Asia is the world's largest importer of crude oil. For years, as global oil prices rose, countries in the region shielded consumers and businesses through a complex and costly web of fuel subsidies.

Now that oil prices are falling, many governments are using the moment to unwind these subsidies. Indonesia, Malaysia and India have taken steps in recent weeks to raise government-set fuel prices. China's government increased fuel-consumption taxes twice in the past month, the first rises since 2009.

As a result, lower crude prices aren't filtering through into cheaper gasoline at the pump to the same extent as in the US While drivers in New York City have seen prices of regular gasoline decline 26 per cent since the end of July, in Beijing government-regulated gasoline prices have fallen about 17 per cent during roughly the same period. In Malaysia and Indonesia, some fuel costs have risen.

Prices at the pump could fall more if crude oil stays in a slump, economists say. But Asia's highly-regulated market for fuel is damping benefits to consumers.

In China, where retail gasoline prices are fixed by the government based on changes in international crude prices, the government's fuel-consumption taxes are part of a broader plan to reduce traffic congestion in big cities and battle pollution.

Further tax increases could follow if global oil prices remain low, economists say. Academics at the University of California, Davis, said in a recent paper that the optimal gasoline tax for China to control congestion and vehicle emissions was the equivalent of $US1.58 a gallon, around double the current level after the recent increases. US drivers by comparison pay about 18 cents a gallon in federal tax.

The world's largest direct seller of cosmetics, Avon will pay $US135 million ($A146.06 million) to settle criminal and civil charges after its China unit pleaded guilty to conspiring to bribe officials there.

Avon China entered the plea in federal court in Manhattan, admitting it disguised $US8 million in gifts its employees gave to Chinese government officials from at least 2004 through late 2008 to gain access to officials who oversaw direct selling regulations.

It admitted concealing and disguising cash, non-business meals, travel and entertainment it provided to obtain business benefits.

Avon, headquartered in Manhattan, agreed to pay $US68 million in criminal penalties and nearly an equal amount in disgorgement and prejudgment interest to settle a civil case brought by the Securities and Exchange Commission.

China outlawed direct selling in 1998 but agreed to lift the ban in 2001.

The SEC said Avon received the first direct selling business licence in China in March 2006 as it showered officials with gifts including Louis Vuitton merchandise, Gucci bags, Tiffany pens and corporate box tickets to the China Open tennis tournament.

"Avon's subsidiary in China paid millions of dollars to government officials to obtain a direct selling licence and gain an edge over their competitors, and the company reaped substantial financial benefits as a result," said Scott W Friestad, an associate director in the SEC's Division of Enforcement.

As part of Avon's deal with the government, federal prosecutors entered into a deferred prosecution agreement with the parent company, saying it had co-operated by conducting an extensive internal probe and by making its US and foreign employees available for interviews.

The prosecutors said Avon also had begun extensive anti-corruption remedial efforts, including disciplining some employees.

East Asia Forum

‘Benghai’ was changing. Returning to my old office, my home for ten years of fieldwork in rural China, it was clear something was amiss. Gone was the grizzled caretaker, listlessly following his mop around the ground floor of the four-storey building. In his stead was a bank of impossibly cheerful uniformed women in their early twenties. Their smiles could signify only one thing: real estate.

China’s urbanisation drive was there to greet me. The former vista of water buffalos, bamboo, and misted peaks was replaced by a tangle of mud and discarded scaffolding, concealing the shells of several apartment blocks, up to 15 storeys tall. My colleagues, whose building had been sold off by the county government, were soon to be evicted, the office scheduled for demolition before the end of the year. There was consensus that a ten year life was ‘about right’ for a building in modern Anhui.

The county government was stealthily going about its relocation, despite sporadic disapproval at the provincial level. This was partly driven by the need to keep the project rolling for the benefit of the ‘shadow state’ of friends and relatives who supplied the materiel for the relentless cycle of construction and destruction. Improving the propitiousness of the county government building’s fengshui was also believed to help the chances of promotion for future party secretaries to the provincial government.

Already, patterns of status could be discerned. The most impressive edifices belonged to government agencies with the capacity to charge for their services, control resources or personnel, or levy fines. The Sand Management Office, which made a tidy living by shaking down the drivers of the overloaded trucks that carted river sand to build the provincial capital, merited a six-storey building. Just a few kilometres away, the cracked and pitted road to the capital stood as a monument to their failure to do their job. The humble Records Bureau, which stood in its shadow, had several staff members in each room.

On the other side of the lake, there were indications that ‘Benghai’ was moving up the economic food chain. Another real estate development was underway, this time run by a local businessman rather than one of the many entrepreneurs from Zhejiang, with prices breaking through the RMB4000 (US$650) per square metre barrier. A modest two-bedroom flat in an obscure corner of Anhui will set you back $150,000, if you keep the renovations ‘basic’. The developer of this venture, which would also boast a five-star hotel, had started out as a contractor, building the roads and irrigation ditches that had proliferated during the early years of the New Socialist Countryside campaign.

As the Chinese economy has slowed, with structural issues unaddressed, old China hands are foretelling economic and possibly even political disaster. Yet in the counties of ‘middle China’ the informal, private economy — both the local state and local business — is thriving. Informal solutions are being found to problems that the central state is unable, or unwilling, to address.

Notions of ‘predatory’ and ‘developmental’ states are simplistic. In practice, the formal local state is both prey and predator of the informal, or shadow state. When a mid-level official complains that his brother, who owns a computer shop, has to hand out tens of thousands of dollars’ worth of supermarket cards every year to ensure that contracts from the official’s department continue to flow, is there a victim? Moral categorisations make little sense.

Moreover, a large part of the local party apparatus is quietly engaged in enabling local enterprises to get things done, often for their own benefit, either through the revenue from taxes levelled on service industries or from their own indirect involvement in business.

The formal assessment system does encourage overinvestment by local governments in showcase infrastructure projects, but officials are rewarded in a different way for growing their service sector. At the county and township level, local service businesses are intertwined with local government. They are staffed and run by the relatives and friends of local officials who will spend their career working within the boundaries of their home county. In traditional economic thinking, services are more mobile than manufacturers. But in practice, the service sector is off limits to out-of-towners, and the local government struggles to retain footloose manufacturing businesses by offering cheap land, electricity and tax holidays.

Officials in ‘Benghai’ county strive to attract manufacturers because of the spillover benefits that manufacturers deliver to service companies, owned by officials’ friends and relatives. The formal assessment system rewards officials who hit revenue targets. Service businesses help them to achieve this in two main ways. The first is business tax revenue, which, unlike the VAT and enterprise income tax from manufacturers, is not shared with the central government. The second is conveyancing fees, which flow into the ‘extra-budgetary’ revenue stream. As scholars such as Tao Ran and Liu Mingxing have argued, the revenue sacrificed by offering cheap (or free) land to manufacturers can be recovered by restricting the supply of commercial and residential land.

The disparity between cheap industrial land and costly land for real estate development can be readily observed. In contrast to the 15-storey residential block rising behind my old office, parts of the ‘Benghai Eco-Industrial Park’ were sprawling and untended biodiversity hotspots, ideal for amphibians. Yet the absence of shuttered factory doors, and the thriving service economy that surrounded it, suggested that China’s version of rural capitalism wasn’t ready to croak its last.

