan to unify the pension system across the whole country by 2020 which was announced by the State Council in April 2014.

However, it will be a long time before a unified and fair pension system emerges as there are huge differences in the amount pensioners are paid -- both across and within individual provinces.

For example, pensioners in provinces like Jilin, Hebei and Anhui still receive the government mandated minimum of 55 yuan a month, an amount that hasn’t changed in five years. In contrast, official residents of Shanghai receive 550 yuan a month. The national average is about 90 yuan a month.

These disparities also exist within individual provinces, with residents of provincial capitals sometimes receiving more than double what other residents of the province are paid. These huge differentials continue to expand as the government contribution that matches an individual’s payments varies across locality, with governments in more developed regions of the country able to contribute more to pension funds.

(Economic Information Daily)

Cleaning up China’s Steel Industry

As part of a plan to eliminate overcapacity along with inefficient and heavily-polluting steel mills, China’s Ministry of Industry of Information Technology (MIIT) has not only released ‘black lists’ of companies that need to close down out-dated mills, but also ‘white lists’ of production facilities that meet the ministry’s requirements.

Earlier this month MIIT published an update to the third edition of this ‘white list’, which was originally published in August. The revised list names 147 steel companies that have been approved as steel producers. This takes the total number of companies that MIIT has included on its approved list since 2012 to 305 companies.

An unnamed analyst is quoted as telling the reporter the list likely represents 85 per cent of the final approved producers list and that it markedly increases the likelihood that companies not on the list will be forced to exit.

Over the past decade, the official process for approving new steel mills has lagged well behind the actual expansion in productive capacity.

Since 2005, China approved less than 100 million tonnes of productive capacity, but during that time, production capacity increased to more than 700 million tonnes.

Effectively, a very large proportion of steel capacity was developed outside of official regulatory control and efforts to force unregulated producers to exit resulted in a vicious circle of ever-increasing productive capacity.

It wasn’t until market forces began to kick in that some producers were forced to exit the market.

By some estimates, China produces 200 million more steel than the market needs. Between January to October this year, China produced 685 million tonnes of crude steel and increase of 2.1 per cent on the same period in 2013. This represents a 6.2 percentage point fall in the rate of increase from the previous year.

(National Business Daily)

Last big week of economic data for 2014

One of the quirks of the economic calendar is that a barrage of data is released at the start of every season. So the coming week could be aptly described as the Summer Tsunami: around a dozen key indicators and events are scheduled.

The week kicks off on Monday with RP Data-CoreLogic releasing the latest results on home prices. Based on current data, home prices probably fell 0.2 per cent nationally over November.

Also out on Monday is a gauge on inflationary pressures from TD Securities and Melbourne Institute and the Business Indicators publication from the Bureau of Statistics. The former should show that inflationary pressures are contained while the latter will show that companies are racking up solid profits.

On Tuesday, the Reserve Bank Board meets for the final time in 2014, and after that meeting it doesn’t meet next until February 2015. The Reserve Bank governor has been trying to get consumers and businesses focused on spending, investing and employing rather than constantly looking over their shoulders about imminent rate changes. Inflation is under control so rates are on hold.

In terms of economic data, data on government spending for the September quarter is released on Tuesday with the balance of payments, building approvals and weekly consumer confidence figures. Dwelling approvals slumped 11 per cent in September, highlighting the volatility of the series. But in trend terms approvals are trending sideways at a high level.

For many analysts the highlight of the week is the economic growth (gross domestic product) report for the September quarter, to be released on Wednesday. And while the report is the most comprehensive assessment of the economy’s performance, it is very much backward-looking.

We expect that the economy grew by around 0.7 per cent or around 3.1 per cent over the year – slightly above the 2.9 per cent decade average.

On Thursday, retail trade and international trade (exports and imports) for October are released. The most important is retail trade, and we expect OK (but not great) growth of around 0.2 per cent in the month.

And on Friday, the ABS releases arrivals and departures information. Not only does the data cover the short-term flows of tourists, but the longer-term flow of migrants is important in assessing the outlook for the housing market.

Overseas: US employment in the spotlight

While there are fewer indicators due for release in the US next week than Australia, the most important of the monthly statistics is issued -- that is, non-farm payrolls (employment) -- on Friday.

The week kicks off on Monday with the release of the ISM manufacturing index. Any reading above 50 indicates expansion, so the current figure of 59.0, indicates that activity is strong.

On Tuesday, the monthly auto sales data is released alongside construction spending and the weekly chain store sales figures.

On Wednesday, at least four key indicators or reports are issued. Probably the most influential is the Beige Book, a summary of conditions across Federal Reserve districts. The report will be a key input to the decisions made by Federal Reserve policymakers at their next meeting. Also released on Wednesday are the weekly housing finance figures, the ISM services index and the ADP report on private sector job creation.

