Have You Heard...

• North Korea Sends Aide to Beijing as Report Shows China Weighs Unification
• North Korea Keeps the World Guessing
• Cardinal Health Buys Chinese Distributor
• Huaneng buys into InterGen
• Rolls-Royce Seeks China Sales Surge for $990,000 Cars
• U.S. presses China again over jailed geologist

North Korea Sends Aide to Beijing as Report Shows China Weighs Unification

Source: Bloomberg

North Korea dispatched one of Kim Jong Il’s top aides to Beijing the same day as leaked U.S. diplomatic dispatches showed China is increasingly willing to consider a unification of Korea under the South’s control.

Choe Thae Bok, chairman of North Korea’s Supreme People’s Assembly, left for Beijing today for talks with Chinese leaders, state-run Korea Central News Agency reported. Choe met China’s President Hu Jintao in the Chinese capital on Oct. 2 and accompanied Kimon a trip to the city in May, according to KCNA.

Choe’s visit comes after China proposed on Nov. 28 that negotiators from the two Koreas, Japan, Russia and the U.S. meet in Beijing early next month to defuse tensions following a Nov. 23 North Korean artillery attack on a South Korean island that killed four people. A U.S. Navy aircraft carrier is now conducting exercises in the Yellow Sea off the Korean coast.

Japan rejected the Chinese proposal yesterday. Talks can’t be held only because North Korea has “run amok,” Japanese Foreign Minister Seiji Maehara told the Wall Street Journal in an interview. Nicholas Snyder, a spokesman at the U.S. Embassy in Beijing, said “clear steps by North Korea are needed to demonstrate a change of behavior.” South Korea’s Ministry of Foreign Affairs and Trade said it would consider China’s call for talks “very cautiously.”

China is North Korea’s biggest trading partner and a source of much of the country’s food, fuel, and foreign currency. The two countries have been allies for 60 years since fighting together against U.S.-led forces during the 1950-53 Korean War. The two countries share a 1,415-kilometer (880 mile) border.

Unreliable

A leaked Feb. 22 diplomatic cable provided to the Guardian by WikiLeaks.org said that South Korea’s then-vice foreign minister, Chun Yung Woo, told U.S. Ambassador Kathleen Stephens that young Chinese Communist party leaders don’t think North Korea is a reliable ally. Chun also said two unidentified Chinese officials told him they believed Korea should be unified under the South.

U.S. Secretary of State Hillary Clinton yesterday said the Obama administration “strongly condemns” the unauthorized release of more than 250,000 diplomatic documents that WikiLeaks began posting two days ago. State Department spokeswoman Nicole Thompson said she “can’t provide veracity of anything WikiLeaks has released to the media,” adding the agency’s policy is to refrain from commenting on specific leaked materials.

China hopes the U.S. will “properly handle” the situation caused by the leaked messages, Foreign Ministry spokesman Hong Lei told reporters in Beijing today.

South Korea’s foreign ministry spokesman Kim Young Sun said it would be “inappropriate to comment on other countries’ diplomatic documents.

‘Regrettable’

‘‘If it is true that details of diplomatic discussions have been leaked, it is regrettable,’’ Kim said.

The U.S. is pressing China to censure North Korea for the shelling of Yeonpyeong island. China has avoided blaming its ally of 60 years, instead criticizing joint naval exercises by South Korea and the U.S. in the Yellow Sea that began Nov. 28.

Chun, now South Korea’s national security adviser, told Stephens that China ‘‘has much less influence than most people believe’’ over Kim Jong Il’s regime, according to the Feb. 22 cable cited in the Guardian, a U.K. newspaper.

Chinese officials told U.S. diplomats that their efforts to cajole North Korea had been rebuffed, and that the U.S. was the only country with real influence, according to a leaked June 17, 2009, cable. "The United States was the key while China was only in a position to apply a little oil to the lock," the cable cited an unidentified Chinese official as saying.

‘Spoiled Child’

A separate message from Beijing said China’s vice-foreign minister He Yafei in April 2009 told an American diplomat that North Korea’s missile tests were designed to get the attention of the U.S. and that the government in Pyongyang was acting ‘‘like a spoiled child.” Two months later, U.S. Ambassador to Kazakhstan Richard Hoagland sent a cable saying his Chinese counterpart, Cheng Guoping, told him North Korea was a “threat to the whole world’s security,” the Guardian said.

The cables all predate a surge in diplomatic activity between China and North Korea this year.

Kim made an unprecedented two visits to China this year, meeting with President Hu Jintao on both occasions. In October, Zhou Yongkang, a member of China’s ruling Politburo Standing Committee, stood next to Kim during a Pyongyang military parade. Later that month, top Chinese general Guo Boxiong visited North Korea, marking the two countries’ “victory” over “imperialist” U.S.-led forces during the 1950-53 Korean war.

China also refrained from criticizing or blaming North Korea over the March sinking of a South Korean warship. An international panel found evidence that a North Korean torpedo was responsible for the sinking, which killed 46 sailors.

WikiLeaks.org, a nonprofit group that releases information that governments and businesses want to keep confidential, has over the past two days posted on its website what it says are secret, confidential or in some cases unclassified U.S. embassy cables.

North Korea Keeps the World Guessing

Source: New York Times by David Sanger

WASHINGTON — With North Korea reeling from economic and succession crises, American and South Korean officials early this year secretly began gaming out what would happen if the North, led by one of the world’s most brutal family dynasties, collapsed.

Over an official lunch in late February, a top South Korean diplomat confidently told the American ambassador, Kathleen Stephens, that the fall would come “two to three years” after the death of Kim Jong-il, the country’s ailing leader, Ms. Stephens later cabled Washington. A new, younger generation of Chinese leaders “would be comfortable with a reunited Korea controlled by Seoul and anchored to the United States in a benign alliance,” the diplomat, Chun Yung-woo, predicted.

But if Seoul was destined to control the entire Korean Peninsula for the first time since the end of World War II, China — the powerful ally that keeps the North alive with food and fuel — would have to be placated. So South Korea was already planning to assure Chinese companies that they would have ample commercial opportunities in the mineral-rich northern part of the peninsula.

As for the United States, the cable said, “China would clearly ‘not welcome’ any U.S. military presence north of the DMZ,” the heavily mined demarcation line that now divides the two Koreas.

This trove of cables ends in February, just before North Korea began a series of military actions that has thrown some of Asia’s most prosperous countries into crisis. A month after the lunch, the North is believed to have launched a torpedo attack on the Cheonan, a South Korean warship, that killed 46 sailors.

Three weeks ago it revealed the existence of a uranium enrichment plant, potentially giving it a new pathway to make nuclear bomb material. And last week it shelled a South Korean island, killing two civilians and two marines and injuring many more.

None of that was predicted in the dozens of State Department cables about North Korea obtained by WikiLeaks, and in fact even China, the North’s closest ally, has often been startlingly wrong, the cables show. But the documents help explain why some South Korean and American officials suspect that the military outbursts may be the last snarls of a dying dictatorship.

They also show that talk of the North’s collapse may be rooted more in hope than in any real strategy: similar predictions were made in 1994 when the country’s founder, Kim Il-sung, suddenly died, leaving his son to run the most isolated country in Asia. And a Chinese expert warned, according to an American diplomat, that Washington was deceiving itself once again if it believed that “North Korea would implode after Kim Jong-il’s death.”

The cables about North Korea — some emanating from Seoul, some from Beijing, many based on interviews with government officials, and others with scholars, defectors and other experts — are long on educated guesses and short on facts, illustrating why their subject is known as the Black Hole of Asia. Because they are State Department documents, not intelligence reports, they do not include the most secret American assessments, or the American military’s plans in case North Korea disintegrates or lashes out.

They contain loose talk and confident predictions of the end of the dynasty that has ruled North Korea for 65 years. Those discussions were fueled by a rash of previously undisclosed defections of ranking North Korean diplomats, who secretly sought refuge in the South.

But they were also influenced by a remarkable period of turmoil inside North Korea, including an economic crisis set off by the government’s failed effort to revalue the currency and sketchy intelligence suggesting that the North’s military might not abide the rise of Mr. Kim’s son Kim Jong-un, who was recently made a four-star general despite having no military experience.

The cables reveal that in private, the Chinese, long seen as North Korea’s last protectors against the West, occasionally provide the Obama administration with colorful assessments of the state of play in North Korea. Chinese officials themselves sometimes even laugh about the frustrations of dealing with North Korean paranoia. In April 2009, just before a North Korean nuclear test, He Yafei, the Chinese vice foreign minister, told American officials at a lunch that the country wanted direct talks with the United States and to get them was acting like a "spoiled child" to get the attention of the "adult."

