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    Smithfield Foods Inc. said its fourth-quarter earnings surged as the pork processor continued to benefit from strong demand for bacon and other packaged meats products.

    The largest hog producer and pork processor in the U.S. has been spending more heavily in its packaged-food business, where products have higher margins than sales of raw pork to grocers or restaurants.

    The company and its rivals had been grappling with porcine epidemic diarrhoea virus, or PEDV, a disease that has killed millions of baby pigs in the U.S. since it was discovered in the country in April 2013. The virus is fatal only to young pigs, and poses no threat to human health or food safety, according to scientists. Smithfield noted live hog market prices rose 15 per cent in the latest quarter, on lower hog supplies mostly related to PEDV.

    “PEDv has not been a major issue this fall, but the virus does remain a potential wild card going forward,” Smithfield Chief Executive C. Larry Pope said in a news release Wednesday. “We expect U.S. market hog supplies to rebound in 2015, although lower prices and reduced energy costs should generate additional demand in the export markets, as well as domestically.”

    Virginia-based Smithfield said sales at its packaged-meats segment, its largest business by revenue, rose 9.8 per cent to $2.2 billion as the company continued to gain market share and noted increased distribution for Smithfield bacon and other products.

    Overall, Smithfield reported a profit of $152.6 million, up from $34.7 million, a year earlier. Revenue increased 5.1 per cent to $4.1 billion.

    Gross margin rose to 11.2 per cent from 9 per cent.

    Smithfield was acquired in 2013 by Shuanghui International Holdings Ltd. for $4.7 billion in the biggest Chinese takeover of a U.S. company. Shuanghui later changed its name to WH Group Ltd. and went public in July, raising $2.05 billion.

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    BEIJING—Bank of China Ltd. became the second major Chinese state lender this week to post its slowest annual profit growth as a publicly traded company, as the industry grapples with a slowing economy and growing bad loans.

    The bank, China’s fourth-largest lender by assets, said it stepped up provisions against possible losses from rapidly growing bad loans.

    “Chinese economic growth has entered a ’new normal,’” said Bank of China Chairman Tian Guoli in the bank’s earnings report, invoking a phrase used by Chinese officials to describe slowing economic growth. “The operating environment for banks is undergoing immense and profound changes.”

    On Tuesday, China’s No. 3 lender, Agricultural Bank of China Ltd.,reported its slowest annual profit growth since it went public in 2010. Bank of China listed its shares in 2006.

    Bank of China said Wednesday its 2014 net profit rose 8 per cent from a year earlier to 169.6 billion yuan ($27.35 billion), thanks to higher interest and fee income. The result beat the median 167.88 billion yuan net-profit forecast of 27 analysts polled by Thomson One Analytics.

    The bank said its nonperforming loans stood at 842.6 billion yuan at the end of 2014, up 250.5 billion yuan from the end of 2013. Its ratio of bad loans to total lending rose to 1.18 per cent from 0.96 per cent a year earlier. It also said it had disposed of 19.9 billion worth of nonperforming loans in 2014 to cap increasing bad debt.

    Bank of China said it had increased its allowance for loan impairment losses in 2014 by 20.48 billion yuan, bringing the total at the end of last year to 188.53 billion yuan.

    But the rapid growth of bad loans over the past year meant that its provisions for possibly unprofitable credits no longer covered as much as they once did. The state lender said its allowance for possible losses on loans was 187.6 per cent of total nonperforming loans at the end of 2014, down from 229.35 per cent a year earlier.

    The bank said its net interest income last year was up 13 per cent from a year earlier to 321.1 billion yuan, while fee and commission income rose 9 per cent to 135.23 billion yuan.

    Net interest margin—the difference between interest paid and received—widened slightly to 2.25 per cent at the end of 2014 from 2.24 per cent a year earlier, it said. The margin is a key measure for Chinese banks’ profitability.

    Profit growth at Chinese banks has been under pressure as Beijing accelerates its efforts to liberalize interest rates that have long protected fat margins on loans. The central bank suggested it could scrap all controls over the nation’s deposit rates this year.

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    Fortescue Metals chairman Andrew "Twiggy" Forrest has stood by his controversial and possibly illegal call for a cap on iron ore production to push prices up.

    The comments at a Shanghai business dinner attracted the attention of Australia's competition watchdog, who said it would look at whether he breached the law by calling for a cartel.

    Mr Forrest said he was speaking in a Chatham House Rule private environment - which in theory keeps the speaker's comments inhouse - and he was confident he has not breached competition law.

    "If you have read my comment given in a Chatham House Rule private environment in a private club, then I can say I am not stepping back from them at all," he told Fairfax's The Australian Financial Review from China.

