Huawei Technologies Ltd, the world's biggest maker of telecommunications equipment, says profit growth slowed last year while sales accelerated.

Huawei on Tuesday said its 2014 profit would be 33.9 to 34.3 billion yuan ($A5.9 to $A6.06 billion), up about 17 per cent over the previous year.

That was down from 2013's growth of 40.5 per cent.

But the company said sales probably rose 20 per cent to 287 to 289 billion yuan, more than double the previous year's growth of 8.5 per cent.

Its finalised audited results will be released by March or April.

Huawei is privately held but has released annual results in recent years in an attempt to ease concern in the United States and some other countries that the company might be a security risk.

Bloomberg reported last week that Beijing was accelerating 300 infrastructure projects valued at 7 trillion yuan or $1.4 trillion. The Australian dollar, which has been used as a proxy for the Chinese economy, rose after the report.  

Many people have made a quick connection between the reported investment plan with the 4 trillion yuan fiscal stimulus unleased in the aftermath of the global financial crisis. So is Beijing turning to its old trick of using infrastructure investment to boost a slowing economy?

Luo Guosan, the deputy director general in charge of investment at the powerful National Development and Reform Commission, the country’s economic planning agency, told the press the current plan was fundamentally different from the emergency fiscal stimulus of 2008.

“We are not injecting new money to unleash a new round of strong stimulus. What we are doing is attracting private capital to invest and this is a very important new policy direction,” he said at a press conference in response to the media report. 

The bigger question we need to ask is whether Beijing will embark on strong stimulus measures this year to boost its slowing economy. This will have serious implications for Australian commodities exporters as they battle failing commodities prices. The price of iron ore just dipped below $70 for the first time in five years.

Throughout 2014, Beijing resisted the temptation to embark on a new round of strong stimulus measures despite many speculative reports as well as pleading from struggling sectors such as the steel and cement industries.  Though there were bursts of new investment throughout the year, there was nothing like the massive fiscal stimulus unleashed in 2008 after the US subprime meltdown. 

The Chinese central bank also didn’t indulge in loose monetary policy in 2014. The bank only cut interest rates once and did so reluctantly to address the issue of high borrowing costs for struggling Chinese small and medium sized business.  

Though China still faces many challenges, there has been no dramatic change in circumstances to warrant a U-turn in macro-economic policy. Most importantly, many problems associated with the last round of stimulus have surfaced in recent years such as rapidly increasing debts, in both local governments and corporates. Excess capacity in the steel and cement sectors is also causing headaches for the government.

It is worth remembering that Beijing devotes a considerable portion of its substantial budget on infrastructure projects every year. For example, during the first 11 months of 2014, Beijing invested close to 10 trillion yuan or $2 trillion in assorted infrastructure projects, up 20 per cent from the previous year.

If Beijing were to keep the same pace of investment growth, the total budget for investment would likely be around 13 trillion yuan. The reported 7 trillion planned projects are most likely part of the existing investment plan. This is different from the 4 trillion stimulus in 2008 when the Chinese export trade collapsed. The central government unleashed a raft of new spending.

Another crucial difference between the reported 7 trillion planned spending and the 2008 rescue package is finance. One of the most important but often overlooked aspects of the 2008 stimulus was the massive expansion in credit creation. Chinese banks doubled their new lending in 2009, reaching a historic high. This record was not broken until last year.

All evidence suggests this new round of infrastructure spending is not fully funded.  The Chinese authorities are betting on the involvement of private and foreign capitals to bankroll future projects.  Private Public Partnerships is one the hottest buzz words floating around at the moment. This should not come as a surprise, the central government has been keeping a close eye on local government debt and regulators have been cracking down on off-balance sheet lending.

Heavily indebted local governments will find it increasingly difficult to access credit. So in essence, even if they want to indulge in their investment addiction, the money is not there.

In the past, there have been a lot of speculative media reports about the Chinese government indulging in another round of stimulus to boost the slowing economy. Many of them have turned out to be false. Beijing has shown remarkable restraint so far. They know that they cannot drink poison to quench their thirst.

Unless there is a dramatic turn in economic fortunes in China, we should not expect a strong fiscal response from the Chinese government. They are still nursing their debt-fuelled hangover from 2008. 

BEIJING—China imported record volumes of commodities last year, taking advantage of lower prices to maintain its position as a massive buyer of global resources despite a slowdown in its broader economy.

Import volumes of iron ore, crude oil, copper and soybeans hit an all-time-high in 2014, according to official data released Tuesday. Imports of iron ore, crude oil and soybeans for the month of December alone also reached record volumes in a late-year surge of shipments.

“2014 has been a year of very low global commodity prices, and it’s been an opportunity for China to buy these materials cheaply, especially since the outlook for its own industrial production still isn’t that strong,” said Yi Yi, an analyst for Chinese resources consultancy Coal Network.

Low commodity prices, pushed down by a flood of global supply, largely drove the import rally, analysts said. The global oil benchmark settled below $US50 a barrel for the first time in nearly six years on Monday.

Iron ore prices are at $US70 a metric ton, the lowest level since June 2009. Prices of Chicago soybeans have been ticking up since September, but had fallen 43 per cent from a peak in August 2012 before that. London copper prices are also at their lowest since mid 2010.

“China’s reliance on imports of crude oil has already reached 60 per cent of consumption, so with such low prices, it definitely reduces cost,” said Miao Tian, an analyst with investment bank North Square Blue Oak. Demand for gasoline in China in the first 10 months rose 8.2 per cent from a year earlier, showing automotive consumption of oil remained strong, she said.

Lower prices have resulted in small import bills, and that in turn has encouraged Chinese trading houses to pick up or at least maintain import volumes. The value of iron ore, for example, fell 12.8 per cent in dollar terms even as volumes rose 13.8 per cent, according to the data from the General Administration of Customs. The value of all imports to China contracted 2.4 per cent in December from a year earlier, and climbed just 0.4 per cent for the full year compared with 2013.

China has been building strategic petroleum reserves to protect against oil-price volatility, which may account for part of the uptick in imports. China’s imports of Russian crude have also ranked among the fastest-growing in 2014, as Moscow seeks to redirect more oil sales to the east, following geopolitical tension with Europe and the U.S.

Demand for iron ore likely rose as Chinese mills sought to replenish stocks ahead of the Lunar New Year holidays, according to the consultancy Steel Index. Imports of the steelmaking material reached a record 86.85 million tons in December. Crude oil posted an unsurpassed 7.2 million barrels a day last month.

A trade financing scandal involving allegations that metals were illegally pledged as collateral for loans didn’t significantly dent imports of copper, which posted a full-year record volume of 4.83 million tons. Import volumes in the summer fell to their lowest levels in a year after the scandal in the port of Qingdao became public in May, but have since recovered tentatively, with December volumes staying on par with November.

Only one firm, Decheng Mining Ltd., and its related entities has to date been accused of illegally using metal imports for financing purposes. Court proceedings and an official investigation are ongoing.