When James B. Steinberg, the deputy secretary of state, sat down in September 2009 with one of China’s most powerful officials, Dai Bingguo, state councilor for foreign affairs, Mr. Dai joked that in a recent visit to North Korea he “did not dare” to be too candid with the ailing and mercurial North Korean leader. But the Chinese official reported that although Kim Jong-il had apparently suffered a stroke and had obviously lost weight, he still had a “sharp mind” and retained his reputation among Chinese officials as “quite a good drinker.” (Mr. Kim apparently assured Mr. Dai during a two-hour conversation in Pyongyang, the capital, that his infirmities had not forced him to give up alcohol.)

But reliable intelligence about Mr. Kim’s drinking habits, it turns out, does not extend to his nuclear program, about which even the Chinese seem to be in the dark.

On May 13, 2009, as American satellites showed unusual activity at North Korea’s nuclear test site, officials in Beijing said they were “unsure” that North Korean “threats of another nuclear test were serious.” As it turns out, the North Koreans detonated a test bomb just days later.

Soon after, Chinese officials predicted that negotiations intended to pressure the North to disarm would be “shelved for a few months.” They have never resumed.

The cables also show that almost as soon as the Obama administration came to office, it started raising alarms that the North was buying up components to enrich uranium, opening a second route for it to build nuclear weapons. (Until now, the North’s arsenal has been based on its production of plutonium, but its production capacity has been halted.)

In June 2009, at a lunch in Beijing shortly after the North Korean nuclear test, two senior Chinese Foreign Ministry officials reported that China’s experts believed “the enrichment was only in its initial phases.” In fact, based on what the North Koreans revealed this month, an industrial-scale enrichment plant was already under construction. It was apparently missed by both American and Chinese intelligence services.

The cables make it clear that the South Koreans believe that internal tensions in the North have reached a boiling point. In January of this year, South Korea’s foreign minister, who later resigned, reported to a visiting American official that the South Koreans saw an “increasingly chaotic” situation in the North.

In confidence, he told the American official, Robert R. King, the administration’s special envoy for North Korean human rights issues, that a number of “high-ranking North Korean officials working overseas” had recently defected to the South. Those defections were being kept secret, presumably to give American and South Korean intelligence agencies time to harvest the defectors’ knowledge.

But the cables also reveal that the South Koreans see their strategic interests in direct conflict with China’s, creating potentially huge diplomatic tensions over the future of the Korean Peninsula.

The South Koreans complain bitterly that China is content with the status quo of a nuclear North Korea, because they fear that a collapse would unleash a flood of North Korean refugees over the Chinese border and lead to the loss of a “buffer zone” between China and the American forces in South Korea.

At one point, Ambassador Stephens reported to Washington, a senior South Korean official told her that “unless China pushed North Korea to the ‘brink of collapse,’ ” the North would refuse to take meaningful steps to give up its nuclear program.

Mr. Chun, now the South Korean national security adviser, complained to Ambassador Stephens during their lunch that China had little commitment to the multination talks intended to force North Korea to dismantle its nuclear arsenal. The Chinese, he said, had chosen Wu Dawei to represent Beijing at the talks. According to the cable, Mr. Chun called Mr. Wu the country’s “ ‘most incompetent official,’ an arrogant, Marx-spouting former Red Guard who ‘knows nothing about North Korea, nothing about non-proliferation.’ ”

But the cables show that when it comes to the critical issue of succession, even the Chinese know little of the man who would be North Korea’s next ruler: Kim Jong-un.

As recently as February 2009, the American Consulate in Shanghai — a significant collection point for intelligence about North Korea — sent cables reporting that the Chinese who knew North Korea best disbelieved the rumors that Kim Jong-un was being groomed to run the country. Several Chinese scholars with good contacts in the North said they thought it was likely that “a group of high-level military officials” would take over, and that “at least for the moment none of KJI’s three sons is likely to be tapped to succeed him.” The oldest son was dismissed as “too much of a playboy,” the middle son as “more interested in video games” than governing. Kim Jong-un, they said, was too young and inexperienced.

But within months, a senior Chinese diplomat, Wu Jianghao, was telling his American counterparts that Kim Jong-il was using nuclear tests and missile launchings as part of an effort to put his third son in place to succeed him, despite his youth.

“Wu opined that the rapid pace of provocative actions in North Korea was due to Kim Jong-il’s declining health and might be part of a gambit under which Kim Jong-il would escalate tensions with the United States so that his successor, presumably Kim Jong-un, could then step in and ease those tensions,” the embassy reported back to Washington in June 2009.

But carrying out plans for an easy ascension may be more difficult than expected, some are quoted as saying. In February of this year the American Consulate in Shenyang reported rumors that Kim Jong-un “had a hand” in the decision to revalue the North’s currency, which wiped out the scarce savings of most North Koreans and created such an outcry that one official was executed for his role in the sudden financial shift. The cables also describe secondhand reports of palace intrigue in the North, with other members of the Kim family preparing to serve as regents to Kim Jong-un — or to unseat him after Kim Jong-il’s death.

Cardinal Health Buys Chinese Distributor

Source: Wall Street Journal By Dinah Wisenberg Brin

Drug wholesaler Cardinal Health Inc. said it acquired privately held Zuellig Pharma China, a health-care distributor and China's largest pharmaceuticals importer, for $470 million including assumption of debt, extending Cardinal's presence into the world's fastest-growing markets.

The purchase of the company, known locally as Yong Yu, with annual sales of more than $1 billion, marks the first major drug-distribution investment in Asia by one of the major U.S. wholesalers. Cardinal expects the acquisition, for $410 million in cash and assumption of $60 million of debt, to add slightly to operating earnings this fiscal year and to be more meaningfully accretive starting in fiscal 2012.

The deal gives Dublin, Ohio-based Cardinal a solid foothold in China's drug-distribution market, which the company said is expected to grow by an average of 20% a year through 2014. China is expected to become the second-largest pharmaceuticals market after the U.S. in about five years, the company noted. Yong Yu is the ninth-largest drug distributor in China's fragmented market.

The purchase "follows an extensive evaluation of opportunities to drive growth in targeted geographies outside of North America where we believe our core capabilities would add value," Cardinal Chairman and Chief Executive George Barrett said.

It also follows Cardinal's announcement this month that it was buying private, New York City-based regional drug distributor Kinray Inc. for $1.3 billion, and its July purchase of specialty pharmaceutical concern Healthcare Solutions Holding LLC, including its P4 businesses, for at least $517 million when the transaction was announced.

Over the past 18 months, Mr. Barrett said, Cardinal has been solidifying the foundation of its core business, building its executive team and identifying key areas on which management wanted to focus—specifically, establishing its presence in the fast-growing specialty drug area, expanding its footprint in community pharmacies and "exploring select opportunities to grow our business beyond our North American base."

This latest move by Cardinal, the second-biggest drug distributor in the U.S. by revenue and market capitalization behind McKesson Corp., marks the dawning of an era of global drug wholesaling, according to pharmaceutical industry consultant Adam Fein of Pembroke Consulting Inc.

"The acquisition represents the first major distribution investment outside of North America by one of the big three U.S. wholesalers," he said on his blog, Drug Channels. China is a logical investment area for the distributors, given projections of strong growth in coming years in its drug market, which is estimated to reach $50 billion in 2011. Cardinal cited one estimate that China's health-care market is expected to exceed $600 billion by 2021.

"We view entrance into the fast-growing and evolving Chinese distribution market as a growth-enhancing development," Jefferies & Co. analyst Richard Close said. "Combined with the P4 specialty platform and Kinray acquisitions ... Cardinal is diversifying its revenue and profit profile."

Reimbursement risk in China is low, as distributors are paid mostly through the social welfare system, although payment terms are far more drawn out than in the U.S., Close said. In China, he noted, most pharmaceuticals are distributed through hospitals, the primary sites for health-care services.

J.P. Morgan analyst Lisa Gill viewed the deal positively, "as it provides a solid platform for Cardinal to grow a Chinese pharmaceutical presence."

Barclays Capital analyst Lawrence Marsh called the acquisition "an interesting, albeit small addition to the company's pharmaceutical supply chain platform." He said he would look to gain additional perspectives at Cardinal's analyst meeting next week.

Huaneng buys into InterGen

Source: By Ruth David (China Daily)

China's largest power producer makes biggest acquisition for two years

MUMBAI, India - China Huaneng Group, the nation's largest electricity producer, will pay $1.23 billion for a 50 percent stake in Massachusetts-based power utility InterGen in its biggest overseas acquisition in more than two years.

The Chinese power producer will buy GMR Group's entire stake in the utility in a deal expected to close in the first half of 2011, the Indian company, whose assets range from airports to highways, said in a statement.

China Huaneng will gain access to 12 power plants in the United Kingdom, Mexico, the Netherlands, Australia and the Philippines, building on its $3.1 billion acquisition of Singapore's Tuas Power Ltd in March 2008. The InterGen stake sale will raise $225 million that can be used to fund GMR's projects, said G.M. Rao, chairman of the Bangalore-based group.