Dr Graeme Smith is a Research Fellow at the State, Society & Governance in Melanesia Centre at the College of Asia and the Pacific, Australian National University. This is an edited extract of his chapter in ‘A New China-Australia Agenda’. The name of the county referred to in this article has been changed.

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

The average price of new homes in 70 Chinese cities continued to fall in November, signalling the decline in home prices hasn’t run its course.

But on a month-over-month basis, average home prices fell at a slower pace, as some developers started to rein in discounts after Beijing unexpectedly cut interest rates and eased mortgage rules nationwide.

Analysts and investors are looking for signs of stabilisation in China’s real-estate market, which has seen a sharper-than-expected downturn this year.

The correction in the all-important housing market has dragged economic growth in the world’s second-largest economy. Analysts estimate that real estate accounts for nearly one-quarter of gross domestic product when construction, cement, steel, chemicals, furniture and related industries are factored in.

On a month-over-month basis, prices in November slipped 0.6 per cent, compared with a 0.8 per cent fall in October, according to calculations by The Wall Street Journal. It was the third consecutive month that average prices fell less sharply than in the previous month. The National Bureau of Statistics doesn’t break out monthly figures.

On a year-over-year basis, the average price of new homes declined by 3.6 per cent in November, compared with a 2.5 per cent fall in October and 1.1 per cent fall in September which was the first annual decline in nearly two years.

Excluding public housing, private-sector home prices fell in 68 of the 70 cities in November from a year earlier, up from the 67 cities that posted declines in October. On a month-over-month basis, home prices fell in 67 of the 70 cities in November, down from October’s 69.

The central bank cut benchmark interest rates last month, the first broadbased cuts since July 2012. This came on the heels of a relaxation in mortgage policies which have led to improved sentiment among investors and home buyers.

China in late September loosened mortgage restrictions by extending to existing homeowners the preferential rates and terms that first-time buyers enjoy.

But the property data has been mixed so far, indicating that such policy moves have a limited impact in many Chinese cities that are still plagued by huge inventory levels.

Housing sales in November showed a bigger year-over-year decline than they did in October.

Australia is set to simplify the process for visa applications for Chinese tourists as the first round of applicants trial a new pilot program this month.

The online visa application trial, which started at the beginning of December, is aimed at keeping Australia in the game as countries across the globe vie for a rapidly increasing and lucrative Chinese tourist market.

Trade Minister Andrew Robb said the trial is part of a broader strategy to “ensure Australia maintains its position as a preferred destination for Chinese tourists and investment”.
 
The number of outbound mainland Chinese tourists exceeded 100 million in the year to November, according to China’s Ministry of Tourism. But trips to ‘Oceania’, which includes Australia, accounted for only 1.1 per cent of all outbound tourist flows. Outbound Chinese tourist numbers are expected to grow to 200 million by 2020.

Billionaire casino owner James Packer has been particularly vocal about the need for visa reform as well as Austrade, Tourism Australia and NSW Trade & Investment.

Last month, the US and China signed a deal allowing 10 year visas for those travelling from China to the US or vice versa.

In February, three-year multiple entry visas for Chinese business travellers were introduced. Chinese e-Passport holders will soon be able to fast-track their arrivals into Australia as part of an upcoming Smartgate trial.

Spending by Chinese tourists has gone up 16 per cent to $5.4 billion in the year ending in September according to Tourism Research Australia.

Lowy Interpreter

An ambitious Chinese initiative to build a series of strategic maritime distribution centres, west to Africa and beyond, has been revealed. This is an extension of the Maritime Silk Road, which in turn complements a plan to revive the terrestrial Silk Road through central Asia.

A 'string of pearls'— bases through the Indian Ocean — has long been denied by Beijing, possibly in deference to India. Recent naval deployments suggest Beijing is less obliging now. 'China's growing investment and its international prestige associated with the Maritime Silk Road must be protected which will in turn demand presence', notes one China watcher. Formal alliances and bases are unlikely for now, but 'fighting terrorism' and guarding African oil overseas has been authorised.

The term 'string of pearls' invokes the British coaling stations of olden times. The Chinese maps today, showing railways and shipping lanes spanning the globe, remind an English friend of mine of the British Empire on which the sun never set: 'This move from China is straight out of the playbook of Queen Elizabeth (the First), who granted a charter to the East India Company to take the City of London's excess savings and "go out." The Company did this until 1857, when some fairly serious corporate governance issues in one of its key assets (the Indian Rebellion) led to the Company's ruin and nationalisation.'

That's a provocative analogy for China, especially given the Company's heinous record as a state-sponsored drug pusher. But it raises fair questions about how nations recycle surplus savings, and also the conduct of their corporate-state-security complexes overseas.

Jacob Zuma says China can 'help cast off Africa's colonial shackles'. In the Congo, Chinese companies are everywhere, but so discreet behind their ubiquitous ten-foot walled compounds that locals puzzle about their activities. A Peruvian economistmarvels at the cohesion of the new conquistadores: 'behind Chinese investment lies the strategy of an entire country.' Elsewhere policies to 'build influence' and 'deploy overcapacity' may meet resistance.

A hundred years ago, after its Civil War, America was in an expansive mood, rough-riding its way to Manifest Destiny. Supposedly Britain acquired empire in 'a fit of absent-mindedness', but as Mark Twain witnessed in the Philippines, the American empire was anything but absent-minded. If there remains an American empire today, as some argue, China might seek something similar. Of course China remains ideologically committed to Marxism, for which 'imperialism' is anathema. But then again, Marx's Bolshevik followers were as keen on territory as the Romanov empire they overthrew.

'Europeans waged a Five Hundred Years War on the rest of the world' writes Ian Morris of the period 1415 to 1915. By then 'they had conquered 84% of the earth's surface', including chunks of China. Notably, it was only halfway through this onslaught, following the Thirty Years War, that they could establish — at least among themselves — how the Westphalia Treaty rules operate. Andrew Phillips at ANU reckons 1915 in turn marked the start of Asia's own Thirty Years War, at which time China made its own transition from celestial kingdom to nation-state. China today is a strong proponent of 'Westphalian sovereignty', yet Westphalia's signatories only respected 'non-interference' at home; arguably it fueled imperial expansion abroad.

Phillips predicts that 'much like the post-Vienna Congress period (another grand intra-European agreement in 1815), the world will be multipolar in its essential form, but informally underwritten by the dual hegemony of the two preponderant powers.' From 1815 to 1915, these were Russia and Britain. The 20th century ultimately saw both diminished. In 2015, Phillips reckons, America and China 'will serve respectively as the maritime liberal and continental autocratic anchors of an uneasy but relatively stable international order. Globally these great powers will compete for influence in major energy producing regions.'

A Chinese historian demurs: 'Westerners fear China dominating the world because they think China will act just like they did. But traditional Chinese civilization never acted that way.' Its tributaries were comfortable in the Sinosphere. Would Tibetans and Uighurs and Mongols agree today, though? 'That's the problem', the historian admits: 'China today is not traditional.' It more resembles the hard-edged Western nation-states which emerged after 1648, the ones who professed sovereignty and non-interference at home but pursued colonialism abroad.

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

After years of allowing nearly 

uninterrupted gains in the yuan, China is growing more willing to let it depreciate modestly while seeking to add flexibility to its trading, according to Chinese officials and experts familiar with the country’s policy-making.

