Have You Heard

• Wen Pledges More Trade With Indonesia, Malaysia
• Traditional Chinese Medicine presence challenged by EU herbal rule
• China Shipbuilding Industry sees 2010 net profit up 7.28%
• China smoking ban may have little effect
• China Releases Rights Activist Teng Biao

Wen Pledges More Trade With Indonesia, Malaysia

Source: Wall Street Journal By Esther Fung

JAKARTA—Chinese Premier Wen Jiabao wrapped up his official visit to Malaysia and Indonesia Saturday, after signing multibillion-dollar investment deals as it seeks to expand bilateral trade with the two Southeast Asian countries.

Mr. Wen also spent some time on the two-country, four-day trip to promote the use of the yuan as a currency for trade settlement in the region, highlighting the mutual expansion of financial institutions that could facilitate crossborder trade in the local currencies.

China is keen to step up its influence in the Southeast Asia, a region with vast natural resources needed by the recently crowned world's second largest economy, but also faces tension from territorial disputes in the South China Sea with some countries from the Association of Southeast Asian Nations.

In a speech in Jakarta on Saturday, Mr. Wen said that China will speed up the development of transport connections with Southeast Asia, building roads, railways, telecommunication and power infrastructure.

Some Chinese companies Saturday signed investment deals worth total $10 billion in various infrastructure, cement, property and agriculture projects in Indonesia.

Chinese construction machinery maker Sany Heavy Industry Co., for instance, will invest $200 million for a production facility in Indonesia.

The two governments had agreed to expand economic and trade cooperation, including the extension of $8 billion commercial loans by China for infrastructure and industrial projects, Mr. Wen said, after holding talks with Indonesian President Susilo Bambang Yudhoyono.

In Malaysia, Mr. Wen vowed to expand trading ties and increase crossborder investments, as the two countries signed a series of agreements on infrastructure projects worth $3 billion.

"China is running a fairly large deficit with Malaysia, but we have no complaints about it," Mr. Wen said Thursday after holding talks with Malaysian Prime Minister Najib Razak.

China seeks balanced trade with its trading partners, and added that more companies should make use of the China-ASEAN Free Trade Agreement, Mr. Wen said.

Traditional Chinese Medicine presence challenged by EU herbal rule

Source: Xinhua

As Traditional Chinese Medicine (TCM) is expanding its presence in the global market, a disputed European Union (EU) herbal directive to be fully implemented on Sunday could be a stumbling block on the road.

Starting from May 1, herbal medicinal products, most of which have been sold as food supplements for decades in the EU market, will no longer be allowed unless they have obtained a medicine license, according to the EU Traditional Herbal Medicinal Products Directive adopted in 2004.

The directive introduced a so-called simplified registration procedure with a seven-year transition period for traditional herbal medicinal products to be licensed, including Chinese and Indian traditional medicines.

However, as the transition period is to expire on Saturday, no single Chinese herbal medicinal product has been granted the license.

"For the time being, we can only stock as many herbal medicinal products from China as we can," said Professor Lin Bin, director of a well-known TCM clinic in the Netherlands.

The directive stipulates that applicants must provide documents showing the product is not harmful in the specified condition of use, as well as evidence that the product at least has a 30-year history of safe use, including 15 years in the EU.

With a history of more than 2,000 years, TCM did not enter into the EU market until mid-1990s, and it has been imported into the EU and sold to European customers as food supplements instead of drugs.

Most Chinese producers and importers did not reserve the customs papers a decade ago, thus unable to prove the 15-year use of their products in European markets.

Several Chinese herbal companies had tried to go through the simplified registration procedure with their ace products, but in the end they either failed or quitted midway due to lack of required documents or tight budgets.

"The directive itself was not targeting the TCM at all, but it is too difficult and expensive for TCM to register," Lin said.

The Commission stressed on Friday that the directive doesn't ban traditional medicine, vitamins, mineral supplements or herbal teas from the European market.

The Commission's health spokesman Frederic Vincent also said in an interview with Xinhua on Thursday the EU had no plan to ban anything from China and that the directive was to make sure EU citizens would be fully informed of what they were buying.

"The EU is fully aware of the importance of TCM and authorities from both sides also have some cooperation on this issue," Vincent said.

However, while acknowledging the good intention of the directive to regulate the EU's herbal market, campaigners and industry insiders argued that the new registration system was discriminative against the Chinese or Indian traditional medicine.
 
Even the Commission had admitted that the directive was not fit for the registration of Chinese or Indian medicine when exchanging views on the issue with the European Medicine Agency in Dec. 2008, Chris Dhaenens, president of the European Benefyt Foundation, a leading traditional medicine group, told Xinhua in an exclusive interview on Thursday.

"But they had no money or time to work out an alternative, and so it was left to the member states," he said.