"GMR was talking about $1.5 billion at one point, so the current value is also clearly positive for Huaneng," said Michael Parker, senior analyst at Sanford C. Bernstein & Co.

China Huaneng is also selling shares in a unit, Huaneng Renewables Corp, on the Hong Kong Exchange next month to expand output capacity and meet rising domestic demand.

GMR bought its share of InterGen for $1.1 billion in October 2008 from a fund owned by American International Group Inc. The rest of the power utility is owned by the Ontario Teachers' Pension Plan.

The decision to sell "is in line with the strategy to focus more on the Indian market where GMR is already a market leader," Rao said, adding that InterGen's overseas holding company has $1 billion in debt.

Rolls-Royce Seeks China Sales Surge for $990,000 Cars

Source: Bloomberg

Rolls-Royce Motor Cars Ltd., Bayerische Motoren Werke AG’s luxury nameplate, plans to sell 800 cars in China in 2011 as it aims to raise sales eightfold in two years in the world’s largest auto market.

The automaker delivered almost 500 cars in China in the first 10 months of 2010, compared with about 100 for the whole of last year, Paul Harris, the company’s Asia Pacific regional director, said in an interview on Nov. 26. Rolls-Royce includes Hong Kong in its China sales.

The exclusive marque, which competes with Volkswagen AG’s Bentley and Daimler AG’s Maybach, is selling more of its Phantom and Ghost sedans in China as rising incomes in the world’s fastest growing major economy boost sales of luxury cars. China has 875,000 millionaires, 6.1 percent more than last year, according to a report in April by the Shanghai-based Hurun Research Institute.

“The Chinese market in general is showing only one direction,” Harris said. “That’s exceptional growth, and it’s going to be ongoing for quite a while.”

A Rolls-Royce Phantom starts at 6.6 million yuan ($990,000) and buyers pay 4.1 million yuan for a Ghost in China where consumers pay higher taxes on imported luxury models. In the U.S., the Phantom starts at $380,000.

BMW fell 2.6 percent to 57.74 euros in Frankfurt trading yesterday as Germany’s benchmark DAX Index closed 2.2 percent lower. The stock is up 82 percent this year.

Ghost Demand

Munich-based BMW bought the rights to Rolls-Royce cars for 45 million pounds ($70 million) in 1998, and began building them at a new factory in 2003.

China will become Rolls-Royce’s biggest market, surpassing the U.S., as early as next year as the Ghost spurs demand for its cars, Singapore-based Harris said. The company sold about a third of its cars in the U.S. in 2009.

Rolls-Royce may add as many as four more dealers in China by the middle of next year, in second-tier cities such as Tianjin and Wuhan, he said. The Goodwood, England-based carmaker, headed by Chief Executive Officer Torsten Mueller- Oetvoes, currently has eight dealerships in the nation.

The latest Ghost model, introduced in December, has boosted growth for the exclusive marque after the financial crisis depressed sales 17 percent in 2009. Rolls-Royce delivered 2,007 cars through October worldwide, already surpassing the record since BMW took over of 1,212 in 2008, and its 1,002 deliveries last year.

Import Duties

The Phantom comes with a 6.75 liter engine and soft leather upholstery as standard. An extended wheelbase version of the Phantom costs 8.2 million yuan, the company said.

Imported luxury cars cost more in China than in countries such as the U.S. as the vehicles are subject to high import duties and consumption taxes. An imported car with an engine bigger than 4.0 liters will face an import duty of 25 percent, value-added taxes of 17 percent, and a consumption tax of 40 percent, according to researcher J.D. Power & Associates.

Chinese customers ordering a Phantom now will have to wait until late May next year to receive their cars, Harris said.

“It’s a story of success for Chinese entrepreneurial businesses, the Chinese entrepreneur works hard and wants to reward himself for a job well done,” he said.

U.S. presses China again over jailed geologist

Source: Reuters

(Reuters) - The United States pressed China again Tuesday to release a U.S. geologist jailed on charges of stealing state secrets, saying his case had not been handled transparently.

Xue Feng, who was born in China and later became a naturalized U.S. citizen, was detained late in 2007 after negotiating the sale of an oil industry database to his employer at the time, Colorado-based consultancy IHS Energy, now known as IHS Inc.

"Our sense has been that the case has not been handled with the kind of transparency that would befit a nation which tells us that the rule of law is paramount in all judicial processes," said Robert Goldberg, U.S. Embassy Deputy Chief of Mission.

Goldberg said the embassy had filed a formal protest with the Chinese Foreign Ministry after being denied permission to attend Xue's appeal at a Beijing court Tuesday.

"We urge the Chinese to grant Dr. Xue humanitarian release and immediate deportation so that he can return home to the U.S. and reunite with his family," the diplomat told reporters outside the courthouse.

"I'm hoping that this is not an issue that we will have to address during President Hu's visit," Goldberg added, referring to Chinese President Hu Jintao's planned trip to the United States in January.

Sino-U.S. relations have been strained this year over a range of issues, from Tibet to Taiwan and the value of the Chinese currency.

China has previously denounced U.S. involvement in Xue's case, saying it was handled in accordance with the law and was an internal matter.

Chinese Foreign Ministry spokesman Hong Lei said China would "continue to fulfill relevant obligations based on the China-U.S. consular convention" and handle the case "according to Chinese laws." He did not elaborate.

Goldberg said Xue, who has been allowed consular visits in jail where he is serving an eight-year sentence, was in surprisingly good spirits.

"We believe at this point he is not being mistreated," Goldberg added.

Xue was convicted of attempting to obtain and traffic in state secrets, a year after his trial ended, according to the Duihua Foundation, which promotes prisoners' rights in China and the United States.

The database was classified as a state secret only after it was sold, it added.

China's notoriously vague state secrets laws received international attention last year when Australian citizen Stern Hu and three colleagues working for mining giant Rio Tinto were detained for stealing state secrets during the course of tense iron ore negotiations.

The four were later convicted of the lesser charges of receiving kickbacks and stealing commercial secrets.

Have You Heard...

• Leaked U.S. Cables Expose Tensions With China
• China's Defense of North Korean Ally Risks Alienating Top Trading Partners
• Taiwan May Accelerate Steps to Improve China Ties After KMT's Election Win
• Cnooc Venture to Buy BP 60% Stake in Pan American Energy for $7.1 Billion

China's Defense of North Korean Ally Risks Alienating Top Trading Partners

Source: Bloomberg

China’s reluctance to restrain North Korea comes with a price, putting it at odds with its three biggest trading partners and threatening to drive South Korea and Japan into a closer alliance with the U.S.

China has avoided blaming its ally of 60 years for last week’s artillery attack on South Korea, which killed four people. Instead, it criticized joint naval exercises by South Korea and the U.S. that began yesterday in the Yellow Sea.

In doing so, President Hu Jintao is putting political priorities ahead of the economic interests that helped China’s gross domestic product expand more than 90-fold in the past three decades to become the world’s second largest. Combined trade with the U.S., Japan and South Korea, which have all urged China to restrain the regime in Pyongyang, is almost 300 times larger than its commerce with North Korea.

“The Chinese leadership is very cautious, so they opt to go light on North Korea, even at very substantial cost to their relations with South Korea, Japan, the U.S. and Australia,” said Kenneth Lieberthal, director of the John L. Thornton China Center at the Brookings Institution in Washington.

China’s economic integration with the world has been accompanied by a growing stake in financial markets that have been rattled by tensions on the Korean peninsula. Its $2.6 trillion of foreign currency reserves is more than twice the amount in Japan, the second-largest holder, and included $883.5 billion of U.S. Treasuries as of September.

Stocks Trading

The combined value of stocks traded in China and Hong Kong account for 13 percent of the global total, double the size of the U.K. equity market. The MSCI World index fell as much as 2 percent on Nov. 23, the day North Korea fired at the South Korean island of Yeonpyeong. The won and the yen have led Asian currencies lower since the artillery attack.

The Chinese government’s main goal is to preserve regional stability by preventing the collapse of Kim Jong Il’s regime, which might unleash a flood of refugees into northeastern China along a shared 1,415-kilometer (880-mile) border and create a democratic, unified Korea allied with the U.S.

“The Chinese worry about refugees and chaos from a North Korean collapse in the short term, and in the long term of the magnetic effect of having a strong modernized Korea of 75 million people on their border,” said Michael J. Green, senior adviser at the Center for Strategic and International Studies in Washington and a former senior director for Asia at the National Security Council under President George W. Bush.

‘Calm and Restraint’

Since the shelling of Yeonpyeong, China has mostly limited itself to calls for calm and restraint. Wu Dawei, China’s top negotiator for multinational talks aimed at curbing North Korea’s nuclear program, yesterday proposed an “emergency” meeting of the two Koreas, China, the U.S., Japan and Russia in Beijing next month.