The shift comes as the People’s Bank of China grapples with what some within the central bank call “unprecedented” downward pressure on the yuan, thanks to a strengthening U.S. dollar and a slowing Chinese economy. The yuan has fallen more than 2 per cent against the dollar since the beginning of this year, putting it on track for its first annual decline in five years. On Wednesday, it was down 2.3 per cent against the dollar for the year.

But the PBOC is unlikely to permit the yuan to slide more than 3 per cent against the dollar, the officials and advisers to the central bank say. Big yuan depreciation could cause money to flow out of the country just when China needs funds to spur economic growth.

Beijing also is gunning for the International Monetary Fund to declare the yuan—also known as the renminbi, or the people’s currency—a global reserve currency next year, like the dollar, the euro and the Japanese yen, the officials say. A key criterion is whether a currency is widely used in global trade and finance; Beijing believes a falling yuan would be less appealing to businesses and investors.

Late next year, the IMF will review the list of currencies countries can include in their official foreign-exchange reserves.

“There will be bouts of depreciation in renminbi next year, especially in response to any further easing of the monetary policy,” says a Chinese official close to the central bank. “

But overall, the exchange rate should remain relatively stable,” the official says. “Greater trading flexibility is entirely possible.”

China’s leadership has been trying to raise the yuan’s global status as a way to challenge the U.S.’s dominance in world affairs. Though increasingly important in international trade, the yuan isn’t freely convertible. The PBOC sets the value each day, permitting the yuan to fluctuate within a limited range against the dollar.

Since 2012, the central bank has twice expanded that band. Making the currency more market-driven fits with Beijing’s broader effort to transform the economy so that it relies more on domestic consumption, rather than investments, for growth. By making it easier to convert cash into other currencies, a freer yuan could give consumers more flexibility in terms of spending and investments.

Despite those moves, China’s management of the yuan has remained a source of friction in Washington, with lawmakers in both parties pressing the Obama administration to push China harder to loosen its grip. Many in Congress have accused China of currency manipulation and said that by keeping the yuan weak, China has restrained U.S. exports and cost American jobs.

Now, a surging U.S. dollar presents China with a challenge. In addition to potentially adding to pressure from Congress, a weaker yuan could cause people to take money out of China, despite Beijing’s tight controls on capital, just as fewer funds are flowing in.

The latest official data show that the PBOC and China’s commercial banks bought only 2.7 billion yuan of foreign exchange last month, down sharply from 66.1 billion yuan in October. The purchase totals are often seen as a proxy for the amount of foreign currency entering China.

On the other hand, if China moves to make the yuan appreciate against the dollar, that could hurt exporters, making goods made in China more expensive in the U.S. and other foreign markets. Beijing argues that the current slowdown in its economy indicates the yuan is nearing the level where it should reach equilibrium with the dollar.

“The exchange-rate policy will be one of the most complicated macro policies in China in 2015,” says Haibin Zhu, China economist at J.P. Morgan Chase & Co.

Economic weakness that led the PBOC to cut interest rates last month, coupled with expectations that U.S. short-term rates will rise next year, have made it less appealing to hold yuan assets. Many investors who have bet the yuan would rise, borrowing dollars at low interest rates to buy the currency, have been unwinding those transactions in recent weeks, reasoning that China is likely to take more steps to bolster its economy.

More interest-rate cuts would reduce the returns available from yuan assets, making gains in the currency less likely.

The PBOC has tried to guide the yuan upward in recent days, but the currency has fallen. On Wednesday, the yuan ended the day at 6.1975 per dollar.

Tao Wang, China economist at UBS AG , said she expects a “modest depreciation” of the yuan next year. The currency is likely to weaken to 6.35 per dollar by the end of 2015, she predicted.

Roland Gabert, a senior portfolio manager at Deutsche Asset & Wealth Management in Frankfurt, which manages US$1.3 trillion, said he reduced his bullish bets on the yuan last month because he was concerned that the dollar’s rise would weaken Asian currencies across the board.

“The dollar’s movement has been quite impressive, so that could be a risk for China,” Mr. Gabert said.

Some investors have chosen to bet against the yuan. One of them is Mark Bower, head of emerging markets at Bienville Capital Management, a US$750 million investment firm. Mr. Bower dismissed China’s still-growing trade surplus, normally a factor that would cause a currency to rise, saying that has more to do with shrinking domestic demand and weak commodities prices globally than with a rise in Chinese exports.

“The fact that over the last six months the yuan hasn't really moved much is making China’s competitiveness worse and worse at a time when the domestic economy is slowing,” Mr. Bower said.

Currently, the PBOC allows investors to push the yuan’s value 2 per cent in either direction from its reference rate in daily trading. Many people inside and outside the PBOC expect the range to be further widened next year. The last time the band was widened was in March, when it was increased to 2 per cent from 1 per cent.

“The strength of the dollar and the weakening domestic economy give China a window of opportunity to further increase the yuan’s flexibility without fuelling a wave of speculative capital inflows in anticipation of yuan appreciation,” says Eswar Prasad, a China expert at Cornell University and the former head of the IMF’s China operation.

The PBOC is likely to widen the yuan’s band “when it views the pressures on the currency as roughly balanced in either direction,” Mr. Prasad adds.

China’s Hainan Airlines Co. may add as many as nine international destinations next year as the carrier seeks to broaden its global reach, said people familiar with the matter.

The Haikou-based airline wants to introduce seven long-haul routes from Beijing and one each from Hangzhou and Nanjing, said one of the people who asked not to be named because the expansion plans are private.

China’s fourth largest and biggest privately owned carrier is seeking to capitalize on strong growth in Chinese tourist and business passenger numbers. International passenger totals from China grew by 19 per cent in September, aviation consultancy OAG said in a new report.

China’s economic slowdown isn’t expected to have a major impact on international flying. “While the Chinese economy may not grow quite so fast in 2015, the growth in Chinese outbound travel is here to stay,” OAG said in the report on air travel trends for next year.

The Chinese carrier’s route expansion plans are still preliminary and require government approvals, the people said.

Gaining air traffic rights can be difficult in the highly regulated airline business, often leading to delays of expansion plans. Aigle Azur, a French carrier in which Hainan Airlines’ parent, HNA Group, owns a minority stake, had to scrap plans to fly to Beijing after it failed to secure all the required government backing for the link.

Planned route additions for Hainan Airlines flights from Beijing include New York and London, two of the biggest international aviation markets. Hainan Airlines would also link the Chinese capital with Manchester, Montreal, Oakland, Nairobi and Tel Aviv, the people said. Other planned additions include Hangzhou to Los Angeles and Nanjing to San Francisco.

The Chinese carrier wants to tap markets otherwise not well served. Flights to Tel Aviv would start in September. Hainan Airlines would be only the second carrier to offer a direct link between Israel and China. Israel’s flag carrier El Al also offers a service. The Chinese carrier would fly the route three times a week.

Traffic between China and Israel is growing fast according to data from Israel’s Ministry of Tourism and reached 35,000 visitors this year from 13,000 in 2010. The jump comes as the pace of Chinese investments in Israeli-based technology companies has accelerated rapidly over the past two years.

Hainan Airlines has a fleet of 136 aircraft and has been adding Boeing Co. 787 Dreamliner jets to support its global expansion. The carrier has taken delivery of eight of the long-range jets over the past 17 months. The airline, which also operates planes from Airbus Group NV to international destinations, ordered eight A330 jets from the European plane maker this year.

It’s a bad time to be a car maker in China. It’s worse if you’re a Chinese domestic brand rapidly losing market share. But you probably have it worst if you’re a Chinese domestic brand whose biggest foreign market is Russia.