The spokesman insisted each EU member state had to provide a registration system for herbal medicinal products, although it was up to them to decide if a product could be put on the market as medicine or food.

In countries like Belgium, France and Italy, herbal medicinal products must be registered as medicine while the registration procedure can be difficult and costly.

In the Netherlands and Czech Republic, all herbal products can still be put under the food category and there are barely any restrictions.

But even products from countries with liberal policies still cannot be sold to other EU member states where those products might be considered illegal since the enforcement of the directive.

In 2010, the value of TCM from Chinese mainland exported to the EU market reached nearly 2 billion U.S. dollars, about 10 percent of which were herbal medicinal products, or an increase of 10 percent year on year.

But the EU only claims 0.5 percent of China's total TCM export value, while Hong Kong, Japan and America are the three largest export markets for TCM from the Chinese mainland.

"It is not an EU habit to buy medicines from China ... For the time being it is a tiny issue," the spokesman said, adding that the TCM market in Europe is not as big as people are saying.

However, as health regulators in many EU member states seem to be fully implementing the directive and narrowing the backdoor of treating TCM as food supplements, experts said Chinese herbal companies should keep trying to obtain the license.

"In the long run, TCM has to go through medicine registration to be sold as medicine but not food, either the simplified one or standard one, for its growing future," Prof. Lin said.

Besides, traditional herbs and herbal non-medicinal products can continue to be sold as food supplements as the directive only regulates herbal medicinal products. But TCM is usually excluded from the medical insurance system in most EU countries.

"It Chinese herbal medicinal products can obtain a medicine license in Europe, it will be covered by local insurance system, which is a big step for TCM," Lin said.

The revenue of global herbal products has been increasing by 10- 20 percent every year, but China's TCM only takes up about 3 percent of the global market, and 70 percent of its exports are raw herbs with much less added value.

Lin suggested that domestic herbal companies in China should always seek cooperation with local competitors with a long-term vision, as well as establish partnership with prestigious R&D medical institutions in Europe in order to obtain the medicine license.

Some herbal medicinal products from the world's largest TCM producer Tongrentang, a Chinese pharmaceutical company founded in 1669, were reported to reach 15-year presence in the EU market soon.

As some TCM had been uncovered with problems of pesticide residues, excessive heavy metals and chemical composition, according to earlier reports, Prof. Lin urged some TCM companies to deepen internal reform and strengthen self-discipline.

Chinese TCM market also needs standardized regulation, he added.

"The directive could offer some rare opportunities for the TCM to enter into the EU market for the first time as medicine but not food. Anyway it is not a mission impossible," Lin said.

China Shipbuilding Industry sees 2010 net profit up 7.28%

Source: Xinhua

BEIJING - China Shipbuilding Industry Co (CSIC), the country's northern shipbuilding giant, said Saturday that its net profit last year rose 7.28 percent year-on-year to 1.599 billion yuan ($246 million).

The shipbuilder said in a statement filed with the Shanghai Stock Exchange that its operating revenue was up 10.29 percent to 20.472 billion yuan in the period.

But earnings per share declined 22.58 percent to 0.24 yuan last year from 0.31 yuan in 2009, said the statement.

Due to a recovery in the global shipbuilding market and a rise in orders, shipbuilding business has brought 31.447 billion yuan for the company, up 38.17 percent from the same period last year, it said.

Growth in CSIC's net profit has picked up in the first quarter this year, according the company's first-quarter report, which was also released on Saturday.

Net profit has surged 28.68 percent year-on-year to 1.323 billion yuan in the first three months of the year on declines in production cost and a rise in efficiency, it said.

Earnings per share jumped 28.68 percent to 0.14 yuan from a year earlier in the three-month period.

Share price of the CSIC was up 4.55 percent to 12.17 yuan in the Shanghai market Friday.

China smoking ban may have little effect

Source: By Benjamin Haas, Los Angeles Times

In a country of 300 million smokers, where many don't know of the health risks of tobacco, few expect much from a ban effective Sunday.

Reporting from Beijing— On sunny days, Xu Dongguang, a manager of a trendy cafe in downtown Beijing, arranges tables outside for patrons to while away the afternoon, reading, drinking coffee and chain-smoking. But starting Sunday, all bars, restaurants, hospitals and other public places in China are slated to become smoke-free, inside and out.

A few days before the ban was set to go into effect, many places in Beijing had only heard of the restrictions from news reports, and no one had received an official notice. Xu didn't have plans to comply.

"Our whole restaurant is the smoking section," he said. "Maybe we'll try to ask people to go outside, but in the end, the customer is God."

Efforts to ban smoking in public places here have been plagued by false starts and failed campaigns. China, with the world's largest population, also has the most smokers — more than 300 million — a deeply entrenched smoking culture and little awareness among the general public about the health risks.