    He argued that just as Fortescue, BHP Billiton and Rio Tinto invested tens of billions of dollars expanding in a rising market, they should cull production now prices are falling instead of over-supplying the market.

    Fortescue's profitability and ability to repay its massive debt pile is under extreme pressure at current prices around $US55 a tonne, while rivals BHP, Rio and Vale still have healthy margins.

    Mr Forrest has been criticised for asking other miners to potentially breach competition law.

    However his point that the supply glut is hurting government coffers may resonate with shareholders and politicians, such as West Australian premier Colin Barnett who last week said BHP and Rio's current policy was a dumb corporate play.

    Rio Tinto chief executive Sam Walsh is expected to address the issue at a business lunch in Melbourne on Thursday.

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    Graph for The truth about development banks

    First, let's get past the histrionics over the Asian Infrastructure Investment Bank. Beijing undoubtedly has scored a symbolic diplomatic win over Washington, whose stance increasingly looks churlish. The Chinese have prevailed in what may become an epic saga of skirmishes over the outmoded Bretton Woods system.

    It was always going ahead with its overseas investment efforts, with or without Washington's support. It is understandable that other countries should now reconsider 'getting inside the tent' when the AIIB initiative has gained so much momentum.

    Many American experts recognised early that opposing AIIB was a strategic error, especially when Congress had blocked attempts to reform the IMF. Their Chinese counterparts now supposedly gloat over Washington's 'petulant and cynical' sulking.

    Look more closely at this situation and it gets even stickier.

    Development banks are unwieldy, politically-driven bureaucracies that submit even the most honourable objectives to a soul crushing ritual of arbitrary decision-making, petty infighting, endless red tape, shelved reports and, frequently, corruption. I should know; I worked as adviser to a major multilateral lending agency some years ago in the Indian energy sector. Well-paid delegates would arrive from everywhere on lavish travel budgets, bearing no apparent relevance to a given project, which after two years would run full circle, ending where it had started.

    Apparently this wasn't an unusual experience, either then or now. Lou Jiwei, China's finance minister, rightly queries why international standards should be his aspiration: "I don't acknowledge best practice. Who is the best?"

    Although influence and power are what's at stake, the battle over the AIIB is technically about governance. In theory, making this Chinese-led institution a multilateral one should improve transparency and objectivity.

    A major gripe about existing institutions is that they bestow veto rights upon incumbent hegemons (the US and Japan, notably) who hold under 20 per cent of the equity capital. China intends to own 49 per cent of AIIB. Its offer to surrender the veto is an empty gesture; practically Beijing's will could only be blocked if every other shareholder opposed it.

    And when it comes to building infrastructure, Beijing thinks best practice is Chinese practice: brusque, efficient, decisive. Bureaucratic procedures and tedious methods' such as public consultation or EIAs are spurned. As Lou says, "we need to consider (developing countries') needs and sometimes the West puts forwards some rules that we don't think are optimal."

    Another complaint about today's development institutions is that they prioritise the preferences of the sponsor. Examining the Asian Development Bank's disbursements against a range of geopolitical criteria, Christopher Kilby showed that "both Japan and the US have systematic influence over the distribution of ADB funds".

    Two other academics, Edward Lincoln and Karen Mingst, have even documented American complaints about Japan's outsized role in the ADB. China may exert similar influence in favour of its pet projects, its allies and its own contractors, just as the Japanese did. According to one estimate, locals in Vietnam got only 3 per cent of the money doled out by ADB there during the past 50 years.

    Development banks underwrite risks that a huge and capable global private sector is not coordinated or motivated to take on. That means making non-commercial lending as commercial as possible, so politics inevitably is involved. No doubt China earnestly wishes to improve its neighbours' transport linkages, for example, and that is a win-win outcome. But when AIIB's tenders come in for the bullet-train line through Cambodia or Kyrgyzstan, we can be sure which country will oversee, manage, supply and construct the railway.

    Roughly 30 countries have signed on, but it is telling that recent Western joiners, such as Australia and Britain, have overtly emphasised their commercial interests. These countries think they see a giant money pot. Their wishes are forlorn. Concessionary lending makes poor business, and Chinese contractors and suppliers can easily undercut foreign companies.

    Still, the AIIB is good news. There is no shortage of need in the world, and different institutions can complement each other. Just as the World Bank targets poverty and public health, the AIIB is aimed at regional infrastructure building, where the ADB reckons there is a $US800 billion annual shortfall. This happens to play to China's industrial strengths and it is encouraging that, at least, the AIIB is inviting others for the ride. Alternative Chinese initiatives are far more parochial, like the colossally unaccountable China Development Bank or the mercantilist Silk Road Fund.