“The six-party talks cannot substitute for action by North Korea to comply with its obligations,” said Nicholas J.C. Snyder, a spokesman at the U.S. Embassy in Beijing. “Clear steps by North Korea are needed to demonstrate a change of behavior.”

With China unable to stop North Korea’s nuclear weapons proliferation efforts, it’s not clear how much sway it holds over the regime, said Lieberthal. “They have not done very well in getting the North Koreans to make the decisions they want the North Koreans to make,” he said.

Request to China

In 2007, U.S. Secretary of State Condoleezza Rice instructed the U.S. Embassy in Beijing to ask Chinese authorities to block exports of North Korean missile parts to Iran through Beijing, according to a cable released on the WikiLeaks.org website.

“Request China to stop an imminent shipment to Iran’s ballistic missile program,” reads the Oct. 31 cable, labeled “Secret” and posted by WikiLeaks, a non-profit organization that has put on the Internet thousands of confidential U.S. government communications.

“Remind Chinese officials that President Bush has been personally engaged on the issue of the transshipment of ballistic missile parts between North Korea and Iran via Beijing,” the cable said.

South Korea showed little interest in the Chinese proposal for emergency talks, with its Ministry of Foreign Affairs and Trade saying only that it would consider it “very cautiously.”

“Right now, it’s just useless talk to simply call for getting back to talks,” said Victor Cha, who holds the Korea Chair at the Center for Strategic and International Studies in Washington. “It’s typical no-risk, no-cost, no-commitment China.”

Criticizing Exercises

While resisting calls to pressure North Korea, China has criticized the exercises involving the nuclear-powered aircraft carrier USS George Washington.

On Nov. 26, Foreign Ministry Spokesman Hong Lei said China was opposed to any country conducting military activities without permission in its exclusive economic zone, which extends for 200 nautical miles from its coast. China’s territorial waters end 12 miles from the shoreline.

China’s fear of being contained may explain its behavior, said Bonnie Glaser, a senior fellow at the Center for Strategic and International Studies in Washington. China sees the U.S. under President Barack Obama as increasingly trying to stem its influence in Asia, she said.

Counterbalance China

“The U.S. is seen at best as seeking to counterbalance Chinese influence throughout the Asia-Pacific, and, at worst, to strategically encircle and contain China’s rise,” Glaser said. “Against this background, North Korea is still an important strategic asset.”

China’s reluctance to break with its ally is also due to a shared history in the 1950-53 Korean War, when they fought against U.S.-led forces. In October, Chinese General Guo Boxiong, a member of China’s ruling Politburo, traveled to North Korea to commemorate what he called their joint victory over the “imperialist aggression.”

China’s stance threatens to further sour relations with its biggest Asian trading partners. Ties with South Korea were already strained after China refused to blame North Korea for the sinking of a South Korean warship in March that killed 46 sailors. In Japan, polls showed trust of China plummeting after a territorial dispute over uninhabited islands flared up in September.

Trade Relations

In the first seven months of this year, China’s two-way trade with the U.S., Japan and South Korea was a combined $484.7 billion, according to China’s customs bureau. During the same period, trade between China and North Korea amounted to $1.65 billion.

The mismatch has led some officials in Beijing to push for an overhaul of ties, focusing on a more realistic sense of “what North Korea means to China,” said Zhu Feng, a professor of international relations at Peking University.

“The attack has injected growing anxiety about the stability of the North Korean behavior among Chinese diplomats and officials,” Zhu said.

China’s leverage over North Korea stems from its role as the north’s biggest trading partner and supplier of much of its foreign currency, fuel and food.

The reluctance to use that influence may backfire, Lieberthal said. The Chinese “may inadvertently create their own worst situation, where the North Korean regime ceases to be viable,” he said.

Leaked U.S. Cables Expose Tensions With China

Source: Wall Street Journal by Jeremy Page

BEIJING—Leaked U.S. diplomatic cables put China's relationship with Iran under renewed scrutiny by suggesting Beijing hadn't complied with U.S. requests to stop transfers to Tehran of technology and materials that could be used in its ballistic-missile and chemical-weapons programs.

China repeatedly failed to act on U.S. requests for it to stop shipments of ballistic-missile components from North Korea to Iran on commercial flights via the Beijing airport in 2007, according to one of more than a quarter-million U.S. diplomatic cables made public Sunday.

Another of the cables gathered by the website WikiLeaks showed that U.S. Secretary of State Hillary Clinton asked China in February this year to act on intelligence that Iran was trying to buy gyroscopes and carbon fiber for its ballistic missiles from Chinese companies.

Mrs. Clinton also expressed concern in May that Chinese companies were supplying Iran with precursors for chemical weapons, according to one more cable.

Last year, Mrs. Clinton raised concern that a Chinese company was selling French thermal-imaging technology to Tehran that could be used against U.S. forces in the Gulf, yet another cable showed.

The cables reflect continuing U.S. concern that China isn't doing enough to prevent proliferation of materials and technology that could help Iranian weapons programs, despite Beijing's introduction of stricter export controls in 2002.

Their publication comes at a sensitive time in China-U.S. ties, as Beijing faces mounting pressure from Washington to rein in an increasingly belligerent North Korea ahead of a visit to the U.S. by President Hu Jintao in January.

The cables also highlight U.S. concerns about China's computer-warfare capability, and its influence in Central Asia. And they give potentially embarrassing blow-by-blow accounts of U.S. diplomats' meetings.

China's Foreign Ministry didn't respond to a request for comment Monday. The U.S. State Department has called the leaks illegal and sought to limit the diplomatic fallout by calling dozens of foreign governments, according to U.S. officials.

Mrs. Clinton spoke about the leaks by telephone with her Chinese counterpart, Yang Jiechi, on Friday, the State Department said.

One cable from the U.S. Embassy in Beijing quoted an unidentified Chinese contact alleging in January this year that the Politburo, the powerful 25-person governing group in the Communist Party, ordered a cyberattack on Google Inc. as well as U.S. government computer systems.

A Google spokeswoman said: "We have conclusive evidence that the attack came from China." She declined to comment further. China's government has repeatedly denied any involvement in any cyberattacks.

Another cable described how the U.S. ambassador in Kyrgyzstan confronted her Chinese counterpart, Zhang Yannian, over information obtained from Kyrgyz officials that China offered the former Soviet republic $3 billion in exchange for its closing a U.S. airbase there.

"Visibly flustered, Zhang temporarily lost the ability to speak Russian and began spluttering in Chinese...," said the cable, adding that Mr. Zhang later composed himself, and "ridiculed" the idea without categorically denying it.

Mr. Zhang, now China's ambassador to Azerbaijan, couldn't be reached for comment.

Another cable that could complicate U.S. diplomacy in Beijing gave a detailed account of a conversation between a U.S. political officer and Li Guofu, an expert on the Middle East at the China Institute for International Studies, which is affiliated with the Foreign Ministry.

That cable said Mr. Li suggested that the U.S. negotiate a secret deal with Iran allowing it limited uranium-enrichment operations in exchange for closer international supervision, and a suspension of its support for Hamas and Hezbollah.

"Some of the talks between me and my diplomat friends are not supposed to be open for public," Prof. Li told The Wall Street Journal, adding that he would be more careful in discussions with U.S. diplomats in the future.

The most serious allegation in the cables is that China repeatedly turned a blind eye to shipments of missile components through Beijing on commercial flights operated by Air Iran, the Iranian national carrier, and Air Koryo, the North Korean one.

A cable dated Nov. 3, 2007, and signed by then-Secretary of State Condoleezza Rice said that a cargo of jet vanes—designed to stabilize missiles in flight—was set to be shipped from North Korea to Iran via Beijing on an Air Iran flight. The cable said the State Department sought "immediate action," and instructed the U.S. ambassador in Beijing to raise the issue "at the earliest opportunity" and "at the highest level possible" to persuade the Chinese authorities to halt the delivery.

It's unclear whether China complied, but the cable complained that at least 10 similar deliveries had been allowed to proceed despite U.S. requests for them to be halted.

China pledged in 2000 not to help any country develop ballistic missiles that can be used to deliver nuclear weapons. China also introduced stricter export controls in 2002 and has applied to join the 34-country Missile Technology Control Regime.

China also backed U.N. sanctions which imposed a broader arms embargo on Iran in June.

But an analysis of the Iranian missile threat last month by Arms Control Today, which is published by the independent Arms Control Association in Washington, suggested U.S. pressure on Beijing has produced only mixed results.

"This shows either China's inability to enforce its own export laws, or a kind of malign negligence," said Peter Crail, a research analyst at the ACA who covers North Korea. "There's a pattern of frustration on the part of the U.S. government."

He said one factor could be China's continuing support for the North Korean regime, which earns much of its hard currency from exports of missile technology, often sold through front companies based in China.

Three cables sent by Mrs. Clinton in February this year show that the U.S. still had concerns about Iran obtaining missile technology from China.