The current ban was mandated by the State Council, China's top administrative body, in response to a World Health Organization treaty Beijing signed in 2006 pledging to enact nationwide tobacco-control legislation within five years. China already has missed the deadline by almost five months.

The law mandates a penalty of 30,000 yuan, or about $4,600, for owners of establishments that do not comply, but it is still unclear who will enforce the ban and what actions will trigger such a steep fine.

Many Chinese businessmen greet each other with rounds of cigarette giving, and it's a rare business deal that concludes without one party giving the other expensive tobacco.

"When I applied for permits [for the bar], I would always give officials cigarettes as a present," said Lin Tao, a bar owner.

One posh brand of smokes readily available in fashionable Beijing malls is Panda Cigarettes, which cost 700 yuan, or about $107, a pack. Most brands, however, cost about $2 a pack.

In 2008, Zhou Jiugeng, the director of the Nanjing Property Bureau, was sacked after he was seen at a news conference with cigarettes that cost $20 a pack, much more than he could afford on his official salary.

China accounts for a third of all cigarettes smoked worldwide, and about 3,000 people die every day here from smoking-related illness, according the World Health Organization. Cigarette smoke contributes to four of the five leading causes of death in China, WHO says.

Public health experts doubt that the ban will be immediately effective, citing legal and education obstacles.

"I would be very surprised if it were enforced from May 1," said Sarah England, a technical officer at the World Health Organization. "The law will need to be interpreted by the local and municipal authorities before it has a real impact."

She also noted the lack of a nationwide public education campaign similar to those in the West, so "only 23% of adults believe smoking causes cancer or other health problems."

Since most Chinese haven't been told about the harmful effects of smoking, they don't see the need to stop. From 2006 to 2009, three antismoking units at Beijing hospitals officially closed, and others merged with hospital respiratory departments, according to the China Daily newspaper.

"There aren't many people who come in just to quit smoking," said Liu Shuang, director of the respiratory unit at Beijing's An Zhen Hospital. "Patients are usually at the hospital for a smoking-related illness, and only then come to us to quit smoking. But middle-aged and younger people still haven't felt the effects from smoking so they haven't even thought about quitting."

An added burden is the cost of quitting. The medication that helps with giving up tobacco typically costs more than 1,000 yuan, or about $150, about half a month's salary for the average worker.

A recent phenomenon of videos of children smoking posted on Chinese websites illustrates the lack of knowledge of tobacco's effects. One, titled "3-Year-Old Smoking Emperor," shows two boys on a train puffing away and occasionally blowing smoke at each other. Adults look on in amusement with one passenger asking, "Does he know how to smoke?" Another answers, "Yes, see, he can inhale!"

The ultimate hurdle to enforcing a smoking ban might be the government itself, which has a direct stake in the tobacco industry.

China National Tobacco Corp. is a state-owned cigarette monopoly and the world's largest tobacco company. In 2009, more than 7.5% of government revenue, or $77.3 billion, came from taxes and profits related to tobacco, according to the China Daily.

Lin, the bar owner from southern China, chain-smokes as a way to relax while patrons drink cheap beer and contribute to the cloud of smoke that hovers throughout his French-themed subterranean lounge-bar. He doubts the rule will be effective.

"The police won't enforce the policy," he said. "Chinese cops smoke more than anyone."

China Releases Rights Activist Teng Biao

Source:  Wall Street Journal By Brian Spegele 

BEIJING—Chinese authorities released lawyer and rights activist Teng Biao on Friday after more than two months in extrajudicial confinement, a day after a senior State Department official publicly lambasted China over its crackdown on dissent.

Some analysts say that Beijing's decision to release Mr. Teng may be partly designed to ease tensions with the U.S. over human rights ahead of high-level meetings in Washington in May. U.S. officials raised Mr. Teng's case during a "human rights dialogue" in Beijing this week.

Mr. Teng's wife, Wang Ling, told the Associated Press her husband returned home Friday afternoon but declined to provide further details. A spokesman for the U.S. embassy in Beijing also confirmed that Mr. Teng has been released but said the U.S. remains concerned over a deteriorating human-rights situation in China.

"We continue to express deep concern over the use of extrajudicial detention against him and other activists," said the embassy spokesman, Richard Buangan.

Human-rights groups welcomed Mr. Teng's release, but described his confinement since mid-February as indicative of the erosion of rule of law in China.

"Teng Biao's disappearance and his sudden, unexplained release is emblematic of the increasingly thuggish and unlawful conduct of Chinese security forces in stifling perceived dissent," said Phelim Kine, an Asia researcher with Human Rights Watch.

U.S. Assistant Secretary of State Michael Posner, in Beijing this week for the two-day "human rights dialogue," told reporters Thursday that he stressed Mr. Teng's case at the meeting. He rebuked China for "serious backsliding" on human rights, which he said was hurting relations with the U.S.