Such are the woes of Hong Kong-listedGeely Automobile . The Chinese car maker warned Tuesday that 2014 profits will fall by half from last year, partially citing the ruble’s plunge. The slowdown in China itself is also to blame, with the overall car market growing in November at less than a third of the pace compared with last year.

Geely’s situation, however, is worse than the broader market. Sales volume plunged 26 per cent between January and November from a year earlier. Geely has struggled with its dealers, though the bigger problem may be that Chinese prefer the status and quality of foreign brands.

Local car brands’ market share dipped to 37.6 per cent during the first nine months of this year from 44.3 per cent in 2009, according to Macquarie’s Janet Lewis. Geely bulls have been excited about its parent company owning Volvo, thoughresearch collaboration between the Swedes and the Chinese so far hasn’t brought out any hit products.

Adding to domestic troubles are Geely’s attempts to become a top auto exporter to other emerging markets. Russia accounts for about a quarter of its foreign sales. Geely’s other big export destinations such as Ukraine, Saudi Arabia and Iran are also not much to write home about, with overall exports falling by 49 per cent between January and November from a year earlier.

Complicating matters is that Geely said as recently as August that foreign-exchange fluctuations “do not impose a significant risk,” notes Ms. Lewis. Other issues may be lurking. Sanford C. Bernstein suspects the company recorded significantly higher costs in the second half, something it likely won’t disclose until it files full-year results. Geely shares dropped 17 per cent Wednesday. More surprises would hasten that fall.

Geely’s headaches should make investors think twice about betting on local Chinese car makers. Think three times for those trying to be export champions, too.

Major banks reduce exposure to industries suffering from oversupply

Twenty-one major banks have reduced the amount of credit they have lent to firms operating in industries experiencing oversupply, according to Economic Daily.

The paper quotes data from the first three quarters of the year showing that total outstanding loans to steel, cement, glass, aluminium smelting, ship manufacturing and other industries with oversupply problems from 21 major financial institutions had fallen by 26.9 billion yuan to just over 1 trillion yuan since the start of the year.

The represents a 2.5 per cent drop in the total amount of loans outstanding. Loans to these industries now account for 1.6 per cent of total lending, a 0.2 percentage point drop on the proportion at the start of the year.

The fall in the amount loaned to these troubled sectors follows moves from the China Banking Regulatory Commission to limit credit.

The number of non-performing loans to firms involved in the 5 industries with the biggest oversupply problems has also increased, though it still remains at relatively low levels.

As of the end of September, almost 13.2 billion yuan worth of loans to these sectors were in trouble, an increase of 2.7 billion yuan on the value of non-performing loans at the start of the year.

This results in a NPL ratio of 1.26 per cent, a 0.29 percentage point increase on the ratio at the start of the year.

(Economic Daily)

Verdict in first anti-monopoly case involving Chinese oil giants

A subsidiary of China Petroleum and Chemical Corporation (CPCC or Sinopec), one of China's three state-owned energy giants, has been found in violation of China's anti-monopoly law and has been ordered to allow a private company to sell their biodiesel products via Sinopec's distribution system within 30 days.

A Yunnan court handed down the verdict in a case involving the private oil company Yunnan YingDing Bio-Energy Co. and the Yunnan subsidiary of Sinopec yesterday.

A spokesperson for Sinopec's Yunnan branch told a reporter from National Business Daily that the company was still deciding whether to lodge an appeal.

China's anti-monopoly law came into effect in 2008.

Earlier this year, some international media reports suggested that Chinese authorities were unfairly targeting multinational companies operating in China. China's regulators have said their enforcement is fair and transparent.

(National Business Daily)

40 per cent bad loans at rural credit unions

40 per cent of outstanding loans at 60 credit rural unions in Liaoning provinces are estimated to be non-performing, according to Economic Observer, a Chinese-language business paper.

Industrial source estimates 25 billion yuan out of 60 billion yuan outstanding are likely to be non-recoverable. Industry experts say risk control system at rural credit unions is weak and not as robust as commercial banks.

Beijing is offering policy concessions to banks that lend more money to farmers and SME sector.

(The Paper)

Of the many global economic and financial trends, few are more important to Australia’s long-term prosperity than the rebalancing of Chinese economic growth away from investment towards household consumption.

The composition of Chinese growth is odd by international standards. Investment accounts for around 46 per cent of Chinese GDP -- much higher than in developed countries where the investment share often tops out at around 20 per cent. Naturally the consumption share of GDP in China is much lower than in most other countries.

Chinese authorities have been quite open about a desire to reverse these trends. Investment of this level simply isn’t sustainable in the long-run -- there’s only so many houses, bridges and roads that a country has built -- and the longer investment stays at this level the greater the hole that needs to be filled later on.

A recent paper by the RBA explores this issue further, noting that “Australian exports to China consist primarily of resources, particularly iron ore and coal, and China’s manufacturing sector (especially steel production) absorbs the majority of these exports”.

So what would happen if the composition of the Chinese economy shifts towards greater consumption? It’s fair to say that there is a high degree of uncertainty but the World Input-Output Database offers some key insights.

The composition of Chinese growth is contained in the graph below. Consumption is driven by services and spending on food, whereas over half of investment expenditure is captured by construction, although equipment and machinery investment is also quite high.

To estimate the effect of a Chinese rebalancing on Australian exports, we must draw a distinction between Australia’s gross exports and ‘valued-added exports’ to China. Gross exports are simply the total value of goods and services exported by Australia, whereas ‘valued-added exports’ makes an adjustment for the impact of intermediate imports used in the course of production as well as Australian goods that are re-exported by China.

This distinction is covered in greater detail during an earlier article.

According to the RBA, “total Australian value-added exports to China were approximately 70 per cent of gross exports to China in 2011”. This accounts for 5 per cent of Australia’s total value-added output and 27 per cent of the value-added output in the mining sector.

Chinese investment is the driver of value-added exports for both the mining and non-mining sectors. Construction has by far the highest demand for Australian value-added exports accounting for almost half the total.

In addition, it is important to emphasise that Chinese investment, particularly construction, has relatively high requirements for Australian value-added exports per dollar of output. Compared with consumption, Chinese investment is Australian exports-intensive.

This indicates that any rebalancing away from investment will weigh on the Chinese demand for Australian exports. According to the RBA, “each dollar of Chinese investment involved more than double the demand for Australian value-added output compared with each dollar of household consumption, and almost four times the demand for the Australian mining sector’s value-added output.”

The table below gives a sense of the discrepancy. The numbers might seem low but remember that the Chinese economy is measured in the trillions of dollars.

The potential impact of a Chinese rebalancing on the Australian economy is considerable. If, for example, China’s consumption share of GDP In 2011 was 10 percentage points higher (and investment 10 percentage points lower), Australia’s GDP would be around 0.5 percentage points lower.

The RBA notes that “such a marked shift in the composition of China’s growth could only be expected to happen over a number of years”. Over that time there are a range of factors -- such as changes in relative prices, including the exchange rate, and demand and supply dynamics -- that could change significantly in China and elsewhere.

As a result, the impact of a rebalancing on the Australian economy can reasonably be expected to weigh on economic growth but the extent to which is highly uncertain.

However, the expected rebalancing of the Chinese economy is several magnitudes more difficult than the one Australia is attempting to undergo. It is unlikely to be achieved without a significant slowing of growth, indicating that Australian exports will not only get hit by the compositional shift but also the slower absolute growth of the Chinese economy.