One instructed U.S. diplomats to ask Chinese officials to act on intelligence that Iran was trying to buy Russian gyroscopes, which can help to stabilize and guide ballistic missiles, from a Chinese company.

A second cable said Iran was trying to buy the same gyroscopes from China through a Malaysian company, and a third said Tehran was seeking to purchase five tons of carbon fiber—which could be used to make nozzles and casing for its missiles—from a Chinese company.

Another cable from Mrs. Clinton in May said the U.S. was concerned that exports by named Chinese companies "could be used for or diverted to a CW [chemical weapons] program" and asked if the transfers were approved by the Chinese government.

Taiwan May Accelerate Steps to Improve China Ties After KMT's Election Win

Source: Bloomberg By Janet Ong and Weiyi Lim

Taiwan may speed up steps to improve relations with China after the ruling Kuomintang party did well in key local elections, an indication voters support President Ma Ying-jeou’s cooperation with the mainland.

The KMT won mayoral ballots in three of five cities on Nov. 27 with the opposition Democratic Progressive Party taking the remainder, according to the Central Election Commission. The five municipalities are home to about 60 percent of Taiwan’s 23 million people. The DPP won more votes overall.

“If the KMT interprets the election result as a mandate by the people on its policies, it would actually quicken the pace to improve ties with China,” said Liu Bih-rong, a professor of political science at Soochow University in Taipei. “One of their strategies may be to focus on the pro-KMT voters and retain them, since they may not be successful in getting the DPP share of votes.”

The benchmark Taiex Index rose 0.7 percent at the close of Taipei trading. The Taiwan dollar climbed 0.1 percent to NT$30.800 per U.S. dollar, according to Taipei Forex Inc.

Ma has faced resistance from the DPP, which is concerned he may put Taiwan’s sovereignty at stake as he pushes for closer economic ties with the mainland.

The KMT retained the mayorship of Taipei, its traditional stronghold, and the economic and political center of Taiwan, as well as Xinbei and Taichung cities. Ma and his predecessors, Chen Shui-bian and Lee Teng-hui, were former Taipei mayors.

Voters went to the poll Nov. 27, a day after the son of Taiwan’s former Vice President Lien Chan was shot and wounded during a KMT campaign rally.

Trade Accord

Lien in March 2004 lost the presidential race to Chen, who was shot on the eve of the election, which triggered street protests on allegations he may have staged the shooting to win sympathy votes. Lien, then chairman of the KMT, lost to Chen by 30,000 votes out of about 13 million cast.

Ma is betting that strengthening commercial ties with China, the world’s fastest-growing economy and the island’s biggest trading partner and investment destination, will help bolster Taiwan’s economy.

Taiwan on June 29 signed an Economic Cooperation Framework Agreement, its first trade accord with China to cut tariffs and increase access to services including banking, securities and insurance. Signing the deal opened the door for Taiwan to ink similar accords with other countries. Singapore and Taiwan agreed on Aug. 5 to discuss a free-trade agreement.

Policies to Stay

“Ma’s cross-strait policies will remain intact,” said Tony Phoo, a Taipei-based economist for Standard Chartered Plc. Still, “even though the KMT has won three seats, they have fallen behind in the amount of votes. It’s a warning for the ruling government, they have to drive harder in building on the economic front and regain confidence among swing voters.”

The KMT won 45 percent of total votes in the elections, trailing the DPP’s 50 percent tally, according to the commission.

“The KMT will take the lagging number of votes as a precaution and strive harder in future,” KMT Secretary-General King Pu-tsung said on the party’s website. He attributed the lower vote total to the Kaohsiung city election result, where a third candidate competed for KMT support. In Kaohsiung, the DPP won 52.8 percent of the votes and the KMT 20.5 percent, with independent Yang Chiu-hsing claiming almost 27 percent.

Cordial Ties

Relations between Taiwan and China, separated by the Taiwan Strait, are at the most cordial in more than 60 years after Ma dropped his predecessor’s pro-independence stance and made economic relations the priority of his administration.

Tsai Ing-wen, chairwoman of the DPP, opposes the China trade agreement on the grounds it would give Beijing greater influence over the island and costs jobs. Tsai lost the race for mayor of Xinbei city to Eric Chu, a former vice premier in Ma’s administration. Tsai in June rallied more than 10,000 to protest the accord.

The trade accord will help create more than 260,000 jobs in Taiwan and boost economic growth by 1.65 to 1.72 percentage points annually, Ma’s administration says.

“To boost domestic employment and salaries so as to narrow the wealth gap, President Ma may have to forge even closer economic and trade ties with Beijing,” said Chang Wu-ueh, a political science professor at Taipei’s Tamkang University.

China and Taiwan are set to hold a sixth round of cross- straits talks in Taiwan next month. Since Ma took office in 2008, the government has signed 14 agreements with the mainland. China regards Taiwan as part of its territory.

Cnooc Venture to Buy BP 60% Stake in Pan American Energy for $7.1 Billion

Source: Bloomberg By Rodrigo Orihuela and Kari Lundgren

Bridas Corp., the oil company owned by Chinese crude producer Cnooc Ltd. and Argentina’s billionaire Bulgheroni family, agreed to pay BP Plc $7.06 billion for the 60 percent it doesn’t already own of Pan American Energy LLC.

Bridas Energy Holdings Ltd. and Cnooc, which each own 50 percent of Bridas Corp., will pay $2.47 billion apiece to finance the acquisition, with the remaining $2.12 billion to come from third-party loans or additional funds from the two companies, Cnooc said in a statement yesterday. The deal will probably be completed in the first half of next year.

The Beijing-based company is building on the $3.1 billion stake purchase in Bridas in March to expand its oil resources in Latin America as demand surges. Pan American, Argentina’s largest crude exporter, produces about 240,000 barrels a day and holds 1.54 billion barrels of proven reserves.

“The valuation is fairly attractive,” Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein & Co., said in a telephone interview. “They are buying fairly mature oil and gas assets, so the question is how much Cnooc can squeeze out of these in the coming years,” he said.

The Pan American reserves will last about 16 years, said Beveridge, who estimates Cnooc is paying about $9.10 a barrel of oil equivalent. That compares with about $10.60 a barrel that the Chinese energy explorer paid for the Bridas stake.

Reasonable Return

Cnooc takes into consideration the prospect of a “reasonable” return on investment when acquiring overseas assets, Chief Financial Officer Zhong Hua told reporters today.

Shares of Cnooc advanced 1.7 percent to close at HK$17.16, compared with the 1.3 percent increase in the benchmark Hang Seng Index.

BP is aiming to conserve capital and avoid risk after the spill at its Macondo well in the Gulf of Mexico left it facing a bill projected to reach $40 billion and forced the resignation of Chief Executive Officer Tony Hayward. The oil company said in July it was planning to sell $30 billion in assets by end-2011. Including Pan American, it has sold about $21 billion of assets.

Pan American E&P Bolivia Ltd., a branch of the company which operates gas fields in the South American country, wasn’t included in the sale announced yesterday, Bridas said in an e- mailed statement. Bridas also owns rights over fields in Turkmenistan and Northern Africa.

“The market probably wrongly assumed that 60 percent was worth $9.3 billion, but that included the Asia options” and Bolivia, said Jason Kenney, an Edinburgh-based oil and gas analyst at ING Commercial Banking, who had valued BP’s 60 percent stake at $9.3 billion. Citigroup Inc. estimated the asset to be worth $10.2 billion, according to a Sept. 28 report.

BP Urgency

The agreement values Pan American’s reserves at $8.5 a barrel of oil equivalent, Bank of America Merrill Lynch analysts Alejandro Demichelis, Hootan Yazhari and Eyad Faraj said today in a note to investors.

“Given the urgency of BP to sell and the limited list of potential suitors, it is clear that the bargaining power was on Bridas’ side,” according to the report.

The Cnooc acquisition takes total Chinese investments in the South American oil industry to more than $13 billion this year after China Petroleum & Chemical Corp., known as Sinopec, in October agreed to pay $7.1 billion for a 40 percent stake of Repsol YPF SA’s Brazilian unit. In March, Ecuador announced a $500 million deal with Sinopec to develop an oil bloc.

North America Assets

In July, BP agreed to sell assets in North America and Egypt to Apache Corp. for $7 billion, while in August the company disposed of fields in Colombia to Ecopetrol SA and Talisman Energy Inc. for $1.9 billion. BP has also sold operations in Vietnam and Venezuela to its Russian joint venture partner TNK-BP for $1.8 billion.

BP also agreed earlier this month to sell its fuels marketing businesses in Namibia, Botswana and Zambia to Puma Energy, as well as 50 percent interests in BP Malawi and BP Tanzania to a Trafigura Beheer BV unit for $296 million in cash. Last month, BP sold stakes in four Gulf of Mexico deepwater oil and gas fields for $650 million.

