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UK is one of the 1st in the Western World to join AIIB...
WITH FRIENDS LIKE THESE ...
James Chessell
978 words
24 Oct 2015
The Australian Financial Review
AFNR
English
Foreign policy
David Cameron's symbolic and economic embrace of China is worrying Britain's traditional security allies, writes James Chessell.
Chinese President Xi Jinping has enjoyed nothing less than the royal treatment during his four-day visit to the United Kingdom. From a grand state banquet at Buckingham Palace attended by the Queen and Prime Minister David Cameron to an official procession along London's Mall in a golden carriage, the first visit by a Chinese head of state to Britain in a decade has not lacked pomp and ceremony.
Well before Xi and Cameron enjoyed dinner at his country retreat, Chequers, on Thursday, both sides had hailed a new "golden era" in UK-Chinese relations after decades of hostility over the former colony of Hong Kong. For its part, Downing Street claims the visit will result in more than £30 billion ($64 billion) in deals and investment for Britain.
Describing China and Britain as "global powers with a global outlook" in a joint press conference on Wednesday, Cameron declared "we should increase our financial and economic co-operation, with the UK as the partner of choice for China in the West".
But not everyone is happy with the enthusiastic welcome Xi has received. Senior Western military, intelligence and diplomatic figures - including some high-ranking Australian officials - believe Britain is cosying up to China without giving proper consideration to security threats or its own national interests.
"By kowtowing to China so uncritically, to put trade before everything else, does show that Britain's international relations are being run out of the [UK] Treasury rather than the Foreign Office and suggests that national and regional security are an afterthought," says an Australian government source, requesting anonymity.
Australia's concerns have not been raised officially but the source says there is "a shared sense of dismay" among British, Australian and US foreign officials about the British government's constant accommodation of Beijing.
There is no better example of how its approach to China differs from that of Australia and the United States than investment in critical national infrastructure. Britain has encouraged Chinese state-owned enterprises to sponsor its nuclear power industry, with its announcement of China General Nuclear Power Corporation's investment in the proposed Hinkley Point reactor in Somerset timed to coincide with Xi's visit.
The economic benefits for both sides are obvious. The UK government secures much-needed funding for a big-ticket project which had failed to attract much interest from investors. By participating in Hinkley Point, being built by the French energy group EDF, Beijing gets to construct a nuclear power plant on the Essex coast using its own technology - the first China-designed reactor to be built in the West.
But many observers accuse Chancellor George Osborne, who has led the government's efforts to woo China, of ignoring genuine national security concerns raised by the UK Foreign Office, intelligence agencies and high-ranking military officers. One threat of allowing China to build such a critical piece of national infrastructure reportedly presented to the British National Security Council is the prospect of a digital "trapdoor" or "loopholes" being installed in the reactor's computer systems that could allow Beijing to override British control.
"It's one thing to do deals with China about buildings or industry, but nuclear is simply a different ballgame altogether," says Paul Dorfman, who works at University College London's Energy Institute and has advised the British government and Ministry of Defence on nuclear issues.
"America wouldn't touch China with a barge poll, no other European country would touch China with a barge poll. And China would not allow the UK to come and build and operate a nuclear reactor on Chinese soil. It's an astonishing move by the boyish Chancellor. The Foreign Office are, I believe, incandescent about Treasury influence."
Australia does not have nuclear power plants. But Australian Security Intelligence Organisation warnings about security breaches prompted the government to block Chinese telecommunications giant Huawei from working on the national broadband network.
Once again, the British approach could not have been more different. Not only was Huawei allowed to supply crucial telecoms hardware for a broadband network built by the privately owned BT, despite the UK government not having proper safeguards in place to scrutinise the work, but Xi toured Huawei's UK operations on Wednesday.
The UK government argues its eagerness to do business with China is prudent. "My message is that Britain can't run away from China," Osborne said during his visit to China last month, where he downplayed human rights and national security concerns. "Quite the opposite - we should run towards China."
Rejecting suggestions the UK was compromising its strategic interests, foreign secretary Philip Hammond this week argued that "national security depends on economic security".
But experts such as University College London's Dorfman point out that British businesses and government departments are regular targets for cyber attacks carried out by Chinese entities. Xi's visit to the US in September was marked by President Barack Obama's threat to pursue sanctions against Chinese online espionage, even as both countries reached an agreement not to conduct or support cybercrime.
The subject was raised in a less fractious manner during the British visit, with both sides pledging to end "cyber-enabled theft of intellectual property, trade secrets or confidential business information". However, not everyone is happy with the pact, given many security analysts believe the US agreement has failed to curb Chinese hacking.
"I think that [the UK] should consider sanctions on China, not rolling out the red carpet," former Cameron adviser Steve Hilton told the BBC on Tuesday.
Australian and US officials also question Britain's support for their condemnation of China's construction of artificial islands in disputed reefs in the South China Sea.
