Have You Heard...
Friday, July 30, 2010
Navy conducts live-ammunition training
A warship launches missiles during a live-ammunition military drill held by the South China Sea Fleet of the People's Liberation Army (PLA) Navy in the South China Sea, Hainan province, July 26, 2010. The People's Liberation Army (PLA) Navy had conducted a large scale of live-ammunition training exercise in the South China Sea. During the exercise, warships and submarines from the Navy's South China Sea Fleet performed precision strikes on surface targets by firing guided missiles while surface warships conducted anti-missile air defense operations. A naval aviation fleet also participated in air control operations, which didn't specify the exact location of the training or the number of participating warships.[Photo/Xinhua]
Aircrafts of naval aviation fly during a live-ammunition military drill held by the South China Sea Fleet of the People's Liberation Army (PLA) Navy in the South China Sea, Hainan province, July 26, 2010. [Photo/Xinhua]
A warship moves during a live-ammunition military drill held by the South China Sea Fleet of the People's Liberation Army (PLA) Navy in the South China Sea, Hainan province, July 26, 2010.[Photo/Xinhua]
warship launches missiles during a live-ammunition military drill held by the South China Sea Fleet of the People's Liberation Army (PLA) Navy in the South China Sea,Hainan province, July 26, 2010. [Photo/Xinhua]
A warship attends a live-ammunition military drill held by the South China Sea Fleet of the People's Liberation Army (PLA) Navy in the South China Sea, Hainan province, July 26, 2010. [Photo/Xinhua]
A warship launches missiles during a live-ammunition military drill held by the South China Sea Fleet of the People's Liberation Army (PLA) Navy in the South China Sea, Hainan province, July 26, 2010. [Photo/Xinhua]
A warship launches missiles during a live-ammunition military drill held by the South China Sea Fleet of the People's Liberation Army (PLA) Navy in the South China Sea, Hainan province, July 26, 2010. [Photo/Xinhua]
China Says Its South Sea Claims Are ‘Indisputable’
Source: BloombergJuly 30 (Bloomberg) -- China declared its “indisputable sovereignty” over the South China Sea and held naval drills in the waters, pushing back against a U.S. role in resolving disputes in one of the world’s busiest shipping lanes.
“China has indisputable sovereignty of the South Sea and China has sufficient historical and legal backing” to underpin its claims, Geng Yansheng, a Ministry of Defense spokesman, told reporters at a military compound outside Beijing today. It opposes efforts to “internationalize” the issue and will resolve differences through “friendly negotiation,” he said.
U.S. Secretary of State Hillary Clinton last week called the sovereignty issue “a leading diplomatic priority.” Chinese Foreign Minister Yang Jiechi subsequently called her comments “virtually an attack on China” and said U.S. involvement “can only make matters worse and more difficult to solve.”
The Chinese government considers the entire South China Sea as its own, dismissing claims from Southeast Asian countries to islands such as the Spratlys, and is building an ocean-going fleet to project power beyond its borders. China told Exxon Mobil Corp. and BP Plc to halt exploration in areas that Vietnam considers part of its territory, according to U.S. government agencies.
China’s military recently held a large-scale naval exercise in the sea using “real weaponry,” Geng said. The exercise, involving warships from three naval fleets, included missile launches at long-range targets and practicing against jet fighters, the state-run China Daily reported today.
North Korea
The exercises coincided with joint U.S.-South Korea naval drills earlier this week in the Sea of Japan designed to deter North Korea. Further drills are planned in the Yellow Sea, off China’s eastern coast, and South Korea plans to hold an anti- submarine drill there next week, Yonhap reported today, citing army spokesman Lee Bung-woo.
“China opposes any planes or warships that engage in activities that will compromise China’s security either in the Yellow Sea or other seas near China,” Geng said today.
China’s warning to Clinton to keep out of territorial disputes in the sea may be pushing its neighbors into U.S. arms. Vietnam, Malaysia, the Philippines, Brunei and Taiwan also claim islands in the South China Sea that may have oil and gas reserves.
“The danger always was that if China became more aggressive in the South China Sea, this would push regional countries closer to the United States,” said Ian Storey, a fellow at the Institute of Southeast Asia Studies in Singapore. “That’s exactly what’s happening.”
China’s Military
China has beefed up its military over the past decade, enhancing the capability to deter U.S. ships and enforce territorial claims. Last year, Chinese fishing boats harassed two U.S. naval vessels in the South China Sea, where American forces have patrolled since World War II.
The South China Sea covers 3.5 million square kilometers (1.4 million square miles) stretching from Singapore to the Straits of Taiwan. Its waters carry about half the world’s merchant fleet by tonnage each year, according to the U.S. Energy Information Administration.
Estimates of oil and gas reserves in the waters vary, with some Chinese studies suggesting they contain more oil than Iran and more natural gas than Saudi Arabia, according to the U.S. agency.
In addition to Clinton, 11 other participants at last week’s Association of Southeast Asian Nations forum in Hanoi on regional security raised the issue of sovereignty over the sea.
China’s Foreign Minister, Yang Jiechi, was “a bit emotional” when discussing the sea, South Korean counterpart Yu Myung Hwan said in a July 24 interview. “Suddenly the atmosphere became sullen.”
Code of Conduct
China has resisted committing to a code of conduct in the sea to build on a 2002 accord that called for disputes to be resolved peacefully.
“Yang said at length that the issue should be discussed bilaterally,” Japan’s Foreign Minister Katsuya Okada told reporters on July 27 after attending the forum in Hanoi.
Clinton offered to help facilitate discussions on a code of conduct, saying it was essential to ensure unimpeded commerce, and signaling a direct U.S. role in a dispute it had previously avoided.
“The United States is attempting to coerce Southeast Asian nations into blowing out of proportion the South China Sea issue,” the state-run China Daily said in a July 27 editorial. “This is a dangerous move. It will jeopardize the status quo in the region, one that is built upon peaceful coexistence.”
China’s behavior over the sea has caused “a lot of consternation in the region,” said Bonnie Glaser, a senior fellow who studies China at the Center for Strategic and International Studies in Washington. “The best term would be intimidation. One could also say coercion.”
China's defense expenditure at appropriate level: spokesman
Source: XinhuaBEIJING, July 30 (Xinhua) -- China's defense expenditure has always been maintained at a reasonable and appropriate level, a Defense Ministry spokesman said here Friday.
China's annual defense expenditure has been around 1.4 percent of its GDP in recent years while the share of some major world powers is between 2 and 4 percent, Geng Yansheng, the ministry's new spokesman, said at a press conference two days ahead of the 83rd anniversary of the founding of the People's Liberation Army, on Aug. 1.
"We have always coordinated the national defense building with the country's economic development," Geng said.
He said China has and always will take the road of peaceful development and pursue a purely defensive national defense policy.
China will neither enter into an arms race nor militarily threaten any other country, he said.
China will neither seek hegemony nor engage in military expansion, he added.
"The fundamental task of the Chinese military is to protect the nation's sovereignty, security and territorial integrity, " he said.
Currently, China's security environment is generally stable, but there are still some threats, he said.
Talking of the ongoing revolution in military affairs worldwide, Geng said the Chinese military must respond appropriately.
Geng said the Chinese military has made contributions to the maintenance of world peace and stability.
He said in recent years, the Chinese military has diligently performed its international duties, actively participated in UN peacekeeping missions, escorted merchant ships through troubled waters and participated in international humanitarian aid operations.
He said China has established military ties with over 150 countries.
The Ministry of National Defense has established a spokesperson system and a website. White papers on China's national defense policies have also been released, allowing the world to better understand the Chinese military.
China opposes new EU sanctions on Iran
Source: Reuters(Reuters) - China said on Friday that it did not approve of tougher new sanctions imposed by the European Union on Iran, and welcomed Tehran's offer to return to negotiations on a nuclear fuel swap without conditions.
EU foreign ministers agreed tougher sanctions on Iran on Monday, including action to block oil and gas investment.
Foreign Ministry spokeswoman Jiang Yu said that China still hoped to solve the thorny issues surrounding Iran's nuclear ambitions through negotiations.
"China does not approve of the European Union's unilateral sanctions on Iran," Jiang said in a statement posted on the ministry's website.