On the export front, Chinese steel exports hit record volumes as well, extending a four-month surge as steelmakers used exports as a means to shift excess capacity, according to analysts. Mills may also have been trying to get ahead of a change of government regulations, effective this year, cancelling export tax rebates on boron-reinforced steel, a popular export product. The government’s move was made to encourage steelmakers to move their exports higher up the value chain.

Huawei Technologies Co. said its operating profit rose less than 18 per cent last year, marking a slowdown in growth.

The lower rate of growth comes as the Chinese telecommunications equipment maker ratchets up investment in a number of areas, particularly its rapidly expanding smartphone business. While handsets are driving Huawei’s revenue growth, the company faces intensifying competition in domestic and overseas markets from other low-cost Chinese smartphone vendors such as Xiaomi Corp.

The Shenzhen-based company declined to disclose what specific factors contributed to its operating profit but said its operating profit margin last year was comparable to 2013’s results.

Huawei said on Tuesday that it expects to post an operating profit of between 33.9 billion yuan and 34.3 billion yuan, or $US5.46 billion and $US5.53 billion, for 2014, marking an increase of 16.4 per cent to 17.8 per cent. In 2013, Huawei’s operating profit rose 41 per cent from the previous year to 29.13 billion yuan.

Its operating margin for 2014 was around 12 per cent, almost the same as 12.2 per cent in 2013. The closely-held company didn’t disclose its net profit for 2014.

Huawei, the world’s second-largest supplier of networking gear used by telecom carriers after Sweden’s Ericsson, has also become a major global player in smartphones in recent years. In the third quarter of last year, Huawei was the world’s third-largest smartphone vendor by sales volume, behind Samsung Electronics Co. and Apple Inc., according to research firm Gartner. Last year, Huawei’s handset business grew rapidly in emerging markets in Latin America, the Middle East and Africa.

Huawei executives have said that the smartphone business was profitable, but the company hasn’t disclosed any profit figures for that business segment.

At a news conference in Beijing on Tuesday, Huawei Chief Financial Officer Cathy Meng said “we don’t think it is very appropriate” to compare operating profit growth in 2014 versus the year before.

She said the company focused on growth over the year and on its profit margin, which the company said at 12 per cent last year was “proportionally in line with 2013.”

A Huawei spokesman said the company views its 2014 operating profit growth as a strong result, while the rate of profit growth in 2013 was “exceptional.”

While the rate of growth in operating profit slowed in 2014, Huawei’s revenue growth accelerated.

It expects to post revenue of between 287 billion yuan and 289 billion yuan for 2014, an increase of at least 20 per cent.

Huawei’s revenue rose 8.6 per cent in 2013 from the previous year.

The biggest contributor to Huawei’s revenue growth was its consumer business, which consists mainly of smartphones. Huawei said 2014 revenue from its consumer business grew about 32 per cent from a year earlier. Revenue from the mainstay telecom-carrier equipment business, meanwhile, increased about 15 per cent.

In late December, Richard Yu, head of Huawei’s consumer business group, said in a letter to his staff that the company shipped more than 75 million smartphones in 2014, up 40 per cent from a year earlier.

Huawei has been boosting its budget for research and development over many years. The company said on Tuesday that it invested between 39.5 billion yuan and 40.5 billion yuan on R&D in 2014, an increase of 28 per cent from a year earlier.

Ms. Meng added that the company boosted R&D spending in a number of areas last year, though she declined to disclose specifics.

Huawei’s senior executives have said in interviews that the company would continue to seek growth through its own R&D investments—rather than through acquisitions.

An explosive bull market in Shanghai is showing signs of turning around.

Some investors are starting to switch money from there to Hong Kong, while the premium on mainland shares versus their counterparts in the city is shrinking after hitting a three-year high last week. Company insiders in China are selling their stocks at a fast clip.

The shift comes after a six-month rally sent mainland shares up 53 per cent last year. Local retail investors, who dominate trading, poured back into the market after years of losses. In Hong Kong, where Chinese equities are also listed and are typically bought by large international funds, gains have lagged behind, leaving stocks far cheaper than on the mainland.

Yuming Ying, managing director at China Eagle Asset Management Ltd., says the firm closed out most of its investments in mainland stocks recently, and moved the money to Hong Kong.

“The probability of a rally is very high” in Hong Kong, given it is one of the cheapest markets globally, said Mr. Ying. “It could rally in one week a lot, just like the mainland market.”

The difference between the two markets is most evident in valuations. Last Wednesday, Shanghai shares reached their most expensive levels compared with their Hong Kong counterparts since October 2011—a 32 per cent premium— according to the Hang Seng AH Premium Index. The index tracks the average premium in the price of so-called A shares, listed in mainland China, over Hong Kong-listed H shares, for the biggest and most liquid Chinese companies with listings in both markets.

But that gap has narrowed in recent days to a 27 per cent premium as of the close of trading on Tuesday. As recently as July, A shares were at an 11 per cent discount to H shares.

The decline is a result of moves in the markets. The benchmark stock index in Shanghai fell 3.5 per cent over the past week, while the Hong Kong market has risen 3.1 per cent.

Tuesday, Hong Kong’s Hang Seng index gained 0.8 per cent to 24215.97, while the Shanghai Composite index was 0.2 per cent higher at 3235.30. Japan’s Nikkei Stock Average fell 0.6 per cent to 17087.71.

Big brokers such as HSBC Holdings PLC say that the premium for mainland -listed stocks has grown too big, and that the “value trade” is to buy Hong Kong shares. Last week, Bank of America Merrill Lynch and Deutsche Bank AG both downgraded a number of banking stocks in the mainland, while remaining positive on the companies’ Hong Kong listings.

Hong Kong and Shanghai are two of the world’s largest stock markets, with total market capitalizations of $US3.2 trillion and $US3.9 trillion respectively at the end of December, according to the World Federation of Exchanges.

A trading link opened last November, allowing international investors to easily buy Shanghai shares via Hong Kong, but little trading has taken place so far.

The divergence in performance shows the wide difference between the two markets. Foreign investors are mostly worried about mainland China’s economic slowdown. Stocks in Shanghai, though, tend to react to how much cash is sloshing around the financial system.

The latest rally on the mainland got under way after Beijing surprised investors by cutting interest rates late last year. In addition, local investors tend to buy into momentum—piling onto stocks that are already making gains.

“The level of hot money flowing into Shanghai is somewhat scary,” said Marco Mencini, an emerging-market fund manager at Pioneer Investments, which manages $US248 billion globally. “It’s fair to say the best opportunities are on the Hong Kong side.”

Global investors, who are able to choose from a wider range of investment destinations than retail traders on the mainland, have begun to move their money.

Mr. Mencini says the firm started shifting a small portion of its money from the mainland to the Hong Kong market in recent days, including into PetroChina Co. ’s Hong Kong listing.