Mr. Posner said the U.S. would continue to press human rights during next month's Strategic and Economic Dialogue, which brings together senior Chinese and U.S. officials for talks covering a broad range of economic and security issues.

Lawyers like Mr. Teng have been among those targeted during China's ongoing crackdown on perceived political dissent. Dozens of writers, artists, lawyers, religious leaders and other rights activists have been arrested or confined to their homes in what experts describe as the most severe crackdown on dissent in more than a decade.

"We're on new grounds here," Mr. Kine said. "We're seeing a degree of lawlessness and thuggishness on the part of the security forces that we previously didn't see."

Mr. Kine said China's move made the U.S. susceptible to "hostage diplomacy," in which detained activists in China "are used by the Chinese government as a bargaining chip."

Mr. Teng was an original signatory to the petition known as Charter 08, which, among other demands, called for rule of law and open elections in China. Liu Xiaobo, the Nobel Peace Prize recipient who helped draft the petition, is serving an 11-year prison sentence for sedition.

In his press conference on Thursday, Mr. Posner said the U.S. is particularly worried about the condition of Mr. Liu's wife, Liu Xia, who is believed to be confined to her home.

Recent unrest across the Arab world precipitated a crackdown on political dissent in China amid online calls for a "Jasmine Revolution" that have spooked authorities. Many experts believe that crackdown is likely to continue as the country moves into a period of heightened political sensitivity in the lead-up to its leadership transition next year.

Have You Heard

• Yuan Strengthens to Post-’93 High Against Dollar as China Fights Inflation
• China pushes back after U.S. criticism on rights
• China's One-Child Plan Faces New Fire
• China's restaurants asked to list used food additives

Yuan Strengthens to Post-’93 High Against Dollar as China Fights Inflation

Source: Bloomberg News

China’s yuan strengthened beyond 6.5 per dollar for the first time since 1993, supported by speculation the central bank will allow appreciation to help tame the fastest inflation in more than two years.

The currency’s seventh weekly gain, its longest winning streak since July 2008, may damp U.S. criticism of China’s exchange-rate policy before Vice Premier Wang Qishan heads to Washington next month for talks with Treasury Secretary Tim Geithner. Consumer prices in Asia’s biggest economy rose 5.4 percent from a year earlier in March, exceeding the government’s 4 percent goal for this year.

“Inflation is still higher than what the government would like to see,” said David Cohen, a Singapore-based economist at Action Economics, who previously worked for the Federal Reserve. “The central bank is tolerating faster currency appreciation to contain import costs.”

The yuan strengthened 0.16 percent to close at 6.4910 per dollar in Shanghai, earlier touching a 17-year high of 6.4892, according to the China Foreign Exchange Trade System. It rose 0.9 percent this month, the best performance of 2011. In Hong Kong’s offshore market, the currency jumped 0.28 percent to 6.4645, the biggest gain in Bloomberg data going back to Aug. 24.

The People’s Bank of China set the yuan’s reference rate at 6.4990 per dollar, the strongest level since July 2005. The currency is allowed to trade up to 0.5 percent on either side of the official rate.

Dollar Slide

Twelve-month non-deliverable forwards rose 0.22 percent to 6.3095 per dollar as of 4:40 p.m. in Hong Kong, trading at a 2.9 percent premium to the onshore spot rate, according to data compiled by Bloomberg. Local billionaire Li Ka-shing’s Hui Xian Real Estate Investment Trust, the city’s first listed shares denominated in yuan, began trading today.

The “unusually fast pace” of yuan gains confirms that the yuan is being used to fight inflation, Dariusz Kowalczyk, senior economist at Credit Agricole CIB in Hong Kong, wrote in a note to clients today. He said there may be a “sharp gain” once 6.50 is breached and recommends buying the yuan against the greenback using non-deliverable forwards.

The dollar weakened this month against all 16 major currencies monitored by Bloomberg as the Fed maintained a near- zero benchmark interest rate and boosted the supply of the U.S. currency by buying Treasuries, a policy known as quantitative easing that is set to end in June.

‘Managed Appreciation’

A halt to the U.S. central bank’s Treasury purchases will alleviate pressure for yuan gains, Huang Zhilong, a researcher with the China Center for International Economic Exchanges, wrote in a commentary published in today’s China Securities Journal. The center is affiliated with the National Development and Reform Commission, China’s top economic planning agency.

Chinese officials told Senate Majority Leader Harry Reid and nine other U.S. senators who visited China this month that the yuan’s “managed appreciation” will continue, according to an April 26 statement on Reid’s website. The senators called for “more aggressive” appreciation, the statement said. The group met with leaders including Vice President Xi Jinping and People’s Bank of China Governor Zhou Xiaochuan.