Cnooc has spent more than $4 billion so far this year on oil and gas assets in Argentina and North America to help meet demand from the world’s fastest-growing major economy. The stake purchase in Bridas earlier this year marked Cnooc’s entry in Latin America, and topped the $2.7 billion it paid in 2006 for a share in a Nigerian oilfield.

Total production may reach 329 million barrels of oil equivalent this year, surpassing Cnooc’s target of as much as 290 million. The company’s proven reserves will rise 14 percent and daily production will gain about 10 percent, following the Pan American deal, Cnooc said in a presentation on its website.

Increased Efforts

“Cnooc has increased its effort to expand operations overseas, particularly in countries with high sovereign risks,” Standard & Poor’s Ratings Services said today, adding that such a move exposes the company to legal, tax and regulatory risks. “Nevertheless, even if the proposed transaction with Bridas goes through as planned, 64.3% of Cnooc’s proven reserves and 69.9% of its production will still be from China.”

China’s oil demand may rise to 11.63 million barrels a day by 2015 from 9.16 million barrels a day this year, according to the International Energy Agency.

Have You Heard...

• China Moves to Cool Korean Tensions
• Taiwan pro-China party holds edge in mayoral races
• Asian Games End With Record China Haul
• More time for Google, Microsoft
• Fireworks company aims to sparkle

China Moves to Cool Korean Tensions

Source: Wall Street Journal By Owen Fletcher

BEIJING—China on Sunday proposed emergency discussions among delegates to the six-party talks to discuss "complicated factors" on the Korean peninsula, as the U.S. and South Korea started a naval drill that has prompted dire warnings of reprisals from North Korea.

The move comes as Beijing engages in high-level diplomacy to try to cool tensions between Pyongyang and Seoul. China's special representative for Korean-peninsula affairs, Wu Dawei, proposed consultations in early December between the heads of the delegations to the stalled nuclear talks, which involve China, North Korea, South Korea, Japan, the U.S. and Russia.

"Although this does not mean the resumption of the six-party talks, we hope it can help create the conditions for the resumption of the six-party talks," Mr. Wu told a press briefing.

His comments came as Chinese State Councilor Dai Bingguo met South Korean President Lee Myung-bak on Sunday. Both countries "believe the current situation on the peninsula is worrying," Mr. Wu said. He reiterated China's opposition to any acts that harm the peace and stability of the Korean peninsula.

Mr. Dai said China "has consistently committed itself to peace and stability on the Korean Peninsula, as well as promotion for dialogue," and the two sides agreed in the talks to further develop bilateral ties, Xinhua said.

A U.S. aircraft-carrier battle group started large-scale exercises with the South Korean navy in the Yellow Sea Sunday morning, in a show of strength five days after a North Korean artillery attack on a small South Korean island that killed four people. North Korea has condemned the naval drills and warned that if they go ahead, "no one can predict the ensuing consequences."

Mr. Dai arrived in Seoul on Saturday and discussed the situation on the peninsula with South Korean Foreign Minister Kim Sung-hwan, China's Foreign Ministry said.

Chinese Foreign Minister Yang Jiechi also discussed the situation by phone Saturday with Japanese Foreign Minister Seiji Maehara and Russian Foreign Minister Sergei Lavrov, the ministry said.

Mr. Yang said "all sides should exert effort together, push for the situation to cool down as quickly as possible, and earnestly avoid conflict happening again," the ministry said.

He also said he "hopes all sides involved will take a rational and practical attitude, and actively create conditions for resumption of the six-party talks" on North Korea's nuclear program, the ministry said.

Mr. Yang on Friday also met with the North Korean ambassador to China and spoke by phone with South Korea's Mr. Kim and U.S. Secretary of State Hillary Clinton.

Choe Tae Bok, chairman of North Korea's Supreme People's Assembly, will visit China from Nov. 30 to Dec. 4 at Mr. Wu's invitation, Xinhua said Sunday.

China on Friday protested the U.S.-South Korean naval drill. "We oppose any party to take any military actions in our exclusive economic zone without permission," Foreign Ministry spokesman Hong Lei said in a statement. China's stance appeared firmer in July, when officials said they opposed any military exercises in the entire Yellow Sea.

The Global Times, a generally nationalistic Chinese newspaper, said "the Chinese people oppose the U.S. aircraft carrier entering the Yellow Sea, and this opposition is resolute and definitely will not just be oral."

"Judging from the current situation, the act by [South Korea and the U.S.] to fully enhance their military alliance will not help ease the hostile sentiment between North Korea and South Korea, and instead it will only further intensify the tense situation on the Korea peninsula," Xinhua said Sunday.

Taiwan pro-China party holds edge in mayoral races

Source: Reuters By Ralph Jennings

(Reuters) - Taiwan's China-friendly ruling party held onto most of the island's mayoral posts up for grabs in tense elections Saturday seen as a test of the party's popularity ahead of the 2012 presidential race.

Wins in three of five mayoral seats gave the Nationalist Party, or KMT, a clear shot at retaining the presidency, which will calm Beijing as it has worked closely with the party on landmark trade deals after decades of political hostilities.

China has claimed sovereignty over self-ruled Taiwan for six decades but since 2008 has discussed economic issues with President Ma Ying-jeou's government. Beijing hopes those talks will lead eventually to political unification.

"Of course China doesn't want to see any change in the status quo, particularly in the three cities that the KMT has held for a long time," said Shane Lee, political scientist at Chang Jung University in Taiwan.

The KMT won second four-year terms in Taipei and Sinbei, the island's two largest cities, and in the central city of Taichung. The anti-China opposition Democratic Progressive Party (DPP) held the southern cities of Kaohsiung and Tainan.

Taiwan financial markets will at least remain stable and may gain on the KMT's victories as the results herald more tie-ups between export-reliant Taiwan and economic powerhouse China.

Investors had feared that a DPP win could extend to the presidency and threaten trade deals. China and Taiwan are due to talk next year about new import tariff cuts following an economic cooperation framework (ECFA) signed in mid-2010.

Saturday's wins also end a slump for the KMT. The party did poorly in local polls elsewhere in Taiwan last year and in by-elections earlier this year as Ma's opinion poll ratings struggled after a string of 2009 domestic flaps.

However, Taiwan politics change fast, meaning the 2012 presidential race will be decided by unforeseen new issues dominating the public agenda that year.

KMT leaders were low-key in their acceptance speeches.

"Hau Lung-bin will go to the people and listen to their voices," the reelected Taipei mayor said of himself in a televised speech. "There are a lot of areas where we need to review and improve."

Voters cast ballots after the son of a former Taiwan vice president was shot and wounded during a ruling party campaign rally near Taipei late Friday and a bystander was killed.

Media reports said a man arrested for the shooting was a member of a criminal gang and did not appear to have a political motive.

Opposition ex-president Chen Shui-bian won by a thin margin in 2004 after a bullet grazed him and his running mate. The KMT said that incident was staged to win sympathy votes.

Asian Games End With Record China Haul

Source: Wall Street Journal by Associated Press

GUANGZHOU, China—China wrapped up the Asian Games with a record 199 gold medals, more than double its nearest rival, but team leaders won't relax preparations for the 2012 London Olympics.

The Chinese appear driven to repeat their performance from Beijing two years ago, when they topped the gold medal count for the very first time at the Olympics.

China faced little resistance at the Asian Games, widely seen as an Olympic warm-up event, winning so many golds that the result sometimes just seemed like a foregone conclusion.

At a wrap up news conference Saturday, Chinese delegation chief Duan Shijie rattled off a list of gold medal sweeps: diving, table tennis, basketball, beach volleyball, canoe and kayak. All the golds in women's boxing, which is making its debut in London. Also top finishes in women's gymnastics, handball and water polo. He didn't mention the 10-gold sweep in the non-Olympic dance sport event.

China blew away the competition, capping it off by rallying from two sets down to beat South Korea in the women's volleyball final—the last event on the program.

South Korea was second in the medal standings and trailed far behind with 76 gold. Japan didn't even reach 50 this time.

Mr. Duan pledged his delegation will be "sober in confronting the realities'' for London.

"Just because we have been successful at the Asian Games doesn't mean we are bound to be successful again at the London Olympic games,'' he said.

Mr. Duan pointed out that many Chinese athletes still lag behind top international competition, with their success in Guangzhou strongly linked to the easier regional competition. Another troubling issue was a weaker showing in some sports that China has traditionally dominated at the continental games, such as weightlifting, archery and wrestling, delegation secretary-general Cai Jiadong said.

"If we look at the prospects of our performance for the Olympic Games we are not that optimistic,'' Mr. Cai said, repeating the modest assessment that Chinese officials typically give ahead of the event.

The Chinese officials brushed off criticism that one country's domination at such sporting events was bad for competition.