One other troubling signal is that holders of so-called non-tradable shares, which can only be sold on the secondary market, offloaded 60 billion yuan ($US9.67 billion) of stock in December, up 92 per cent from November and accounting for nearly one-fourth of the selling in 2014, according to HSBC. People such as corporate executives often hold non-tradable shares in the companies that employ them.

“A lot of foreigners remain concerned about the health of the Chinese economy and that it is decelerating,” said Daniel Tubbs, head of global emerging markets at Mirabaud Asset Management. His holdings are currently weighted more heavily toward Hong Kong-listed Chinese shares than the benchmarks used as a basis for comparison for the assets’ performance.

“International investors are looking globally, and they are looking at where the trends are going in terms of economic momentum, in terms of earnings momentum, and they see better opportunities in other markets,” said Adrian Zuercher, head of asset allocation for Asia Pacific at UBS Wealth Management.

Hong Kong Chief Executive Leung Chun-ying, in his first significant public appearance since the end of pro-democracy protests in the city, issued stern warnings against attempts by people, particularly students, to challenge Beijing's authority in the city. 

In his annual policy address, Mr Leung focused on constitutional reform and a lack of affordable housing -- hot topics during months of student-led protests, which erupted after an August 31 decree from Beijing that Hong Kong should elect its leader from a slate of pre-screened candidates. 

"We fully recognise the aspirations of our young students for democracy and their concerns about political reforms," said Mr Leung, but reiterated that giving the public the right to nominate candidates running for chief executive goes against the Basic Law, the city's mini-constitution. "Hong Kong's power comes from the central government." 

During the three months of protests, Mr Leung as well as the Chinese government repeatedly alleged that "foreign forces" were backing the demonstrations and the Occupy Central protest movement. In the past week, Mr Leung has revived such allegations in various appearances. 

At a luncheon last week attended by business and government leaders, Mr Leung cited evidence of external interference in the protest campaign, according to people who attended the luncheon. According to these people, Mr Leung said the city's government has a large amount of files and emails that he said showed that external forces were involved. 

At a media briefing on Tuesday, Mr Leung also said large amounts of material had been disclosed to the public about the interference of foreign forces. He didn't specify what material he was referring to; pro-Beijing newspapers in Hong Kong have published articles on donations received by pro-democracy legislators from Jimmy Lai, the founder of anti-Beijing newspaper Apple Daily, which is published in Hong Kong and Taiwan. 

"The people in question in these documents have not denied the allegations," Mr Leung said. Mr Lai has said that he will continue to donate to pro-democracy legislators. 

Mr Leung himself was a prime target of protesters, and his speech in the Legislative Council chamber on Wednesday was delayed as pro-democracy lawmakers heckled him and then either walked out or were carried out by guards, shouting "traitor" and "shameless". Mr Leung thanked the lawmakers for giving him a "quiet environment" to deliver his speech after they left the chamber. 

The latest poll released by the University of Hong Kong found that Mr Leung's popularity stands at 23 per cent, a "depressing" level that could portend a "governance crisis." The poll surveyed about 1,000 people between January 2 and 8 

In a surprising move, Mr Leung announced the cancellation of a program that gives mainland Chinese residency rights if they invest 10 million Hong Kong dollars ($1.29 million) in the city. Some in Hong Kong have blamed the influx of people and capital from mainland China for rising asset prices and a competition for goods and services in the city. Property investments had been excluded from the program since 2012. 

"This is probably in response to rising anti-mainland sentiment in Hong Kong," Chow King & Associates immigration lawyer Eugene Chow said. 

The city continues to be stuck in a political impasse over how the chief executive will be elected in 2017. The government launched a second round of consultations on constitutional reform last week, but pro-democracy lawmakers have said they would boycott the process and have vowed to veto the reform package when it is put to the legislature for a vote later this year. 

Mr Leung in his speech made specific reference to a magazine published by the student union of the University of Hong Kong that has advocated self-determination for the city. Saying that Hong Kong problems should be solved by Hong Kong people "violates the constitution," said Mr Leung, warning that such slogans could help throw the city into anarchy. "We also ask political figures with close ties to the leaders of the student movement to advise them against putting forward such fallacies." 

Mr Leung said a low supply of affordable housing remains the most critical livelihood issue. The government plans to build 20,000 apartments each year for the next 10 years. Areas earmarked for redevelopment include old quarries and the area where the city's old Kai Tak Airport was situated in Kowloon. 

Data tracked by Centaline Property Agency Ltd show house prices in Hong Kong rose 12 per cent last year, despite measures introduced in late 2012 to rein in prices, including raising minimum down payments and transaction fees. The measures pushed down house prices and transaction volumes for a short period, but a relaxation of the rule on fees in May fueled another bull run in the market. 

"The root of many social and economic problems in Hong Kong lies in the shortage of land for development," said Mr Leung, and said society must make "hard choices" when it comes to land planning. "What Hong Kong lacks is not land, but land that is developable...We cannot have our cake and eat it." 

He also said the government would clamp down on prosecuting owners of subdivided apartments. Soaring housing prices mean many renters have to resort to subdivided units, some as small as 100 square feet. Subdivisions aren't strictly illegal but are subject to different structural and fire-safety requirements. 

 

China's State Council, or cabinet, said on Wednesday it will set up a 40 billion yuan ($US6.5 billion) technology innovation fund to support startups and upgrade the country's economy. 

The fund will be financed by the central government, financial institutions and private investors, the State Council said on its website. 

The fund will be managed by several fund-management companies selected via a bidding process, China's cabinet said, adding that private investors will be given priority to the proceeds. 

The State Council also said it plans to boost services trade by offering tax breaks to exporters. It didn't provide further details. 

China recorded a deficit of $US20.8 billion in its services trade with the rest of the world in November, up from a deficit of $US17.2 billion in October, official data showed.

The Conversation

Wayne Swan couldn’t do it. Joe Hockey has tried and failed. Getting the budget back in black is proving to be mission impossible. But it could be a whole lot worse. The Commonwealth Government’s bottom line has been getting a boost from an unappreciated source. That source is China.

These days China is more often painted as a villain in the budget saga. Take the Mid-Year Economic and Fiscal Outlook (MYEFO) released last month as an example. It forecast a A$10.6 billion worsening in the deficit this financial year, and a total of A$43.7 billion out to 2017-2018.

The finger was pointed at an unexpected slump in iron ore prices. The budget in May assumed that iron ore prices would stay at $95 per tonne. The MYEFO revised this down to $60 per tonne.

We all know which country consumes most of our iron ore. Activity in China’s real estate sector, a big consumer of iron ore, has been sluggish.

But let’s get this straight – as far as the budget goes, China is still making the numbers look good.

Shock and ore

Commentators in Australia have long talked up the link between iron ore prices and the budget balance. But we’ve never really known just how strong the link is. Until now that is.

Tucked away in an attachment in the MYEFO is a simulation performed by economists at the Commonwealth Treasury. It shows the impact on the budget of a 4 per cent fall in the terms of trade due to a permanent reduction in the price of non-rural commodity exports – think iron ore. That’s roughly how much the terms of trade fell between when the budget was released and the MYEFO.