New York Senator Chuck Schumer, who was on the trip, said yesterday the talks convinced him to push more forcefully for legislative action to curb yuan manipulation that gives Chinese exporters an unfair advantage. Treasury Secretary Geithner and Secretary of State Hillary Clinton are due to meet with Chinese Vice Premier Wang and State Councilor Dai Bingguo during the annual U.S.-China Strategic and Economic Dialogue being held May 9-10 in Washington, the U.S. State Department said this week.

U.S.-China Talks

China’s currency appreciation often gathers pace in the run-up to high-level talks between the two nations. This year’s biggest weekly advance of 0.58 percent was recorded in the week ended Jan. 16, before Presidents Hu Jintao and Barack Obama met in Washington on Jan. 19. The yuan strengthened 1.4 percent in the month before Obama discussed currency policy with Premier Wen Jiabao in New York on Sept. 23.

“China always lets the yuan appreciate faster before they meet the U.S.,” said Kenix Lai, a foreign-exchange analyst at Sun Hung Kai Securities Ltd. in Hong Kong. “It’s like a gift to cultivate a friendly atmosphere for the meetings. This time is no exception.”

China’s Commerce Ministry said on April 22 that there is “relatively large” pressure for the yuan to appreciate, noting that currency gains have had some impact on export orders. The country’s imports exceeded overseas sales by $1.02 billion in the January-March period, the first quarterly trade deficit in seven years, customs bureau data showed on April 10.

Smaller Exporters

“A one-off revaluation is definitely impossible because it will devastate those smaller exporters that are on the edge of life and death,” said Zhao Qingming, a senior analyst in Beijing at China Construction Bank Corp., the country’s second- largest lender. He estimated the yuan will rise by about 7 percent against the dollar for the whole of 2011.

The yuan has advanced 1.5 percent so far this year and will strengthen a further 3 percent to 6.30 per dollar by the end of December, according to the median estimate of 25 analysts surveyed by Bloomberg. That’s the biggest gain projected for Asia’s 10 most-used currencies, polls show.

China pushes back after U.S. criticism on rights

Source: Reuters  By Ben Blanchard

BEIJING (Reuters) - China pushed back against U.S. criticism of its human rights situation on Friday following talks on the issue, saying that the Chinese people were "most qualified" to talk on the topic and defending the detention of artist Ai Weiwei.

The U.S. official leading the talks said on Thursday that he was "deeply concerned" about a crackdown on dissidents and rights lawyers in China, and that the friction could impede the two powers' ties.

Yet China and the United States have many interests in common, from dealing with North Korea's nuclear ambitions to maintaining the global economic recovery, and the spat over rights seems unlikely to spin out of control.

China's Foreign Ministry, in a restrained statement carried by the official Xinhua news agency, said both sides agreed that "the talks were frank, open and constructive.

"The Chinese side said the Chinese people are most qualified to speak on China's human rights situation, and the Chinese judicial organs would continue to handle cases in accordance with law," Xinhua cited the statement as saying.

"The Chinese side said that only through abiding by a spirit of equality and mutual respect can the human rights dialogue achieve positive progress."

China and the United State had an "in-depth exchange of views on issues regarding bilateral cooperation in U.N. human rights field, the rule of law, labor rights, freedom of expression", Xinhua said.

China briefed the U.S. side on "the country's measures and achievements in improving and safeguarding people's livelihood, advancing the construction of democracy and legal system, and developing grass-roots democracy".

The report made no mention of specific cases the United States said it had raised, including those of detained artist Ai and missing rights lawyers such as Teng Biao.

SUSPECTED ECONOMIC CRIMES

Ai was detained at Beijing airport on April 3 and is now being investigated on suspicion of economic crimes.

However, the state-run China Daily published a letter from the Chinese embassy in London saying Ai's case had nothing to do with freedom of expression.

"The Ai Weiwei case, in essence, is not a human rights matter, nor is it about freedom of speech. No one is above the law. Just like in other countries, acts of violations of the law will be dealt with by the law," the embassy wrote in the letter, printed in the English-language newspaper.

The Chinese authorities have given few details of what exactly Ai is being investigated for.

Earlier this month, a Hong Kong newspaper under Beijing control said police had evidence he avoided tax.

"China is not the former Soviet Union. China has no need for 'lecturers', who cling to the Cold War mentality and follow double standards in their preachings," said the letter, written in response to an article in a British newspaper written by author Salman Rushdie calling on China to set Ai free.

China's leaders have become increasingly unyielding in the face of Western pressure over human rights issues and say that those complaints amount to illegitimate meddling.

Beijing's alarm about dissent grew after overseas Chinese websites in February spread calls for protests across China inspired by the "Jasmine Revolution" of anti-authoritarian uprisings across the Arab world.

China has since jailed, detained or placed in secretive informal custody dozens of dissidents, human rights lawyers and protesters it fears will challenge Communist Party rule.