    In fact a chastening experience in Sri Lanka or Venezuela might lead Beijing to better appreciate the advantages of good governance. Because for all the yelping about the 'riven west' choosing between 'accommodation or appeasement', there is a serious practical issue of rules here. Put simply, does the world trust China to do the right thing? If Beijing builds a parallel geo-financial order, will others have a voice? How fair will it be? In this regard, the AIIB has been challenged to match other multilateral agencies. It should aim higher.

    This article was first published in the Lowy Interpreter. Reproduced with permission. 

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    Development banks tend to be politically-driven bureaucracies -- and the recent battle between China and the US over the AIIB is not just about power, but governance.

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     A senior Chinese foreign-exchange regulator on Thursday played down concerns over a weaker yuan and capital flight, saying the local currency remained strong and capital was flowing into China, not out. 

    "We are not seeing capital outflows," said Wang Yungui of the State Administration of Foreign Exchange. "We did see some net capital outflows between August and December last year. But we have net capital inflows now." 

    The official, who heads SAFE's comprehensive management department, told a news briefing that the problem for the currency was that exporters were holding on to more of their foreign-currency earnings. Companies and individuals increased their foreign-exchange deposits at the nation's banks by $US63.9 billion in the first two months of the year compared with the same period in 2014, he added. 

    A muscular dollar and China's slower economic growth have changed market perceptions of the yuan, which has long been seen as a sure bet to strengthen against the dollar. The reversal has convinced many of China's exporters   --   as well as members of the public   --   to hold on to foreign exchange, particularly dollars. 

    The yuan lost 2.5 per cent against the dollar last year and fell another 1 per cent in the first two months of 2015 before clawing back most of this year's losses. The currency now stands just 0.2 per cent lower against the dollar from where it began the year. 

    Mr Wang said the yuan was pressured by the dollar but is still looking solid against other currencies, like the euro, where it has gained nearly 11 per cent this year. 

    China recorded a deficit of $US91.2 billion in the last quarter of 2014 under its capital and financial account, which covers investments, showing that money was flowing out of the country in that period. The figure was the largest quarterly deficit since at least 1998. 

    China had a surplus of $US120.7 billion on its merchandise trade in the first two months of the year, while it attracted $US22.5 billion in direct investments in the same period, official data showed earlier. Those two figures should mean funds are pouring in. 

    But China's central bank and financial institutions sold a net 66.1 billion yuan ($US10.6 billion) in the first two months of the year, according to The Wall Street Journal's calculation based on central bank data. That points to capital outflows   --   or at least capital not being swapped into local currency. 

    "There are doubts about whether this is the full story," said Oliver Barron, analyst at institutional broker North Square Blue Oak, adding that the strong trade surplus coupled with a steady stream of foreign investment should point to more foreign funds being swapped into local currency. 

    So far the problem isn't at the alarming stage. China had foreign exchange reserves of $US3.84 trillion at the end of December and can afford to see a little shrinkage in that tally, according to analysts. 

    Regulators are "mindful but not worried about capital outflows now," said Haibin Zhu, economist at JPMorgan Chase. "However, if outflows intensify, exceeding the trade surplus and causing foreign reserves to decline significantly, it will become a bigger issue."

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    The Industrial and Commercial Bank of China (ICBC), the country's biggest lender, eked out a five per cent gain in net profit last year.

    Net profit was 275.81 billion yuan ($A57.64 billion) in 2014, up from 262.65 billion yuan a year earlier, ICBC said in a statement to the Hong Kong stock exchange on Thursday.

    The bank cited China's slowing economic growth and a rebound in bad debts as having an impact on its operations.

    The country's gross domestic product growth of 7.4 per cent last year was the slowest in nearly a quarter of a century, prompting the government to loosen monetary policy by cutting interest rates in November.

    "We conquered many difficulties such as narrowing interest spread as a result of interest rate liberalisation, drainage of traditional business ... and increasing market competition and increasing loss of financial resources due to rebounding NPLs," the bank said.

    The bank's NPL ratio reached 1.13 per cent by end-December, up from 0.94 per cent a year earlier, according to the statement, due to slowing economic growth and the "pain" of economic restructuring.

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    Chinese energy firm PetroChina says its net profit slumped 17 per cent in 2014 from a year earlier as international crude oil prices plunged in the second half.

    Net profit was 107.17 billion yuan ($A21.99 billion) last year, down from 129.60 billion yuan in 2013, it said in a statement to the Hong Kong stock exchange on Thursday.

    "In 2014, the demand in the oil and gas market grew slowly due to the slowdown in (the) global economic recovery and the intensified downward pressure on the domestic economy," PetroChina said.

    China's gross domestic product grew 7.4 per cent last year, the slowest pace in nearly a quarter of a century.

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    Chinese energy firm hit by plunging crude prices in second half of the year.