"Every delegation participated at these games to obtain the best possible result,'' Mr. Cai said. "Even though we were top of the medal tally, it doesn't mean we have a monopoly.''

"We hope we set a good example, we hope that the attention and support from the Chinese government and the Chinese people can be some sort of reference for some other countries and their people,'' he added.

China's domination has even attracted criticism in state media, which normally hews closely to the ruling Communist Party's line. Xinhua News Agency reporter Yang Ming wrote in a commentary that the government should be focused not on developing elite athletes, but promoting fitness among ordinary people to combat the country's growing problems with obesity and related health issues.

Some have speculated that Guangzhou's hosting of the Asian Games was part of an effort to bring the Olympics to the southern Chinese city. Beijing hosted the Asian Games in 1990 before holding the Olympics in 2008.

Mr. Cai said there were "no plans at the moment'' to bring the Olympics to Guangzhou.

More time for Google, Microsoft

Source: By Wang Xing and Tuo Yannan (China Daily)

Companies must get license to show maps

BEIJING - Companies including Google and Microsoft have more time to bring their online mapping services in line with Chinese regulations after the country's top industry regulator has extended the license application deadline.

In an e-mail reply to China Daily, the State Bureau of Surveying and Mapping said it will launch a crackdown next year against illegal online mapping services in China.

"We will give warnings to service providers that fail to get a license by March 31 and will take administrative actions against them after July 1," the bureau said.

That means companies such as Google and Microsoft, which the bureau said have not yet applied for a license, will have an additional six months for their license applications, which the bureau said earlier had to be done by the end of this year.

The bureau introduced a regulation in May requiring companies operating online mapping services in China to apply for a license from the bureau to continue business, citing national security.

That put Google and Microsoft in uncertain positions as their online mapping services have attracted millions of Chinese users.

Ji Chendong, an analyst with research firm Frost & Sullivan, said that China has entered its "golden phase" for online map services and next year's sales revenue will exceed 2.5 billion yuan ($376 million) with 150 million users.

In September, the bureau gave licenses to 31 companies including Nokia, Baidu, Alibaba, Sina and Tencent. The bureau said Google and Microsoft have not yet applied for licenses.

Marsha Wang, spokeswoman for Google China, refused to comment on the latest announcement by the bureau, noting only that "we are examining the regulations to understand their impact on our map products in China".

Anderson Liu, general manager of MSN China, Microsoft's Chinese joint venture that runs the company's online businesses including Hotmail and the Bing search engine, told China Daily earlier this month that "Microsoft is in the process of applying for a license".

It is unclear whether the bureau's decision to extend the deadline has anything to do with an official online mapping service it launched last month.

Since then, the bureau has been under great pressure as the service, called Map World, has been criticized for using the same satellite images as Google Maps.

The bureau told China Daily that Map World will be free to the public, like Google Maps are. But it will charge fees for corporate users once the service is put into commercial use.

"We plan to make the service a well-known brand in China," the bureau said.

Ren Yanghui, an analyst from Analysys International, said the bureau launched its online map to set an example for China's online map providers.

Baidu, DDMap and Google are the major online map providers in China, which together account for more than half of the market share, the Beijing-based research firm said.

"After Google announced it may withdraw from the Chinese market, Baidu's online maps took a lot of market share from the US company," said Ren.

But he also said that "Google won't give up this market easily" because "their future business relies on the wireless service market".

Fireworks company aims to sparkle

Source: By Li Wenfang (China Daily)

GUANGZHOU - Panda Fireworks Group, the only market-listed Chinese fireworks firm, and the one responsible for the displays at the Beijing Olympic Games, Shanghai World Expo and Guangzhou Asian Games, will seek more mergers and acquisitions (M&As) for domestic expansion, and will bid for contracts at all major international sporting events.

M&A is a shortcut to gain permits for selling fireworks, which are listed as hazardous goods, at various locations in the country, said chairman Zhao Weiping.

The company, which started as an export business in 1989, has seen domestic sales quadruple during the past two years.

Having entered the domestic market in 2007, after the gradual lifting of a ban on fireworks in major cities in 2006, Panda has obtained permits to sell its goods in seven cities.

It usually takes about three years to build a warehouse and logistics chain, due to strict standards for hazardous goods, and a market presence, Zhao said, predicting stronger domestic growth in 2011 after racking up growth of around 20 percent this year.

Revenue will also be stronger after a merger with the Hunan-based fireworks company Bongxi, which it acquired for 62.7 million yuan ($9.5 million) in April.

Birthday celebrations and corporate events may create a huge market for fireworks, once the market matures and more products become available, Zhao said, adding that Panda is considering commercial fireworks shows as another source of revenue.

The company has been responsible for government-funded Chinese New Year firework displays in Guangzhou during the past decade.

The company's participation in the Beijing Olympic Games, Shanghai World Expo and Guangzhou Asian Games, has brought benefits in the form of brand building and an enhancement of its innovation strength, Zhou said, adding that "the Beijing Olympic Games turned fireworks into value-added cultural products".

At a display at the Great Wall during the Beijing Olympics, Panda used chip technology to guide the fireworks and ensure more accurate positioning and lower smoke levels.

Panda will also invest in its research institute for new technology and environmental applications, Zhao said.

Zhao and the company's design director are part of the design team for a display at the Guangzhou Asian Games. The company is spending about 2 million yuan on its creativity workshop every year.

The Chinese fireworks market, estimated at 23 billion yuan a year, is bigger than all combined overseas markets, which stand at 3 billion yuan on a Free On Board basis, and are almost exclusively served by Chinese exports, Zhao said.

The company's export business had been in decline since 2007 due to the global economic recession, and only started to recover last year. However, it will take a long time for it to return to the pre-crisis level, Zhao said.

After winning a bid to provide fireworks for events in Macao and Dubai last year, Panda is now focusing on the Shenzhen Universiade (also known as the World Student Games) next year, and all other major international sports events, he said.

Have You Heard...

• China issues warning ahead of U.S.-South Korea drills
• Pyongyang Tests China's Patience
• L'Oreal, Nestle Beauty-Pill Joint Venture Inneov to Enter China
• China to Close Asian Games After Spending More Money Than London Olympics
• China ready for dialogue on rare earths: diplomats

China issues warning ahead of U.S.-South Korea drills

Source: Reuters By Ju-min Park and Miyoung Kim

(Reuters) - China warned on Friday against military acts near its coastline ahead of U.S.-South Korean naval exercises that North Korea, days after shelling a South Korean island, said risked pushing the region toward war.

Beijing's warning came as the Seoul government named a career soldier as its new defense minister amid mounting criticism of the response to Tuesday's attack by North Korea, its heaviest bombardment since the 1950-53 Korean War.

North Korean artillery shells rained down on the small South Korean island of Yeonpyeong on Tuesday, killing four people and destroying dozens of houses.

"The situation on the Korean peninsula is inching closer to the brink of war due to the reckless plan of those trigger-happy elements to stage again war exercises targeted against the (North)," the North's official KCNA news agency said.

The aggressive language is typical of North Korean state-owned media, but the heightened tension was enough to depress the won as much as 2.2 percent. The stock market closed 1.3 percent down, in line with the wider region.

The United States is sending in an aircraft carrier group led by the nuclear-powered USS George Washington to the Yellow Sea for military exercises with South Korea starting on Sunday.

Planned before this week's attack, the four-day maneuvers are a show of strength which, besides enraging North Korea, have unsettled China, its neighbor and only real ally.

"We oppose any military act by any party conducted in China's exclusive economic zone without approval," China's Foreign Ministry said in an online response to a question regarding China's position on the George Washington participating in joint naval exercises.

The exclusive economic zone is a maritime zone up to 200 nautical miles from a country's coast.

Washington is pressing China to use its influence to rein in Pyongyang to help ease tension in the world's fastest-growing economic region.

GOVERNMENT CRITICISED

South Korea's presidential Blue House appointed Kim Kwan-jin, 61, former chairman of the joint chiefs of staff, to replace Kim Tae-young, who had tried to resign the defense portfolio in May following criticism of the government's response to a torpedo attack on a South Korean warship blamed on the North.

"(We) think nominee Kim, well-respected for professionalism and conviction, is the right person for the post in order to restore trust from people and boost morale in the entire military," presidential secretary Hong Sang-pyo told a news briefing.

There was brief panic in the capital Seoul in the afternoon when television reported sounds of artillery fire near Yeonpyeong. But the military said the artillery fire was distant and no shells landed in South Korea.

"Investors are growing more jittery ahead of the joint military exercise," said Kim Hyoung-ryoul, a market analyst at NH Investment & Securities. "The key concern is, whether North Korea will again take unforeseen, rash actions."

Reclusive and unpredictable North Korea has defied international efforts to halt its nuclear ambitions. But Tuesday's artillery barrage was a major ramping-up of tension between to two Koreas, who remain technically still at war.

