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    Beijing says it is "deeply disappointed" that Washington refuses to back plans to reform the International Monetary Fund to give emerging economies such as China a greater say in the institution.

    The US Congress earlier this week failed to ratify a new set of crucial governance and funding measures contained in the 2010 reform plan, forcing the IMF board to explore "alternative options".

    The reforms to the Fund's membership quota system - essentially its shareholding - would both strengthen the global crisis lender's funding and also give countries such as China and Russia greater say in its development.

    "China is deeply disappointed by the US parliament's failure to make the IMF 2010 funding and governance reform spending legislation," foreign ministry spokesman Hong Lei said at a regular briefing in Beijing.

    "Implementing the 2010 funding and governance reform is crucial for maintaining the credibility, effectiveness and legality of the IMF."

    China will continue to urge Washington to back the plan, the spokesman said.

    The IMF had held out hopes that the reforms, backed by the White House, would be accepted in the huge budget bill that was under discussion this week.

    But the bill that emerged from tough negotiations between Democrats and Republicans late on Tuesday night excluded the reforms.

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    Beijing to continue to urge Washington to back reform plan for the fund.

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    Hong Kong's leader has declared an end to more than 11 weeks of sit-in protests by pro-democracy demonstrators after police cleared the last remaining camp and arrested a handful of peaceful protesters.

    A committed core of around a dozen demonstrators had staged a sit-in at the centre of the last site in the busy shopping district of Causeway Bay as police cut away barricades and tore down banners and shelters.

    Seventeen people, from students to the elderly, were arrested without resisting, with some shouting "We will be back" and "Fight to the end".

    Trucks and cleaning teams moved in to remove the debris, and roads around the site which have been closed for weeks reopened.

    Activists calling for free leadership elections occupied major traffic arteries after China said in August that candidates for the city's chief executive elections in 2017 would first be vetted by a loyalist committee.

    Campaigners said the move would ensure a pro-Beijing stooge in the leadership role.

    Police demolished the city's main protest camp last week.

    "Following the completion of clearance work in Causeway Bay Occupy area, the episode of illegal occupation activities for more than two months is over," chief executive Leung Chun-ying told reporters Monday.

    He said that the demonstrations had led to "serious losses" in sectors including tourism and retail.

    "Other than economic losses, I believe the greatest loss Hong Kong society has suffered is the damage to the rule of law by a small group of people," he added.

    Leung is vilified by protesters who cast him variously as a wolf and a vampire and have repeatedly asked for him to step down.

    But Beijing has backed his administration throughout the occupation.

    Causeway Bay hosted the smallest of the three camps that sprang up in late September, paralysing sections of the city, as part of the student-led campaign for free leadership elections.

    The main Admiralty camp which sprawled across a kilometre of multi-lane highway through the heart of the business district was cleared on Thursday.

    Police cleared the other major protest site in the working-class commercial district of Mongkok - scene of some of the most violent clashes since the campaign began - in late November.

    Demonstrators feel their lengthy occupation has put the democracy movement on the map with Beijing and the local administration, after it saw tens of thousands of supporters on the streets at its height.

    But it has achieved no political concessions from either Hong Kong's leaders or the Chinese government, with both branding the protests "illegal".

    Chinese state-run media triumphantly declared the Hong Kong pro-democracy movement "defeated" after the Admiralty site was cleared, and warned domestic and foreign "hostile forces" against destabilising the city.

    However, protesters have vowed to struggle on in their fight for fully free elections through various means including refusal to pay rent and taxes.

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    He said that the demonstrations had led to "serious losses" in sectors including tourism and retail.

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    Angola's state oil company Sonangol will benefit from a new $US2.0 billion ($A2.16 billion) line of credit from the Chinese Development Bank to finance new projects, the state oil company says.

    "This Chinese financing will support Sonangol's plans for expansion in oil and gas," the company said in a statement, adding that among the first projects will be a new refinery in Lobito, southern Angola, next year.

    The southwest African country is China's second biggest supplier of oil, accounting for some 40 per cent of the Asian giant's needs.

    Since the end of Angola's civil war in 2002, Beijing has extended a total of $US14.5 billion to the former Portuguese colony, according to the latest figures from the Chinese embassy in Luanda.

    Recent years have seen China help finance major infrastructure projects including roads, rail lines and new cities.

    During a state visit to Angola by Chinese Prime Minister Li Keqiang in May, he and President Jose Eduardo dos Santos pledged to diversify their cooperation, currently concentrated in the construction sector.

    Bilateral trade totalled nearly $US36 billion last year, according to the Chinese customs services.

    The new line of credit comes at a difficult economic time for Angola, Africa's second largest oil producer after Nigeria, because of plunging world prices for crude.

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    Chinese financing to support Sonangol's plans for expansion in oil and gas.

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    BEIJING—When a unit of North Carolina’s Curtiss-Wright Corp. won a roughly US$300 million deal in 2007 to supply components for new reactors in China, industry officials trumpeted China’s nuclear boom as good for U.S. business.

    Today, Chinese companies are competing for that business—and foreign companies risk getting left out. Meanwhile, Curtiss-Wright’s contract is caught up in a legal dispute, while Chinese authorities blame the company in part for the delay of a landmark nuclear project.

    U.S. and other foreign companies are now struggling to keep their hold in China, the industry’s biggest growth market and a rare bright spot more than three years after the Fukushima disaster in Japan put many of the world’s nuclear projects on hold. Yet China is increasingly turning to local companies to build crucial parts for multibillion-dollar nuclear projects, a result of Chinese industrial nationalism and frustration over U.S. supplier problems.

    With the global nuclear industry focused on China, the Chinese government has used the heft of its huge market to secure transfers of key technology and gradually localize production. In the process, China is achieving a political aim to source sensitive manufacturing at home and satisfying a practical need to avoid complications posed by faraway suppliers.

    One of those supplier issues has surfaced in eastern China’s Zhejiang province, where Pennsylvania’s Westinghouse Electric Co. is building the first of four of its most advanced, commercially available reactor, the AP1000, in China. Local authorities blame two-year delays in part on quality problems related to Curtiss-Wright. In a written statement, Curtiss-Wright said it has “refined and improved our design processes” as a result.

    “This sort of thing has damaged U.S. companies’ reputations here,” said Li Ning, a nuclear-industry expert at China’s Xiamen University. “Chinese companies are really growing and basically squeezing out the international suppliers.”

    In one case, a specialty part produced by SPX Corp. of Charlotte, N.C., for early AP1000 projects will be supplied by a Chinese state machinery company in future projects, according to State Nuclear Power Technology Corp., a company under China’s central government that is leading the AP1000 rollout. Of the four AP1000 reactors Westinghouse is building in China, the final one will have as many as nine major components supplied by Chinese companies that initially were supplied by foreign firms in the first unit, SNPTC says.

    The turnabout illustrates how China is moving swiftly to build a nuclear industry. Already, Westinghouse has provided details of the AP1000 as part of a technology-sharing deal. China plans to use that to build its own reactors that experts say it could sell abroad.

    “Folks in the U.S. need to remember that just because we were the first ones to the dance doesn’t mean we can rest on our laurels forever,” said Andy Mulkerin, managing partner at Nicobar Group, a Shanghai nuclear consultancy. “It’s a global market and you’ve got to be hungry in order to be successful.”

    Westinghouse, which is constructing eight AP1000 units world-wide, said it has made significant progress “resolving first-of-a-kind issues,” and the company had “increased confidence toward realizing the timely completion of these projects.” Units under construction in the U.S. have also faced delays and rising costs.