"We hope that all relevant parties can support a diplomatic solution and appropriately resolve the Iran nuclear issue through dialogue and negotiations."
China also denounced the United States earlier this month for imposing its own sanctions on Iran, saying Washington should not unilaterally take such steps outside of U.N. resolutions.
Jiang said in her statement that she welcomed a new Iranian offer to discuss a fuel swap for a Tehran reactor and hoped it would be helpful to efforts to solve "the Iran nuclear issue through talks and negotiations."
Iran was reported this week to have handed a letter to the International Atomic Energy Agency (IAEA) saying that it would return without conditions to talks about a nuclear fuel swap for the Tehran reactor, which makes medical isotopes.
The issue was a central part of Iran's negotiations with global powers which stalled last October, leading to fresh sanctions against the Islamic Republic.
A deal struck in principle with Russia, France and the United States would have seen Iran send some of its low-enriched uranium (LEU) abroad in exchange for specially processed fuel rods needed to keep the Tehran reactor running.
The aim was to address concerns that Iran's own nuclear enrichment program might be aimed at developing weapons capability, something Tehran denies. The deal unraveled amid Iranian demands for amendments.
Li Lu, Hedge Fund Manager Possible Buffett Successor
Source: Wall Street Journal by Susan PulliamTwenty-one years ago, Li Lu was a student leader of the Tiananmen Square protests. Now a hedge-fund manager, he is in line to become a successor to Warren Buffett at Berkshire Hathaway Inc.
Mr. Li, 44 years old, has emerged as a leading candidate to run a chunk of Berkshire's $100 billion portfolio, stemming from a close friendship with Charlie Munger, Berkshire's 86-year-old vice chairman. In an interview, Mr. Munger revealed that Mr. Li was likely to become one of the top Berkshire investment officials. "In my mind, it's a foregone conclusion," Mr. Munger said.
The job of filling Mr. Buffett's shoes is among the most high-profile succession stories in modern corporate history. Mr. Buffett, who will turn 80 in a month, says he has no current plans to step down and will likely split his job after he leaves the company into separate CEO and investing functions. Mr. Li's emergence as a contender to oversee Berkshire investments is the first time a name has been identified to fill the investment part of Mr. Buffett's legendary role.
The development illustrates that Berkshire is moving toward putting in place—possibly sooner than investors anticipated—certain aspects of its succession plan.
The Chinese-American investor already has made money for Berkshire: He introduced Mr. Munger to BYD Co., a Chinese battery and auto maker, and Berkshire invested. Since 2008, Berkshire's BYD stake has surged more than six-fold, generating profit of about $1.2 billion, Mr. Buffett says. Mr. Li's hedge funds have garnered an annualized compound return of 26.4% since 1998, compared to 2.25% for the Standard & Poor's 500 stock index during the same period.
Mr. Li's ascent on Wall Street has been no less dramatic. He spent his childhood shuttling between foster families after his mother and father were sent to labor camps during the Cultural Revolution. After the Tiananmen Square protest, he escaped to France and came to the U.S. Investors in his hedge fund have included a group of senior U.S. business executives and the musician Sting, who calls Mr. Li "hardworking and clever."
Mr. Li's investing strategy represents a significant shift for Mr. Buffett: Mr. Li invests chiefly in high-technology companies in Asia. Mr. Buffett typically has ignored investments in industries he says he doesn't understand.
Mr. Buffett says Berkshire's top investing job could be filled by two or more managers who would be on equal footing and divide up responsibility for managing Berkshire's $100 billion portfolio. David Sokol, chairman of Berkshire unit MidAmerican Energy Holdings, is considered top contender for CEO. Mr. Sokol, 53, joined MidAmerican in 1991 and is known for his tireless work ethic.
In an interview, Mr. Buffett declines to comment directly on succession plans. But he doesn't rule out bringing in an investment manager such as Mr. Li while still at Berkshire's helm.
"I like the idea of bringing on other investment managers while I'm still here," Mr. Buffett says. He says he doesn't preclude making a move this year, though he adds that there is no "goal" to bring on an additional manager that quickly either. Mr. Buffett says he envisions a team approach in which the Berkshire investment officials would be "paid as a group" from one pot, he says. "I don't want them to compete."
Mr. Li fits the bill in some important ways, Mr. Buffett says. "You want someone" who "can think about problems that haven't yet existed before," he says. Mr. Li is a contrarian investor, loading up on BYD shares when they were beaten down. And he's a big fan of Berkshire, which may also help his cause. "We don't want them unless they have special feelings about Berkshire," Mr. Buffett says.
But hiring Mr. Li could be risky. His big bet on BYD is his only large-scale investing home run. Without the BYD profits, his performance as a hedge-fund manager is unremarkable.
It's unclear whether he could rack up such profits if managing a large portfolio of Berkshire's.
What's more, his strategy of "backing up the truck," to make large investments and not wavering when the markets turn down could backfire in a prolonged bear market. Despite a 200% return in 2009, he was down 13% at the end of June this year, nearly double the 6.6% drop in the S&P-500 during the period.
Mr. Li declines to discuss a potential Berkshire position, saying only that he feels fortunate to be a member of the Berkshire inner circle. "This is the stuff you can't conjure in dreams," he says.
Mr. Li was born in 1966, the year Mao Zedong's Cultural Revolution began. When he was nine months old, he says, his father, an engineer, was sent to a coal mine to be "re-educated." His mother was sent to a labor camp. Mr. Li's parents paid various families to take him in. He was shuttled from family to family for several years until moving in with an illiterate coal miner, with whom he developed a close bond, in his hometown of Tangshan. Living apart from his family as a child taught him survival skills, Mr. Li says.
He was reunited with his family, including two brothers, by age 10, when a massive earthquake hit his hometown, killing an estimated 242,000 people in the area, including the coal miner and his family. His nuclear family was spared, he says, but "most of the people I knew were killed."
At the time, he says he had no direction and was fighting in the streets. Mr. Li says his grandmother, who was among the first women in her city to attend college, inspired him to begin reading and studying. He later attended Nanjing University, majoring in physics.
In April 1989, he traveled to Tiananmen Square in Beijing to meet with students who were gathering to mourn the death of Secretary General Hu Yaobang, who was viewed as a supporter of democracy and reforms.
The students protested against corruption, among other things, and Mr. Li helped organize the students and participated in a hunger strike.
He and other students fled to France. Later in 1989, he traveled to the U.S. to speak at Columbia University, where human-rights activists embraced him as a hero. He spoke little English but landed an advance to write a book about his experiences.
Helped by financial scholarships at Columbia, Mr. Li quickly learned English. He simultaneously earned three degrees: an economics degree, a law degree and a graduate degree in business, according to Columbia.
With his student loans piling up, Mr. Li attended a lecture by Mr. Buffett at Columbia in 1993. At the time, the 1990s bull market was in full swing, and hedge funds were on the rise. Mr. Li says in China he didn't trust financial markets but hearing Mr. Buffett helped him overcome skepticism about stock investing.
He began dabbling in stocks using money from his book advance. By his graduation in 1996, he had built a sizable nest egg and says he thought he could retire. Instead he took a job at securities firm Donaldson Lufkin & Jenrette and then left to set up his own hedge fund. In 1997, he had set up Himalaya Partners, a hedge fund. Later he started a venture-capital fund to invest in U.S. technology companies.
It was a heady time on Wall Street. The Internet boom was beginning. Investors were clamoring to find hot stocks.
Through his human-rights contacts, Mr. Li quickly attracted well-heeled clients including Bob Bernstein, former chairman of Random House and founder of Human Rights Watch as well as the musician Sting. Other investors included financier Jerome Kohlberg, News Corp. director emeritus and Allen & Co. executive Stanley Shuman and hedge fund manager Jack Nash, Mr. Li says.
But Mr. Li bombed out in 1998, his first year as a hedge fund manager. His fund, which was invested chiefly in Asian stocks, was hammered by the Asian debt crisis, and lost 19%.
"I felt bad that people had trusted me," he says. "All they knew was I was a student activist and all they saw was losses."
His fortunes rebounded as the Asian crisis quickly faded. As 1998 began, so did a huge new bull market. By now, the hedge-fund industry was growing gangbusters, and by the end of 1999, Mr. Li's fund had regained its losses.