The result is a A$2.7 billion dollar hit to the bottom line this financial year, followed by A$5.6 billion in 2015-2016. These numbers aren’t trivial. But take a look at the size of the forecast deficit - A$40.4 billion this financial year and A$31.2 billion the next. It’s clear that most of our budget problems are home grown.

Then there’s the stubborn belief that it’s been Chinese demand driving iron ore prices lower. A quick look at demand and supply conditions in the iron ore market and you’ll spot the flaws in this story. According to the Bureau of Energy and Resources Economics (BREE), in 2014 China’s imports of iron ore are expected to have risen by 14.4 per cent. That’s even faster growth than in 2013, and it came off a higher base.

What is true is that demand from the world’s other major iron ore importers – the European Union, Japan and Korea – has flatlined. China stands out as the exception.

Real villain

The real culprit behind falling iron ore prices is rapidly expanding Australian supply. While BREE expect that China’s demand for imported iron ore jumped by 118 million tonnes (mt) last year, this was more than matched by a 139 mt jump in our exports.

Another gem found in the MYEFO was estimates of how the budget responds to the volume of goods and services we produce. Treasury found that if real GDP was 1 per cent higher from 2014-2015, the budget would be better off by $3.5 billion this financial year and $4.4 billion the next.

So what impact is China having on our real GDP?

Looking at the value of our exports to China won’t tell you the answer. Non-rural commodity exports make up around 70 per cent of the total. With iron ore prices falling, values could be sagging even if volumes are up.

Look at volumes

To get a clear look at the volume story we need to adjust values for these price changes. The Reserve Bank of Australia keeps measures of prices that are up to the task.

Run the numbers and this is what you’ll find. In the year to November, the volume of Australian exports to China jumped by around 17 per cent.

Think about that for a moment. According to the Australian Bureau of Statistics, in the year to September the volume of output produced by the Australian economy as a whole grew by 2.7 per cent. In roughly the same period, the volume of our output consumed by China grew at more than six times that pace.

That trend is set to continue. On Wednesday the World Bank announced it was expecting growth of 6.9 per cent in China to continue out to 2017. That’s down from 7.4 per cent now but is still more than three times the forecast pace of growth in high income countries.

The MYEFO gave up any hope of returning the budget to surplus by 2017-18. We’ll be leaning heavily on Chinese demand to get us there sometime after that.

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

On 17 November, Australian Prime Minister Tony Abbott and Chinese President Xi Jinping announced that a China-Australia Free Trade Agreement (CHAFTA) had finally been reached after more than a decade of negotiations. While most Australian media attention was focused on domestic produce, the CHAFTA also contains two provisions that affect Australian architects, which have been met with cautious optimism.

The first provision was the more controversial: “a framework to advance mutual recognition of services qualifications, and to support mutual recognition initiatives by professional bodies in Australia and China.”

This provision would include mutual recognition of architectural qualifications and put China on par with New Zealand as the only other country that Australia has such an arrangement with, according to David Parken from the RAIA.

However, Professor Xing Ruan, Director of Architecture Discipline at the University of New South Wales, points out that Australian qualifications are already recognised in China, and this goes some way to explaining why the CHAFTA made few ripples in Australian architecture circles.

Professor Ruan also notes that “the supply of cheap drafting and design service [from China] may have a negative impact” within Australia, but he is keen to downplay any alarm.

China has over 36,000 registered architects to Australia’s 11,000, but to be registered as an architect in Australia one must possess suitable qualifications, local experience, and pass the Architectural Practice Examination (APE). The author can attest that this is no mean feat.

While all FTAs naturally involve some degree of negation, the Australia-China FTA is unlikely to have a major impact upon the movement of Chinese architects to Australia. Furthermore, the effect of this provision can be monitored through APE enrolments and the Architect Accreditation Council of Australia, the national body responsible for regulating the registration of architects.

The second CHAFTA provision affecting Australian architects provides more of a silver lining: “China will take into account Australian experience in assessing applications for higher-level qualifications, allowing Australian architectural and urban planning firms established in China, to obtain more expansive business licences to undertake higher-value projects in China.”

This provision is a first for China in trade negotiations and is likely to be closely monitored by both Chinese authorities and other countries seeking an FTA with China.

Currently foreign architecture firms working in China must submit their construction drawings to a Local Design Institute (LDI) to authorise their plans in a cascading system of licences that depends on the complexity of the building. As a project moves from design development to construction documentation, this has often led to foreign firms ‘handballing’ the project onto an LDI, with little collaboration on the design intent of the details. Put simplistically, the foreign firm will often design what will be built, and then an LDI designs how it will be built.

Most observers have interpreted the new CHAFTA provision as enabling Australian architectural firms to operate in China without LDI oversight. This change will certainly appeal to architects who would like more control and influence on the construction detailing of their buildings. However, this does not necessarily mean that market access or working in China will become any easier.

Ed Lippmann, Director of Lippmann Associates, a multi-discipline Australian architectural firm based in Sydney, is optimistic about the CHAFTA but like many with experience in the industry has some reservations.

After working on a successful project in China between 2008-2009, Lippmann found working in Australia easier, and has not been back since. He says, “I’m considering going back in 2015 as there are phenomenal opportunities, but it is a challenging work environment.”

The barriers to market entry in China are still very high. A shopping list of administrative niggles including capital transfer, taxation, intellectual property rights, payment security, procurement transparency, fixed currency complications, and a lack of Client Architect Agreements standards are all unaddressed in the CHAFTA.

Nor does this list include significant barriers outside the scope of an FTA: language, culture, local building and construction standards, and proximity to construction sites. These all mean that mutual market entry between Australia and China will remain muted for many years to come.

The lure of China, with its enormous scale and increasing appetite for construction, will continue to whet the professional appetites of Australian architects, but there are broader strategic changes in China that are likely to have greater impact on bilateral barriers than the CHAFTA.

Most notably, the Chinese architectural office is changing. David Holm, a director at Cox Richardson, an architecture and planning firm, has witnessed this change first-hand through working across China and Asia over the last two decades, collaborating on some of the region’s most prominent projects. He says, “There is no doubt that China now has world class architectural institutions.”

With Chinese architectural offices maturing rapidly and many of the upcoming cohort of Chinese architects having studied and worked overseas, a new generation of highly sophisticated and globally minded Chinese architectural offices is emerging. This workforce will have greater capability to confront international barriers outside the scope of any FTA.

This need for ‘soft’ business skills explains the emphasis by the Minister for Communications, Malcolm Turnbull MP, in a speech recorded for the 2014 Australia-China Youth Dialogue, on greater cross-cultural empathy being critical to developing the next generation of bilateral leaders. Design firms already established as collaborative and culturally integrated operations are the ones likely to best capitalise on the CHAFTA.

Amongst the almost unimaginable scale of development in China, the CHAFTA represents modest steps to promote mutual respect on both sides, which is surely a positive platform for future collaboration.