Fairfax Media Management Pty Limited
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China's environmental drive shuts huge glass factory
The closure of the huge Farun glass factory is a sign China is finally getting serious about curbing pollution but slower economic growth makes it hard for many firms to clean up their act, writes Angus Grigg.
NaN of
China's green revolution
by Angus Grigg
For 22 years, the Farun glass-making factory coloured the skies across China's Yangtze River Delta.
At its peak, the plant outside Shanghai produced 15 per cent of the country's glass, even as nearby villagers complained soot from its chimneys blackened cabbage crops and made their children sick. But in the rush to develop China, there was no time for such concerns, as jobs and economic growth supplanted all else.
This has now changed.
In a sign of how far China has come in its attitude towards the environment and public health, the last of Farun's nine smokestacks was shut down on Tuesday for the final time.
[img=620x0]http://www.afr.com/content/dam/images/g/k/g/e/o/s/image.related.afrArticleLead.620x350.gkfe6s.png/1445587520618.jpg[/img]A worker surveys glass-making factory Farun, near Shanghai, the day after it closed.The plant had produced 15 per cent of the country's glass but nearby villagers had complained soot from its chimneys blackened cabbage crops and made their children sick. Olivia Martin-McGuire
By Wednesday, when the AFR Weekend visits, the privately owned factory is deserted, save for the occasional worker wandering the site.
Its cranes are idle, barges to take glass upriver empty and the workers' lunch room left open, revealing discarded hard hats and broken lockers.
In a final, elegant piece of symbolism, the autumn skies are blue above the Yangtze River once again. "Previously, we never paid much attention to the environment," says Farun's former deputy general manager, Fan Xuangang. "We used to get environmental approvals after the new production lines had already been completed."
While the closure of Farun, China's biggest glass manufacturer for 13 years until 2010, is a significant step, it's about more than environmental policy. It shows how Beijing is using the public outcry over air pollution as a means to implement its long-stalled industry policy.
[img=620x0]http://www.afr.com/content/dam/images/g/k/g/e/n/q/image.imgtype.afrArticleInline.620x0.png/1445569945526.jpg[/img]Fan Xuangang, former deputy general manager of glass-making factory Farun. "Previously, we never paid much attention to the environment." Olivia Martin-McGuire
While it was bankruptcy that shut down the last of Farun's blast furnaces this week, the company was ultimately felled by the high cost of meeting newly strengthened environmental regulations.
"It was a big decision for the local government to let Farun go bankrupt but we need to be serious about protecting the environment," says the local village head, who asks not to be named.
"In the past we just talked about environmental protection. That has totally changed now."
By finally starting to enforce environmental laws, the central government has begun the long process of shutting down old, uneconomic factories, which have contributed to chronic overcapacity and deflation in sectors such as steel, glass and cement.
[img=620x0]http://www.afr.com/content/dam/images/g/k/g/e/o/s/image.imgtype.afrArticleInline.620x0.png/1445569928331.jpg[/img]The lockers for workers at glass-making factory Farun, still stuffed with personal possessions. Olivia Martin-McGuire
The central government has talked about this for years but has always been baulked by the potential for social unrest and thwarted by local governments that relied on the tax revenue and the jobs created by such factories.
And while it's still early days, it is a sign China is finally getting serious about the environment.
FROM DENIAL TO ACTION
The central government claims to have closed 9325 factories across China so far this year, without providing details on their emissions or production capacity. It says such action was taken under a new environmental protection law that came into effect on January 1 and allows for the demotion or sacking of local officials who refuse to enforce the new regulations and uncapped fines levied on a daily basis for polluters.
[img=620x0]http://www.afr.com/content/dam/images/g/k/g/e/p/9/image.imgtype.afrArticleInline.620x0.png/1445570031562.jpg[/img]Fan Xuangang, former deputy general manager of glass-making factory Farun surveys the empty warehouse.Olivia Martin-McGuire
For China, the journey from denial to action on air pollution has taken a relatively short three years.
Only in late 2012, the government was angrily rubbishing United States air-quality readings that showed China's major cities were severely polluted.
But a sustained public outcry from a well-educated population that no longer believes the myth of "foggy days" finally saw Chinese Premier Li Keqiang acknowledge the problem and declare "war on pollution" in March 2013.
Since then, the rhetoric has been less expansive but the action undeniable.
In the case of Farun, the central government appears to have gotten serious about shutting it down in March this year. That's when a team from the Department of Environment undertook an inspection of the plant and in June, the company was publicly shamed for its emissions.
Farun was named as one of the 17 worst polluters in China and the state media reported that just one of its 18 production lines was fitted with the required pollution filters.
The Department said its nitrogen dioxide emissions, which cause respiratory problems, had been above the national standard limit for a "long period". It said the company had fabricated its emissions data and officially placed the plant on the central government's monitoring list.