In 2002, hedge-fund giant Julian Robertson gave Mr. Li money to invest in his fund on the condition that the fund would make bearish as well as bullish bets on companies.
It wasn't a good fit. Mr. Li says he "hated" betting against stocks, complaining that he had to "trade all the time" to adjust his portfolio. (The remaining parts of the fund now are being unwound.) Mr. Robertson declined to comment on the business relationship.
One of Mr. Li's human-rights contacts was Jane Olson, the wife of Ronald Olson, a Berkshire director and early partner at a Los Angeles law firm Mr. Munger helped found. Mr. Li began spending time at the Olsons' weekend home in Santa Barbara, Calif., and on Thanksgiving 2003 met Mr. Munger, whose home is nearby.
Mr. Munger says Mr. Li made an immediate impression. The two shared a "suspicion of reported earnings of finance companies," Mr. Munger says. "We don't like the bull—."
Mr. Munger gave Mr. Li some of his family's nest egg to invest to open a "value" fund betting on beaten-down stocks.
Two weeks later, Mr. Li says he met again with Mr. Munger to make certain he had heard right. In early 2004, Mr. Li opened a fund, putting in $4 million of his own money and raising an additional $50 million from other investors. Mr. Munger's family put in $50 million, followed by another $38 million. Part of Mr. Li's agreement with Mr. Munger was that the fund would be closed to new investors.
Mr. Li's big hit began in 2002 when he first invested in BYD, then a fledgling Chinese battery company. Its founder came from humble beginnings and started the company in 1995 with $300,000 of borrowed money.
Mr. Li made an initial investment in BYD soon after its initial public offering on the Hong Kong stock exchange. (BYD trades in the U.S. on the Pink Sheets and was recently quoted at $6.90 a share.)
When he opened the fund, he loaded up again on BYD shares, eventually investing a significant share of the $150 million fund with Mr. Munger in BYD, which already was growing quickly and had bought a bankrupt Chinese automaker. "He bought a little early and more later when the stock fell, which is his nature," Mr. Munger says.
In 2008, Mr. Munger persuaded Mr. Sokol to investigate BYD for Berkshire as well. Mr. Sokol went to China and when he returned, he and Mr. Munger convinced Mr. Buffett to load up on BYD. In September, Berkshire invested $230 million in BYD for a 10% stake in the company.
BYD's business has been on fire. It now has close to one-third of the global market for lithium-ion batteries, used in cell phones. Its bigger plans involve the electric and hybrid-vehicle business.
The test for BYD, one of the largest Chinese car makers, will be whether it can deliver on plans to develop the most effective lithium battery on the market that could become an even bigger source of power in the future. Even more promising is the potential to use the lithium battery to store power from other energy sources like solar and wind.
Says Mr. Munger: "The big lithium battery is a game-changer."
BYD is a big roll of the dice for Mr. Li. He is an informal adviser to the company and owns about 2.5% of the company.
Mr. Li's fund's $40 million investment in BYD is now worth about $400 million. Berkshire's $230 million investment in 2008 now is worth about $1.5 billion. Messrs. Buffett, Munger, Sokol, Li and Microsoft founder and Berkshire Director Bill Gates plan to visit China and BYD in September.
Mr. Li is able to travel in China on a limited basis today, but he hopes to regain full travel privileges soon. It isn't clear how he is viewed by the Chinese government.
Mr. Li declined to name his fund's other holdings. Despite this year's losses, the $600 million fund is up 338% since its late 2004 launch, an annualized return of around 30%, compared to less than 1% for the S&P 500 index.
Mr. Li told investors he took a lesson from watching the World Cup, comparing his investment style to soccer. "You may very well work extremely hard and seldom score," he says. "But occasionally—very occasionally—you get one or two great chances and you make decisive strikes that really matter."
Social networking up despite challenges
Source: By Tuo Yannan (China Daily)Beijing - While the number of Chinese social networking site (SNS) users has been steadily increasing, growth rates in the crowded market appear to have slowed, with some firms losing users and others shutting down all together.
As of July 15, the number of Chinese social network site users hit 210 million, up 19.6 percent since the beginning of this year, according to a report by the China Internet Network Information Center (CNNIC).
There reportedly are over 100 social networking sites in China at present.
Social media sites like photo and video sharing platforms, blogs, and social networking sites encourage cooperation and interaction between users, and mainly have user-generated content.
However, booming user numbers in China have not meant a strong revenue stream for all, with two well known social networking sites - 360quan.com and mayi.com - pulling the plug earlier this month.
Cash flow issues ended the lives of the two sites since, like most other Chinese social networking sites income was mainly from investments and advertisements.
Both sites tried to hold off their eventual demise by cutting staff before they closed, to no avail.
"It is not surprising to see this phenomenon," said a former executive working for Chinese SNS website, renren.com, who declined to be named. "I worked for renren before, and its user growth rate has slowed dramatically since the third quarter of 2009."
China's top social network sites include renren.com, Kaixin001.com and Tencent's qq.com.
By mid-2009, renren.com boasted eight million daily visitors, up from five million earlier. But according to the source, growth has slowed sharply even though the site pumps millions into advertising.
Attracting and retaining new users is a common problem for Chinese social networking sites.
"I am fed up with those social networking websites," said Yin Yifan, a 24-year-old female office worker in Shanghai.
"I found I spent too much time playing social-networking games, and I finally found those games all look similar, regardless of which site you are on," she said.
Kaixin001.com, a Chinese social networking site targeting white-collar workers and students, saw user rates decrease 25 percent in the last three months alone, according to data from Alexa Internet, Inc, a Web information company.
Differentiating themselves from other similar SNS sites has also proven to be a problem for operators.
"Most Chinese SNS are copies of Facebook or MySpace, so they all have a similar look. If Chinese SNS firms cannot find a way to make themselves stand out and thereby turn a profit, they inevitably will close down after they burn up investment (money)," said an Internet analyst from SAIF Partners, a Hong Kong-based investment consulting company.
The market still appears very promising.
Data from Internet research company Analysys International shows that the number of Chinese social networking site users is expected to reach 510 million and sales revenue will top 979 million yuan in 2011.
Thursday, July 29, 2010
Have You Heard...
- China conducts naval drill in disputed southern seas
- North Korea Gets China’s Cooperation Deal After U.S. Sanctions
- China Huiyuan Juice Climbs After Danone Sells Stake
- China gets WTO backing in chicken import row with US
- China Approves Geely’s Volvo Car Purchase From Ford
- VW’s China Surge Yields Biggest Profit in Two Years
China conducts naval drill in disputed southern seas
Source: Reuters(Reuters) - Chinese naval forces have carried out a series of drills in the South China Sea, the Defense Ministry said on Thursday, strategic waters which are disputed by a number of Southeast Asia countries.
The exercises were overseen by General Chen Bingde, Chief of General Staff for the three-million-strong People's Liberation Army, the Defense Ministry said on its website (http://www.mod.gov.cn/).
The ministry's statement did not say exactly where the drills took place or how many ships or sailors participated. It said guided missiles were fired and anti-aircraft attacks simulated, as well as electromagnetic interference.
"Pay close attention to changes in the development of the mission, soundly prepare for combat," the ministry paraphrased Chen as saying.
China was furious after it was ambushed at Asia's top security forum last week by a discussion of sensitive territorial claims in the South China Sea, an area rich in energy and key for shipping. China has long-standing territorial disputes there with Brunei, Malaysia, Taiwan, the Philippines and Vietnam.
Beijing had kept serious discussion of the South China Sea off the agenda of the ASEAN Regional Forum (ARF) for a decade and a half. But last week in a meeting in Hanoi, 12 of the 27 members -- including some with no direct stake in the territorial disputes -- raised maritime issues.
China's Foreign Ministry accused U.S. Secretary of State Hillary Clinton of a barely disguised assault on Chinese interests by bringing up the topic.
Chinese state media has since weighed in, warning the United States to alter its policy to take account of China's role as a major player on the world stage if it wants to avoid friction and instability.
U.S.-China security ties have also been strained over joint U.S.-South Korean military exercises this week directed at North Korea but held in seas near China.
China's own growing military clout has worried many of its neighbours, including Japan and Taiwan, the self-ruled island Beijing claims as its own.