The eventual impact of this shift on the Australian economy is likely to be larger than these estimates from the RBA simply because it does not capture the sharp falls in commodity prices and the fact that most iron ore producers will go bust in the shakeout. The rebalancing of the Chinese economy necessitates a further rebalancing of the Australian economy and that has already proved to be a difficult proposition.

The conclusion earlier this week of another round of international climate change negotiations -- this year held in Lima -- marked the end of a highly-charged month of climate change politics in which Australia and China featured prominently, albeit for very different reasons.

China’s response to climate change was highlighted at the conclusion of the APEC summit in Beijing in mid-November, with an important joint announcement between the US and Chinese presidents concerning their respective emissions reduction goals.  

Coming right before the G20 leaders’ summit in Brisbane, the US-China announcement focused international attention on Australia’s perverse attempts to have climate change excluded from the G20 agenda. These attempts derailed when President Obama drew attention to the urgency of Australian action on climate change in a speech at the University of Queensland during the G20 meeting. All of a sudden, climate change had become the main point of discussion.

It was in this context that 15 Australian and 15 Chinese young professionals and future leaders came together for the 5^th annual Australia-China Youth Dialogue, this year held in Beijing from November November 21-24, which included an insightful session on climate change and energy issues.

At the session a number of Chinese and Australian climate experts shared their insights from the cutting edge of academic scholarship and policy practice on climate change. Delegates were prompted to consider some of the opportunities and challenges facing China and Australia with regard to the transition away from high-carbon, fossil fuel-based energy systems and toward the zero carbon energy systems that will be needed to power the world economy throughout the 21^st century.

In stark contrast to the claim made by Australian Treasurer, Joe Hockey, that climate change was an inappropriate subject of discussion at the G20 because that forum is focused on “economic growth”, the ACYD delegates learned about recentresearch and policy analysis by some of the world’s leading economic thinkers and institutions, which focused on the potentially large contribution of well-designed climate policy to a country’s medium-term economic growth, irrespective of what other countries do on climate change.

Those medium-term benefits arise in addition to the fundamentally important reductions in greenhouse gas emissions (and hence long-term climate risk) which are the primary aim of good climate policy.

Good climate policies -- including well-designed carbon pricing schemes, support for innovation (the research, development, demonstration and deployment of zero carbon technologies and processes), mandatory energy efficiency standards for buildings, appliances and vehicles, and investment in network infrastructure such as public transport systems and smart electricity grids -- can increase medium-term economic growth primarily through three important mechanisms.

First, they can improve the productivity of energy and natural resource use. Second, whereas muddled climate policies and mixed messages raise the risk to investors of investing in infrastructure, particularly in the energy sector, good climate policies can reduce this ‘policy risk’ and induce private investment in clean infrastructure. And third, good climate policies can induce innovation in low/zero-carbon and environmental industries.

The effects on innovation are particularly important: good policies can help bring down the cost of new zero carbon technologies over time, so that they eventually become cheaper than high-carbon incumbents; and they can induce innovation across other sectors of the economy, since clean technologies tend to have higher ‘knowledge spillover’ into other sectors of the economy than do the dirty technologies they replace.

With concerted and well-targeted policy and institutional change, the potential for innovation-led growth in the transition to a zero carbon economy is immense, likely to be in the order of a ‘new energy-industrial revolution’ or a new ‘golden age’ of capitalism.

Aside from boosting medium-term growth (in some economic circumstances, strong climate action can be astimulusto growth in the short term, too), there are many ‘co-benefits’ to well-designed climate policies that improve the quality of people’s lives, whether or not they also increase GDP.

More compact cities with efficient public transport, walking and cycling infrastructure and green spaces produce lower levels of air pollution, congestion, noise and waste, making them more appealing places to live. Other co-benefits from good climate policy can include improving the natural environment and generating energy from more localised and secure energy sources.

In Beijing, where the level of PM2.5 particulate air pollution reached a staggering 583 on the US EPA’s Air Quality Index (above 300 is considered “hazardous” to human health, and this is the highest category) the evening before the ACYD began, delegates were especially attuned to the value of policies that improve the quality of the urban environment while at the same time reducing greenhouse gas emissions.

Indeed, hazardous urban air pollution -- most of which is caused by burning coal, and much of the remainder from vehicles -- is one reason among many why China is aiming to restructure its economy away from heavy, energy-intensive industries and fossil fuels and toward a more resource-efficient, environmentally sustainable, equitable and low-carbon model of development.

Other reasons for this important strategic shift include: a desire to improve productivity; concerns about risks to energy security associated with China’s currently large imports of fossil fuels; and the pursuit of major market opportunities in critical zero-carbon technology sectors such as solar photovoltaics and wind energy.

Accordingly, China has already undertaken major initiatives to conserve energy, close old and inefficient power stations and industrial plants, cap and reduce coal use, deploy non-fossil energy sources through massive investments in renewable energy, and experiment with carbon pricing.

There is an emerging consensus that deeper efforts along these lines would yield greatbenefits for China and for the world. Accordingly, President Xi also recently announced a target for meeting 20 per cent of China’s primary energy demand from non-fossil sources by 2030, which will require an additional 800–1000 gigawatts of non-fossil energy capacity to be deployed by that time. This is an immense undertaking, equivalent to almost the total current electricity generation capacity in the United States. China’s ambitions are profound and sincere, yet it faces numerous challenges in implementing all of the policies and measures needed to achieve them.

By contrast, Australia has immense opportunities to move to a zero carbon energy system (indeed a net-zero carbon economy) very quickly. Yet the current government’s ambition is in the wrong direction. The Abbott Government has turned Australia into an international climate change Pariah by scrapping Australia’s two-year-old carbon pricing scheme, vigorouslypromoting the interests of a handful of multinational coal and gas companies over the public interest, and destabilisingglobal efforts to reduce emissions and adapt to climate change.

This destructive approach could not have been more at odds with the attitude of delegates to the 2014 Australia-China Youth Dialogue. We weren’t interested in the ‘why’ or the ‘when’ , but rather in the “how”: how can Australia and China, both separately and together, forge a zero-carbon Asian century?

On this issue, perhaps more than any other, it’s time the current generation of leaders listened more closely to the next generation.

Fergus Green is a policy analyst and research adviser to Professor Nicholas Stern at the Grantham Research Institute on Climate Change and the Environment at the London School of Economics, and a delegate to the 2014 Australia-China Youth Dialogue. This article is a modified version of Fergus’ essay in Inside Story of 21 November 2014. 

Dear readers,

As 2014 draws to a close, I want to take this opportunity to thank you for your patronage and support this year. 

It’s been an exciting year for the Australia-China relationship. It got off to a bit of a rocky start but finished on a high note. Australia finally managed to pull off an historic free-trade agreement with China, a deal which is as much about business as politics.

Chinese President Xi Jinping spent a week in Australia, which included a visit to Tasmania. Wu Jianming, a former Chinese ambassador to France, told China Spectator it was “unprecedented” and showed how much Xi cared about the relationship.

The most important development in China has been the anti-graft campaign. We have seen the downfall of two of the most senior party officials in modern history: Zhou Yongkang, a former member of the Standing Committee of the Politburo of the Chinese Communist Party, and Xu Caihuo, a former deputy head of the country’s Central Military Commission.