The services sector in the US is broadly in the same good shape as manufacturing, as shown by the October reading of 57.1.

On Thursday, the usual weekly data on claims for unemployment insurance (jobless claims) is issued together with the Challenger survey of job cuts.

And then on Friday, the non-farm payrolls data is released alongside the monthly trade figures, consumer credit and factory orders. In October, 214,000 jobs were created, close to the average rate of 220,000 over 2014. And the jobless rate hit a 7-year low of 5.8 per cent. Analysts are looking for more of the same in November: around 230,000 jobs created and a jobless rate of 5.8 per cent. If job creation proves far stronger and associated with yet another drop in the jobless rate then analysts will need to re-think the timing of the first rate hike – currently slated for the second half of 2015.

In China, the key dates for economic data are Monday and Wednesday. On Monday the official (National Bureau of Statistics) purchasing manager’s index for manufacturing is released alongside the HSBC version of the report. And on Wednesday both bodies release the equivalent purchasing manager’s indexes for the services sector.  The services sector is arguably more important than manufacturing, but investors have to get their heads around this new reality.

China's housing prices fell on a monthly basis for the seventh straight month in November, a survey showed.

The average price of a new home in China's 100 major cities was 10,589 yuan ($1,736) per square metre in November, down 0.38 per cent from October, the independent China Index Academy said in a statement.

The fall was a slight improvement from the 0.40 per cent month-on-month drop in October, previous figures showed.

"We expect the interest rate cut to kick in next year," Bai Yanjun, research director for the China Index Academy, told AFP.

"We still believe the market is under downward pressure for the rest of 2014 because the current home inventory levels in first-tier and major second-tier cities are still high," he said.

China cut both lending and deposit rates just over a week ago, and analysts said home mortgage buyers would be among the biggest beneficiaries.

"The rate cut sends a strong signal that the property market will likely bottom out soon," China economist for Merrill Lynch Hong Kong, Lu Ting, said in a research note.

On a year-on-year basis, China's new home prices fell 1.57 per cent from the same month last year, far sharper that the annual fall of 0.52 per cent in October, the academy said.

But for China's ten biggest cities - which tend to have the most active property markets - new home prices rose 0.07 per cent in November from October, marking the first gain after six months of declines, it said.

The commercial city of Shanghai was the best performing with housing prices rising 1.18 per cent in November from October to 32,140 yuan per square metre, making it the second most expensive city behind the capital Beijing.

China released a draft plan Sunday to set up a long-awaited bank deposit-insurance system -- a move designed to bring more disciplined risk-taking to the banking sector and pave the way for allowing banks to freely compete for depositors. 

The draft plan, posted by the State Council -- China's cabinet -- on its legislative affairs office website, gives the public one month to forward comments on the proposed system. The draft didn't give a start date, though officials at the central bank said last week that the plan would take effect in January. 

Under the draft plan, individual bank accounts would be insured up to 500,000 yuan ($94,000). 

Currently, all bank deposits in China have a presumed implicit full-government guarantee. That has led banks, at times, to run up bad loans, and investors to make risky investments, believing the government would bail them out. 

Chinese officials have said deposit insurance, which has been under discussion off and on for two decades, could help banks and their customers better assess risks, offering better protection for the country's financial stability in the event of a crisis. 

Deposit insurance "will better protect the rights of depositors" and maintain "public confidence in our nation's banking system," said the central bank, the People's Bank of China or PBOC, in a statement accompanying the draft plan. The central bank said the plan will "ensure that risks will be discovered earlier and that risks will arise less frequently." 

The move represents one of the most important economic reforms since President Xi Jinping became head of the ruling Communist Party two years ago. It is part of a broader liberalisation of China's economic policies, which has included giving the market a greater say in valuing the Chinese currency, the yuan, and permitting more purchases in listed company shares in China by foreign investors. 

Mr Xi pledged to remake China's economy to give greater scope to market forces and chart a more sustainable growth path. So far, economists and analysts have said, the leadership has moved relatively slowly toward reaching that goal, as Beijing has in recent months grown concerned with a slowing economy and how to revive growth. 

Bank deposit insurance is commonplace around the world as a way to boost confidence in banks and prevent the kinds of bank runs that occurred during the Great Depression early last century. For China, however, the insurance system has a different purpose -- to introduce some risk into a financial system and do away with the implicit government guarantee. 

By limiting the size of deposits that will be guaranteed, the PBOC is signaling to lenders and borrowers to better assess credit risks, economists said. 

One reason China has taken so long to introduce such a system, economists said, is because of concern about how depositors might react once they know all of their deposits aren't insured. One concern is whether depositors will read the insurance system as a backhanded recognition that deposits aren't secure, sparking bank runs. 