Vietnam recently ordered six Kilo-class diesel submarines from Russia as part of a major arms purchase that analysts see as an attempt to counterbalance China's growing naval reach in the region.
North Korea Gets China’s Cooperation Deal After U.S. Sanctions
Source: BloombergJuly 29 (Bloomberg) -- North Korea signed an economic and technical cooperation agreement with China today, a week after U.S. Secretary of State Hillary Clinton announced further trade sanctions to halt the regime’s nuclear-weapons program.
Liu Hongcai, the Chinese ambassador to North Korea, and Ri Ryong Nam, the nation’s Minister of Foreign Trade, signed the agreement during a ceremony held in Pyongyang, according to the state-run Korean Central News Agency. It didn’t elaborate.
Clinton announced sanctions that target government officials and the foreign banks that help sustain the North’s weapons industry during a visit to Seoul last week. The U.S. has backed South Korean claims that the North torpedoed one of its ships and has been pressing for an international effort to put more pressure on Kim Jong Il’s regime.
China has so far refused to condemn North Korea for the attack on the Cheonan, which killed 46 South Korean sailors. China accounted for 79 percent of the North’s 2009 international trade, according to the Seoul-based Korea Trade-Investment Promotion Agency. China provides almost 90 percent of energy imports and 45 percent of the country’s food, according to a July 2009 report by the New York-based Council on Foreign Relations.
China’s Foreign Ministry had no knowledge of the agreement and the Commerce Ministry didn’t immediately respond to a fax seeking comments.
China Huiyuan Juice Climbs After Danone Sells Stake
Source: Bloomberg By Wendy Leung photo: china.orgJuly 29 (Bloomberg) -- China Huiyuan Juice Group Ltd., the company Coca-Cola Co. proposed to buy before being blocked by Chinese regulators, rose the most in eight months after Groupe Danone SA agreed to sell its stake to SAIF Partners Ltd.
Huiyuan rose 7.6 percent to close at HK$5.83 in Hong Kong trading, the most since Dec. 7. The benchmark Hang Seng Index rose 0.01 percent.
SAIF Partners, which manages $4 billion, will acquire Danone’s 22.98 percent stake for HK$6 a share, the French company said in a statement yesterday. Beijing-based Huiyuan competes for beverage sales against Coca-Cola Co., PepsiCo Inc. and other beverage drink makers that are boosting spending in China to expand beyond soft drinks.
“We expect renewed market talks of M&As for Huiyuan,” UBS AG Product Manager Herman Chan said in a note to clients. Huiyuan’s stock “is likely to enjoy a boost in the near term.”
Danone, the world’s biggest yogurt maker, has vowed to avoid joint ventures in China after it sold its stake in food and beverage maker Hangzhou Wahaha Group Co. in 2009, ending two years of lawsuits.
Hong Kong-based SAIF Partners, a venture-capital fund focused on China and India, will spend 200 million euros ($260 million) to acquire the Huiyuan stake.
Huiyuan has gained 5.6 percent this year, compared with a 3.6 percent decline for the Hang Seng Index.
China gets WTO backing in chicken import row with US
Source: By Ding Qingfen (China Daily)BEIJING - China has notched up a victory against the United States after a World Trade Organization (WTO) panel ruled in China's favor in a dispute over the ban on imports of Chinese chicken, sources close to the matter said on Wednesday.
The ruling is expected to come into effect soon and will help open up the US market for finished chicken breast exports, the sources said. The nation is already a major exporter of chicken products to Japan.
The WTO said in June, in an interim ruling, that the US decision was in violation of its rules and regulations.
Commerce Ministry officials said China got the final ruling from the WTO on Tuesday, but the trade body did not disclose the result and other details, citing confidential reasons.
"It (final ruling) will be announced in one or to two months, and the result is actually China wins," said an unnamed source.
In April 2009, China lodged an appeal with the WTO against Section 727 of the Omnibus Appropriations Act of 2009, included in US laws from March 2009. China argued that the Section 727 runs against rules of the global trade arbitrator and consequently the WTO set up a dispute settlement panel in July 2009.
Under the Section 727, the United States effectively prohibits the establishment or implementation of any measures that would allow poultry products to be imported from China.
"Such rules are nothing but trade protectionist measures as they block China's chicken product exports to the US," said Ma Chuang, deputy secretary-general of the China Animal Agriculture Association.
Ma expressed confidence that once the ruling comes into effect it will boost exports of finished chicken products. "We expect to start seeing modest annual export volumes of 100,000 to 150,000 tons of finished chicken products valued at around $500-750 million roughly. It will in no way impact US poultry farmers or manufacturers of finished products," he said.
In 2009, China exported poultry products worth $870 million or 291,272 tons, compared with $860 million in 2008. It imported 799,600 tons of chicken products globally in 2008.
China Approves Geely’s Volvo Car Purchase From Ford
Source: Bloomberg photo: China DailyJuly 29 (Bloomberg) -- China’s Ministry of Commerce said it has approved Zhejiang Geely Holding Group Co.’s purchase of Ford Motor Co.’s Volvo Car unit, paving the way for completion of the $1.8 billion acquisition agreed by the two companies in March.
The ministry signed off the deal recently, a ministry spokesman said by telephone today from Beijing.
Geely agreed on March 28 to buy the Volvo Car business from Ford, marking the biggest overseas acquisition by a Chinese automaker. Volvo is the latest premium European brand to be sold off by Ford Chief Executive Officer Alan Mulally, who has divested Aston Martin, Land Rover and Jaguar since joining the carmaker from Boeing Co. in 2006.
Geely Automobile Holdings Ltd., Geely’s Hong Kong traded unit, rose by 11.3 percent, the most in five months, today to close at HK$2.95. The stock has fallen 31 percent this year, compared with the benchmark Hang Seng Index’s 3.6 percent decline.
Ning Shuyong, a spokesman for Geely, declined to make an immediate comment as he was in a meeting.
The U.S. automaker, based in Dearborn, Michigan, plans to complete its sale of Volvo to Geely next week, according to two people familiar with the plans. Ford and Geely executives are aiming to close the sale, pending final regulatory approvals and financing, said the people, who asked not to be identified revealing internal plans.
Ford has said it will continue to supply Volvo with engines, transmissions and other vehicle components. It also agreed to provide engineering and technology support and access to tooling for common components for an unspecified period.
Volvo Car has about 20,000 employees worldwide, including almost 14,000 in Sweden. The unit had pretax profit of $53 million in the second quarter, compared with a $237 million loss a year earlier, Ford said last week.
Selling Volvo would complete Mulally’s strategy of exiting European luxury lines to focus on Ford’s namesake brand.
VW’s China Surge Yields Biggest Profit in Two Years
Source: Bloomberg By Andreas CremerJuly 29 (Bloomberg) -- Volkswagen AG, Europe’s largest carmaker, reported the biggest quarterly profit in two years on higher demand in China for the namesake brand’s Jetta and Lavida and the Audi luxury unit’s A6.
Second-quarter operating profit in China, VW’s largest market since 2009, more than doubled to 518 million euros ($677 million) from 193 million euros a year earlier, according to figures released by the Wolfsburg, Germany-based company today. Group net income in the period quadrupled to 1.25 billion euros.
Chief Executive Officer Martin Winterkorn needs China to help achieve his goal of surpassing Toyota Motor Corp. in sales and profitability by 2018. The CEO in the last two months announced plans to build two new plants in China, the world’s biggest automobile market, to double production capacity.
“China has become hugely important for VW’s business targets,” said Frank Biller, a Stuttgart-based analyst with Landesbank Baden-Wuerttemberg who recommends buying the stock. “The margin per car is clearly in the double-digit range.”
Volkswagen’s preferred shares rose as much as 3.16 euros, or 4 percent, to 81.75 euros and were up 2.5 percent to 80.55 euros as of 4:39 p.m. in Frankfurt trading. The stock has gained 23 percent in 2010, valuing the carmaker at 35.1 billion euros.
Second-quarter net income beat the 721 million-euro median estimate of nine analysts surveyed by Bloomberg News. Earnings before interest and tax more than doubled to 1.99 billion euros as revenue rose 22 percent to 33.2 billion euros.