Scores of minister-level officials and senior executives from the country’s powerful state-owned giants have been arrested, while tens of thousands of minor functionaries have also been disciplined, stripped of their positions and, in some cases, tortured.

Though the jury is still out on whether this campaign is simply a personal vendetta against Xi’s political enemies, it is clear that there is some serious house cleaning going on. Arthur Kroeber, arguably one of the best China analysts out there, says each month that the campaign continues (and each new institution that falls prey) will strengthen the argument that the anti-corruption drive is part of a broader effort to remake the nation’s governance structure.

China’s anti-graft efforts have reached our shores too. Australia is one of favourite destinations for corrupt officials to park their ill-gotten goods and we have already found some of them living here. Given China’s human rights record, how we handle Beijing’s request to hunt down crooks will be a diplomatic challenge for Canberra.

On the economic front, we started the year with many doomsday predictions of China’s own impending ‘Lehman moment’. I have to confess that I was persuaded by these arguments at the beginning of the year. However, Beijing has managed to stabilise the economy without unleashing another epic stimulus package. The central bank needs to be congratulated for its discipline in reining in loose credit.

However, many of the problems -- such as a weak property sector, excess capacity in industries such as steel and cement and burgeoning local debt -- will be with us for many years to come. Beijing is trying every trick in the book to deal with them, but don’t expect them to be resolved anytime soon.

The spectacular success of Alibaba is a ray of hope for a Chinese economy that is undergoing significant structural change. More importantly, it shows what Chinese entrepreneurs are capable of accomplishing if the visible hands of an intruding government are kept at bay.

Though it is fashionable to be a China bear these days, it is worth pointing out that the country is still growing at 7.3 per cent a year, faster than any other major economy.

Beijing has yet to deliver any major breakthroughs on the ambitious reform agenda it announced at the end of last year. However, there are some encouraging signs.

The central bank has indicated repeatedly that it plans to liberalise interest rates, and has already taken some tentative steps towards doing so. When that happens, it will be a significant milestone in the history of China’s financial reform, ending decades of financial repression for long-suffering depositors.

In 2014, Taiwanese and Hong Kong students took to the streets, voicing their opposition to ever-closer integration with mainland China. As described by our Hong Kong correspondent Antony Dapiran, the city is set for continued political disruption.

More importantly, Taiwanese voters have comprehensively rejected the pro-China KMT at local elections. It seems likely that the pro-Independence Democratic Progress Party will win the 2016 presidential election. After years of calm under the current Ma administration, the cross-strait relationship has the potential to become a dangerous flashpoint in the future.

On the diplomatic front, China has dialled down its overtly assertive approach. Years of bullying tactics have raised concerns around the region. The United States is strengthening its military alliances in Asia as a counter-balance to China. Beijing seems to have had second thoughts about its approach; Xi even managed to have an awkward conversation with his arch-rival Shinzo Abe of Japan.

Instead of riling neighbours with warships and jetfighters, Beijing has launched a new charm offensive backed up with hard cash. China has established three multilateral financial institutions with an initial capitalisation of $US240 billion. This money has been earmarked for infrastructure.

Last but not least, Xi is clamping down on dissent in China. Many influential voices or ‘big Vs’ on social media have been effectively silenced. Journalists and activist lawyers have been put behind bars. Foreign companies are implicitly involved in this effort. Our Beijing correspondent Fergus Ryan broke the story on Linkedin censoring posts of its members, even when they are based overseas or sharing English-language content.

Thanks again for your readership and we welcome your suggestions and comments in the New Year.

Peter Cai

Editor of China Spectator

China's eastern province of Shandong, grappling with mounting financial risks arising from local government borrowings, said it won't bail out city or county governments that run into financial trouble and fail to repay debt. 

Risks have continued to accumulate due to a lack of supervision and those governments that borrow need to find a way to repay, the provincial government said in a statement on its website on Thursday. 

Local debts have been rising rapidly and most of the debt is outside the budget, the government said. 

As China's economic growth slows, financial stress has intensified. The financial stress in Shandong, the nation's third-largest provincial economy, appears worse than elsewhere. 

Credit in Shandong contracted in the third quarter, even as it continued to grow nationally, according to data issued recently by the People's Bank of China. 

Two banks in Shandong have gone to court to force local government financing vehicles  --  or companies set up specifically to raise funds  --  in order to get loans repaid, court records show. 

The court cases are unusual as such firms are implicitly backed by the authorities. 

The provincial government said it will impose ceilings on borrowings by cities and counties and will ask them to be responsible for any contingent liabilities and meet obligations as guarantors. 

Cities and counties also must report any imminent defaults to the provincial government in a timely manner, and must put in effect "emergency response systems" to contain risk, the statement said. It added that local officials will be held responsible for failing to curb debt levels. 

Local governments having trouble repaying their debts must reduce the size of their construction projects, cut administrative spending, sell state assets or take similar measures to meet repayment obligations themselves. 

China's State Council, or cabinet, issued similar statements in October to enforce financial discipline on local governments and keep borrowings in check, saying local governments are responsible for repaying their own debts.

Hong Kong's de facto central bank on Friday said it found no evidence of collusion among banks in rigging benchmarks in the $US5.3-trillion-a-day foreign-exchange market. 

The Hong Kong Monetary Authority, which carried out the probe as part of a global investigation, said it sought to determine whether banks in Hong Kong manipulated foreign exchange benchmark fixings, engaged in collusion or other inappropriate activities between 2008 and 2013. 

While it found no evidence of benchmark rigging or collusion by banks, the HKMA did point to two failed attempts by Hong Kong-based traders to manipulate the benchmark. 

One case of a "suspected attempt to influence an Asian currency benchmark fixing" by a Hong Kong-based trader at Standard Chartered Bank was found, the HKMA said, but there wasn't enough evidence to prove whether the trader actually "effected trades." 

In another case, a Hong Kong-based trader at Deutsche Bank made a failed attempt to influence the US dollar -- Hong Kong dollar spot rate in March 2009 at the request of an overseas colleague, the HKMA said. 

President Xi Jinping has visited a drizzly Macau for the 15th anniversary of the gambling hub's return to Chinese rule, with onlookers barred from using umbrellas - the emblem of democracy protests in nearby Hong Kong.

The two-day trip to the former Portuguese enclave comes just days after Hong Kong police cleared the last of three camps where protesters had spent nearly three months demanding free leadership elections for the city. Mr Xi's visit is an opportunity to drive home the message that the semi-autonomous territory needs to diversify away from casinos, which have seen revenues dive owing to a national anti-corruption drive and a stuttering economy.

But in the spirit of Hong Kong's Occupy movement which gripped the city from late September, hundreds of pro-democracy protesters are planning a march on Saturday from Macau's historic city centre.

Authorities were on guard on Friday for signs of dissent, with reporters on the airport tarmac waiting for Mr Xi not allowed to hold umbrellas, and handed raincoats instead.

"They said you couldn't open umbrellas at the airport because it would affect the flights," a Hong Kong-based reporter who was among up to 40 journalists at the scene told AFP.

Another reporter said airport authorities had explained it was too windy to safely unfurl an umbrella -- a symbol of the Hong Kong democracy movement after protesters used them to shield themselves from police pepper spray.

And despite the light rain, no one in the official receiving party used them either.

However, dozens of enthusiastic elementary school pupils braved the cold weather to wave Chinese and Macau flags, and posies of flowers, to greet Mr Xi.