That meant it was fined an undisclosed amount, given 30 days to come up with an action plan to reduce emissions and allowed just six months to install the necessary pollution filters to meet the national standard.
Given the company's weakened financial state, the 73-year-old former manager, Fan, says the requirements were impossible so it was shut down.
Citic Futures, a broking firm, estimates it would have cost around $80 million in capital expenditure to make Farun compliant with the new laws, plus a further $30 million in operating costs each year.
With the price of glass having fallen 30 per cent to below the cost of production over the past year, such an outlay was impossible.
"The local government dared not and could not save them," says Chen Xiaofei, chief information officer at the China Glass Association.
He says the local government was prevented from putting together a rescue plan as Farun was on Beijing's environmental blacklist. Under the new laws, cadres could have been sacked or deemed criminally liable for not shutting it down.
That meant 4000 jobs were lost and the plant will most likely be demolished, as has been the case for others like it across the country.
SYMBOLIC PENALTIES
While sipping green tea and smoking Zhonghua cigarettes, the former manager Fan told how the company's founder, Chen Huinan, spent much of the last decade and a half refusing to believe the environment would ever trump economic growth.
"From 2002, the government was urging us to switch to natural gas but the founder refused because it was more expensive," he says.
Indeed in 2008, the plant switched to an even dirtier form of heavy oil as it was cheaper.
"The founder was happy to pay the fines [for polluting] as they were pretty small," he says.
"It was just a symbolic penalty really."
Such "symbolic" fines were in place as late as last November, when a nearby plant was fined just 449,000 yuan ($97,000) despite its sulphur dioxide emissions being 2½ times the national standard and nitrogen dioxide discharges 40 per cent above the allowable level.
Fan says the founder only acknowledged China's radical change on the environment in late 2013, about the time criminal laws against pollution were toughened.
The new laws, which complement those enacted at the start of this year, allow criminal prosecution of polluters if their actions lead to a single person being seriously injured. Previously, a death was required for a criminal prosecution, which carries a maximum jail sentence of 10 years.
"That's when the founder finally started to realise the importance of environmental protection," says Fan.
But it was too late, as China's construction boom was fading, along with the profitability of Farun and other low-end, inefficient producers.
"Factories [such as Farun] are facing the double pressure of weak demand and serious overcapacity," Citi Futures, a broking firm, said in a report.
"More factories will either need to close or merge."
This is a function of China's anaemic property market, where investment grew at just 2.6 per cent in the first nine months of the year, down from 12.5 per cent during the same period last year.
Even as China's reported its third-quarter GDP had risen by a surprisingly strong 6.9 per cent on Monday, there was no hiding the weakness in its industrial sector.
Glass production fell by 7.5 per cent over the first nine months of the year, while cement was off by nearly 5 per cent and pig iron production declined by 3.3 per cent.
Not even the most optimistic of analysts are forecasting a turnaround any time soon, which is why closures such as the one outside Shanghai this week are set to be the norm, rather than a newsworthy exception.
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China gives its currency largest boost in a decade
- AFP
- NOVEMBER 02, 2015 1:59PM
[Image: 969752-cf1ffdfa-810f-11e5-970a-9231c6de7a20.jpg]
The yuan’s mid-rate was raised upwards by 0.54 per cent against the US dollar. Source: Reuters
[b]China has raised the central rate for its yuan currency by the largest amount in a decade, just three months after a surprise devaluation sent shock waves through global markets.[/b]
The world’s second largest economy adjusted the yuan’s mid-rate upwards by 0.54 per cent against the US dollar, according to an announcement by the central People’s Bank of China (PBOC).
Bloomberg News reported that the increase was the largest since 2005, when Beijing unpegged the yuan from the dollar.
China now allows the currency to trade up or down two per cent from the centrally set daily rate on the domestic foreign exchange market.
Authorities moved the yuan almost five per cent lower in one week in August, saying it was part of broader reforms aimed at shifting towards a more flexible exchange rate.
But the move raised concerns abroad that the Chinese economy was performing worse than had been acknowledged, and fears that Beijing was trying to make its exports cheaper to give it a boost.
China has pledged that it would not engage in competitive devaluations. The move also comes as the country seeks to promote the yuan as a global reserve currency alongside the dollar, an ambition that depends on its willingness and ability to loosen tight restrictions on the currency’s trade.
But authorities fear that losing control of the yuan’s value will mean giving up a powerful tool for managing the economy, which last quarter experienced its slowest growth in six years.
One major step towards achieving Beijing’s goal is convincing the International Monetary Fund to include the yuan in its internal “special drawing rights” reserve currency basket.
The global banking institution updates the components — currently made up of the dollar, yuan, euro and pound — every five years, with the next change due to be decided this month.
Liu Jian, an analyst from Bank of Communications, said: “The economy is stabilising, so the expectation of further depreciation has weakened both at home and abroad.