    China makes up a huge portion of global nuclear growth as the appetite for large nuclear projects wanes, not only because of the Fukushima disaster’s impact but also because of an abundance of cheap natural gas coming from new drilling technologies.

    Out of 71 reactors being built globally, China is currently constructing 26, according to the International Atomic Energy Agency. Another 180 reactors are planned or proposed in China, according to the World Nuclear Association.

    China’s technical advances have been on display in recent months. The state company involved in the AP1000 rollout said in September it won preliminary safety approval from China regulators for its own reactor design, the CAP1400, based on Westinghouse’s AP1000.

    By the time State Nuclear Power Technology builds its first CAP1400, 80 per cent of the components are expected to be locally made, up from an average of about 55 per cent in the first four AP1000s, according to the company. Many companies eager to enter China’s nuclear market have signed technology-transfer agreements with Chinese state firms—to avoid the risk of getting shut out of the market entirely.

    China First Heavy Industries Co. , a technology maker also under China’s central government, is among the firms that are getting business previously held by foreign companies. In August, First Heavy delivered its first domestically produced reactor pressure vessel for an AP1000 reactor. Earlier AP1000 reactor pressure vessels had been supplied by South Korea’sDoosan Heavy Industries & Construction Co. , according to State Nuclear Power Technology. Doosan declined to comment.

    Still, despite the challenges, opportunities remain for international providers, said Rosemary Yeremian, president of Strategic Insights Inc., a Toronto-based consultancy. China is new to the global nuclear stage, and partnerships bring quality and other assurances, she said.

    As work crews began construction in Zhejiang after the 2007 deal with Westinghouse, Chinese state companies and research institutes got to work dissecting the AP1000. U.S. supply-chain kinks also soon emerged.

    Curtiss-Wright positioned itself for success off the AP1000 deal. It valued a contract to supply reactor coolant pumps for the China reactors, coupled with a technology-transfer agreement with State Nuclear Power Technology, at nearly US$300 million.

    After testing in 2012, Curtiss-Wright shipped the pumps for installation at the first AP1000 in Zhejiang. However, subsequent testing revealed flawed welding, according to a U.S. Nuclear Regulatory Commission filing. Curtiss-Wright blamed its own supplier for the defect.

    The flawed pumps were returned to the U.S. for fixes. According to a Securities and Exchange Commission filing by Curtiss-Wright, “disassembly, inspections, and preparation for shipment costs” related to the pumps cost it US$23.7 million. Westinghouse wants about US$25 million in damages for the delays, according to Curtiss-Wright. Westinghouse declined to comment on “litigation matters or commercial discussions.”

    In a written statement, Curtiss-Wright said it “continues to work with our partners in China to negotiate a new follow-on contract.”

    Meanwhile, SPX, the U.S. company selected to supply squib valves—a key safety technology—for China’s AP1000s, as part of an agreement valued at more than US$100 million, soon became dogged by questions over the valve’s manufacturing. After a February 2012 facility inspection, the NRC said SPX hadn’t properly implemented its quality-assurance program. Back in Zhejiang, concerns over the part forced reordering of more than 200 squib-valve component pieces, according to authorities in Zhejiang.

    The province cited squib-valve concerns and problems at Curtiss-Wright as reasons for delays in completion of the first AP1000, which isn’t yet online. As a result, the provincial government said it had been forced to import electricity from other provinces.

    SPX didn’t comment directly on delays related to the squib valve, but said the parts it supplied Westinghouse satisfied “demanding quality requirements and technical specifications.”

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    In reactor projects, foreign suppliers risk getting pushed aside.

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    HONG KONG—Xiaomi Inc. of China has invested 1.26 billion yuan (US$203.7 million) in local home-appliances maker Midea Group Co. , in a deal aimed at boosting the smartphone maker’s presence in the market for Internet-connected home electronics.

    The investment by Xiaomi, China’s biggest smartphone maker by shipments, gives it a 1.29 per cent stake in Midea, the phone maker said in a written statement late Sunday. Xiaomi said it would acquire 55 million shares in Midea at 23.01 yuan each, representing a 6.8 per cent discount to Midea’s Friday closing price of 24.70 yuan. Midea, listed on the Shenzhen stock exchange, makes consumer appliances such as air conditioners, washing machines and rice cookers. Midea’s shares rose 6 per cent to 26.18 yuan on Monday.

    A separate disclosure by Midea on the Shenzhen stock exchange on Monday showed that Xiaomi’s founder and chief executive, Lei Jun, owns 77.8 per cent of Xiaomi and the remaining stake is held by other shareholders.

    Midea also disclosed that Xiaomi posted a net profit of 347 million yuan on revenue of 26.5 billion yuan in 2013. Xiaomi said the figures in the Midea filing refer only to Xiaomi Inc., one of the companies under the Xiaomi group. The Wall Street Journal, citing a confidential document, reported in November that privately held Xiaomi’s profit nearly doubled to 3.5 billion yuan in 2013.

    Xiaomi has grown in just over four years to become the top-selling smartphone vendor in China in the third quarter, and among the world’s largest. Its success at home has been driven by its strategy of selling smartphones with features to rival the best handsets ofSamsung Electronics Co. and AppleInc., but at roughly one-third of the price. Xiaomi has said it saves on costs by selling its devices online and adopting inexpensive marketing tacticssuch as using social media.

    Xiaomi has been investing in so-called smart hardware companies, including Misfit Wearables Corp., a San Francisco startup that makes wearable fitness trackers.

    Xiaomi said the latest Midea deal allows the two companies to cooperate in “smart home initiatives and electronic products.” It didn’t go into specifics, but the investment is considered to be part of Xiaomi’s push into home appliances that are connected to the Internet.

    Xiaomi will start selling an air purifier in mainland China on Tuesday, following on preorders for the product taken last week, the company said. The air purifier will be able to connect to wireless networks and be remotely controlled by smartphones, allowing users to monitor air quality in real time, the company says.

    Corrections & amplifications

    Midea Group Co. disclosed in a filing that smartphone maker Xiaomi Inc. posted a net profit of 347 million yuan (US$56 million) on revenue of 26.5 billion yuan in 2013. Xiaomi said the earnings figures in the Midea filing refer only to Xiaomi Inc., one of the companies under the Xiaomi group. An earlier version of this article misstated that Midea’s filing said Xiaomi Inc. posted a net profit of 3.5 billion yuan last year. (Dec. 15, 2014)

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    Smartphone firm aims to boost presence in market for internet-connected home electronics.

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    Before Deng Xiaoping opened China to the world, a popular way to glimpse the sealed-off mainland was by peering across the border from Hong Kong. Decades later, that remains a great vantage point. The 75 days of Hong Kong’s Umbrella Movement protest, broken up last week, showed how far Beijing officials go to suppress demands for political accountability.

    Protests began when Beijing announced it would not honour its promise of universal suffrage for the people of Hong Kong. The Communist Party declared that the next leader would again be selected by a small group of Beijing appointees, a system that has produced successively less popular Hong Kong chief executives lacking legitimacy. The pepper-spraying of peaceful student demonstrators led 100,000 Hong Kong people to join the protests.

    One of the most telling moments came when China declared “void” the treaty it signed to get possession of Hong Kong. That happened last month, when Beijing barred members of the British Parliament from entering Hong Kong. Parliament’s Foreign Affairs Committee had planned a visit to monitor the 1984 pact, the Sino-British Joint Declaration on the Question of Hong Kong.