"I believe that under the one country two systems and the Basic Law, Macau definitely will be increasingly stable and better as time passes," the leader told reporters after stepping off the plane, referring to the territory's semi-autonomous status.

A handful of protesters holding umbrellas were stopped by police in the afternoon when they attempted to walk to where Mr Xi was staying.

"Why does such a powerful authority have to be afraid of a simple symbol of the yellow umbrella?" pro-democracy activist Jason Chao questioned.

"The message is clear, both the Chinese and the Macau government are reluctant to seriously listen to the voices of the people," Mr Chao told AFP.

Several Hong Kong activists were reportedly turned back at Macau's ferry terminal as they held up yellow umbrellas and a large yellow banner which read "I want real universal suffrage, have you received the message, Xi Jinping?"

Macau is the only part of China where casino gambling is legal and has become a paradise for high rollers.

But casino revenues have plunged as China's big spenders were hit by a graft crackdown as well as a slumping mainland economy.

Earlier this month a top Chinese official for Hong Kong and Macau, Li Fei, warned the territory to reconsider its dependence on gambling.

One of China's most senior communist party officials has been put under investigation, signalling an escalation of the party’s widespread crackdown on corruption.

Ling Jihua, chairman of the political consultative conference and minister in charge of the United Front Work Department, which is responsible for controlling and coercing non-CCP organisations in China, has been placed under investigation, according to Xinhua.

As 2014 draws to a close, it is time to look back at the important events that have shaped China. In many ways it was a momentous year: it was year zero after the Chinese Communist Party announced its ambitious reform program to revamp the country’s economic as well as governance systems.

The jury is still out on whether Xi Jinping, China’s most assertive and powerful leader since Deng Xiaoping, has done much to implement his reform program during its first year. Many commentators and analysts have been disappointed by the progress to date.

However, Arthur Krober, one of the best China analysts in the world, argues Xi’s performance has been very solid compared to other lacklustre world leaders like Barack Obama and Shinzo Abe.

As Nobel laureate Joseph Stiglitz remarked in his Vanity Fair article, 2014 is also the year when China overtook the United States as the world’s largest economy -- a historic event that has gone relatively unnoticed. And perhaps for a good reason: the US is not psychologically prepared to cede its position, nor is China willing to assume it.

On the economic front, we started the year with many doomsday predictions of a ‘Lehman moment’ in China, and the concern morphed into the property sector. But, Beijing has largely contained the risk for the time being without unleashing another round of stimulus and the central bank has been remarkably disciplined in its monetary policy.

In terms of political development, 2014 was a year of turbulence. Xi Jinping has been clamping down on political dissent, arresting activists and tightening the party’s control over the media including, the country’s social media. However, the anti-graft campaign is without a doubt the centrepiece of Xi’s new reign.

China Spectator will look at the ten most important events that happened in China this year in a two-part series.

1: The anti-graft campaign

The most feared political institution in China at the moment is the Central Discipline and Inspection Commission of the Chinese Communist Party. The anti-graft watchdog is touring the country and striking fear into millions of corrupt party cadres and officials.

Since the anti-corruption campaign began more than a year ago, it has arrested a score of most senior party officials in the country, including a retired member of the standing committee of the politburo of the party, the most powerful political body in China, as well as the deputy head of the People’s Liberation Army.

Ten of thousands of officials have been arrested, charged, disciplined and even tortured. Once untouchable institutions such as the military are under the spotlight, senior generals have been ousted, and some committed suicide under pressure.  

Though it is still early days to make a call on whether Xi is simply waging a war against his political enemies or trying his best to clean up China’s endemic corruption. It is worth quoting Arthur Krober. He said: “Each month that the campaign continues, and each new institution that falls prey, will strengthen the argument that the anti-corruption drive is a broader effort to remake the nation’s governance structure.”

It is also interesting to note that China’s anti-graft effort is spreading to countries like Australia, the US and Canada -- places that are popular for crooked officials. 

2. What the heck is the ‘new normal’?

The hottest economic buzzword in China this year is the ‘new normal’. It is an attempt by China’s top leaders to describe the state of transition in the economy.

After more than three decades of double-digit growth, the economy is experiencing a much slower pace of growth of about 7 per cent.

At the beginning of year, pessimists were predicting an explosion in China’s local debt market and then the concerns moved on to the property sector. These concerns are likely to continue into the foreseeable future, but Beijing has adroitly managed these issues this year and the central bank has been remarkably disciplined in exercising tight control over credit.

One of the biggest concerns for Beijing that has been somewhat ignored by many analysts is the funding crisis for the country’s SMEs. Many of these companies are paying usurious rates for their loans. Beijing has tried many unconventional tricks without a great deal of success and it was forced to cut interest rates recently to ease the burden on them.

3.  Umbrella revolutions in Hong Kong and electoral defeat for pro-China KMT in Taiwan

Students and citizens of Hong Kong took to streets for more than two months, protesting against Beijing’s failed promise to give them true democracy.  

There were some violent clashes at the beginning and the authorities mishandled the situation by using excessive force, including the use of tear gas.

However, after some initial mishaps, local Hong Kong authorities decided to wear protestors down by offering concessions to their demands. The tactic worked and the protest movement, which had been dubbed the 'umbrella revolution', fizzled out after 75 days of heroic resistance.

As our Hong Kong correspondent Antony Dapiran argues in his piece, “it is clear that Hong Kong is set for an extended period of political disruption”. The government’s tactics of selective policing as well as the use of court orders to clear protest sites have damaged the city’s strong tradition of rule of law.

However, the electoral defeat of the pro-China ruling KMT in Taiwan is far more significant than Hong Kong. 

People may criticise President Ma for his political incompetence as well as his pro-China trade policy. However, he has been absolutely instrumental in reducing tensions between mainland China and Taiwan, once considered one of the most dangerous flashpoints in the world.

After KMT’s disastrous performance at the local elections, it is probable that the pro-independence Democratic Progress Party will win the 2016 presidential election. It is likely that the cross-straits relationship will once again become a contentious issue for diplomats and military planners in Beijing, Washington and Taipei.  

4. The rise of Alibaba and Chinese e-commerce

One of the biggest business stories of the year has to be the spectacular IPO of Chinese e-commerce giant Aliabba.

The Chinese company is one of the largest internet ventures in the world and sells more goods than Amazon and eBay combined.

The rise of Alibaba is not simply a story about Jack Ma. The bigger picture is how e-commerce is reshaping China’s consumer market. While the country’s manufacturing sector is stagnating, the e-commerce sector and its associated industries such as fast delivery is going gangbusters.  

The company is also helping to build a new ecosystem of business in China from internet finance to cloud-based services delivery. 

Sabrina Peng, a director of Alibaba Group told China Spectator that “we are really a data company”. Internet-based finance is already challenging the dominance of banks and drawing a record number of depositors.

More importantly, it shows what Chinese entrepreneurs are capable of accomplishing if the visible hands of an intruding government are kept at bay.

5. China’s new Marshall Plan

Within a short space of year, China has established three new multilateral financial institutions with a combined capitalisation of US$240 billion: the New Development Bank, the Silk Road infrastructure fund and the Asia Infrastructure Investment Bank.

It is clear that Beijing wants to play a more prominent role in international affairs but has been frustrated with existing institutions such as the World Bank and the IMF. Building infrastructure and improving connectivity with trading partners is a key element of China’s economic strategy.