“On the other hand, the policy intention of the government is very obvious. It tries to maintain a stable foreign exchange market and guide the market as the stabilisation is important for yuan to be admitted to the SDR in the coming IMF meeting.”
AFP
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(02-11-2015, 01:18 PM)greengiraffe Wrote: China gives its currency largest boost in a decade
- AFP
- NOVEMBER 02, 2015 1:59PM
[Image: 969752-cf1ffdfa-810f-11e5-970a-9231c6de7a20.jpg]
The yuan’s mid-rate was raised upwards by 0.54 per cent against the US dollar. Source: Reuters
[b]China has raised the central rate for its yuan currency by the largest amount in a decade, just three months after a surprise devaluation sent shock waves through global markets.[/b]
The world’s second largest economy adjusted the yuan’s mid-rate upwards by 0.54 per cent against the US dollar, according to an announcement by the central People’s Bank of China (PBOC).
Bloomberg News reported that the increase was the largest since 2005, when Beijing unpegged the yuan from the dollar.
China now allows the currency to trade up or down two per cent from the centrally set daily rate on the domestic foreign exchange market.
Authorities moved the yuan almost five per cent lower in one week in August, saying it was part of broader reforms aimed at shifting towards a more flexible exchange rate.
But the move raised concerns abroad that the Chinese economy was performing worse than had been acknowledged, and fears that Beijing was trying to make its exports cheaper to give it a boost.
China has pledged that it would not engage in competitive devaluations. The move also comes as the country seeks to promote the yuan as a global reserve currency alongside the dollar, an ambition that depends on its willingness and ability to loosen tight restrictions on the currency’s trade.
But authorities fear that losing control of the yuan’s value will mean giving up a powerful tool for managing the economy, which last quarter experienced its slowest growth in six years.
One major step towards achieving Beijing’s goal is convincing the International Monetary Fund to include the yuan in its internal “special drawing rights” reserve currency basket.
The global banking institution updates the components — currently made up of the dollar, yuan, euro and pound — every five years, with the next change due to be decided this month.
Liu Jian, an analyst from Bank of Communications, said: “The economy is stabilising, so the expectation of further depreciation has weakened both at home and abroad.
“On the other hand, the policy intention of the government is very obvious. It tries to maintain a stable foreign exchange market and guide the market as the stabilisation is important for yuan to be admitted to the SDR in the coming IMF meeting.”
AFP
Yuan climbs as Beijing looks to further relax rules
DateNovember 2, 2015 - 4:36PM- 15 reading now
- Read later
[Image: 1444795415899.jpg]
Mark Mulligan
Senior markets and economy writer
The People's Bank of China on Monday lifted its reference rate for the yuan by 0.5 per cent, its biggest daily rise in more than a decade, in response to a surge in offshore trade on Friday.
In late local trade on Monday there were 6.34 yuan to the US dollar, compared with 6.33 at the same time on Friday, when the currency climbed 0.6 per cent.
This was the biggest daily rise since Beijing loosened its peg to the US dollar in July 2005. At one stage it rose to as much as 6.32 to the dollar, its highest point since a 3 per cent devaluation by the People's Bank of China (PoBC) in the second week of August.
The PBoC responded on Monday by setting the yuan reference rate 0.5 per cent higher.
The yuan is allowed to trade 2 per cent above or below the PBoC's reference rate, and is normally fixed in line with the previous day's offshore trading close.
Friday's offshore surge came after the central bank said it would consider opening up yuan-denominated bond trade to foreign firms, while allowing some direct buying of foreign assets by individuals inside the Shanghai free trade zone.
The reforms, which would be tested first, are part of China's push to have the yuan admitted to the International Monetary Fund's special drawing rights (SDR).
HSBC's chief economist for China Qu Hongbin said in a note on Monday that Beijing was poised to further relax market controls as part of the SDR campaign.
"We expect further reforms in the coming months: fewer restrictions on cross-board foreign exchange transactions, more capital markets access, and easier individual cross-border investment," she wrote.
"The yuan will move much closer to full convertibility."
She said recent capital outflows, which had helped keep the yuan low, reflected foreign investment by companies and individuals, rather than investor panic, or "flight".
In any case, the PBoC had responded by reducing the reserve requirement ratio, which governs how much capital banks must hold on their balance sheets.
"In a nutshell, capital flows have mostly been of a manageable nature and scale," she wrote.
"Their impact on onshore liquidity has been mostly offset by reductions in the reserve requirement ratio."
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http://www.bloomberg.com/news/articles/2015-11-02/china-s-smurfs-beat-cash-controls-sending-real-estate-soaring
China's 'Smurfs' Beat Cash Controls, Sending Real Estate Soaring
Is it okay to let Chinese violate their own currency controls?
Paul Panckhurst
November 3, 2015 — 6:57 AM SGT
[Image: 488x-1.jpg]
A "Now Selling" sign is displayed at a condominium under construction in Vancouver.