China Reliance
Volkswagen, the first overseas carmaker to enter the Chinese market three decades ago, is counting on the country to offset stagnating sales in Europe, where the end of government scrapping incentives is hitting demand for vehicles. First-half industrywide sales in Europe rose 0.6 percent. Deliveries of passenger cars in China in the period soared 48 percent.
Revenue and operating profit this year will be “significantly higher’ than in 2009, Volkswagen said today, as China boosts the carmaker to record deliveries in 2010. VW’s first-half China sales advanced 46 percent to 950,729 vehicles, accounting for 26 percent of deliveries worldwide.
“We’re operating right at the edge of capacity utilization and have to add capacities as quickly as possible to maintain our position,” Chief Financial Officer Hans Dieter Poetsch said today on a conference call, citing demand for the Golf compact, VW’s best-selling model, and the Tiguan SUV.
‘Unbelievably Fast’
“China is developing unbelievably fast,” he said. There’s a risk “of a smart, soft cooling down” of the Chinese economy in the second half, he said.
Rival PSA Peugeot Citroen, Europe’s second-largest carmaker, said yesterday its auto unit may lose money in the second half as demand in Europe, which accounts for two-thirds of sales, slumps. The European market will shrink 7 percent for the full year, the carmaker said. Helped by a second Chinese joint venture announced this month, the Peugeot aims to generate half its sales outside Europe by 2015.
As Volkswagen’s reliance on China increases, the risk for the carmaker rises should the market slow down. China’s car sales in June advanced 19 percent, the slowest pace in 15 months, the China Association of Automobile Manufacturers said July 9. Auto dealers’ inventories have risen due to a quickening inflation rate, which rose to an annual 3.1 percent in May.
Slowdown Opportunities
“A slowdown in China seems negative for VW on first glance though it actually entails opportunities for future business,” said Horst Schneider, a Dusseldorf-based analyst at HSBC Holdings Plc who has an “overweight” recommendation on the stock. “Chinese carmakers may suffer the most from any deterioration of the domestic market, that creates chances for VW and other foreign rivals to gain market share.”
Volkswagen’s two new Chinese factories will bring the carmaker’s total in its biggest market to 11 as VW doubles production in China to 3 million vehicles within four years from 1.4 million in 2009. VW in investing 6 billion euros in the country to fund the expansion and add new models.
Winterkorn is targeting a pretax profit in 2018 that exceeds 8 percent of sales, compared with 1.4 percent in the first three quarters of 2009, as well as a medium-term operating margin of at least 5 percent of revenue.
“A market that absorbs about a fourth of VW’s deliveries is absolutely indispensable if VW wants to surpass Toyota,” Biller said. “Without sustained growth in China, this plan will simply not be feasible.”
New China Chief
The carmaker two months ago named Karl-Thomas Neumann, head of the company’s electric-car division, to take over the Chinese operations beginning in September from Winfried Vahland, who will run the Skoda brand. VW reported increasing profits in China in the last five years under Vahland, who reversed the losses and falling market share plaguing the operations when he took the helm in 2005.
Neumann will need to update aging models and create more cars designed for Chinese consumers to build on Vahland’s success, analysts said.
“Their solid base in China, good reputation and ability to tailor cars to Chinese buyers’ needs have propelled VW’s success in that market,” said Tim Schuldt, a Frankfurt-based analyst at Equinet AG who recommends buying the stock. “All told, I see no acute need for change.”
Wednesday, July 28, 2010
Danone to Sell Stake in Chinese Juice Maker Huiyuan to SAIF
Source: Bloomberg By Cathy ChanJuly 28 (Bloomberg) -- Groupe Danone SA agreed to sell its stake in China’s biggest pure-juice maker to SAIF Partners Ltd., a venture capital fund focused on China and India, for $200 million euros ($260 million).
The Hong Kong-based fund, which manages $4 billion, will acquire the 22.98 percent stake in China Huiyuan Juice Group Ltd. for HK$6 a share, Danone said in a statement. That’s 11 percent more than today’s closing price of HK$5.42 on the Hong Kong stock exchange.
Danone, the world’s biggest yogurt maker, in September 2009 sold its stake in Chinese food and beverage maker Hangzhou Wahaha Group Co., ending two years of lawsuits with its partner. The Paris-based company, which has operated in China since 1987, has since vowed to avoid joint ventures in the country and to build operations on its own.
“Their problems with Wahaha have scared them,” said Shaun Rein, managing director of China Market Research Group in Shanghai. “They want to take a step back, make some money from Huiyuan and redevelop a better strategy for China.”
Beijing-based Huiyuan is competing for beverage sales as Coca-Cola Co., PepsiCo Inc. and other overseas drink makers boost spending in China to expand beyond soft drinks.
Shares of Huiyuan have fallen 35 percent since the Ministry of Commerce rejected Coca-Cola’s $2.3 billion takeover bid in March 2009, saying the deal would have hurt competition in the nation’s drinks market. Coca-Cola offered to pay HK$12.20 per Huiyuan share.
The sale of Danone’s 51 percent stake in ventures with Wahaha ended an almost 12-year partnership that collapsed in 2007 amid more than 30 lawsuits and accusations that Wahaha Chairman Zong Qinghou unlawfully sold Wahaha-branded juice and tea outside their partnership.
“Danone may sell because it only has a minority stake in the business and may prefer to use the funds to expand organically in China or put towards a controlling stake in another venture,” said James Targett, an analyst at Consumer Equity Research in London.
Danone gets more than 40 percent of its sales from emerging markets, a higher proportion than its bigger rival, Switzerland’s Nestle SA.
China Needs 800 Billion Yuan for High-Speed Rail Plan
Source: BloombergJuly 28 (Bloomberg) -- China, the world’s most populous nation, needs about 800 billion yuan ($118 billion) to complete high-speed rail projects as the country invests in train services to pare pollution and travel times.
The funds will help pay for the construction of 6,000 kilometers (3,700 miles) of high-speed lines by 2012, Ministry of Railways’ Chief Economist Yu Bangli told reporters in Beijing today. The ministry is also investigating the formation of an industrial fund, he said, without elaborating.
China may surpass plans to build 16,000 kilometers of high- speed track by 2020 as new lines help spur economic growth, Li Jun director of the general division of the ministry’s Transport department said. The country last year completed projects totaling 600 billion yuan that consumed 20 million tons of steel and 120 million tons of cement, according to the ministry.
Work on a 221 billion yuan bullet-train line linking Beijing and Shanghai began earlier this month, according to state-run Xinhua News. The ministry will attempt to open the track before a 2012 deadline, Chief Engineer He Huawu said.
The Ministry of Railways is also organizing a group of local companies to bid for a high-speed rail contract in Brazil, said Chief Planner Zheng Jian. Chinese trainmakers have previously won orders in countries including Argentina, Saudi Arabia and Venezuela.
Accidents Put Focus on Chinese Workplace Safety
Source: Wall Street Journal by James T. AreddySHANGHAI—A deadly gas explosion and a chemical leak were the latest in a string of accidents that have put the spotlight on China's problems with industrial safety.
The explosion of a propylene-gas line Wednesday at a plastics factory located in a populated section of the Chinese city of Nanjing killed at least 12 and injured scores outside the plant, state media said, illustrating the risks of placing manufacturing sites in crowded urban areas—a widespread practice.
Near the northern city of Jilin, meanwhile, chemical containers flooded into a river in the country's latest water-pollution scare, prompting authorities to cut access to tap water in the area, which in turn spurred a run on water in supermarkets.
More than 100 people, and perhaps as many as 300, sought medical attention after the mid-morning Nanjing blast, filling emergency rooms of five major downtown hospitals, which were running short of blood, the Xinhua news agency said. The death count may rise: China Central Television put the toll at 12 and said dozens remained critically injured.
Interviewed on CCTV, Lan Qing, a doctor at Nanjing's Gulou Hospital, said two people died there and 14 others remained in serious condition. The hospital discharged more than 60 after treating injuries, primarily cuts from flying glass and concrete, he said.
Fire fighters spent four hours trying to seal the gas pipe, as orange fireballs continued to surge from a factory building roof. Television footage showed how the initial blast left an area hundreds of feet away damaged, including the charred twisted frames of a city bus and car, toppled brick walls and broken windows. On television, bloodied witnesses said the area shook like an earthquake.
The propylene pipeline was damaged when workers dismantled buildings at the factory, said a statement from the State Administration of Work Safety. The spark was from a car engine, it said.