Scott Flett is a registered architect in New South Wales and was a delegate to the 2014 Australia-China Youth Dialogue in Beijing.

One of the often repeated mantras about China is that the country’s economic model, which has served it well in the past is now broken and the world’s largest economy needs to find a new engine of growth.  China’s growth model has long been driven by exports and investment. Both engines are still incredibly important but not sustainable.

Where does China find new sources of growth? There are plenty of areas where China can make considerable improvements. China’s GDP per worker is only 17 per cent of America’s. The long awaited state-owned enterprises reform has the potential to add trillions to the economy.

However, the most promising and dynamic area of future growth is the country’s Internet sector. The spectacular debut of the Chinese e-commerce giant Alibaba is just one example of the dynamism of the sector.

In some aspects, China’s Internet market already rivals, or is even larger than the United States. For example, the country has 632 million Internet users, twice the size of the US. The total market size of e-commerce in China is $295 billion, larger than the US’ $270 billion. In addition, e-commerce as a proportion of the retail market is also larger than the US.

At the company level, Aliababa has 231 million active users compared to eBay’s 128 million. The Chinese company also sold more goods than eBay and Amazon combined.  There’s some food for thought.

However, Chinese companies lag significantly behind their American peers in terms of using the internet to run key aspects of their business.  For example, the enterprise cloud-adoption rate is only 21 per cent in China compared to 55 to 63 per cent in the US, according to McKinsey Global Institute. The Internet adoption rate among Chinese small to medium size enterprises is less than one third of the US.

This large gap between China and the US has the potential to become an important source of growth for the Chinese economy, according to a new McKinsey Global Institute report. “China’s companies are quickly climbing the adoption curve. Their increased digital engagement will not only give the economy a new burst of momentum but also change the nature of growth,” says the report.

The strategy firm estimates Internet adoption could add 4 to 14 trillion yuan to GDP by 2025, when China is expected to overtake the US as the world’s largest economy.  The Internet industry is also expected to contribute 7 to 22 per cent of total GDP growth from 2013 to 2025. By comparison, fixed asset investment contributes about half of total GDP growth in China.

The fast adoption of internet technology can revolutionise the economy in many ways. One area that is ripe for change is the financial services sector, which has been dominated by stagnant state-owned banks. The growing use of internet platforms, big data and better analytical tools can help banks better assess risks and allocate credit.

A good example is lending to the SME sector. Chinese banks can access ever growing data about companies and they can use new analytical tools to better assess risks and reduce incidence of under performing loans.

In the area of consumer credit, a relatively underdeveloped sector in China, companies like Aliababa and Tencent are taking advantage of their massive data banks of hundreds of millions of users. Alibaba is making millions of small loans to their clients using their vast holdings of online transaction data. One of the stated ambitions of Jack Ma is to build a culture of credit in the country.

“Our research suggests that better risk management could create the greatest amount of additional value in China’s financial services,” says the McKinsey report.

Traditional sectors such as the automobile and chemical industries are increasingly looking to the Internet as a new source of productivity increases as they deal with the problems of over capacity and subdued demand. SAIC Motor, one of the largest carmakers in the country is adopting Internet based solutions to improve efficiency in its logistics chains. Chemical makers in the agricultural sector are also using big data to help farmers monitor crop conditions, tailoring their products to farmers.

The Internet is also lowering entry barriers across many sectors. Internet-based platforms are disrupting many brick and mortar based traditional models, giving power to smaller but more digitally savvy players. In China, businesses with less than 1000 employees contribute 70 per cent of GDP. By adopting Internet technology, many of these companies can improve their productivity even without the advantage of having deep pockets.

One of China’s most powerful media moguls, Wang Zhongjun, said the Internet offered a rare opportunity for young people to rival established tycoons within a short period of time. Despite Beijing’s censorship and interference, the Internet sector is relatively free from entrenched state players.

Though the country is besieged by a slew of challenges from dealing with growing debt to excess capacity, the booming Internet sector is the silver lining to the gathering dark cloud over the world’s second largest economy.

Overseas investment in Australian residential real-estate is unlikely to dampen in 2015 as Chinese buyers continue to snap up property amid flagging domestic demand, a property expert says.

Simon Henry, chief executive of international property website Juwai, which focusses on Chinese buyers, expects 15 to 20 per cent growth in international purchases of Australian real-estate this year compared to 2014.

“The Australian real estate market faces a number of headwinds, but luckily our analysis shows that international investment will make up for some of the loss in domestic demand” he said.

According to the Foreign Investment Review Board (FIRB), China was the number 1 source of foreign investment into Australian real estate in 2013. Chinese investors contributed $5.9 billion worth of property in FY 2013, up 40 per cent from the previous year.

Despite widespread concern that foreign investment was causing market distortions in the housing sector, a Federal Parliamentary committee report into affordable housing and foreign investment released in November found that housing supply issues would worsen if foreign investment was curtailed.

“The recent Parliamentary inquiry found that foreign investment is keeping prices lower and new supply of homes higher than they would otherwise be” said Mr Henry.

“In the context of Australia's slowing economy and income recession, the construction jobs, spending and tax revenues generated by international investors should be most welcome."

Researchers at Credit Suisse believe Chinese investors will spend $44 billion over the next seven years -- an average of $6.3 billion per year to 2020.

A more favourable exchange rate is likely to contribute to the growth in investment. Chinese buyers have received a boost to their purchasing power with the drop in the Australian dollar. In December 2009, 1 Chinese yuan bought approximately 16 cents. Today, it buys around 20 cents.

“It’s not just Chinese investment. The US dollar is rising, giving the yanks a boost in purchasing power. They are already typically one of the top two or three by total investment”  says Simon Henry, co-CEO of Juwai. 

Brian White, chairman of Ray White, Australia's largest real estate company said the outlook on Chinese investment is promising for the Australian property market.

"In 2014 it became evident that Chinese investors were serious about Australian property - particularly in Sydney and the Gold Coast. As the credibility of the Australian property market continues to strengthen in China, the level of investment will undoubtedly increase."

Ray White has opened offices in Beijing and Hong Kong to take advantage of the increased appetite for Australian real-estate of Chinese investors.

"Many of our Principals are thoroughly aware of the importance of having a Chinese specialist in their business and our offices are increasingly bringing Chinese expertise to their market place," Mr White said.

Chinese e-commerce giant Alibaba will take a majority stake in AdChina, which calls itself China's leading digital marketing platform, to develop online and mobile marketing, the internet powerhouse says.

Alibaba had made a strategic investment in AdChina, it said in a statement, without giving the amount.

An Alibaba spokeswoman said financial details were not disclosed.

Alibaba, which listed on the New York Stock Exchange last year, said the deal would allow the company to grow its online and mobile marketing "ecosystem".

The two companies will also develop online marketing services and data marketing products for businesses, media clients and third-party service providers, the statement said.

Alibaba is often described as the Chinese version of eBay, and like the US company has its own payments system.

It has no product stocks itself, instead connecting buyers and sellers.