Photographer: Ben Nelms/Bloomberg
When Chinese nationals move money overseas, they often do it the way drug traffickers or terrorists do: They break down cash into small amounts below what would trigger official scrutiny.
Moving money in small increments to avoid reporting requirements is called “smurfing,” after the little blue cartoon characters who as small individuals constitute a larger whole. A record $194 billion exited China in September, according to a Bloomberg gauge estimating capital flows. The Chinese use numerous tactics to transfer money abroad, and smurfing is routine, with some of the cash flowing into overheated property markets in Vancouver, Hong Kong, New York and Sydney.
Now, as Chinese citizens bypass the country’s limit of converting $50,000 a person per year by enlisting friends, relatives and even employees to send out cash on their behalf, banks and regulators around the world are being forced to decide: Is it okay to knowingly allow Chinese citizens to evade their government’s controls if it doesn’t break your own country’s laws?
In Vancouver, a Supreme Court case showed that one lender, Canadian Imperial Bank of Commerce, had assisted such transactions. The case arose when a CIBC financial adviser allowed a wealthy Chinese client to route two deposits of $50,000 through her private accounts to buy a home, leading to the dismissal of the banker for “commingling” her own funds with her client’s.
[Image: 488x-1.jpg]
Source: Bloomberg
Risks, Rewards
“With the corruption crackdown and the recent financial markets meltdown, more Chinese than ever are looking to move their wealth -- some legitimately earned and some not -- to safe havens outside of China,” said Bill Majcher, a Hong Kong-based former financial crimes investigator for the Royal Canadian Mounted Police. “Chinese capital is simply too large to ignore, so the banks will do all they can to capture this growing business, regardless of the risk it brings.”
Chinese buyers for the first time ranked as the biggest foreign purchasers of U.S. homes in the year through March, laying out $28.6 billion. In Sydney, Chinese buy almost a quarter of the supply of new homes, and are forecast to double their purchases to A$60 billion ($43 billion) by 2020. In Vancouver, home prices have doubled since 2005, and owning a home can cost as much as 91 percent of household income.
The Canadian court judgment last year in the fired banker’s wrongful dismissal case described the practice of bypassing China’s controls as challenging, complicated -- and something that CIBC “supported.”
Separate Accounts
“If, for example, a CIBC client wanted to send $150,000 from China to Canada, the money had to come from three accounts belonging to three different account holders in China and be transferred to three separate accounts belonging to three separate account holders in Canada,” the ruling said. “As long as all the appropriate accounts were set up, the money could be moved.”
In April this year, British Columbia’s Court of Appeal overturned the lower court’s ruling in the banker’s favor and ordered a new trial.
Asked about such transfers, CIBC said that it makes money-laundering checks, flags suspicious dealings to regulators and ensures that these “very infrequent” transactions comply with Canadian law. CIBC isn’t legally responsible for ensuring that money transfers comply with Chinese law, a duty that falls on institutions in China, spokesman Kevin Dove said by e-mail.
Money Laundering
Global banks have run afoul of regulators in recent years for failing to do enough to counter money laundering, one of the risks that arises from smurfing. As part of a $1.9 billion settlement in 2012, HSBC admitted to failing to maintain effective anti-money-laundering programs in both the U.S. and Mexico, and in June of this year the bank said it had agreed to a fine to close an investigation into allegations of money laundering at its Swiss private-banking unit.
“We expect our customers to be in full compliance with all relevant laws and regulations including those related to Chinese currency controls,” Sharon Wilks, a spokeswoman for HSBC’s Canada business, said by e-mail.
Capping Withdrawals
China has been tightening up on channels for outflows, capping withdrawals at overseas automated teller machines and telling banks to watch out for “ants moving their house,” the term used in Chinese. In September, the State Administration of Foreign Exchange said lenders can refuse to process frequent withdrawals or transfers in which five or more people send money to the same overseas account.
In Hong Kong, banks have stepped up efforts to report suspicious transactions and cut the risk of financial crime, the Hong Kong Monetary Authority said in response to questions. Banks accounted for 83 percent of such reports to the Joint Financial Intelligence Unit last year, the police-customs agency that helps investigate money laundering, the HKMA said.
Asked whether financial institutions are allowed to knowingly help Chinese citizens evade their home country’s capital controls, government agencies in Canada and Australia cited requirements including verifying customers’ identities and reporting suspicious transactions. A spokesman for the Financial Crimes Enforcement Network, an agency of the U.S. Treasury Department, said that banks are required to “conduct enhanced due diligence on foreign correspondent accounts.”
Beijing Investigation
Last year, smurfing surfaced again when Beijing police busted underground banks for $23 billion of alleged transactions, including illegal transfers of money abroad. In one case, a man had moved more than $5 million overseas in a year by breaking up the amount and using different bank accounts that had been borrowed, rented or purchased, according to the police statement.