    China’s deputy ambassador to Britain, Ni Jian, told the committee’s chairman, Richard Ottaway, that the Joint Declaration “is now void and only covered the period from the signing in 1984 until the handover in 1997.” Mr. Ottaway was so taken aback by Beijing’s position that he brought the editor of the Hansard transcript service to take verbatim notes on what the Chinese diplomat said.

    This is a remarkable abrogation. The Joint Declaration committed China and Britain “to implement” its terms jointly. That means 50 years of autonomy for Hong Kong, including the preservation of free markets, the rule of law and freedom of the press. Only 17 years have passed since the handover.

    During a three-hour debate in Parliament this month, Mr. Ottaway said: “Britain is a party to over 18,000 international treaties and agreements. To suggest that we have no right to assess the performance of our counterparties to such agreements is ridiculous.”

    After the parliamentary debate, the Chinese Foreign Ministry reasserted that it could abrogate bilateral treaty obligations unilaterally. It declared Britain has “no authority and no right to oversight.”

    The U.S. government had not focused on Hong Kong in recent years. A 1992 law required the State Department to report to Congress annually on Hong Kong’s democracy, but the provision lapsed in 2007. In reaction to Beijing’s failure to honor democracy pledges, members of both parties introduced a bill last month requiring annual certification by the White House that Hong Kong enjoys the autonomy Beijing was supposed to provide.

    “Hong Kong is a test of China’s willingness to comply with its international commitments,” Sen. Sherrod Brown (D., Ohio) said. “If China can so easily renege on its promises to Hong Kong, then how can we expect China to hold up its end of the bargain on issues like World Trade Organization compliance of future trade agreements?”

    Rep. Christopher Smith (R., N.J.) proposed a separate bill that would highlight how China has closed itself off. Beijing has denied visas or renewals for many U.S. journalists, including for those who reported on wealth amassed by top Communist Party officials. Mr. Smith’s bill calls on the president to deny U.S. visas to “executives of state-controlled media organization from China in proportion” to the number of visa problems experienced by U.S. journalists. That would bar top executives of a Xinhua or a CCTV, but not U.S.-based reporters for these party organs.

    Protesters promise more civil disobedience in Hong Kong until they get a more accountable government and an end to the slow corruption of their legal system, civil service and open markets. Those of us who’ve lived in Hong Kong know its people are perfectly capable of selecting their leaders. Meantime, Beijing suppresses dissidents, censors media and closes off the Internet on the mainland. No wonder a popular protest sign read, “Hong Kong is not a part of China.”

    More than 40 million mainland Chinese visit Hong Kong (population seven million) every year. Some of them were heard shouting support in Mandarin for the Cantonese-speaking demonstrators. Mainlanders see the relative freedom Hong Kong enjoys and wonder when their turn will come.

    Beijing’s reaction to the Umbrella Movement will make Hong Kong people more committed to using their 50 years of freedom to choose to gain the right to pick their own political leaders.

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    Beijing abrogates the 1984 treaty it signed with Britain to guarantee the city’s autonomy.

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    Chinese manufacturing contracted for the first time in seven months in December, HSBC has confirmed, raising questions over growth prospects for the world's second-largest economy.

    The British banking giant's final reading of China's purchasing managers' index (PMI), which tracks manufacturing activity in factories and workshops, fell to 49.5 this month.

    It was its lowest figure since April, coming in just below analysts expectations of 49.8 and down from 50.0 in November.

    The index is a closely watched gauge of the health of the Asian economic powerhouse. A reading above 50 indicates growth, while anything below signals contraction.

    Qu Hongbin, the bank's economist in Hong Kong, said that price indices had also fallen sharply.

    "The manufacturing slowdown continues in December and points to a weak ending for 2014” he said.

    "The rising disinflationary pressures, which fundamentally reflect weak demand, warrant further monetary easing in the coming months.”

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    Activity in Chinese manufacturing sector contracts in December for first time in 7 months.

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  • 12/15/14--19:05: China bank deals soar
  • Chinese financial firms are buying up overseas assets at the fastest pace in ten years according to Dealogic.

    There were 30 overseas acquisitions by Chinese financial institutions in 2014 totalling US$4.8 billion.

    Although the amount is less than the previous year the number of M&A deals have doubled.

    China’s Haitong Securities Co. said in early December that it would pay €379 million (US$465 million) for the investment banking arm of Portugal’s Banco Espírito Santo.

    That deal was only equivalent to 1.5 per cent of Haitong’s market capitalisation.

    According to Dealogic, China domestic M&A activity has reached US$239.3 billion via 2,968 deals in 2014 so far — the highest year to date volume on record.

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    Firms buying up overseas assets at the fastest pace in ten years: Dealogic.

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  • 12/15/14--20:54: China business news digest
  • Your daily digest of the biggest business news in China, translated and summarized every day.

    China still has 83 million people living under the poverty line

    The world’s second largest economy is still home to 83 million people living under poverty line according to official statistics.

    The country has lifted 660 million people out of poverty since it opened up its closed economy during the late 1970s, but 120,000 poor villages remain.

    (China News)

    China’s cost advantage has all but disappeared

    After a decade of continuous wage increases, the average cost of labour in the world’s factory is higher than most of countries in Southeast Asia and South Asia.

    The average income for an urban resident is 51,474 yuan. For the mining industry, the average income is 60,139 yuan and the annual wage for a factory worker is 46,431, up 11.5 per cent from the year before.

    However, the government estimates the period of rapid wage increase is likely to moderate in the coming years as the economy slows.

    (Caijing)

    Beijing will build a new 80 billion yuan airport

    The National Development and Reform Commission, the country’s powerful planning agency, has approved a second new airport for Beijing with an estimated cost of 80 billion yuan.

    The airport will be operational from 2025 and has the capacity to carry 72 million passengers a year and handle 620,000 thousand flights a year.

    Once the project is completed, it will be the second largest airport in the country after Beijing Capital International Airport.

    (China News)

    China bank deals soar

    Chinese financial firms are buying up overseas assets at the fastest pace in ten years according to Dealogic.

    There were 30 overseas acquisitions by Chinese financial institutions in 2014 totalling US$4.8 billion.

    Although the amount is less than the previous year the number of M&A deals have doubled.

    China’s Haitong Securities Co. said in early December that it would pay €379 million (US$465 million) for the investment banking arm of Portugal’s Banco Espírito Santo.

    That deal was only equivalent to 1.5 per cent of Haitong’s market capitalisation.

    According to Dealogic, China domestic M&A activity has reached US$239.3 billion via 2,968 deals in 2014 so far — the highest year to date volume on record.

    (China News)

    Renewable car production sees tenfold increase

    Alternative fuel cars have undergone rapid growth in China this year, increasing tenfold in November compared to a year ago according to China’s Ministry of Industry and Information.

    The country produced close to 10,000 cars with alternative fuel in November this year.

    Between January and November, there were more than two million monthly car sales with a total of 21 million car sales in the period in total.

    China plans to lower pollution by adopting five million five million electric cars is facing difficulties due to a lack of charging stations.

    Electric-car sales in China exceeded those of the US in September for the first time according to Sina Auto.

    According to that report, Chinese buyers purchased 11,991 cars with plugs throughout the country, against 10,551 in the US.

    (China News)

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    China still has 83 million people living under the poverty line and Beijing plans a new 80 billion yuan airport.