Another aspect of this approach is to help China to export its excess capacity as well as technology. A good example of this is the country’s high-speed railway. The Chinese Premier has taken the job as the chief salesperson for the Chinese transport technology. 

Read about the second part of China's year in review tomorrow. 

Chinese shopping mall developer Dalian Wanda Commercial Properties has made its trading debut in Hong Kong after raising $US3.7 billion ($4bn) in a record-breaking initial public offering.

Shares in the Beijing-based company were slightly up at HK$48.2 ($US6.21) in the first hour of trading on Tuesday, following the biggest IPO in the world by a real estate firm.

Owned by the property arm of Dalian Wanda Group and controlled by Chinese billionaire Wang Jianlin, the company is one of the world's largest developers of shopping malls, owning dozens across China.

"Today is a historic day for Wanda and also an important milestone for the business development of Wanda," said Wang before striking the gong at the Hong Kong exchange to mark the listing.

Wang raised a glass of champagne with bourse officials and gave a double thumbs up before trading began.

The listing comes after China cut interest rates in November to spur the mainland property market, which has seen prices falling for months.

Dalian Wanda Commercial Properties says it is the second-largest commercial property owner and operator in the world, with 175 property projects across China, including 71 Wanda Plazas of shopping centres, luxury hotels, and office and residential towers, according to the bourse filing.

Wang topped the Forbes China Rich List in 2013 with an estimated net worth of $US14.1 bn, but was displaced this year after charismatic internet entrepreneur Jack Ma floated his e-commerce powerhouse Alibaba Group in the world's biggest ever initial public offering. Ma's fortune is now estimated at nearly $US20bn.

Wang may find himself on top again after the Dalian Wanda Commercial Properties listing.

"To be on the rich list is not my goal. My goal is to have my company become diversified and comprehensive," Wang told reporters.

"When I was the richest man, I didn't feel pain nor did I feel especially happy," said Wang.

The Wanda Group bought US cinema chain AMC Entertainment Holdings two years ago and has also branched out into film production, theme parks, print media and art investment.

Wang has said he wants the company to rival world leading brands like Google, IBM and Walmart.

A string of Chinese companies are tapping in to international investors through Hong Kong's bourse.

Its stock exchange has now climbed to the second in the world in terms of IPO fund raising activities, Dow Jones has said.

Shares in China General Nuclear Power, the nation's largest nuclear power producer, surged almost 20 per cent on their debut last week after it raised more than $US3bn in its IPO.

Although never officially a Christian country, Christmas has become a festive time for hundreds of millions of Chinese citizens. In this respect, the country has come a long way given that celebrating Christmas was banned not so long ago by the Chinese Communist Party.

Walk into any shopping centre or well-heeled section of any major city in the country and the lights, decorations and ornaments will remove any doubt that the festive season is at hand. But Christmas still makes the CCP a little edgy. It ought not to if the CCP plays their cards right.

Maybe it is inevitable that Christmas was always going to take off in still officially atheist China. After all, the closest thing we have to Santa’s workshop is no longer in the North Pole. It is in the town of Yiwu, some three hundred kilometres south of Shanghai. In Yiwu, you will find some 600 factories that make an estimated 60 per cent of all Christmas decorations and accessories purchased by households around the world this year: lights, Christmas tree balls, Santa hats and the silly reindeer antlers that have somehow become cool of a sudden.

So when it comes to decorations at least, Santa’s helpers are no longer elves but mainly migrant Chinese workers earning $400-500 a month.

Bear in mind that the ‘Made in China’ stamp will still be seen somewhere on a high percentage of toys given as presents around the world, and the same with Christmas trees. So Santa might as leave the North Pole and set up shop in one of the ghost cities throughout the country.

On a more serious note, why is the CCP nervous? There are some within the Party expressing dismay that the commercialism of celebrating Christmas will only encourage a "base materialism” that will “erode and degrade the morals of the country and ability of the people to sacrifice” as one report released by some state-funded researchers puts it. But when it comes to materialism in China, the horse has clearly bolted. Such Maoist purity will be confined to the past.

Of greater concern to the CCP’s leadership is the rise of Christianity in the country, and also the emergence of ‘house churches’ throughout China: so called because it describes Christians meeting in each other’s houses to worship in private rather than publically in state-sanctioned and regulated Christian churches.

The rise of Christianity is something which many in the CCP do not really understand, and therefore fear. The CCP values (and demands) loyalty to the Party above all else from the Chinese people. Yet, there are now an estimated one hundred million Christians in China, with the majority of these worshiping in ‘house churches’ much to the CCP’s dismay. This means that the number of committed Chinese Christians now outnumber members of the CCP, of which there are around eighty five million.

In a country where all formal groupings must be state-sanctions in order for the Party to regulate their activities, the rise of such a vast number of ‘unregulated’ Christians is a concern, and it is feared that the celebration of Christmas by the country more generally might encourage many more citizens to join their unregulated brethren.

The Party’s insistence that all groups must be state-sanctioned and display loyalty to the CCP first and foremost is obviously a legacy of the Mao Zedong version of totalitarianism even if contemporary China is no longer a totalitarian state. But such thinking is also informed by more recent events. The CCP is well aware that ‘independent’ or ‘unregulated’ trade unions and other such bodies played a significant role in the downfall of Communist regimes in Eastern European countries such as Poland, the former Czechoslovakia, Romania and Hungary.

More pointedly, the CCP noted the role that Pope John Paul II played in helping to ‘defeat’ Communism, especially in his native Poland. The CCP have not forgotten the Pope’s visit to Poland in 1979 when he was received by millions of Poles of all ages. The line that the Pope kept on repeating was ‘Don’t be afraid’. It was no coincidence that Solidarity, the first mass anti-communist political movement in Poland, was formed a year later by Lech Walesa (leader of an ‘unregulated’ trade union) with full support from the Catholic Church.

No one thought that this could happen in Poland or Eastern Europe. Keen observers of history -- their own and Europe during the Cold War -- the CCP is certainly anything but complacent. This is the reason why many underground bishops and home church leaders have been arrested over the past couple of years.

Should the CCP fear the rising popularity of celebrating Christmas? The first thing to note is that the vast majority of Chinese citizens are embracing the materialistic side of the festive season rather than the religious aspects: gift-giving, bright lights, decorating homes and shopping malls etc. Celebrating Christmas is merely a predictable extension of the Chinese people wanting the ‘good life’ that is part and parcel of rising prosperity; the very thing the legitimacy of the CCP depends on.

Second, and when it comes to religion and private worship, it is clear that the CCP has remain in power largely because it has learnt to let go of many aspects of the citizens’ lives that is rightly considered ‘private’.

The CCP cannot force people to love the Party but it can push people into hating the CCP if the Party’s grip is too tight. Adopting too repressive a line on private matters will only increase resentment against the Party and drive tens of millions underground in undertaking private activity like religious worship -- which is exactly what has happened. From the Party’s point of view, there is no evidence that house church worshipers are becoming politicised in any way. Indeed, repressing their religious beliefs and practices is a sure way to politicised Christians throughout the country.

So it is in the Party’s own best interests to welcome China’s embrace of festive traditions, offer a lighter touch when it comes to the worship preferences of its people, and very openly wish the country and its people a ‘Merry Christmas’.

Dr. John Leeis a senior fellow at the Hudson Institute in Washington DC and an Adjunct Associate Professor with the Strategic and Defence Studies Centre at the Australia National University.