China's One-Child Plan Faces New Fire

Source: Wall Street Journal By Jeremy Page

BEIJING—China's latest census shows the nation's population is aging rapidly and its growth rate has declined sharply, raising new questions about the government's unwillingness to abandon its controversial one-child policy despite warnings of a looming demographic crunch.

When the Chinese government launched the world's biggest demographic experiment in 1980, it said it would take about 30 years to tame the nation's explosive population growth once encouraged by Chairman Mao Zedong.

China appears to have achieved that goal: Initial census results released Thursday show China's population, the world's largest, rose to 1.34 billion as of last year, from 1.27 billion in 2000. That puts average annual growth at 0.57% over the decade, down from 1.07% in 1990-2000.

The census, conducted last year, also shows that people over the age of 60 now account for 13.3% of China's population, compared to 10.3% in 2000. And the reserve of future workers has dwindled: People under 14 now make up 16.6% of the population, down from 23% 10 years ago.

Yet China's leaders vowed again this week to maintain the one-child family-planning policy. This despite the census results and a decade-long campaign by an informal advocacy group of top Chinese academics and former officials who have risked their careers to argue the policy is based on flawed science and vested bureaucratic interests. China's policy is enforced by the National Population and Family Planning Commission, which employs a half-million full-time staffers and six million part-timers. It collects millions of dollars a year in fines from people who violate family-planning rules.

Chinese leaders credit the policy with preventing 400 million births, helping to lift the country out of poverty and limit its carbon emissions.

Under China's one-child policy, many (but not all) couples who have more than one child face fines of several months' salary and can lose their jobs if they work for the state. The program has also led to some forced abortions and sterilizations.

According to several people close to the Family Planning Commission, the agency is believed to be considering limited pilot plans to relax the policy. But the informal advocacy group pressing for change say those measures are too little, and too late, to address a demographic crunch that will fundamentally reshape China's economy and society.

They say China's elderly population is expanding rapidly as Mao-era baby boomers retire, putting new burdens on society to cover the cost of their retirement. At the same time, China's labor force is due to start shrinking in 2016, reversing the demographic phenomenon of a widening pool of low-cost labor that powered a manufacturing boom over the past three decades.

The number of workers aged 20-to-24 is already declining due to the lower birth rate two decades ago and a rise in the number of young people seeking higher education. China's traditional preference for boys also means the nation now has about 120 males for every 100 females. By 2020 China could be home to as many as 24 million single young men with little prospect of marrying or having their own children.

The solution, members of the advocacy group argue, is for China to move swiftly to a "two-child" policy, and possibly to offer incentives for couples to have a second child. That, they say, would help China to avoid the fate of Japan and some Western countries that are struggling with an aging population and shrinking work force.

China's leadership appears to be dragging its feet on lifting the one-child limit nationwide in part because it is wary of controversy ahead of a once-a-decade Communist Party leadership change next year. The man in charge of population issues is Vice Premier Li Keqiang, the frontrunner to take over as premier.

The group advocating for ending the one-child policy thought the change "would be a simple matter," said Gu Baochang, a professor of demography at Renmin University in Beijing, former adviser to the Family Planning Commission and informal leader of the advocacy group. Changing the policy, he says, is "so necessary demographically, and so wise politically. But resistance was so strong—much stronger than we had thought."

The government inaction is all the more notable because the family-planning bureaucracy is a lightning rod for public resentment.

In one of China's most notorious human-rights cases, a blind, self-taught lawyer named Chen Guangcheng was imprisoned in 2006 by local officials after he sued them over forced abortions, even though the central government had publicly sided with Mr. Chen.

On Tuesday, President Hu Jintao told a meeting of top party leaders that China would "stick to and improve its current family-planning policy and maintain a low birth rate," the official Xinhua news agency reported. The policy already exempts several groups such as ethnic minorities, rural couples whose first child is a girl, and couples in which both partners are only children.

The commission is now considering pilot schemes in five or six provinces allowing couples in which one partner is an only child to have a second baby, according to people familiar with the discussions. But members of the advocacy group says it will take at least two years to see the results of those pilots, which will then have to be tested nationally. That means a nationwide two-child policy is unlikely before 2015, they say.

The Family Planning Commission, meanwhile, actively suppresses dissenting voices, its critics allege. Around 6 p.m. on March 11, two professors from Beijing's Tsinghua University, Wang Ming and Wang Feng, were on their way to a live television interview in which they planned to call for an end to the one-child policy.

Wang Ming is a members of a consultative body to the National People's Congress and had filed a petition against the one-child policy for the second successive year. Wang Feng is a demographer and member of the advocacy group who heads the Brookings-Tsinghua Center for Public Policy in Beijing.

As they approached the studio, Wang Feng's mobile phone rang. It was a producer of the show, he said, calling to say the interview had been canceled under pressure from the Family Planning Commission. "We shouldn't have advertised it in advance," the show's anchor told the two men later, they say.