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    Should Australian business be interested in The fourth plenum of the 18th Central Committee of the Chinese Communist Party (CCP)? Why does business care that the rule of law was a central theme at a gathering of the most important members of the CCP?  For Australian business the rule of law, ie the idea that government and leaders, as well as all private and public entities, are equally accountable under the law in the same way as ordinary citizens, is like oxygen – taken for granted as the way things are.

    But, for many of our clients the rule of law is more than an abstract issue.  Like local Chinese businesses they are concerned about whether they will get a fair hearing before an unbiased arbitrator.  This explains what President Xi Jinping meant when he said that “strong and effective law enforcement builds a strong nation, but slack law enforcement weakens a nation” and “in the whole process of reforms, a mindset and governance method under the rule of law must be prioritised and the guiding and driving role of the rule of law should be fully tapped.” Clearly President Xi sees the rule of law as a part of his ambition to deliver the Chinese dream. Is there a place for the rule of law in the wider ambition of “rejuvenating” China?

    At a practical level it means many things. But for those looking to do business in China this programme for advancing the rule of law means that the Chinese are developing the rule of law with “Chinese characteristics”. This is important for business because it means a system where increasingly you can expect a law-abiding government. A system that wants to enhance judicial credibility. 

    There is real evidence that the Chinese government wants to root out judicial corruption. Indeed, these failures of the Chinese judicial system have led authorities to take an institutional approach to addressing the problem by amending the system. According to the Central Commission for Discipline Investigation, a total of 182,038 Chinese government officials have been punished for corruption in the last year. This anti-corruption drive aims to strengthen the framework of the judicial system so there is greater accountability and transparency.

    Similarly better transparency in the legislative design process (policy will always be a CCP matter) will in the long run mean better legislation. Better legislation that is the product of wider exposure based on informed opinions and comments. This might also mean a legislative process that includes some participation for the general public.

    President Xi’s reform of the judicial system is the first comprehensive and probably the most committed reform we have ever seen in contemporary China. The reform goes hand in hand with President Xi’s anti-corruption agenda. The plenum proposed 11 legal innovations, but the most important for business are: to examine the legitimacy of major decision-making in governments; to improve the system for independent and impartial execution of judicial powers according to the law; to set up a protection mechanism for judicial personnel in performing their statutory duties and responsibilities; and to set up a system to recruit judges and prosecutors from qualified lawyers and law experts.

    Ultimately these steps if successfully enacted will give Chinese law a predictability that business needs. The plenary session may have laid out a new path for promoting the rule of law, but there are many turns in the path before the destination can be reached. Although there are difficulties, most experts agree that China has embarked on the fast track towards a rule of law, albeit with Chinese characteristics.

    The language of the fourth plenum spoke of a socialist system of rule of law with Chinese characteristics. This means building a socialist state of rule of law. There seems to be an explicit and implicit recognition of the need to try to create a system that is fair. This is significant and is a genuine attempt to build on the third plenum goal of developing a socialist system with Chinese characteristics and a modern “national governance system and governance capabilities”.

    In some ways it's a good opportunity to reflect on what we mean when we say that a system is fair. Implicit in “fairness” is the assurance of a stable system with mechanics and policies that are bound to a rule of law. In  behavioural economics it is called “inequity aversion.”  Like any English word, “fair” has multiple meanings. The Macquarie Dictionary defines fair as “free from bias, dishonesty, or injustice.” Interestingly it seems even Capuchin monkeys get what fairness is. For the business community that means a belief that the rules of the game are transparent and are applied equally (including to government). Judicial equity should promote and guarantees fairness, if it is free from corruption and influence.  But none of this gets very far unless there is a real desire to implement  the plenum’s lofty ideas.

    For Australian businesses, fairness means all business are treated equally before the law and there are reasonable safeguards that exist to ensure people are not treated arbitrarily or unfairly by governments or officials. The fourth plenum seems to be going some way towards a similar understanding of what people dealing with the Chinese system are entitled to expect.

    For business in China we hope that the plenum will lead to an end to complaints that they can’t get a fair hearing in court because judges answer to local governments and CCP organs, that may have their own interests to protect. We do not expect that China is about to set up a fully independent judiciary. In this sense the “Chinese characteristics” are more likely to mean that, for sensitive cases such as high-level corruption, the CCP will remain firmly in charge.

    There is a growing awareness that for sustainable economic growth the rule of law has an important role in China's market economy. That is why we expect that the path mapped out by this plenum will be one that leads to a destination where for example, companies could challenge the rulings of regulators in court. One where judges operated professionally, independently and with transparency (in at least commercial matters) providing high quality written judgements and decisions largely free from judicial corruption and political influence.

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    China will lower tariffs on a range of imported items next year, particularly some consumer products and parts to make high-tech devices, to spur domestic demand and promote industrial upgrading. 

    Products that will see lower tariffs next year include camera lenses and lasers for fiber-optic communication systems, the Ministry of Finance said in a statement on its website on Tuesday. 

    Machines that are considered environmental friendly such as power-controlled brake devices for electric cars will also be subject to lower tariffs. 

    At the end of each year, the ministry publishes a list of various imported goods that will enjoy special low-tariff status for the coming year.

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    Consumer parts, high-tech devices among list of low-tariff goods for coming year.

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    Chinese consumer confidence moderated in December but remains above the long-term average as accommodative monetary policy and a rallying stock market help to boost sentiment, according to a private survey.

    The ANZ-Roy Morgan China Consumer Confidence index showed that confidence eased by 1.6 points to 155.5 in December, after a record high of 157.1 in November. The index remains above the average level of 151.7 in the first 11 months of the year. December’s reading was also the second-highest level of the year.

    Of the five components that make up the survey, sentiment for longer-term economic performance fell most sharply, dropping 5 points, with 69 per cent of respondents expecting that China will have ‘good times’ in the long term. Meanwhile, 5 per cent expect ‘bad times’ in the long term.

    For economic conditions, 74 per cent of respondents expect China will have ‘good times’ next year, a drop of 4 points, while 6 per cent of respondents expect ‘bad times’, an increase of 1 point.

    Attitudes towards personal finances also deteriorated slightly in the month, with 3 per cent of respondents expecting their families to be worse off financially next year, a drop of 1 point.

    ANZ chief economist for Greater China Li-Gang Liu described the results as a “strong performance” and said the softening in the long-term outlook numbers reflected the ‘new normal’ in the Chinese economy.

    China's top leaders have stressed the need to adapt to the economy's ‘new normal’ in recent months as the country shifts towards slower but more sustainable growth.

    Mr Liu said Chinese authorities will "likely tolerate a slower growth rate in the coming years, under the framework of ‘new normal’ economy and will strike a balance among social, environmental, and economic targets”.

    "During the transition period, China’s growth is bound to slow."

    Mr Liu said inflation expectations had rebounded slightly in the survey but remain below trend, indicating "the ongoing dis-inflationary process will persist."

    "We believe that China will need to further relax monetary policy and forecast that the PBoC will lower the benchmark deposit rate by 25bps and the reserve requirement ratio (RRR) by 150bps next year,” he said.

    The Australian government slashed its own forecasts for Chinese growth in its mid-year budget update this week.

    Treasury is now expecting just 6.75 per cent growth in China in 2015 and 6.5 per cent expansion in 2016.

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    Canada has dramatically slashed its millionaire investor visa program to just 50 slots amid concerns amid some people with criminal links and corrupt officials from China have been using the scheme to launder money.