Penalties for violating the $50,000 annual cap are tiny: 30,000 yuan ($4,700) for banks and 1,000 yuan for individuals, according to a SAFE rule issued in 2007. SAFE didn’t respond to a faxed request for comment on the rules and their enforcement.
The pooling of $50,000 quotas is routine. Jenny Cai, a Shanghai resident, said she used her family members to help her buy a A$1.2 million apartment in downtown Sydney by grouping her own allocation along with those of her husband and daughter. Her property agent told her the arrangement is commonly used, she said, although her family members needed to falsely state that the cash was to be used for tuition fees.
Elsewhere in China, examples include a company that ordered employees to use their accounts to wire money to Canada for private property purchases, according to Christine Duhaime, a Canadian lawyer specializing in financial crime.
China’s rules are being “made a mockery of,” she said. “I wouldn’t do it if I ran the banks.”
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China’s President Xi Jinping sets 6.5pc growth as new floor for economy
- MARK MAGNIER
- THE WALL STREET JOURNAL
- NOVEMBER 04, 2015 6:43AM
[Image: 796013-e93313f8-8263-11e5-8722-48e326bba19d.jpg]
China's President Xi Jinping attends a conference yesterday in Beijing. Source: AP
[b]China’s president has guided expectations for the economy lower, setting a growth floor of 6.5 per cent as the government navigates a slowdown that has been deeper than expected.[/b]
China’s recent attempts to boost flagging growth — including six interest-rate cuts over the past year and a parade of announced government infrastructure projects — have blunted efforts to restructure and shift the economy from traditional manufacturing to consumption.
“Unfortunately, I fully expect the priority of growth to supersede any reform or rebalancing,” said University of California San Diego professor Victor Shih.
President Xi Jinping said the economy faces many domestic and global uncertainties, but a minimum of 6.5 per cent growth is needed to realise Beijing’s goal of doubling people’s average income and the size of China’s economy by 2020 over 2010 levels, according to China’s official Xinhua News Agency.
Mr Xi hinted at a range for the five-year growth target, which will be announced in March, by saying that China could maintain its current pace of about 7 per cent. His comments underscore a key challenge for China’s leaders: how to manage expectations in a difficult bid to shift the economy to a slower-paced “new normal.”
But by setting a minimum, Mr Xi committed China’s leadership to a level it must now sustain as it navigates a slowdown that has been deeper than expected, with domestic demand so far failing to fill a void left by a sputtering growth model relying on manufacturing and investment. Concerned that an ageing population will drag down growth further, leaders last week scrapped the country’s 35-year-old one-child policy.
According to the official Xinhua News Agency last night, the party also said in the proposed five-year plan that it plans to raise the retirement age gradually.
Short on specifics, the plan calls for supporting new growth drivers — especially expanding consumption — but also relies on old engines, such as exports and investment in infrastructure. Plans to integrate clusters of cities into new megalopolises and to build more highways and railways received specific mention as did a focus on the environment, innovation and more open capital markets.
The final version is scheduled for release in March by China’s rubberstamp parliament, when many economists predict Beijing will cut the growth goal to 6.5 per cent.
“Recent plans have shifted focus from industrial output to growth of hi-tech industries and the service sector,” said Mr Shih. “However I don’t really see too many fundamental changes because they are still laying out a comprehensive set of objectives which are often against market logic,” he added.
The blueprint for 2016-2020 was agreed upon during a four-day Communist Party meeting held last week. Leaders also pledged to spur more competition in several state-dominated industries including oil, electricity, natural gas and telecommunications, according to Xinhua.
The proposal also called for making China’s currency, the yuan, “freely convertible and usable” over the next five years, setting a new timetable for the long-promised and delayed capital account convertibility — whereby money can move freely across borders — in an orderly manner.
China also pledged to reduce its relative debt levels, which have surged since a massive stimulus program to avert effects of the 2008-2009 global financial crisis. The IMF has warned that China’s debt level has grown faster than debt did in Japan, South Korea and the US before those countries tumbled into recession. Consultancy McKinsey & Co. estimates that China’s debt is equivalent to 282 oer cent of its gross domestic product, a larger ratio than in Germany or the US.
The plan vowed to narrow the income gap and deepen household registration reforms so more rural residents can live and work in Chinese cities. It said China’s per capita GDP has risen to $US7,800 in 2015 from 29,748 yuan ($US4,697) in 2010, according to Xinhua.
China has vowed to continue raising average incomes and to try to steer clear of the economic stagnation that can affect moderately prosperous countries. “The biggest challenge facing our country is the middle-income trap,” Xu Shaoshi, head of China’s top planning body, the National Development and Reform Commission, told reporters Tuesday.
The proposal called the transition the country is engaged in historic and urged party members to rally in support.
“Maintaining innovative, co-ordinated, green, open and shared development relates to a profound change in our country’s development situation as a whole,” the proposal said. It said that party members must “recognise the great, actual significance and far-reaching historical significance of this change.”