"This is a really politically sensitive question," says Ji Baocheng, president of Renmin University and an NPC member, who filed a petition this year, for the fourth time, calling for a review of the policy. "The problem is there is a difference between how experts see it and how officials see it."

The official view relies to a large extent on the theory, put forward by Thomas Malthus in 1798, that China has insufficient land and natural resources to support its population.

The Family Planning Commission declined interview requests. It has denied suppressing critics who speak out against its policies.

One prominent former official, however, outlined in a four-hour interviewwhat she said was the prevailing view on the commission.

"These so-called experts [in the advocacy group] are talking nonsense," said Ma Li, an NPC member and advisor to the State Council (China's cabinet) who headed the commission's Population and Development Research Center until 2009 and still works from its offices.

She drew a graph that she said showed that China's "demographic dividend" would last for at least another 15 years as its labor force would remain stable at about one billion between 2016 and 2026.

"There's no such issue as a labor shortage in China," she said. "Our problem is we have too many people."

On the other side of the debate is the advocacy group, made up of two dozen leading demographers, economists and former Family Planning officials who joined forces in 2000.

They knew that China's fertility rate, or the average number of children born to each woman, was in decline even before the one-child policy began in 1980.The fertility rate had dropped to 2.7 in 1979 from 5.5 in 1970 due to a policy encouraging people to marry later, wait longer between children, and have fewer babies.

The advocacy group also knew that fertility rates in other developing countries had declined at a similar rate between 1970 and 1990 without a one-child policy.

So they set out to prove a point that was almost heresy to China's family planners: that the one-child policy was unnecessary.

They secured funding from the Ford Foundation through Joan Kaufman, a Harvard Professor who has studied China's family-planning policies since the early 1980s and worked in the foundation's Beijing office between 1996 and 2001. "When this initiative began, there was this belief that generating evidence would convince policy makers. That was naive, because it's not an evidence-based policy," said Dr. Kaufman.

"They have a huge family-planning bureaucracy and to have that become redundant is a worry. There's also a knee-jerk feeling that if they lift the lid everyone's going to have millions of babies."

Group members began by quietly conducting field research to prove, among other things, that China's fertility rate had fallen dangerously below the "replacement rate" of 2.1 children for every woman, which is generally required to keep a population stable. They calculated that the fertility rate should be 1.47 if the policy was implemented correctly, taking into account the various exemptions.

The commission says the fertility rate has been about 1.8 since 1991, because it assumes that many children are born secretly to avoid fines. Even taking that into account, members of the group calculated it was 1.5 to 1.6.

At first, the campaign by the activists' group had some success: They persuaded senior officials to attend two international seminars on demographics and aging populations in Hawaii and Beijing. In 2004, they filed a petition to the government which they say reached the nine-member Politburo Standing Committee but wasn't acted on.

Soon afterward, the Family Planning Commission struck back. Zhang Weiqing, its minister at the time, oversaw the compilation of a "National Population Development Strategy Research Report," which rejected many of the group's findings.

The report reasserted that the fertility rate had been 1.8 since about 1991 and should remain at that level for another three decades.

"A higher or lower fertility rate is not beneficial for economic and social development in China," the report said.

It said the one-child policy had prevented 400 million births, based on the assumption that, without it, the fertility rate would have stayed where it was in 1970, rather than falling naturally as it did in other developing countries.

It also predicted that China's overall population would peak at about 1.5 billion in 2033. The U.S. Census Bureau, and many Chinese demographers, now predict that China's population will peak at less than 1.4 billion in 2026.

Once the report was published, the advocacy group was ostracized by the commission.

Mr. Gu's group now say their findings will be backed up by the census, which tried for the first time to count children born in secret—by offering discounts on fines—and is expected to show there are fewer than previously estimated when the full results are released.

Whether it will be enough to spur the government into action is another question. "There's a saying in Chinese," said Wang Feng. "It's easier to get on a tiger than to get off it."

China's restaurants asked to list used food additives

Source: Want China Times  By Xinhua and Staff Reporter

China Thursday asked its catering companies to publicize the food additives they use in their flavorings, beverages and condiments, in the latest effort to crack down on illegal additive use and improve food safety.

The State Food and Drug Administration (SFDA) asks catering firms to report information regarding the food additives used in their food to local authorities by the end of May this year.

In addition, the names of these additives should be clearly posted in restaurants for customers to see. Catering companies should also reply truthfully to any related inquiries raised by consumers, the SFDA said.

Chinese authorities recently vowed to intensify efforts to crackdown on the use of illegal additives in the country's restaurants because of the many recent illegal food cases.

The latest case is that a company used "lean meat powder," or ractopamine, in livestock to make livestock grow faster, a practice which is prohibited in China. Police in Hunan province detained sixteen people on suspicion of selling ractopamine.