The company's consumer-to-consumer platform, Taobao, is estimated to hold more than 90 per cent of the Chinese market with more than 800 million product listings and around 500 million registered users.

The Australian labour market posted some solid gains on a seasonally adjusted basis but given the data’s recent troubles it is far too soon to declare that the economy is out of its rut. Australia faces a number of headwinds in the year ahead that will continue to weigh on employment and income and it will be some time before the Australian economy turns the corner.

On a trend basis, employment rose by 14,400 people in December, with the pace of growth picking up modestly over the past four months. The Australian economy has produced 158,000 new jobs over the past year -- the strongest calendar year since 2010 but still poor by pre-crisis levels.

Growth was broad-based between full and part-time positions. Over the past year, however, full-time jobs have accounted for two-thirds of total employment growth.

Employment rose by 7,200 for both men and women -- though growth for men was concentrated among full-time positions and for women part-time positions.

The unemployment rate remained at 6.2 per cent in December and appears to have stabilised somewhat in recent months. The unemployment rate is now 0.3 percentage points higher over the year.

As always a correct assessment of the labour market requires consideration of the participation rate. Considering either measure in isolation can often be misleading.

The participation rate has also stabilised in recent months and doesn’t appear to be putting much pressure on the unemployment rate – in either direction. The outlook for the participation rate is somewhat mixed; there remains a number of headwinds that may shift the rate lower and our population is slowly shifting towards age-groups that have historically had lower participation.

Youth unemployment remains elevated at a little under 14 per cent. The rise in the unemployment rate has been matched by higher participation, suggesting that while young people are actively searching for jobs there are few opportunities available (A hardline stance won’t work for youth unemployment, January 7).

So the Australian economy is producing jobs at a moderate pace. Not quite enough to absorb population growth -- hence why the unemployment rate has increased -- but sufficiently high enough to ensure that any rise in unemployment is gradual.

However, a very different picture of the Australian economy will do the rounds over the next few days. It will tell a story of a booming labour market and an economy that has turned the corner.

Unfortunately, most of the mass media continues to focus on seasonally-adjusted estimates. The same estimates that only a couple of months ago the ABS basically scrapped because it had no idea what the heck was going on (Is the data real, or just another snow job? October 9).

Given the circumstances, it is clearly more sensible to focus on the trend estimates. They might not be as sexy -- and they certainly won’t give you great headlines -- but they are reliable and sensible and provide a more accurate view of the Australian economy.

The labour market may very well be on the mend -- hopefully it is -- but it certainly isn’t booming. We know this because most indicators point to an economy that is struggling or at best treading water.

It’s an economy characterised by rising construction but also a business sector that is reluctant to take risks. It’s also characterised by a mining sector that may very well collapse in the next twelve months and a motor vehicle industry that will soon disappear.

Lower interest rates and now lower oil prices are helping to support domestic spending. Asset prices -- particularly for those living on the east coast -- have increased and are supporting household spending. But is that likely to prompt a jobs boom?

When the economy does come out of its rut it will be a gradual affair, given the ongoing structure of the Australian economy we are no longer able to have the growth periods that we experienced during the mining boom. The decline in the terms of trade and commodity prices will continue to weigh on the federal government budget and Australian income, and that all but ensures that the Australian economy will remains fairly weak during 2015.

Does this mean anything for monetary policy? The RBA was unlikely to cut rates in February anyway -- since it had no time to communicate their intentions -- so I doubt that it will. If the result was due to seasonal volatility, then the market will snap back in the next few months, providing a clear impetus for the RBA to lower rates and appease the market. 

The two biggest Chinese politicians to fall in recent years, ex-security chief Zhou Yongkang and former high-flyer Bo Xilai, formed a "clique" together, state media reports say.

The reports come as President Xi Jinping pledges to crack down on Communist Party factionalism.

The two men "celebrated their political rapport" and vowed to "play a big game", the China Daily said, citing a lengthy report in Hong Kong's Phoenix Weekly magazine.

The article appears to be the first time that mainland media have reported allegations of a faction formed by the two once-powerful men, long seen as allies by analysts.

China's ruling party is riven by factional divisions but consistently seeks to present a united front to outsiders.

Zhou, who was arrested and expelled from the ruling party last month, is the most senior party official to face prosecution since the 1980s, in a fall that sent shock waves through the communist elite.

He moved one step closer to trial last week when the party's internal watchdog announced that his case had been sent to prosecutors.

Officially the action against Zhou is part of Xi's much-publicised anti-graft drive that has targeted both high-level "tigers" as well as low-level "flies".

But critics note that China has failed to implement institutional safeguards against graft, such as public asset disclosure, an independent judiciary, and free media, leaving anti-corruption campaigns subject to the influence of politics.

Bo, meanwhile, fell from grace after a scandal erupted around the 2011 killing of a British businessman, and he was later sentenced to life in prison for graft.

Last month, after a meeting presided over by Xi, the ruling party's Central Committee issued a statement warning against factionalism.

"Party members should make party rules their priority, and the party is adopting 'zero tolerance' toward cliques and factions within it," the statement read.

A report by China's official Xinhua news agency later identified several factions by name, including a group centred on the powerful oil industry, in which Zhou was a key player.

According to the Phoenix Weekly report, Zhou and Bo once held a secret meeting at which they advocated "adjusting" the reform and opening-up policy initiated by former leader Deng Xiaoping in the late 1970s.

The Phoenix Weekly report also alleged that in 2012, Zhou tipped off Bo that Bo's right-hand man, police chief Wang Lijun, had sought asylum at the US consulate in Chengdu - the move that blew open the scandal surrounding his boss.

Several mainland news sites have picked up the Phoenix Weekly report, and news portal Netease on Wednesday ran a slideshow of 20 photos of Zhou together with Bo and other officials currently being targeted for graft.

Japanese clothing giant Uniqlo has pledged to improve working conditions at its Chinese suppliers and beef up monitoring following claims that the firms were putting employees at risk.

The chain's parent company Fast Retailing said it was ushering in changes after the Hong Kong-based Students and Scholars Against Corporate Misbehaviour (SACOM) released a study this week that said factory conditions were unsafe and workers were mistreated.

"Respecting human rights and ensuring appropriate working conditions for the workers of our production partners are top priorities for Fast Retailing, and in this we are completely aligned with SACOM," said a statement issued on Thursday.

"Fast Retailing has urged swift action against the factories on the issues identified in the SACOM report, and we will co-operate fully with them to ensure that improvements are made.

"Together with third parties, including auditors and NGOs (non-governmental organisations), we will check progress within one month," it added.

The report accused Uniqlo of buying from two suppliers - Pacific Textiles and Dongguan Tomwell Garment Co - in China's southern Guangdong province that made employees work long hours for low pay in unsafe conditions.

It said the firms neglected work safety, with sewage on the factory floor, extremely high temperatures and poor ventilation.

The group, which carried out a months-long investigation last year, said one employee worked up to 14 hours per day, ironing between 600 and 700 shirts, for wages of 0.29 yuan ($A0.05) per shirt, it said.