Wall Street Journal
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Weighing China’s new five-year plan
[b]Beijing has just released a new five-year plan, the 13th since the founding of the People’s Republic. The strategic plan promises to achieve a xiaokang society by the end of the decade. This term, which has its origin in the Confucian classics, refers to a prosperous and harmonious society. The ruling Communist Party has hijacked the term to describe their own imagined utopian state.[/b]
It is important to take notice of this plan. It is essentially the government’s action plan for the next five years. Think of it as akin to the American president’s State of Union address.
So, what does xiaokang actually mean? The first priority for Beijing is still economic development. The Chinese have truly taken Bill Clinton’s advice to heart: “it is the economy, stupid.” It seems the Chinese government has also learnt from its archrival — the Japanese. Just like the former Japanese Prime Minister Ikeda Hayato did in 1960 — a crucial turning point in Japan’s post-war history — Beijing has promised to double its citizens’ income.
To achieve Beijing’s goal of doubling per capita income by 2020 from 2010 levels requires an annual growth rate of 6.5 per cent over the next five years. It is still a fairly ambitious goal for Beijing given the current domestic and international headwinds. So far, only Shanghai has abandoned the practice of GDP targeting.
For Beijing to realise its annual 6.5 per cent growth rate, the government is banking on significant increases in productivity on the back of innovation. In fact, the government is making support for innovation the centre piece of its plan. Though Beijing has yet to release the details, it is likely to include significant components of the so-called “internet+” strategy as well as the “Made in China 2025” agenda.
The internet+ strategy, as explained by Tencent’s Pony Ma, is essentially about “using the internet to help industries to upgrade and transform, generating new products, services and business models and creating a whole new ecosystem.”
In a nutshell, Beijing wants its internet industry, which currently accounts for 4.4 per cent of GDP, to play an even bigger role in transforming the country’s economy. Chinese tech entrepreneurs have fundamentally transformed the country’s retail sector through e-commerce, one wonders if they can do the same for other sectors.
McKinsey predicts that the country’s internet industry could add anywhere between 4 trillion and 14 trillion yuan in additional economic activity from 2013 and 2025. The Made in China 2025 plan, which is modelled on Germany’s Industrie 4.0, is also expected to play a similar role in the country’s plans to increase productivity.
China’s manufacturing sector is in a slump as costs pile up and orders tumble. Beijing wants to capture more of the value-added component of the value chain. Many factories are implementing large-scale automation and digitisation of their production lines and China is soaking up one-fifth of the world’s total production of industrial robots.
After years of neglecting the country’s environment, Beijing vows to focus more attention and spend more resources on China’s rapidly deteriorating environment. UBS economists say green development is listed as a key development objective in the five-year plan for the first time. Beijing is committed to cut 2020 carbon dioxide emission intensity by 40 to 45 per cent from the level in 2005.
Beijing wants to lift the share of non-fossil fuel in primary energy consumption from 11.4 per cent in 2015 to 15 per cent in 2020, so more bad news for Australian coal producers. You only need to live in Beijing for a few weeks to understand why China’s policymakers are paying more attention to environmental issues.
Another major element of the new five-year plan is a commitment to continue the policy of opening up to the world. For decades, China has benefited enormously from its close integration with the world economy, making it an economic superpower. However, China’s openness towards the world is being questioned by some. Western businesses complain about discriminatory treatment and a worsening business environment. American tech companies have been fined or shut-out of government projects.
UBS says foreign investment will be subject to pre-established national treatment and a negative list system will be introduced nationwide in the future. We will have to wait and see if Beijing keeps its promises of allowing foreign companies better access to its vast market. On the other hand, China will accelerate its “going out” strategy.
The Chinese president Xi Jinping said earlier this year that the Chinese overseas investment would exceed $500 billion by 2020. The new investment wave is likely to be centred on the “One Road, One Belt” plan, which is the most important international economic strategy announced by Xi since he assumed power two years ago.
We can expect to see more and more Chinese investment in infrastructure and agricultural projects. Beijing’s plan for deeper global financial integration is like to see an even more prominent role for the country’s currency, which is expected to be included in the IMF’s special drawing rights basket.
Beijing’s new five-year plan offers a promising and more balanced growth strategy for China. However, like so many other well-intentioned plans, the key is execution. Given the recent stalling of reforms and the mishandling of key economic policy changes, we should remain sceptical about Beijing’s ability to deliver on its promises.
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An investor's guide to a more liberal China
It's time for investors to understand the global effects of China's economic transformation and the possible long-term implications for their portfolios, writes Therese Niklasson.