China has one of the world's biggest deposit bases. As of October, bank deposits totaled 112 trillion yuan, about $21 trillion. 

The deposit insurance plan "will improve the trust in small and medium banks," the PBOC statement said. "It will create a fair environment for large, medium and small banks to compete." 

Deposit insurance is also seen as a crucial step for another reform -- freeing up now-controlled interest rates on bank deposits. Without such insurance, depositors could take big hits if banks miscalculate in sharply raising rates to attract savers, but then go broke. 

The long-serving central bank governor, Zhou Xiaochuan, said early this year that China could free up the rates by the spring of 2016, the first time a senior official released a timetable for the reform. If China's economy weakens further next year, however, Beijing might be inclined to put off the move to liberalize interest rates, according to analysts and economists. 

In debating when and how to launch deposit insurance over the past two decades, Chinese leaders have encountered strong opposition from powerful interest groups, such as big state-owned banks. Big banks see deposit insurance as a policy that they will have to pay most of the funds for, but that will then help smaller banks. 

Under the plan being spearheaded by the central bank, the 500,000 yuan cap for insured deposits means the vast majority of ordinary Chinese savers would be protected under the plan, according to the PBOC. 

China and Japan will on Monday begin the destruction of chemical weapons abandoned by Japan in northeast China at the end of World War II.

An estimated 330,000 pieces of weaponry are buried in the Harbaling area of Jilin Province, where the work will begin, Xinhua news agency cited China's Foreign Ministry as saying.

Japan abandoned at least two million tonnes of chemical weapons in sites scattered across 15 Chinese provinces at the end of WWII, according to Xinhua.

The abandoned weapons were often hidden. Many are leaking, posing threats to humans, animals and the environment, according to a 2011 report by the independent Green Cross International.

There have been up to 2,000 injuries resulting from abandoned weapons of Japanese origin since the end of WWII, according to the report.

Japan will offer all necessary funds, technology, expertise and facilities for the clean-up operation while China will provide assistance, according to agreements signed between the nations in 1999.

A group of British politicians investigating Britain's relations with Hong Kong have been told China will not allow them into the former colony.

The Foreign Affairs Committee, a panel of MPs who scrutinise the Foreign Office's work, is looking into Britain's relations with the Chinese special administrative region 30 years on from the 1984 Joint Declaration, which set out the terms of the 1997 handover of Hong Kong.

Richard Ottaway, who chairs the cross-party panel, said he would on Monday call for an emergency debate in parliament on the situation.

The 11-member committee, which reports to the lower House of Commons, planned to visit Hong Kong before the end of the year as part of its inquiry.

"The Chinese government have, in past weeks and months, registered their opposition to the inquiry," the committee said in a statement.

The move comes amid continuing protests by pro-democracy campaigners in Hong Kong who have been demanding the right to choose their own leaders without interference from Beijing.

"I have been informed by the Chinese embassy that if we attempt to travel to Hong Kong we will be refused entry," Ottaway said.

"We are a committee of elected members of parliament from a democratic nation who wish to scrutinise British diplomatic work in Hong Kong.

"The Chinese government are acting in an overtly confrontational manner in refusing us access to do our job.

"I shall be asking the speaker tomorrow to grant an emergency debate on the floor of the house," he said.

Taiwan's premier has resigned after his Beijing-friendly ruling party suffered a landslide defeat at the island's biggest ever local elections.

In a brief resignation speech on Saturday, Jiang Yi-huah said he took "political responsibility" for the heavy losses suffered by the Kuomintang (KMT) party.

The polls are seen as an important test ahead of the 2016 presidential race, with China policy a key issue.

Official results showed the ruling KMT had lost in five out of Taiwan's six large municipalities - the most hotly contested seats.

Prior to the vote they had held four of them.

Taiwan and China split in 1949 at the end of a civil war, but Beijing still claims the island as part of its territory awaiting reunification, by force if necessary.

Under the KMT, previously frosty ties between Beijing and Taipei have warmed, but there is public anxiety over the closer relationship.

A proposed trade pact with the mainland sparked mass student-led protests and a three-week occupation of Taiwan's parliament earlier this year, reflecting frustration over what were seen as under-the-table negotiations and a lack of benefits for the general public from the deal.

The government has also been struggling with a slowing economy and a string of food scandals.

"I think the outcome surprised both parties - it is a landslide defeat for the KMT as it did poorly even in areas it was expected to win," said George Tsai, a political scientist at the Chinese Culture University in Taipei.

"It sent a very clear warning signal to the KMT that if it does not make fundamental policy adjustments to be more transparent and more responsive, it could face defeat in 2016."

Embattled President Ma Ying-jeou, who came to power in 2008 on a Beijing-friendly platform, must step down at the end of his second four-year term.