    The new pared-back scheme will ramp up scrutiny of applicants, requiring them to undergo an intensive forensic audit by private sector accountants.

    The new scheme will require a non-guaranteed investment of $2 million Canadian dollars and includes more selection criteria for language ability, skills and proven business or investment experience.

    The previous immigrant-investor scheme had been cancelled in February, leaving tens of thousands of mostly wealthy Chinese in the lurch.

    The Canadian government says the previous arrangement had not contributed to Canada’s economic growth.

    The new scheme will enable prospective immigrants to acquire residency visas by investing directly into a venture-capital fund.

    The funds will "be used to seed innovative Canadian start-ups with high growth potential”, according to a government statement.

    Increased scrutiny in the new scheme is "in order to prove that their net worth of at least $10 million has been obtained from lawful, profit-making business activities."

    Meanwhile, Australia’s current Significant Investor Visa scheme is booming, with $2.36bn invested into the Australian economy since the Coalition came into government in September last year.

    Like the Canadian government, Australia is also planning to tighten scrutiny surrounding its scheme amid concerns some people with criminal links and corrupt officials could be exploiting the program to fast-track their entry into Australia.

    The Canadian government hopes the new scheme will result in migrants who are "well prepared to integrate into the Canadian business landscape and society".

    “Our government is focused on building an immigration system that meets Canada's economic and labour market needs” said Chris Alexander, Canada's Citizenship and Immigration Minister.

    "Through the launch of this pilot program, we are attracting investors who can make a significant investment and who have the education and proven business or investment experience necessary to achieve success in Canada."

    "As we move forward, our government will continue to ensure that our economic immigration programs provide a direct benefit to Canada and contribute to long-term prosperity and economic growth.”

    The new pilot program will begin accepting applications in late January 2015.

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    Chinese money laundering fears prompt Canada to ramp up scrutiny of millionaire visa applicants.

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    HONG KONG— Tencent Holdings Ltd. ’s latest deal with Sony Music Entertainment highlights the larger battle unfolding among China’s Internet giants to control the country’s potentially lucrative market for online entertainment.

    The Chinese Internet company said on Tuesday it signed an exclusive agreement with the Sony Corp. unit that will enable it to exclusively manage the online distribution in China of Sony Music’s library, which includes pop artists Beyoncé and Daft Punk. The alliance comes on the heels of Tencent announcing other distribution deals with Warner Music Group and Time Warner Inc. ’s HBO network last month as it seeks to build up its entertainment portfolio.

    For China’s major Internet companies such as Tencent, its e-commerce rivalAlibaba Group Holding Ltd. and search provider Baidu Inc., entertainment is an important hook to attract the country’s more than 600 million Internet users. The companies are trying to offer more movies, television shows, music and games on their platforms to keep their users engaged and to prevent them from switching to rivals. To move ahead in the race, Tencent, a key competitor in online games and social networks, is trying to make its offerings more attractive by striking exclusive content deals with music and movie companies.

    “This is an ongoing effort…We are working on other partnerships as well,” Tencent Senior Executive Vice President Dowson Tong said in an interview. Tencent wants to become a distributor of all types of entertainment in China, from games to movies to music, he added.

    Even though China is the world’s largest Internet market by users, it has long been plagued by rampant piracy of music and movies, making it challenging for global entertainment producers such as Sony Music. For example, sales of licensed digital music in China were $82.6 million last year, putting the country at No. 21 in the world, according to the International Federation of the Phonographic Industry.

    Still, executives see an untapped opportunity for online entertainment in China. “China will be one of the most important markets in the world,” said Timothy Xu, head of Sony Music’s China operations. “It may take some time, but we strongly believe that the potential is there.”

    Tencent, which has built a profitable business around online games, has attracted overseas partners such as Sony Music by promising to create a sustainable online distribution business for licensed music and videos in China. Its QQ Music lets users listen to some music free, but some users pay a monthly fee of 10 yuan ($1.62) to download music, access to new songs and be invited to artist events. Tencent’s agreements with its partners involve revenue-sharing, Mr. Tong said.

    Tencent will promote Sony Music’s artists on its QQ Music music-streaming site and other platforms. Tencent also will negotiate on Sony Music’s behalf to sign licensing deals with other Chinese online distribution platforms under the deal.

    The deal with Sony comes after Tencent also announced distribution partnerships with YG Entertainment Inc.—a Korean music label behind “Gangnam Style” singer Psy—and documentary producer National Geographic Channel this month.

    Alibaba, Tencent’s chief Internet rival, also is focusing on entertainment. It took a 16.5% stake in online video firm Youku Tudou Inc. and bought a 60% stake in Chinese film production firm ChinaVision Media Group earlier this year.

    “In entertainment areas, we are looking for partners,” saidAlibaba Executive Vice Chairman Joseph Tsai in an interview last month. “We want to look for content we can bring to the China market.”

    More deals are on the horizon as Chinese competitors continue to seek more alliances and investments in the entertainment sector, bankers say. An investment banker who works with Tencent, Alibaba and other Chinese technology companies said they aren’t only interested in signing deals with Hollywood, but also in Korean pop music and dramas as well as Japanese animation.

    Still, Tencent and Alibaba face plenty of domestic competition in online music and videos.

    Mok Chui Tin, head of international business at online video firm Letv said that his company, whose library has more than 100,000 episodes of TV shows and over 5,000 movies, won’t be easily replaced by Tencent or Alibaba. “Our long history in the entertainment sector enables us to have a thorough understanding of Chinese viewers’ behavior and preference,” Mr. Mok said.

    One advantage for Tencent is the popularity of its two messaging and social networking services, QQ and WeChat, which have hundreds of millions of users each.

    “The latest music and latest movies tend to be the hot topics within our social platforms,” said Mr. Tong. QQ has more than a million fan groups dedicated to musicians and bands, and Tencent frequently holds concerts and other promotional events, such as karaoke song contests.

    Another challenge, particularly for the online video industry, is the uncertainty of Chinese government’s regulation. In September, China’s top broadcasting regulator said all foreign TV shows must be approved before they can be posted on video sites, possibly causing a delay in distribution.

    Under the HBO deal, Tencent plans to distribute “Game of Thrones” in China, but it is still unclear how much Beijing’s censorship will affect the show, whose scenes contain violence and nudity.

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    Deal allows internet giant to promote Sony Music artists in China.

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    BEIJING—When a unit of North Carolina’s Curtiss-Wright Corp. won a roughly $300 million deal in 2007 to supply components for new reactors in China, industry officials trumpeted China’s nuclear boom as good for U.S. business.

    Today, Chinese companies are competing for that business—and foreign companies risk getting left out. Meanwhile, Curtiss-Wright’s contract is caught up in a legal dispute, while Chinese authorities blame the company in part for the delay of a landmark nuclear project.

    U.S. and other foreign companies are now struggling to keep their hold in China, the industry’s biggest growth market and a rare bright spot more than three years after the Fukushima disaster in Japan put many of the world’s nuclear projects on hold. Yet China is increasingly turning to local companies to build crucial parts for multibillion-dollar nuclear projects, a result of Chinese industrial nationalism and frustration over U.S. supplier problems.

    With the global nuclear industry focused on China, the Chinese government has used the heft of its huge market to secure transfers of key technology and gradually localize production. In the process, China is achieving a political aim to source sensitive manufacturing at home and satisfying a practical need to avoid complications posed by faraway suppliers.