Fast Retailing said the suppliers had been "instructed" to reduce working hours, improve conditions, and change their management style, including getting rid of fines and other punishments levelled against workers.

The company said it would ask for a "government authority to immediately conduct a thorough check of air quality".

However, Uniqlo's parent also said its own probe "revealed a number of points which contradict" the rights group's findings, and added that it had little power to boost wages at the factories.

BEIJING—China posted weaker-than-expected loan growth in December, but a record increase in bank credit for all of 2014 showed Beijing’s determination to prop up its slowing economy.

Chinese banks issued 697.3 billion yuan ($US112.6 billion) of new loans in December, down from 852.7 billion yuan in November and below the 800 billion yuan forecast by a Wall Street Journal poll of 16 economists, data from the People’s Bank of China showed Thursday.

Still, China’s new bank loans in December reached their highest level for the last month of the year since 2009, after the central bank ramped up lending to cope with the global financial crisis. The People’s Bank is again facing a slowing economy: Economists widely expect 2014 growth will miss the government’s annual target for the first time since 1998.

The figures indicate the central bank is trying to strike a balance between nurturing growth and holding back from a credit binge that piled debt onto the Chinese economy five years ago. “The data show that the central bank has tried to ease monetary policy, but it must be at a gradual pace,” said CIMB economist Zhang Fan.

Li-Gang Liu, an economist at Australia & New Zealand Banking Group Ltd. , said the slowdown in new-loan growth in December also suggested that Chinese banks remain concerned about bad debts as a result of a weakening economy despite encouragement from regulators to lend more.

At the same time, total social financing, a measurement of credit that include bank lending as well as shadow-bank financing, rose to 1.69 trillion yuan in December from 1.15 trillion yuan in November. The stronger growth in total social financing was mainly boosted by an unexpected rebound in trust loans, entrusted loans and undiscounted bankers’ acceptances—all components of China’s crucial but murky shadow-banking sector. Beijing moved to crack down on shadow banking this year amid concerns by economists about growing risks.

For the full year, Chinese banks extended a total of 9.78 trillion yuan in new yuan loans, a new high for annual credit growth.

The economy has in recent months struggled to maintain its momentum. Growth in industrial production and fixed-asset investment slowed in November, while industrial profits fell. Although exports strengthened in December, trade last year grew by 3.4 per cent compared with the year before, well below Beijing’s 7.5 per cent target.

Economic growth in the third quarter was 7.3 per cent year over year, its slowest pace in more than five years. Economists expect China to miss its annual growth target of about 7.5 per cent when results for 2014 are announced next week.

For much of last year, the People’s Bank of China relied on targeted easing policies, hoping to chip away at overcapacity and bad debt while funnelling credit to entrepreneurs, farming and other areas earmarked for growth. As economic headwinds strengthened toward the end of the year, however, the central bank cut rates on Nov. 21 for the first time in more than two years.

The increase in China’s broadest measure of money supply, M2, fell short of the government’s target in 2014. M2 grew 12.2 per cent, lower than the 13 per cent target the central government had set earlier. The expansion was slower than the 12.3 per cent rise as of the end of November. A survey of economists yielded a median forecast of 12.4 per cent growth.

China’s foreign-exchange reserves stood at $US3.84 trillion at the end of December, down from $US3.89 trillion at the end of September.

BEIJING—China’s Xiaomi Inc. launched the Xiaomi Note on Thursday as the smartphone maker seeks overseas expansion.

The world’s fourth-largest smartphone maker by shipments said the Xiaomi Note would be lighter, thinner and have a flatter camera than Apple Inc. ’s iPhone 6 Plus. Chairman Lei Jun also said at the launch event in Beijing that developing an ecosystem of devices connected to its smartphones is a key part of the company’s strategy.

Xiaomi became the world’s most valuable tech start-up last month after raising $US1.1 billion, giving it a valuation of more than $US46 billion. The four-year-old company has become China’s leading smartphone vendor by selling devices with similar specifications to leading global brands such as Apple’s iPhone but at a fraction of the price.

Shanghai Jin Jiang International Hotels (Group) Co. plans to buy France’s Louvre Hotels Group, the second-largest European hotel group, for up to €1.21 billion ($US1.43 billion).

The state-owned company, one of China’s biggest hotel groups, said in a statement late Wednesday it plans to buy Louvre Hotels Group from Starwood Capital Group, an international real-estate investment fund incorporated in the U.S., in a deal valued between €1.25 billion and €1.5 billion.

Shanghai Jin Jiang, which said the actual consideration of the deal will be in a range of €960 million to €1.21 billion, plans to fund the purchase via internal resources and bank loans.

The proposed deal comes as Chinese firms move to snap up more hotel assets. In October, Chinese firm Anbang Insurance Group agreed to buy the Waldorf Astoria hotel in New York City from Hilton Worldwide for $US1.95 billion. Hong Kong-based investor Kai Yuan Holdings also recently bought the Paris Marriott Hotel Champs-Élysées.

Shanghai Jin Jiang has been actively looking at opportunities to invest in Louvre Hotels Group and other potential targets over the past three years. It said the proposed deal would allow it to tap China’s growing appetite for European travel. By acquiring Louvre Hotels Group, it can “quickly expand its businesses in the international market and realize its internationalization strategy,” it added.

Louvre Hotels Group has more than 1,100 hotels with 91,154 hotel rooms in 46 countries around the world, of which 970 hotels are in Europe. It is made up of luxury and budget hotels under the brands of Premie’re Classe, Campanile, Kyriad and Royal Tulip.

Lowy Interpreter

Much of the Chinese coverage of the Paris shootings over the past week has been very different to, and critical of, Western coverage of the event. While they all condemn terrorism, they do subtly infer that the West's unreflective presumption that its norms and values are universal may have a connection with religious conflict.

The Chinese media has focused particularly on how the West has reported on what the attack at Charlie Hebdo should mean for press freedom and freedom of speech. The Chinese press argues that freedom of the press is not a value with automatic social benefits, and that the West promotes what it considers to be 'universal' values with little consideration of how applicable they are in other cultural contexts.

This reflects some genuinely deeply held beliefs in China about freedom, culture and universality that are very different from those held in the West. 

Chinese media does acknowledge that there have been heated debates in the West about the Paris shootings. For example, state news agency Xinhua mentions pieces from the Financial Times and New York Times (David Brooks' I am not Charlie Hebdo).

However, two key themes in the mainstream Chinese-language press are that freedom is a means to an end, rather than an end in itself, and that the West greatly overestimates the universality of its presumed 'universal values'.

Xinhua published a piece on 9 January arguing that while press freedom is a core element of the West's political and social system, in these globalised times, when Western behaviours contradict the core values of other societies, the West should have the awareness to ease conflicts instead of heightening them by relentlessly pursuing its own values. The article concludes that while international support for the victims of the Paris shooting is inspiring, it would be even more admirable if the West could be milder in its expression of its values, and consider the feelings of others.