South Korean troops fired back 13 minutes later, causing unknown damage. Members of Lee's own party and opposition lawmakers accused the military of responding too slowly.

Hundreds of former South Korean soldiers held a protest rally in the border town of Paju on Friday, accusing the government of being too weak. A small anti-North Korea protest was held in Seoul.

"The lazy government's policies toward North Korea are too soft," said Kim Byeong-su, president of the association of ex-marines, in Paju. "It needs to take revenge on a bunch of mad dogs."

Pyongyang Tests China's Patience

Source: Wall Street Journal By Jeremy Page and Jason Dean

Beijing Works to Balance Its Close Ties to Neighbor With Desire to Be Seen as a Responsible Member of Global Community

BEIJING—North Korea's latest act of aggression against the South has prompted a new round of public debate in China on how to manage ties with a neighbor that is at once a close ally but, increasingly, a source of international embarrassment.

The government's official response to North Korea's shelling of a South Korean island village remains cautious, stopping well short of criticism of the North.

In comments reported Thursday, Premier Wen Jiabao said China opposes "any provocative military behavior" on the Korean peninsula. Mr. Wen was speaking in Russia as the U.S. and South Korea prepare for joint naval exercises in the Yellow Sea in response to the deadly attack. But it wasn't clear whether his warning referred to North Korea's attack, or to the South Korean exercises Pyongyang claims to have responded to, or to the planned naval drills between the U.S. and South Korea.

Mr. Wen called the standoff between Seoul and Pyongyang a "severely complicated situation," according to a statement posted on the Chinese Foreign Ministry's website. He called for "all relevant parties to exercise the utmost restraint," and said "the international community should do more work to ease the tension of the situation."

Among Chinese foreign-policy circles and general citizens, there are growing signs of exasperation with Pyongyang's behavior. Some question how Beijing benefits from its old Communist ally's recent provocations

State media no longer display blind loyalty to the North. "North Korea showed its toughness through the skirmish. But the move neither helps solve its economic plight, nor wins over understanding from other nations," said an editorial in the Global Times, a generally nationalistic English-language newspaper, which criticized all countries with a stake in the Korean peninsula.

"The North tried to protect its own security in an inconceivable manner," it said. "The U.S. and Japan tried economic sanctions, which proved futile. China and Russia could only appeal for restraint."

A Chinese-language editorial on the newspaper's website described North Korea's actions as a "public humiliation of the surrounding big countries' painstaking diplomatic efforts."

The apparent frustration reflects the contradiction between China's staunch support for one of the world's most secretive and unpredictable regimes, and Beijing's desire to portray itself as a responsible member of the international community.

It also highlights the increasingly diverse range of players trying to influence foreign policy in China—which until recently was the exclusive preserve of the Communist Party's top leaders.

On Thursday, Chinese foreign ministry spokesman Hong Lei offered a relatively mild response to an announcement by the U.S. and South Korea on Wednesday that the aircraft carrier USS George Washington would conduct exercises with the South Korean navy in the Yellow Sea just off the Chinese coast. "We have taken note of the related reports, and express concern on this matter," he said.

When the U.S. and South Korea considered staging a drill with the same carrier in the same area west of the Korean peninsula in July, Chinese officials vehemently protested, and the two countries instead conducted the drill on the east side of the peninsula.

Mr. Hong also confirmed that Foreign Minister Yang Jiechi has postponed his planned trip to South Korea for "scheduling reasons." And he again expressed China's grief over the casualties in the artillery exchange on Tuesday. Asked about China's view of how the incident started, Mr. Hong said only that the two parties involved "have different stories."

China's main priority is to prevent any sudden collapse of the North Korean regime, which it fears would flood northeastern China with refugees and allow the roughly 30,000 U.S. troops now in South Korea to move up to the Chinese border.

However, leaders are also increasingly sensitive to public opinion. And China is bracing for a planned state visit by President Hu Jintao to the U.S. in January, and a once-a-decade leadership change in 2012.

China has been trying for the past two years to revive the so-called six-party talks between North and South Korea, China, the U.S., Japan and Russia, which are designed to persuade Pyongyang to abandon its nuclear weapons program. Yang Xiyu, a former Chinese diplomat who took part in the talks, said the North's recent actions had "complicated" those efforts.

Other Chinese experts went further, warning that North Korean leader Kim Jong Il was now pursuing his own interests without taking China's into account.

"We are being coerced by North Korea," said one Chinese foreign-policy expert. "This is an alliance from history, and we want to abandon it if they behave in this irresponsible way."

Forged during the Korean War, when more than 180,000 Chinese died assisting the North, China's close ties to Pyongyang now threaten both to undermine China's image-building efforts and to strengthen relations among the U.S., Japan, and South Korea.

China attracted criticism by refusing to blame North Korea for March's sinking of a South Korean naval ship, which killed 46 sailors. President Hu also hosted Mr. Kim on two visits to China this year, and in October sent a senior party official to attend a ceremony in Pyongyang to anoint Mr. Kim's third son as the next leader of North Korea.

Shen Dingli, an expert on international relations at Shanghai's Fudan University, said China should push for an international investigation of Tuesday's artillery exchanges to establish whether the North was the aggressor.

"Our alliance is based on mutual defense. We will defend North Korea if it is attacked. But we will not defend it if it attacks someone else," he said.

"This is a great opportunity for China to show it is a responsible member of the international community."

Online, meanwhile, there were plenty of verbal attacks on South Korea and the U.S, but also criticism of North Korea, and of China's continued support for it.

"Kim Jong Il is not significant to China, but China still protects him," wrote Zhuan Ma Wu Mao in a popular discussion forum for political and social issues on club.kdnet.net. "This gives other Asian countries more reasons to rely on the U.S."

L'Oreal, Nestle Beauty-Pill Joint Venture Inneov to Enter China

Source: Bloomberg By Andrew Roberts

Inneov, the maker of beauty pills owned jointly by L’Oreal SA and Nestle SA, plans to enter China next year and may also expand in Latin America as more people turn to dietary supplements to treat skin and hair conditions.

“There is a huge opportunity in Asia,” said Brigitte Liberman, head of L’Oreal’s Active Cosmetics unit, which operates Inneov. Nutritional supplements for skin and hair, or nutricosmetics, are “part of the routine of Asian women.” Inneov may enter Chile and Argentina, she said in an interview in Paris, declining to say when.

L’Oreal, the world’s largest cosmetics maker, gets about a third of sales from markets such as Asia and Latin America and aims to increase that proportion to as much as 60 percent in 10 years. Asia accounts for about 1 billion euros ($1.33 billion) of nutricosmetic sales, or half the world’s total, while Europe and the Americas each generate around 500 million euros, Inneov estimates.

Entering new markets is essential if nutricosmetics are to become more than a niche product, according to Ewa Hudson, an analyst at Euromonitor International. European consumers have been slow to adopt beauty supplements because they don’t understand what the ingredients can do for them, she said.

“In Asia it’s a very different story,” Hudson said. “There are loads and loads of beauty-from-within products.”

Saggy Skin

L’Oreal, based in Paris, and Nestle, the world’s largest food company, formed Inneov in 2002 as “an alliance of expertise,” Liberman said. The joint venture, whose treatments include Fermete pills for wrinkles and saggy skin, sells in 16 European countries, plus Brazil and Mexico. Liberman declined to provide revenue and profit figures, citing company policy.

Inneov, which competes with Sanofi Aventis SA’s Laboratoire Oenobiol, introduced an anti-dandruff treatment last month to add to its arsenal of 12 clinically tested products, which are priced between 20 euros and 30 euros a packet. The company’s sales are climbing as much as 10 percent in some countries in Europe, Liberman said, declining to specify which.

About 20 percent of women in Europe use beauty pills for conditions such as cellulite and hair loss, Liberman estimates. That compares with 5 percent to 10 percent of men, she said. Overall, demand for nutricosmetics is increasing as people become more health conscious, the executive said.

Tomato Diet

A decade ago, only 20 percent of women in Europe were aware nutrition had an impact on their beauty compared with 80 percent now, Liberman said. “It’s a very positive trend for us.” Half the world’s population now lives in cities, leading to more “imperfections” such as oily skin, while pollution is causing more allergies, she said.

While Inneov’s products are derived from natural sources, like the lycopene found in tomatoes, the dosage of ingredients required to generate results makes it hard to do so without a supplement, Liberman said.

The executive declined to say which product Inneov would introduce first to China. Fermete and the Hair Mass range, which aims to counter hair loss and thinning hair among women, are Inneov’s best-selling products.

Sales at L’Oreal’s Active Cosmetics unit, which includes the Inneov, Vichy, La Roche Posay, Skinceuticals and Sanoflore brands, climbed 8.3 percent to 1.08 billion euros in the nine months ended September. The unit should have a “decent” fourth quarter, Chief Executive Officer Jean-Paul Agon said Oct. 21.