    One of those supplier issues has surfaced in eastern China’s Zhejiang province, where Pennsylvania’s Westinghouse Electric Co. is building the first of four of its most advanced, commercially available reactor, the AP1000, in China. Local authorities blame two-year delays in part on quality problems related to Curtiss-Wright. In a written statement, Curtiss-Wright said it has “refined and improved our design processes” as a result.

    “This sort of thing has damaged U.S. companies’ reputations here,” said Li Ning, a nuclear-industry expert at China’s Xiamen University. “Chinese companies are really growing and basically squeezing out the international suppliers.”

    In one case, a specialty part produced by SPX Corp. of Charlotte, N.C., for early AP1000 projects will be supplied by a Chinese state machinery company in future projects, according to State Nuclear Power Technology Corp., a company under China’s central government that is leading the AP1000 rollout. Of the four AP1000 reactors Westinghouse is building in China, the final one will have as many as nine major components supplied by Chinese companies that initially were supplied by foreign firms in the first unit, SNPTC says.

    The turnabout illustrates how China is moving swiftly to build a nuclear industry. Already, Westinghouse has provided details of the AP1000 as part of a technology-sharing deal. China plans to use that to build its own reactors that experts say it could sell abroad.

    “Folks in the U.S. need to remember that just because we were the first ones to the dance doesn’t mean we can rest on our laurels forever,” said Andy Mulkerin, managing partner at Nicobar Group, a Shanghai nuclear consultancy. “It’s a global market and you’ve got to be hungry in order to be successful.”

    Westinghouse, which is constructing eight AP1000 units world-wide, said it has made significant progress “resolving first-of-a-kind issues,” and the company had “increased confidence toward realizing the timely completion of these projects.” Units under construction in the U.S. have also faced delays and rising costs.

    China makes up a huge portion of global nuclear growth as the appetite for large nuclear projects wanes, not only because of the Fukushima disaster’s impact but also because of an abundance of cheap natural gas coming from new drilling technologies.

    Out of 71 reactors being built globally, China is currently constructing 26, according to the International Atomic Energy Agency. Another 180 reactors are planned or proposed in China, according to the World Nuclear Association.

    China’s technical advances have been on display in recent months. The state company involved in the AP1000 rollout said in September it won preliminary safety approval from China regulators for its own reactor design, the CAP1400, based on Westinghouse’s AP1000.

    By the time State Nuclear Power Technology builds its first CAP1400, 80% of the components are expected to be locally made, up from an average of about 55% in the first four AP1000s, according to the company. Many companies eager to enter China’s nuclear market have signed technology-transfer agreements with Chinese state firms—to avoid the risk of getting shut out of the market entirely.

    China First Heavy Industries Co. , a technology maker also under China’s central government, is among the firms that are getting business previously held by foreign companies. In August, First Heavy delivered its first domestically produced reactor pressure vessel for an AP1000 reactor. Earlier AP1000 reactor pressure vessels had been supplied by South Korea’s Doosan Heavy Industries & Construction Co. , according to State Nuclear Power Technology. Doosan declined to comment.

    Still, despite the challenges, opportunities remain for international providers, said Rosemary Yeremian, president of Strategic Insights Inc., a Toronto-based consultancy. China is new to the global nuclear stage, and partnerships bring quality and other assurances, she said.

    As work crews began construction in Zhejiang after the 2007 deal with Westinghouse, Chinese state companies and research institutes got to work dissecting the AP1000. U.S. supply-chain kinks also soon emerged.

    Curtiss-Wright positioned itself for success off the AP1000 deal. It valued a contract to supply reactor coolant pumps for the China reactors, coupled with a technology-transfer agreement with State Nuclear Power Technology, at nearly $300 million.

    After testing in 2012, Curtiss-Wright shipped the pumps for installation at the first AP1000 in Zhejiang. However, subsequent testing revealed flawed welding, according to a U.S. Nuclear Regulatory Commission filing. Curtiss-Wright blamed its own supplier for the defect.

    The flawed pumps were returned to the U.S. for fixes. According to a Securities and Exchange Commission filing by Curtiss-Wright, “disassembly, inspections, and preparation for shipment costs” related to the pumps cost it $23.7 million. Westinghouse wants about $25 million in damages for the delays, according to Curtiss-Wright. Westinghouse declined to comment on “litigation matters or commercial discussions.”

    In a written statement, Curtiss-Wright said it “continues to work with our partners in China to negotiate a new follow-on contract.”

    Meanwhile, SPX, the U.S. company selected to supply squib valves—a key safety technology—for China’s AP1000s, as part of an agreement valued at more than $100 million, soon became dogged by questions over the valve’s manufacturing. After a February 2012 facility inspection, the NRC said SPX hadn’t properly implemented its quality-assurance program. Back in Zhejiang, concerns over the part forced reordering of more than 200 squib-valve component pieces, according to authorities in Zhejiang.

    The province cited squib-valve concerns and problems at Curtiss-Wright as reasons for delays in completion of the first AP1000, which isn’t yet online. As a result, the provincial government said it had been forced to import electricity from other provinces.

    SPX didn’t comment directly on delays related to the squib valve, but said the parts it supplied Westinghouse satisfied “demanding quality requirements and technical specifications.”

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    Foreign suppliers may get left out; Westinghouse hands over plans.

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    SHANGHAI—China plans to ban asset management companies from repackaging local government debt as so-called securitized products, taking another step to contain risk in loans and bonds owed by many of its struggling regional authorities.

    The move, proposed by an industry association overseeing China’s fund management houses, came just a week after another subsidiary of the nation’s securities watchdog effectively barred investors from using low-grade bonds issued by local governments as collateral for short-term borrowing.

    However, given that asset-management firms account for only a fraction of China’s fast-expanding asset securitization market, the impact of the latest move will likely be limited, unless major issuers such as banks and trust companies follow suit, analysts say.

    In draft rules proposed by the Asset Management Association of China, which is overseen by the country’s securities regulator, the industry association unveiled a list of items that can’t be used as underlying assets for asset-backed securities, or ABS.

    Asset-backed securities are bonds or notes backed by financial assets including credit-card receivables, auto loans and mortgages. The products are appealing to issuers because by passing on risks to investors, they could get the underlying assets off their balance sheets and free up more capital.

    According to the draft rules, posted on the association’s website on Monday, asset management firms can’t use debt owed by local governments or their financing vehicles to back new ABS issuance. Other assets, such as income from mining or land sales, fall into the same category.

    The industry association didn’t say when the proposed rules will be implemented.

    China began allowing financial firms to securitize assets on an experimental basis in 2005, but put the experiment on hold in 2009 when the sale of the instrument was heavily criticized during the 2008-2009 global financial crisis. The authorities revived the program in 2012 and Chinese Premier Li Keqiang has on several occasions touted the benefits of using securitization as a way to resolve to the country’s ballooning debt problem.

    Despite the caution demonstrated by the asset-management industry association, it remains unclear whether more powerful authorities, especially China’s banking regulator, will impose similar restrictions on asset-backed securities issued by banks and trust firms, which are dominant players in this market.

    Faced with a slowing economy, Beijing is grappling with rising risk in its financial system, including poorly regulated informal lending channels, a rapid increase in corporate debt and deteriorating fiscal conditions of regional governments as the property market weakens.

    The move by the asset-management association is the latest sign of growing caution among the authorities, at least China’s securities regulator, about the weakening repayment ability by many of the country’s debt-laden cities and provinces.

    Last week, China’s securities clearing house banned the use of lower-grade corporate bonds, the bulk of which are those issued by local government financing vehicles, as collateral for short-term borrowing between investors.