Deadly workplace mishaps are an everyday occurrence in China, whether in coal mines, fireworks plants or at ports, including this month in the northeastern city of Dalian, where a firefighter died during cleanup of an oil spill that followed pipeline explosions.
Wednesday's water-pollution problem is the latest to be blamed on China's particularly heavy rainy season, as containers of a chemical used in explosives flooded into the Songhua River. Earlier this month in Fujian province, Zijin Mining Group Co. initially said floods caused the collapse of a basin containing waste water near its copper facilities, which caused a major fish kill as it spilled into a river, although the miner later acknowledged its own culpability, saying that company failures were also to blame.
In the latest incident, Xinhua said more than 1,000 containers holding 160,000 kilograms of the chemical, which wasn't specifically identified, were washed into the river by flood waters. Five years ago, an explosion sent benzene, nitrobenzene and other toxic chemicals flowing into the same river. Chinese authorities initially denied the problem that time but later admitted tainted water was flowing toward the Russian border and ordered taps shut off.
During the first half of this year, an average of 187 people died per day in industrial accidents, China's government said this month. While that figure marked an 11% drop from the first half of 2009, it offered a stark reminder of China's dismal record on workplace safety as its industries expand.
Compounding the risks may be patchy zoning rules in Chinese cities. The 66-building compound involved in Wednesday's blast, Nanjing No. 4 Plastics Factory, sits in an industrial-residential area, near a furniture shop and doctor's office, and just a few miles from provincial government offices downtown and the city's major park.
Many Chinese cities aim to relocate industry. In a notice posted on a local government website where companies advertise to potential investors, No. 4 Plastics said it started production in 1975.
Cold chain opportunities galore for US companies
Source: By Lan Lan (China Daily)BEIJING - The shifting market dynamics of the food industry in China offer immense opportunities for American companies to boost exports of agricultural products, a top US official said on Tuesday.
Eric Trachtenberg, director of the agricultural trade office at the US embassy in Beijing, told China Daily that there have been significant changes in the consumption pattern in China with demand for imported products still strong.
"We often tell exporters that China is the place to be. Many US agricultural companies are keen on exploring opportunities here," said Trachtenberg.
The US exports many agricultural products to China with soybeans the top commodity in terms of value, he said. Economic development has bought about significant changes in the Chinese food industry. With urbanization and income levels growing, people are becoming more and more conscious of food safety and handling, he said.
With land resources fast getting depleted, there is also an increasing awareness of the quality of food and how it is packaged and transported.
US companies can cash in on these factors and boost exports to China over the next five to 10 years, Trachtenberg said on the sidelines of the Second US-China Cold Chain Standards and Regulations Conference in Beijing.
Cold chain is essentially a temperature-controlled supply chain and involves a series of storage and distribution solutions that ensures the shelf life of agricultural products such as meat and vegetables.
"The cold chain industry will boom in China as food safety is gaining more ground," said Trachtenberg.
At present only around 15 percent of food, meat and vegetables are transported by cold chain in China, compared with 90 percent in developed countries, he said.
Developing a strong cold chain system in China will help agricultural exporters and logistics companies from the US, said Trachtenberg.
"In terms of food exports, the main problem confronting US companies is that they are unable to ship their products to inland regions in China due to the absence of cold chain linkages. That certainly is a big trade barrier for US companies," he said.
At the same time, it is also an opportunity for logistics companies to sell their cold chain solutions, he said.
Over 15 percent of China's perishable agricultural products are lost due to supply chain problems, said Dai Dingyi, vice-chairman of the China Federation of Logistics and Purchasing.
Dai and other experts said industry standards are vital for the development of the cold chain industry in China.
The standards for the cold chain industry are still in their infancy and there is no clear timetable on when they will be rolled out, Dai said.
"China has its unique weather conditions and eating habits, so it should set up a standards system that is different from the US and EU," said Joe Yang, a consultant for the Guangdong Cold Chain Committee.
Giant panda killed by poisonous gas, Chinese officials say
Source: By Lily Kuo, Special to the Los Angeles TimesAn autopsy reveals that the animal died after inhaling carbon monoxide and chlorine from ventilation pipes. The death sparks questions and anger from the public and animal welfare advocates.
Reporting from Beijing — They sent army doctors, police and hand-selected veterinarians to rescue her, but after three hours at a hospital, nothing could save Quan Quan, the beloved giant panda at the Jinan Zoo in Shandong province.
On Tuesday, six days after Quan Quan's death, officials said that poisonous gas had killed the 21-year-old panda, dubbed a "heroic mother" by state media for giving birth to seven cubs over the years.
An autopsy revealed that Quan Quan, who was about 70 in panda years, died after inhaling carbon monoxide and chlorine from a former air raid shelter that was being disinfected. The fumes, the medical report said, caused her lungs to collapse.
Early news media reports said the panda had been placed in the contaminated shelter at the zoo to cool down during the midday heat. But Liu Jungang, deputy Communist Party secretary of the Jinan Zoo, said Tuesday that the disinfectant had come through shared ventilation pipes from the nearby shelter. Liu did not explain how the gas got into the ventilation system.
The death of one of China's national treasures, a member of an endangered species, probably will increase pressure to improve care for the animals, experts said.
Most of the world's pandas live in China, the animals' native home. But industrialization has meant the destruction of much of their natural habitat. In response, China has opened reserves and breeding facilities. China has about 250 pandas in captivity, compared with 1,000 thought to still live in the wild.
Quan Quan lived at the Wolong panda breeding center in Sichuan, the world's biggest, which is home to 150 pandas. Only half of the pandas stay at the center; the rest are given as diplomatic gifts to other countries or lent to zoos, as Quan Quan was to the Jinan Zoo.
Animal welfare advocates say Quan Quan's death underscores the dearth of laws regulating how animals in captivity should be treated. Pandas have died in Chinese zoos and breeding centers facilities because of malnutrition, stress, inappropriate breeding and poor veterinary treatment, said Kati Loeffler, veterinary advisor for the International Fund for Animal Welfare.
"These pandas are being bred for a life in captivity," Loeffler said. "Why are they being bred? Just so they can circulate through zoos and live next to old air raid shelters?"
Quan Quan is the second panda to die at the zoon in Jinan, about 200 miles south of Beijing. In 2008, Tao Tao, also on loan to the facility, died of brain disease at the age of 36. Pandas' usual life expectancy is 30 to 40 years.
Pandas draw much attention in overseas venues such as the San Diego Zoo, and they are treated as celebrities in China, a symbol of the nation's culture.
A group of mourners formed at Jinan Zoo two days after Quan Quan's death, according to a report by the Shandong Business Daily.
Holding newspapers with an obituary for the panda, adults and children stood outside Quan Quan's last home and paid tribute to the animal they had visited so often.
"Quan Quan went on a long trip," said a father comforting his son. "Let's come see her again in two years."
Tuesday, July 27, 2010
Analysis: South China Sea spat fresh threat to Sino-US ties
Source: Reuters(Reuters) - China's angry response to a U.S.-led confrontation over the disputed South China Sea raises the specter of a fresh rift between Beijing and Washington just as wounds from a combative start to the year are healing.
China was furious after it was ambushed at Asia's top security forum by a discussion of sensitive territorial claims in the South China Sea, an area rich in energy and key for shipping.
Beijing had kept the South China Sea off the agenda of the ASEAN Regional Forum (ARF) for a decade and a half. But last week in a meeting in Hanoi, 12 of the 27 members -- including some with no direct stake in the territorial disputes -- raised maritime issues.
An angry summary of the meeting was posted on the Foreign Ministry's website on Sunday evening, eschewing usually opaque diplomatic language to accuse U.S. Secretary of State Hillary Clinton of a barely disguised assault on Chinese interests.
"As expected, the U.S. side chose to ignore China's advice and played up the issue at the meeting," the statement said.
"The seemingly impartial remarks (by Clinton) were in effect an attack on China and were designed to give the international community a wrong impression that the situation in the South China Sea is a cause for grave concern."
The statement was repeated the next day in English, ensuring maximum overseas readership for the broadside, and angry editorials in state-run media have also followed. Experts say the fury is not just for show, and threatens already tense ties.