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    Graph for Foreign investors are overlooking a quiet Chinese revolution

    This week, China approved the formation of three new free-trade zones, or FTZs. Tianjin, Guangdong and Fujian will join Shanghai in establishing the zones (China to set more free-trade zones, March 25).

    The new FTZs will all adopt the ‘negative list’ approach, which has unfortunately been a much-misunderstood concept among the foreign business community, and is worth closer examination.

    Under the ‘negative list’ system, foreign investors are prohibited from engaging in any businesses or industries contained on the negative list, but are otherwise free to operate within the FTZ. The innovation has been criticised by some, as being no different to the current “Foreign Investment Industrial Guidance Catalogue” in place nationwide, which divides industries into ‘encouraged’, ‘restricted’ and ‘prohibited’ categories, and provides that anything not in one of those three categories is ‘permitted’ and therefore unrestricted.

    It is true that the items on the current ‘negative list’ for the Shanghai FTZ are largely consistent with the ‘restricted’ and ‘prohibited’ categories under the old system (prohibiting investment in sectors such as internet and telecoms to foreign businesses and restricting investment in financial institutions, among others), and therefore does not allow foreign investors to do anything new. However, to dismiss the negative list solely on this basis profoundly misunderstands its significance.

    While the substance is similar, the negative list is conceptually important because it sets the limits of Chinese government power for the first time.

    In the West, our conception of law follows the principle of “Whatever is not prohibited is allowed” -- if the law does not specifically proscribe certain behaviour, we assume we are free to engage in it. However, in China, law and regulations operate on exactly the opposite underlying assumption: “Whatever is not allowed is prohibited”.

    If you cannot find a legal or regulatory source permitting you to do what you want to do, you are not able to do it. Under this model, government power is ‘infinite’, not circumscribed by the boundaries of the written laws, and there is significant scope for administrative discretion to grant ‘special’ approvals.

    This is why the ‘negative list’ is such a ground-breaking development. It tips upside down the entire legal system paradigm in China, limiting the scope of government power strictly to the boundaries set down by the negative list, and therefore limiting the scope of administrative discretion. This incidentally also happens to sit comfortably with President Xi’s ongoing anti-corruption campaign, by limiting the scope for graft.

    Seen this way, the negative list is truly ground-breaking, and goes some way to explaining PRC government officials and commentators’ enthusiasm for the development.

    At the same time as the new FTZs were announced, it was reported by China’s China Business News (Chinese) that the four FTZs will use a single unified form of the ‘negative list’, which is being formulated by the National Development and Reform Commission. Previously, Shanghai had formulated its own negative list.

    The development makes sense, it avoids the chaos that would ensue if each FTZ developed their own negative list, and the consequent forum shopping and internal competition that would inevitably result if they did. But it nevertheless is a sharp signal that the Central Government in Beijing is yanking control back from Shanghai.

    Shanghai Mayor Yang Xiong had reportedly stated that Shanghai has been actively looking at further reducing the number of items and increasing the level of transparency on the 2015 version of their negative list. It will be interesting to see if this is carried through to the national version now being formulated by the NDRC.

    Antony Dapiran is a Hong Kong-based lawyer and writer. You can follow him on Twitter @antd

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    Trade with China and a new investment bank will be on the agenda for government and Labor figures attending the Boao Forum.

    Governor-General Peter Cosgrove will be the most senior Australian representative at the annual economic dialogue on the Chinese island of Hainan, which will involve about 5000 heads of state and government and officials.

    The government will be represented by Finance Minister Mathias Cormann.

    Opposition Leader Bill Shorten and shadow treasurer Chris Bowen will attend, alongside former treasurer Peter Costello and ex-PM Bob Hawke who was a co-founder of the event.

    Senator Cormann will take part in a panel session on Friday looking at the global investment agenda.

    He'll also hold talks on the sidelines on issues from the Australia-China free trade agreement to the new Asian Infrastructure Investment Bank.

    The government is soon expected to announce its involvement in the bank.

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    Chinese industrial giant Baosteel posted a 0.45 per cent fall in its 2014 net profit to 5.792 billion yuan, reflecting a general slowing in the world’s second largest economy.

    "The steel sector remains extremely competitive in 2015 and so, demand and supply will slow in tandem," Baosteel said in a statement translated by Reuters.

    "The steel sector will still suffer from oversupply and it will be a new normal for companies' operations to just eke out small profits."

    The European Union announced this week it will impose anti-dumping duties for six months on some steel imports from China and Taiwan including from Baosteel.

    Duties of around 25 per cent for the targeted Chinese firms, including Baosteel, and 10 per cent for the Taiwan companies took effect yesterday.

    China's gross domestic product grew 7.4 per cent last year, the slowest pace in nearly a quarter of a century.

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