    The new rule triggered a selloff in China’s bond market, causing yields to rise sharply as investors dumped lower-graded corporate papers.

    The latest moves follow a series of measures taken by the Chinese authorities to impose tougher financial discipline on local governments and keep their debt levels in check.

    In early October, China’s cabinet said Beijing won’t bail out local governments when they fail to repay their debts, and will impose ceilings on their borrowing.

    China’s local governments have taken on massive debts in recent years to fund infrastructure projects since Beijing opened the credit spigot to combat the global financial crisis.

    They have had a tough time this year repaying debt as revenue growth has slowed amid a weaker national economy and a property-market downturn.

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

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    Latest step to contain risk in loans and bonds owed by many struggling regional authorities.

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  • 12/16/14--21:25: China business news digest
  • Your daily digest of the biggest business news in China, translated and summarized every day.

    Chinese iron ore stockpile drops below 100 million tonnes

    Stockpiles of iron ore at Chinese ports have dipped below 100 million tonnes for the first time since February this year, signalling a modest recovery in the country’s embattled steel sector.

    Iron ore stocks have been piling up at Chinese ports as the economy slows in China. The total stock of iron ore at Chinese ports was only 64 million tonnes in May 2013 and increased to above 100 million tonnes in about nine months.

    In order to produce one tonne of steel, mills need 1.65 tonne of iron ore. The total amount of imported iron ore has been increasing while steel production stagnates.

    (YiCai)

    China will revise its GDP figure

    China will revise its GDP figure modestly in light of the country’s third economic census which concluded this year.

    The head of the National Bureau of Statistics says the GDP figure could be revised upward by about 3 per cent.  The Chinese government revised its GDP figure by 4.45 per cent in 2008, adding another 1.34 trillion yuan to the GDP figure after completing a nationwide economic survey.

    The Chinese statistical agency is traditionally weak in collecting data from the service sector.

    (Beijing News)

    Privately controlled steel mills want more power

    Private Chinese steel mills want to have more bargaining power over state-owned steel plants as Beijing seeks to attract more private sector money to rejuvenate the ailing industry.

    The average debt to asset ratio is more than 100 per cent for state-owned steel mills. The industry is battling against razor-thin profit margins, excess capacity as well as a slowing property sector.

    China’s largest private sector steel firm wants to have a controlling stake in state-owned firms otherwise it is not interested in investing. State-owned firms still have access to bank funding despite crippling debt burden and thin margins.

    (The Paper)

    Economic census reveals strong growth in high-tech manufacturing 

    China high-tech manufacturing sector generated 11.6 trillion yuan in revenue last year, according to the results of China's third national economic census announced by the National Bureau of Statistics yesterday.

    This revenue is more than double that generated by the sector in 2008

    Profits from high-technology manufacturing have also more than doubled since 2008, reaching 723.4 billion yuan in 2013.

    Ma Jianteng, the head of the NBS, told reporters that the strong growth in high-tech manufacturing was closely connected to the increased level of support provided by the government.

    However, Mr Ma said that an even more important factor was the ever-strengthening role of the market.

    Data from the census results also revealed an increasingly important role for the services sector in China's economy.

    The proportion of workers employed in the tertiary sector as a proportion of total employment has increased by 3.5 percentage points over the five years to the end of 2013.

    The country had 7.85 million small and very small enterprises at the end of 2013 in the secondary and tertiary industries, accounting for 95.6 per cent of the total and providing 50.4 per cent of total employment.

    Authorities will announce changes to the GDP estimate for 2013 (as determined by the additional data included in the economic census) on December 19.

    (China National Radio)

    Who own a stake in China's 'first private bank' ?

    Further details of which companies hold a stake in the recently approved Shenzhen Qianhai Weizhong Bank (WeBank), were published in report in The Paper today.

    According to the report, in addition to the three companies that had already been identified as backers of the new private bank - Tencent (30 per cent), Shenzhen Baiyeyuan Investment Co. (20 per cent) and Shenzhen Liye Group (20 per cent) – among the other stakeholders are:

    Shenzhen Chunyong Investment Co ( 9.9 per cent).

    Shenzhen Henggang Investment Co Ltd (5 per cent).

    Shenzhen Brightoil Petroleum Group (4 per cent).

    A subsidiary of the Yongjin Group (3 per cent).

    Sintave (3 per cent).

    Shenzhen Gionee Communications Equipment Co., Ltd. (3 per cent).

    The company is being established with registered capital of 3 billion yuan ($US500 million).

    Earlier reports said that the new lender, which received regulatory approval on December 12 and completed its commercial registration on December 16, will focus on personal loans as well as extending credit to small and medium-sized enterprises.

    Although many media reports say that the financial institution will be China's 'first private bank,' China Minsheng Bank has been operating as a private lender for many years.

    Webank is one of five new private banks that were approved by the CBRC earlier this year.

    (The Paper)

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    The number of university students in China, including those in part-time higher adult education, expanded from 12.3m students in 2000 to 34.6m in 2013. China has become an exceptional example of increasing access for students to higher education – but this expansion has also been accompanied by some unexpected and even negative consequences.

    The annual number of graduates is expected to reach 7.27m in 2014 and the challenge is to find them appropriate jobs, especially as over-education – where the supply of graduates exceeds labour market demand – is becoming serious. An uneven distribution of higher education by geographic region and social group has also resulted in growing inequality of opportunity, creating barriers for students from inland regions and from rural families, especially those applying to key national universities.

    Such achievements and problems were considered in the 2012 Ministry of Education’s Guidance and Measures document on quality, structural adjustment and educational equality. This policy change, signalled by China’s president, Jing Xiping, has offered an opportunity to rethink the relationship between social justice and Chinese higher education.

    Gradual reform

    The unevenness of China’s economic and social development over the past three decades has created a stratified society which has had a major impact on educational inequality, especially in higher education. Nevertheless, relatively little attention has been paid to its role in achieving social justice and maintaining an harmonious society.

    The renewal of higher education was a key part of Deng Xiaoping’s development strategy, begun in 1978, to open China to the world. State control was maintained and the universities continued to serve the policy requirements of the Communist Party.

    Yet gradual adjustments were made. A high value was placed on scientific knowledge, innovation and the application of research, compared with traditional Chinese knowledge. University curricular were de-politicised and direct political control over student recruitment and behaviour was relaxed – although each institution continued to be monitored by its internal CCP organisation.

    International higher education was opened up to academic exchange and a state-funded programme began through a China Scholarship Council for visiting Chinese scholars abroad. Tuition fees were introduced in the late 1980s have grown steadily since from 200 yuan RMB in 1989 to 5,000 yuan RMB in 2000 (US$32 to US$808 in today’s money). Fees now range from 13000 yuan RMB to 23,500 ($2,000 - $4,000). Permission was also given for universities to recruit some students outside the national plan, which had set the total number of students each university could admit.

    In contrast with the Maoist era, the most significant change has been that universities are now essentially centres for the production of elites in the manner of similar institutions in capitalist economies. The possession of university credentials is now emphasised as a key criterion for recruitment or promotion in both the public sector and in the emerging private sector.

    In search of excellence

    In the late 1990s, China’s higher education system entered a new era, with the introduction of a new set of policies. This began with the state’s decision in 1995 to develop so-called world-class universities through its 211 projects involving the top 100 universities and, since 1998, through its 985 projects involving the top 40 universities.