"China is angry. This is the first public U.S. interference over the South China Sea, which the Foreign Ministry sees as an issue between China and Southeast Asian countries," said Shi Yinhong, International Security professor at Renmin University.
"I think this is quite serious because it dramatically expands the space for disputes between China and the U.S."
Relations between Beijing and Washington have been getting back on an even keel after a disastrous start to the year, marred by spats over everything from Tibet, self-ruled Taiwan and trade and the value of China's currency.
But military ties in particular have been slow to recover, and the latest dispute comes hot on the heels of joint U.S.-South Korean military drills in seas near China, directed at North Korea but also criticized repeatedly by Beijing.
"The Obama administration must clearly understand: are they prepared to fully open up an era of friction with China? If they are not then they are certainly giving the impression that they are," the state-owned but populist Global Times tabloid quoted National Defense University professor Han Xudong saying.
DIVIDE AND CONQUER
Clinton's speech marked the public demise of Washington's old hands-off approach to the South China Sea, though it was foreshadowed in speeches by the U.S. military officials and diplomats who have long feared U.S. strategic interests in the area were being eroded.
China has decades-old disputes with Brunei, Malaysia, Taiwan, the Philippines, and Vietnam over boundaries in the South China Sea, an area key for shipping and possibly rich in oil and gas.
Beijing has for years insisted on handling the disputes -- which are serious enough to have sparked sometimes deadly naval clashes -- on a one-on-one basis rather than multilaterally, a strategy some have described as "divide and conquer".
China's growing confidence, bolstered of late by the relative ease with which it has ridden out the global financial crisis, has led to more assertiveness internationally.
"Some of (the Southeast Asian claimants) mention that the Chinese have gotten much tougher on them in recent months on the issue," said David Shambaugh, director of the China Policy Program at the George Washington University in Washington.
"I was told by a high-level Singaporean official in May that China has warned them all not to discuss the disputed island even among each other," he added.
Chinese media even warned fellow Asians after the meeting about embracing the United States too fast, saying they could be sacrificing their interests to a selfish outside power.
"Big countries from other regions...should make efforts to create good external conditions for countries in the region to solve the issue through peaceful negotiations, instead of stirring up trouble and sowing discord in the South China Sea," the China News Service said in an opinion piece.
NO TURNING BACK
The multilateral discussion of the South China Sea was seen first and foremost as a victory for hard-lobbying Vietnamese diplomats, who are more interested in looking for allies than Asian solidarity. They often complain of Chinese harassment of Vietnamese fishermen in disputed waters and recently put in an order for six submarines.
For Washington, staking out a position on the South China Sea dispute is more of a gamble.
It allows the Pentagon to reassert U.S. influence in a distant but vital area. However, it does so with no clearly defined goal and is up against a resolute and patient Beijing.
"China won't back down from its position, which it has held for a long time," said Ian Storey, a fellow at the Singapore Institute of Southeast Asian Studies.
"It's harder for the U.S. though, because now they have said they want to facilitate these talks, what happens next?... It's all tied up with the rise of China's navy and growing disquiet within the Pentagon about the growth of that navy."
Even if a compromise solution can be reached sometime soon, it is unlikely to be a permanent one.
"Both governments are not willing to let this kind of high tension last a long time, so maybe several weeks later we can expect that they will take some action to control the developing of this kind of dispute," Shi said, adding a grim prediction.
"The disputes will be still there and will be temporarily under control, and then temporarily break out, and this will make Sino-U.S. relations more complicated in the future."
Factbox: South China Sea's disputed maritime borders
Source: ReutersHere are some facts on the South China Sea, the maritime rules governing its waters, and major players embroiled in disputes within it.
GEOGRAPHY:
The South China Sea covers an area of more than 648,000 sq miles (1.7 million sq km), containing more than 200 mostly uninhabitable small islands, rocks and reefs. It borders China and Taiwan to the north, Vietnam to the west, Malaysia, Brunei, Indonesia, and Singapore to the south and southwest, and the Philippines to the east.
STRATEGIC IMPORTANCE:
The shortest route between the Pacific and Indian oceans, it has some of the world's busiest shipping lanes. Over half the globe's oil tanker traffic passes through it. Most shipping is of raw materials, such as crude oil from the Gulf to East Asian countries. The sea holds valuable fishing grounds, and as-yet largely unexploited oil and natural gas fields.
DISPUTES:
Six parties are involved in a complex set of historically based territorial disputes in the sea -- Brunei, China, Malaysia, the Philippines, Taiwan and Vietnam. China's claims, the broadest, cover all of the Spratly and Paracel islands and most of the South China Sea.
China's military occupies all of the Paracel Islands, and some nine reefs in the Spratly Islands, including Johnson South Reef, Hughes Reef and Subi Reef.
Vietnam occupies dozens of Spratly atolls and reefs and has military bases on several more.
Taiwan holds Itu Aba island and Ban Than Reef in the Spratlys. Its former president Chen Shui-bian visited Itu Aba in 2008, with a naval flotilla. Taiwan has built an airport there.
Malaysia has built an air strip and diving resort on Layang Layang, also known as Swallow's Reef. The Malaysian navy maintains a base here too. The other atolls it occupies are Ardasier Reef, Marivales Reef, Erica Reef and Investigator Shoal.
The Philippines occupies several Spratly islands, most significantly Thitu island, which it renamed Pagasa (Hope).
Brunei occupies none of the islands.
RESPONSES:
The biggest military skirmishes occurred in 1974, when China attacked and captured the western Paracels from Vietnam, and in 1988, when China and Vietnam fought a brief naval battle near the Spratly reefs, in which more than 70 Vietnamese sailors died.
Vietnam recently ordered six Kilo-class diesel submarines from Russia as part of a major arms purchase that analysts see as an attempt to counterbalance China's growing naval reach.
Vietnam and China have competing claims over undeveloped oil and gas blocks. Businessmen and diplomats say China has pressured foreign firms in deals with Vietnam not to develop those blocks.
In 2007, BP Plc halted plans to conduct exploration work off the southern Vietnamese coast due to the territorial dispute between Hanoi and Beijing.
Vietnamese fishing boats are frequently halted and the fishermen detained by Chinese patrol vessels in disputed waters, to Hanoi's displeasure. In many cases reports say they are freed only after the Vietnamese government pays China.
In 2002, the member states of the Association of South East Asian Nations (ASEAN) and China signed a non-binding Declaration on the Conduct of Parties in the South China Sea, urging the claimant-states to exercise restraint and avoid activities that might escalate tension, such as construction of military facilities and holding war games.
Most claimants are developing tourism on or around some of the islands they hold, to bolster their claims.
INTERNATIONAL LAW:
The 1982 United Nations Convention on the Law of the Sea allows coastal states to establish sovereignty over two areas: 1. Territorial seas -- adjacent waters spanning a maximum of 12 nautical-miles from their coastlines, including the coastline of offshore islands, and 2. Exclusive Economic Zones (EEZ) -- extending 200 nautical miles from the coast.
UNCLOS says overlapping claims should be resolved through ad hoc arbitration or submission to international courts.
THE UNITED STATES:
The U.S. has not ratified UNCLOS, objecting to a clause on seabed mineral exploration. But when accused by China of illegal trespass, it has referred to its provision for states to conduct intelligence-gathering activities in EEZ's. U.S. surveillance aircraft and ships have long conducted surveys in the sea. The country's main security concern in the area is keeping open the sea routes that are vital for commercial shipping and warships.
CHINA:
China has signed and ratified UNCLOS. It says all the islands have been Chinese since ancient times.
MALAYSIA:
Malaysia says that its claims to territories and maritime areas in the South China Sea are in accordance with principles of international law and as depicted in a map it published in 1979 which defined the country's continental shelf boundaries.
PHILIPPINES:
In 1978, former president Ferdinand Marcos issued a decree claiming the entire territory as part of the Philippines, redrawing the country's map. Manila is a signatory to UNCLOS and has passed a law asserting its claims on the Spratlys.
TAIWAN:
Taiwan claims the Spratly, Paracel and Pratas islands in its constitution.
VIETNAM:
Hanoi has ratified UNCLOS. Last year, Vietnam and Malaysia presented a joint submission to UNCLOS on their claims which underlines the point that while China prefers to deal with the competing claimants on a bilateral basis, others have been pushing for a multilateral approach to the South China Sea maritime disputes.