On 11 January, Xinhua ran an article emphasising the 'vulgar', 'malicious' and 'combative' nature of Charlie Hebdo's comics and publications. The article argues that Charlie Hebdo's comics may have brought laughter to some, but a prerequisite for laughter is that others are not hurt. The piece concludes with an appeal to use 'respectful listening' as the guide for interacting with people of different beliefs or religions, and notes that there would be less tragedy in the world if we could put limitations on the notions of 'freedom' and respect others more. 

The Chinese-language edition of the tabloid Global Times likewise ran articles discussing how there is inevitable friction in pluralistic societies, with a high likelihood of religious and ethnic conflict which the West could be more vigilant in managing. An editorial in the same newspaper on 13 January, the day before Charlie Hebdo printed one million copies of its latest edition, argued that the decision to print the exceptional number of extra copies may symbolise a new 'clash of civilisations' in Europe. The author went on to note that the diverse range of values in today's world is a serious issue. He argued that the suggestion by some that the so-called 'universal values' promoted by the West are already widely accepted around the world 'is rubbish'. Rather, actual circumstances reveal that the current clash of different value systems is more profound than at any other time in history.

This reflects a strong belief among many Chinese people in the logic of a 'clash of civilisations' -- Samuel Huntington's work is extremely popular in China -- based on the idea that cultural characteristics are inherent and immutable. 

These pieces add up to an argument that freedom of the press, and free expression overall, are Western values that are unreflectively presumed to be applicable across all cultures. The Chinese press reflects the view that such freedoms should not automatically be assumed to be positive and beneficial. Rather, public expression should have the wellbeing of the public as a whole as its key guiding principle. It should be limited if it causes tension and exacerbates cultural differences -- that is, freedom of the press should be seen as a means to a greater end.

My experiences living and researching worldviews in China suggest that this media coverage accurately reflects many average Chinese people's views. It also reflects a sense of some degree of solidarity with other non-Western cultures which are seen to be marginalised and battered by the West's presumption that its norms apply to everyone. 

In response, many Chinese feel that it is important to fend off foreign cultural influences as they pose as much of a risk as physical incursions. Indeed, in 2013, the Chinese Communist Party circulated a document to all levels of government outlining the Western political, philosophical and ideological ideas that are considered a threat to Chinese interests – including media independence. It warns that Western anti-China forces and internal dissidents are actively infiltrating the Chinese ideological sphere and challenging China's mainstream ideology, and recommends various actions to prevent this infiltration. 

When Chinese actors engage on the world stage they bring with them these deeply-held views of how the world works, and where China sits within it. The narrative expressed in these newspaper articles betrays broader feelings of persecution and marginalisation by the West. These beliefs fundamentally colour how Chinese people understand and respond to global affairs, for example, policies such as Washington's 'rebalancing strategy' in Asia.

While the West may not agree with this worldview, it does help to make sense of some aspects of China's international behaviour.

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

Lowy Interpreter

The Black Swan, by Nassim Nicholas Taleb, is a parable for unanticipated risk: the possibility of 'unknown unknown' events that no-one sees coming.

In a new essay, The Calm Before the Storm, Taleb further posits that perceptions of risk are distorted by 'fragile stability'. Some countries (eg. Saudi Arabia) are inherently more vulnerable to exploding one day in spite of (or likely because of) their continuity, concentration and monolithism. The flipside of this concept, less intuitively, is that 'anti-fragility' can be borne out of the very experience of crisis. The likes of Italy may be resilient precisely because they continually face chaos and flux.

Taleb's idea isn't a new one -- the economist Hyman Minsky noted 'the instability of stability' decades ago -- but his anecdotal depth and topical understanding of current affairs makes the essay a riveting read.

Even to the formidable Taleb, though, one country is sui generis and escapes easy identification. At the very end of the essay, he acknowledges 'the China puzzle.'

Another superbrain, historian Niall Ferguson, also concedes that 'China is the country hardest to categorise' as a political-economic risk. China is difficult for Westerners to understand because its singular pursuit of economic development tempts excesses and imbalances. Yet the farther, faster and longer it gallops, when a bust would typically loom more probable, China looks ever more invincible and assured. As Ferguson admits, "there is unlikely to be a Lehman moment".

China may end up with something different, however: a prolonged correction.

Japan in the 1980s was also a robust, healthily growing country with a dominating political system and abundant domestic savings. Few would have characterised Japan then as endangered, but its unwillingness to confront its economic excesses haunted it for 20 years and left Japan today 'moderately fragile' (in Taleb's definition) because of soaring leverage.

Some of Japan's blights have become worryingly apparent in China: zombie companies supported by zombie local governments often hiding local debt and propping up their own land markets.

It is often joked that there are no communists in China, and that Japan and North Korea are the only communist regimes remaining in Asia. But one commonality between China and Japan is their distaste for social disruption from the capitalistic purges of bankruptcy.

This is where Chinese see things differently from Americans. Chinese officially viewed the 2008 financial crisis, America's 'Lehman moment', as an unmitigated failure of the US system and a mistake to be avoided at all costs. They proclaimed their 'superior system advantage' as they poured on the stimulus. "The Chinese lost a lot of respect for the West," a car company executive famously commented. "When you've seen a multinational exec on his knees begging for help, you are not so intimidated by him after that."

But a funny thing happened on the way to America's decline. Its stock market has tripled from its 2009 bottom; employment and growth have recovered. Americans of a certain persuasion would argue that it is the boom and bust cycle that undergirds their system, that the elixir of progress is the creative destruction of crisis that moves capitalism forward.

So the +70 per cent jump in Shanghai's A-share market, now the world's second largest, in just two months is remarkable. When $US2 trillion of market value appears so suddenly, the world pays attention.

True, stock markets are notoriously poor short-run predictors of economic health. This recent action could be more noise than signal, as Taleb would understand. Supportive factors such as lower oil price may be at work. But the bull case doing the rounds is the 'removal of risk', meaning government stimulus and 'doubling down on mega-infastructure'.

Taleb would revel in the irony of this explanation: Chinese domestic investors think that policy continuity, and therefore more leverage, is positive. Yet since 2009 Chinese shares have badly lagged America's, belying the narrative of relentlessly monotonic Chinese growth. There is a giddy, speculative retail feel to the latest bounce. Japan's market also saw huge episodic rallies during its grinding recession. Shanghai's bull market today could be implying that Chinese growth is solidly sustainable, or alas it might be telling us nothing at all.

Because of its vast savings pool, China won't experience a precipitous financial collapse as America did in 2008. Its model of rigid resilience will continue. Just as Chinese media exaggerate problems elsewhere, outsiders can easily take a dark view of China. Adult Chinese have living memory of crisis and struggle; that is an antidote against fragility. Despite occasional external glimpses of frailty and utterances of humility, most Chinese remain convinced of their unstoppable rise. Fragility, either economic or political, would surely be a 'black swan' event in 2015.

This article first appeared on the Lowy Interpreter blog. Reproduced with permission.