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[img=620x0]http://www.afr.com/content/dam/images/g/k/l/a/h/u/image.related.afrArticleLead.620x350.gkodij.png/1446606052448.jpg[/img]Beijing is keen to improve the reputation of domestic companies to attract overseas capital. Getty Images
by Therese Niklasson
We are embarking on a new era in global markets – one that has China's increasing integration into the global financial system at its core. As China rebalances its economy, internationalises its currency and allows greater foreign participation in its capital markets, decisions made in Beijing will have a greater impact on investors' portfolios, no matter where they are invested.
Despite recent market volatility, we believe now is the time for investors to understand the global effects of China's economic transformation and the possible long-term implications for their portfolios.
For international investors, the liberalisation of China's markets provides not only opportunities, but also challenges, particularly when it comes to assessing local corporate governance practices. Unfamiliar legal and cultural contexts often present hurdles to investors entering new markets, and China is no exception.
Chinese corporate governance practices are going through a period of change. The government has focused on enforcing market-abuse regulations and improving business integrity, and Beijing is keen to improve the reputation of domestic companies to attract overseas capital. Local institutional investors are also showing signs of a more active approach to ownership and have started to engage with Chinese companies, including state-owned enterprises (SOEs). But what will these changes mean for companies and investors?
By reforming China's SOEs, Beijing is seeking to reduce government involvement in listed entities. The government hopes to encourage a more diverse board structure, with increased representation by independent directors, by selling equity to private and institutional investment funds. International investors are eager to see this progress.
PLANS TO LIST SHENZHEN
China's two main stock exchanges, the Shanghai Stock Exchange and the Shenzhen Stock Exchange, also need to be included when assessing governance issues. The Shenzhen Stock Exchange is an important platform for growing domestic businesses, particularly as it seeks to expand. There are plans to make the exchange a listed company, and extend the Shanghai-Hong Kong Stock Connect program to this bourse to attract further foreign investment into mainland China.
The Shanghai Stock Exchange has already conducted some basic due diligence on prospective initial public offerings, governance training and requests to vote electronically rather than in person. The ability to vote electronically is particularly important as the vast majority of shareholders on the exchange are retail investors. Electronic voting would help overcome some of the geographical challenges in a market of this scale, and encourage shareholders to exercise their rights. The number of electronic voting sessions in China has grown more than tenfold since 2005.
Another key area of focus is the reform of auditing practices. In March, China's top regulator for SOEs announced plans to launch a bidding process for independent accounting firms to conduct audits of SOEs' overseas units. This reform is another encouraging move and should be well received by those who have concerns over financial management of SOEs.
As the government enforces higher standards, and domestic shareholders push for more accountability from boards, new models are likely to evolve that can provide investors with better transparency and greater interaction between management and shareholders.
However, as we have experienced in other markets, fundamental changes to board structures is a long process. Hopefully China should continue to open its financial markets to foreign investment and crack down on corruption, which should provide an opportunity to review and update fundamental principles around transparency, shareholder rights and structures that support the accountability of management, effective oversight and control.
Therese Niklasson is global head of environmental, social and governance at Investec Asset Management.
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The direct trading pair with reduce trading cost for Yuan, by omitting the intermediate...
China establishes direct trading pair between yuan and Swiss francs
09 Nov 2015 17:45
[BEIJING] China will establish direct trading pair between yuan and Swiss francs in the interbank market, the China foreign exchange trading system operator said on Monday.
The trading pair will be effective from Nov 10, it said on its website ( www.chinamoney.com.cn).
REUTERS
Source: Business Times Breaking News
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Weaker China inflation stokes growth fears
- AFP
- NOVEMBER 10, 2015 1:16PM
[b]Consumer inflation in China fell to 1.3 per cent year-on-year in October, authorities said today, in another sign of weak demand in the world’s second-largest economy.[/b]
China is a key driver of global growth but expansion slowed to its lowest rate in nearly a quarter of a century in 2014 and has continued to weaken this year.
The rise in the consumer price index — a main gauge of inflation — released by the National Bureau of Statistics was the lowest since May and down sharply from 1.6 per cent in September.
It was also well below market expectations of 1.5 per cent in survey of analysts by Bloomberg News.
Moderate inflation can be a boon to consumption as it pushes buyers to act before prices go up, while falling prices encourage shoppers to delay purchases and companies to put off investment, both of which can hurt growth.
Authorities pledged to accelerate reforms at a key Communist Party meeting earlier this month, but analysts warn that more needs to be done to avoid a hard landing for the economy.
The producer price index (PPI), which measures the cost of goods at the factory gate, fell 5.9 per cent year-on-year in October, matching the figures for September and August, which represented a six-year low.
Consumer inflation has been at or below 2 per cent for all of 2015, while the drop in PPI — a leading indicator for CPI — was the 44th consecutive monthly fall.
Chinese growth hit a 24-year low of 7.3 per cent in 2014 and has slowed further this year, with gross domestic product increasing 7 per cent in each of the first two quarters.
Both domestic and overseas demand have slackened, with official trade data at the weekend showing imports down nearly 19 per cent in October, and exports falling almost 7 per cent.
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