BRUNEI:
Brunei claims part of the South China Sea as its Exclusive Economic Zone, a section of which includes Louisa Reef.
US-ROK joint naval drill enters 3rd day
South Korean navy's Choi Young KDX-II destroyer fires a Torpedo Acoustic Counter Measures (TACM) device decoy during the joint military exercises between the US and South Korea on the East Sea of South Korea July 27, 2010.[Photo/Agencies]
Crew members of South Korean navy's Choi Young KDX-II destroyer fire an anti-submarine torpedo during the joint military exercises between the US and South Korea on the East Sea of South Korea July 27, 2010.[Photo/Agencies]
South Korean navy's Choi Young KDX-II destroyer fires during the joint military exercises between the US and South Korea on the East Sea of South Korea July 27, 2010.[Photo/Agencies]
South Korean navy's warships and US navy's Aegis destroyers (2nd R and 3rd R) take part in the joint military exercises between the US and South Korea on the East Sea of South Korea July 27, 2010.[Photo/Agencies]
Dagong Says China Ratings Miss Local Government Risks
Source: BloombergJuly 27 (Bloomberg) -- Credit ratings assigned to yuan- denominated bonds issued on behalf of local governments in China are misleading and don’t reflect risks investors face, Dagong Global Credit Rating Co.’s chairman said.
Local government-backed borrowers shop around for the best rankings from Chinese ratings companies and “whoever gives them a better rating gets the business,” Guan Jianzhong, chairman of privately owned Dagong, one of China’s five official ratings agencies, said in a Bloomberg Television interview in Beijing yesterday. “This is very dangerous.”
Guan’s comments show growing concern at credit risks stemming from a record borrowing binge spurred by China’s efforts to revive economic growth during the global recession. Chinese banks may struggle to recoup about 23 percent of the 7.7 trillion yuan ($1.1 trillion) lent to finance local infrastructure projects, according to a person with knowledge of data collected by the China Banking Regulatory Commission.
“It reflects the lack of transparency in local-government finance,” Tom Orlik, a Beijing-based China economist at Stone & McCarthy Research Associates, said in a telephone interview. “It’s very difficult to get an accurate gauge of the repayment capacity either of the local government financing vehicles or of the local governments themselves.”
Standard & Poor’s, Moody’s Investors Service and Fitch Ratings drew criticism in the U.S. from investors and officials including Financial Crisis Inquiry Chairman Phil Angelides for assigning top rankings to mortgage-linked securities that crashed when the U.S. housing market collapsed in 2007.
No Junk
“In China most companies can’t issue junk bonds, they have to be at least AA to apply for debt issuance,” Guan said. Local governments set up financing vehicles to fund projects such as highways and airports with bonds and loans, due to limits on their ability to directly borrow money.
According to China Lianhe Credit Rating Co., 43 urban construction companies affiliated with municipalities, provincial and prefecture-level cities, as well as counties, issued bonds totaling 59.2 billion yuan ($8.7 billion) in the first half of 2010. Of the 72 corporate bonds sold in the first half, 70 were rated AA or above, Lianhe said.
China has more than 1,000 county-level governments and hundreds of city and municipal councils that get revenue from local taxes, land sales and central-government transfers. Premier Wen Jiabao’s crackdown to prevent a real-estate bubble has left cities such as Tianjin, southeast of Beijing, reeling as revenues slump from land sales, which made up 41 percent of income in 2009.
Danger Signals
“If you look at the financial crisis, it was caused by an accumulation of credit risks,” said Guan. “When it gets to a certain point, then a crisis breaks out.”
China this year restricted borrowing on concern money isn’t being used for viable projects. While Dagong expects defaults on bank loans used to fund infrastructure construction, there won’t be a risk to the banking system as regulation has improved, he said.
Financing vehicles linked to local governments issue bonds in China’s exchange-traded and interbank markets. These notes are bought by asset managers, securities firms and other institutional investors. Commercial banks are restricted to buying in the interbank market.
Beijing-based Dagong gave China’s government a higher debt rating than the U.S., U.K. or Japan in a report covering 50 nations it published this month.
Two other big ratings companies in China are tie-ups with international partners. China Chengxin International Credit Rating Co. is a joint venture with Moody’s Corp., and China Lianhe Credit Rating is a joint venture partner with Fitch Ratings Ltd. Foreign ratings firms aren’t allowed to directly rate Chinese domestic currency bonds.
Dagong has applied to the Securities and Exchange Commission to start ratings coverage in the U.S. The firm expects a final SEC decision in September.
China Fuels Trade Tension With Policies, Report Says
Source: Wall Street Journal by Andrew Batson and Jason DeanBEIJING -- China's drive to support domestic technologies -- which has already resulted in high-profile complaints by foreign businesses over government purchasing policies -- is likely to continue to cause trade disputes and political tensions with the U.S., says a new report from the U.S. Chamber of Commerce.
"Indigenous innovation is a massive and complicated plan to turn the Chinese economy into a technology powerhouse by 2020 and a global leader by 2050," says the report, to be released this week. "What is worrisome for the business community is that these indigenous innovation industrial policies are headed toward triggering contentious trade disputes and inflamed political rhetoric on both sides."
The report, which was commissioned by the U.S. Chamber and written by James McGregor, a longtime journalist and executive in China who is now senior counselor for APCO Worldwide, says China is becoming increasingly aggressive in using its vast market to push foreign companies to transfer leading-edge technologies. That tactic, it says, is "forcing foreign technology companies to anguish over balancing today's profits with tomorrow's survival."
The report, from one of the world's biggest business groups, adds to the increasingly vocal concerns of foreign companies and governments about the business environment in China, including top executives from firms such as Siemens AG, General Electric Co., and Microsoft Corp.
Executives and officials have raised particular complaint about indigenous-innovation policies that they fear are designed to discriminate against foreign companies or to force them to transfer their intellectual property to China.
Beijing's handling of those concerns "has become a litmus test for many companies, particularly in the IT sector, for how China is currently treating investment and how it might treat investment in these sectors going forward," Myron Brilliant, the U.S. Chamber's senior vice president for international affairs, said in an interview.
Chinese officials have strongly defended the indigenous-innovation policies, saying they don't discriminate against foreign companies and noting that investment continues to pour into the country.
"Currently, there is an allegation that China's investment environment is worsening. I think it is untrue," Premier Wen Jiabao said this month in a meeting with German executives and officials.
China's leaders began emphasizing what they call "indigenous innovation" in 2006, but it emerged as a major issue for foreign businesses after the publication in November of rules for creating a national list of products containing indigenous innovation. Foreign companies feared that would shut them out of tens of billions of dollars in government procurement contracts.
The Chamber report says that concerns over the indigenous innovation policies aren't limited to government procurement. It cites recent revisions to patent legislation that it says make it easier for Chinese companies to use domestic patents to block foreign competitors, as well as a standard-setting process that it says is tilted toward domestic products.
Another example is China's push to develop a homegrown passenger jet through a state-owned company. Major U.S. firms including GE and Eaton Corp. have been selected to supply systems for the jet project but are doing so through Chinese partnerships.
Once their key technologies have been transferred to China, "the foreign aerospace firms may find themselves sidelined and competing globally against the Chinese companies they are now creating," the Chamber report says.
To address the multiple issues arising from China's innovation drive, the U.S. has started a broader dialogue with China on the issue. John Holdren, director of the White House Office of Science and Technology Policy, met with China's Minister of Science and Technology Wan Gang and other officials last week in Washington to open those talks. U.S. officials also raised their concerns about the innovation policies at talks in Beijing in May.
"The Obama administration and Congress should understand this is not just another run-of-the-mill China policy dispute that can be addressed through new rounds of bilateral diplomatic discussions and bombastic legislative initiatives," the Chamber report says.
The Chamber report says that, given China's rapidly aging population and the erosion of its low labor-cost advantage, "the pursuit of a high-tech economy and genuine homegrown science and technology breakthroughs is understandable and laudable." But it says that aspects of the policy are "increasingly perceived as anti-foreign and regressive." As a result, it says, the 2006 document that initiated the indigenous-innovation policy is "considered by many international technology companies to be a blueprint for technology theft on a scale the world has never seen before."
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