    These led to strict ranking of higher education institutions with privileged state financial support. This was followed by the devolution of responsibility for around 300 other universities to provincial governments. It was a transition from a national plan for the recruitment, training and employment of graduates for Chinese state socialism to a system to create a supply of graduate talent to feed the changing labour markets.

    The most significant change has been a funding system which has led to both an expansion of public universities and the emergence of private higher education.

    Redressing stratification

    These changes have taken place in the context of an economic growth which has created a highly stratified society. In recognition of this, compensatory initiatives have been introduced by the current leadership of party and state. Policy programmes have aimed to increase the number of disadvantaged students accessing key universities, while state funds have been allocated to improve teaching conditions in higher education in the disadvantaged west of China.

    Students from migrant workers' families have been allowed to take the national university entrance examination at their place of residence rather than at their place of family origin. There has also been improved state financial support for students from poor families alongside promotion of entrepreneurship to enhance employment prospects. It remains to be seen how effective such policies will be in reducing educational inequality, given that they are essentially limited administrative measures.

    The dilemma faced by Chinese higher education officials is how to build both world-class universities and a system that meets the needs of the Chinese people. It seems that fundamental problems have yet to be analysed using empirical research – and they will need to be if the state is to be sure it its policies are working.

    The Conversation

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

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    East Asia Forum

    Surprise raids by Chinese government officials on the offices of major multinationals in China to catch out monopolistic business activity have created perceptions of bias against foreign firms in the enforcement of the anti-monopoly law.

    Bias or not, what the raids and the reaction demonstrate are the conflicting objectives that surround the next steps in China’s economic reforms. On the one hand, policy seeks to shake out entrenched vested interests around state-owned and protected monopolies. On the other, it seeks to protect and strengthen the still significant role of state-owned enterprises in the economy.

    The highly publicised raids form part of what Chinese officials have called an ‘anti-monopoly campaign’. State media says thousands of firms have been scrutinised, including Chinese, Japanese, and Western firms. Tens of millions of dollars have already been paid by companies that have been judged to be engaging in unfair monopolistic pricing. Other businesses have simply dropped their product prices in an attempt to deflect being investigated.

    A firm will charge a higher price for its products if it faces no competition, extracting monopoly profits at the expense of consumers. Diminished competition may be the result of a number of things. Regulators can restrict competition in some markets creating monopoly rents, or firms themselves might drive competitors out of business through predatory pricing or create monopoly power by differentiating their products from substitutes through branding.

    In any market economy competition should be promoted — or at least anti-competitive behaviour should be prevented with anti-monopoly or competition law. The focus of competition law needs to be on tackling anti-competitive behaviour by large firms that already possess market power, cartels and anti-competitive mergers. Creating and implementing China’s anti-monopoly law is thus a crucial step in China’s commitment to the welfare-enhancing function of a market economy.

    Chinese consumers are frustrated at the high costs of some foreign products. The higher cost of a Mercedez-Benz or a Starbucks coffee in China (both substitutable for a Chinese Hongqi limo or a New Island latte) is not necessarily evidence ofmonopolistic pricing, but more likely the result of the premium that Chinese consumers are willing to pay for these brands and the quality they guarantee.

    A bigger problem than overpriced frappuccinos is that focusing public attention on expensive foreign goods deflects attention from the more complicated issue of untangling home-grown monopolies. China’s economy today continues to be characterised by monopolistic structures protected more because politics than economics. These entities impede economic growth and put consumer welfare a poor second.

    The story of China’s path towards its contemporary ’socialist market economy’ can only be understood as a story about monopolies, and the gradual de-monopolisationof Chinese industries from their origins in the formerly centrally planned economy.

    Under central planning, industrial production was monopolised by the state. Competition between firms did not exist. Their production and markets were set by quotas allocated by planners, such that industrial profits were high. After China’s economic reforms in 1978, some competition between firms was allowed, and barriers to entry into industrial production were removed. Township and village enterprises, followed by private enterprises, entered into high-profit industrial production and quickly reduced prices and state profits through competition in the market. The activity of small and medium sized firms has since continued to flourish, and as Nick Lardy recently pointed out, it is these private firms that make the biggest contribution to China’s economic growth, rather than the many large SOEs.

    Many of China’s SOEs were privatised in the 1990s as they became loss-making in the face of new more efficient competitors. Those that survived privatisation were necessarily more profitable, largely because they remained monopolistic business structures to varying degrees, whose monopolies were entrenched by the state. They remain protected against private and foreign competition, for example through restrictions on entry, in the form of easier access to cheap credit from state banks, or through exclusive access to lucrative government construction or service contracts. The World Bank calls these ‘administrative monopolies’ the number one problem facing private enterprise in China today.

    Ideology and politics make privatisation of these giant SOEs unlikely for some time yet. And ideology aside, there is a strong and understandable desire at many levels of society to build up the competitive power of Chinese businesses, including SOEs, as ’national champions’. The risk is that the state’s reflex to protect Chinese firms by selectively enforcing the anti-monopoly law, like an over-protective parent, might suffocate their capacity to step up and compete with the world’s leading firms in technology, innovation, and quality, domestically and abroad.

    Chinese regulators will need to fully and rigorously enforce the anti-monopoly law across the full spectrum of firms operating in China’s markets, foreign, private and state-owned alike if Chinese firms are to grow strong and competitive at the same time.

    Patrick Williams is a visitor at Peking University as an Endeavour Award Postgraduate Scholar and graduate student at The Australian National University.

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

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    Growth in minimum-wage levels across China appeared to have slowed this year, amid low inflation rates and a slowdown in the world's second-largest economy, a labour watchdog says. 

    Just 20 of the 32 Chinese provinces and regions tracked by China Labor Bulletin raised their statutory minimum wages so far in 2014, fewer than the 27 areas that lifted base pay levels last year, according to report published on Tuesday by the Hong Kong-based group. 

    The latest data also marked a third-straight year of decelerating minimum-wage growth, according to China Labor Bulletin. 

    In 2014, the 20 regions that have boosted their minimum wages did so by an average of 13 per cent, lower than the average 17 per cent seen last year. This also compared to an average increase of 20 per cent by 25 regions in 2012, and the average 22 per cent increase by 24 regions in the preceding year. 

    The slowdown in minimum-wage growth "is partly explained by China's low inflation rate over the last year," China Labor Bulletin said. Government data showed China's consumer prices rose in November at their slowest pace in five years amid lower global commodity prices and weaker demand. 

    Increases in minimum wages, however, don't necessarily translate to better pay for many workers. A slowdown in China's economy and its manufacturing sector, combined with a lengthy squeeze on credit, means that "many low-paid workers have seen next to no increase in take-home pay this year," China Labor Bulletin said. 

    The watchdog's findings appear to dovetail with a study issued this week by a top Chinese think tank, which called time on the era of rapid wage growth in China, even as concerns fester over the country's weakening labor-cost competitiveness. 

    Based on its assessment of China's economy, corporate earnings, minimum-wage levels and labor supply, the Chinese Academy of Social Sciences believes that the country's wage levels, for a period of time, "won't grow by the large extent seen in previous years," according to a Monday report by the state-run China News Service. 

    Even so, wage growth over the past decade has already all but eroded China's competitive edge in labor costs over many of its regional rivals, according to the academy. 

    In particular, average wages in China's manufacturing sector now exceed comparable levels in South and Southeast Asia by as much as six times, the think tank said. 

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    Low inflation rate triggers third-straight year of decelerating minimum wage growth: report.

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