"(Police) have detained 16 chief suspects in this case, which affects 16 provinces and municipalities," Xu Hu, a senior official with the Ministry of Public Security, told China Central Television (CCTV).

Luo Fan, a 34-year-old Hubei native, has allegedly spent 2.6 million yuan (US$399,830) on purchasing more than 2,000 kilograms of ractopamine since 2008. The additive was sourced from a manufacturer in Zhejiang and another in Tianjin, according to Hunan police.

Luo sold the chemical to factories in 16 regions, according to CCTV.

Police in March seized 420 kg of semi-finished ractopamine, 510 kg of raw materials and 27 machines that produced the additive in a workshop in Jiujiang city, Jiangxi province.

As a ractopamine manufacturer, Chen Qiuliang could make 200 yuan in profit by selling a kg of the chemical for 1,200 yuan. Luo bought the ractopamine from Chen and then sold it for 2,200 yuan a kg.

People will suffer from vomiting and diarrhea if they eat meat tainted with ractopamine.

Have You Heard

• China's population grows older and more urban
• Factbox: China's 2010 Census
• China Economic Growth Faces Risks From Property ‘Shocks,’ World Bank Says
• PetroChina’s Oil, Gas Production to Boost Profit, Offset Refining Losses
• Capital Buffers Shrink at China Banks
• ICBC Profit Rises More-Than-Expected 29% on Banking Fees

China's population grows older and more urban

Source: Reuters  By Chris Buckley and Michael Martina

BEIJING (Reuters) - Half of China's 1.34 billion population live in cities and towns, according to a census on Thursday that pointed to the daunting tasks ahead for policymakers as the labor market shrinks and the nation grows older.

The census, which showed overall population growth slowing sharply in the decade to 2010, revealed fewer Chinese than some demographers had expected and could spur calls for China's tough family planning policies to be relaxed.

China remains the world's most populated country but the rise of 5.8 percent was almost half the pace recorded in the last census a decade earlier. Some experts had expected China's population to reach 1.4 billion.

"China is for the first time crossing a historical landmark from a country that's dominated by people engaging in agriculture, living in the countryside, to an urbanized society," said Wang Feng, a demographer who is director of the Brookings-Tsinghua Center for Public Policy in Beijing.

The mammoth task of counting China's population required six million workers and revealed a population that in a single decade increased by 75 million, more than the number of people in Britain.

The census showed the proportion of young Chinese shrinking as the elderly population grows. Many demographers have said China's choke on family size threatens the future of the world's fastest-growing major economy as fewer people are left to pay and care for a graying population.

The report points to pressure for wage levels to rise as the working-age population shrinks, a need for social safety nets to support a graying nation and stress on urban infrastructure as rural migrants flood to cities such as Beijing and Chongqing.

"The data from this census show that our country faces some tensions and challenges regarding population, the economy and social development," Ma Jiantang, the head of the National Bureau of Statistics, told a news conference.

The census also highlighted stark differences between China and the rival emerging economy of India, which reported its own population tally on March 31. India's population grew three times faster than China's over the past decade and is far younger.

The proportion of mainland Chinese people aged 14 or younger was 16.60 percent, a fall of 6.29 percentage points from the number in the 2000 census.

Those aged 60 or older increased to 13.26 percent of the population, up 2.93 percentage points.

Such figures could encourage the government to relax family planning restrictions that limit nearly all urban couples to one child, while rural families are usually allowed two, said Du Peng, a professor at the Population and Development Studies Center at Renmin University in Beijing.

"The total population shows the general trend toward slowed population growth and as well an older population, and in the next five years or longer that will be an important basis for population policy," said Du.

"The aging of the population appears to be faster than was expected," he said.

VINDICATION

Statistics chief Ma said the census vindicated the government's firm, sometimes harsh, family planning policies.

"These figures have shown the trend of excessively rapid growth of China's population has been under effective control," Ma said.

But one economist said China's slower population growth and shrinking pool of migrant labor from the countryside could add to long-term pressures driving up wages and prices.

"(Slower population growth) is starting to show in rural labor markets and the entire economy feels the pain as this becomes a major source of inflation," said Dong Tao, an economist at Credit Suisse in Hong Kong.

The Chinese government's controls on family size have brought down annual population growth to below 1 percent and the rate is projected to start falling in coming decades.

"Top leaders should listen less to a bureaucracy that was created to control population and has its own political agenda and mandate," said Wang of the Brookings Institute.

Still, President Hu Jintao said on Wednesday that China would continue to "uphold and perfect reproductive policies (to) earnestly stabilize a low birth rate," Xinhua news agency reported.

ADJUSTMENTS AHEAD?

Ma did not announce any policy changes, but he hinted that the census results could lead to adjustments. China, he said, would have to "actively respond to the new challenges in demographic development."

The report showed that 49.7 percent of China's population lived in urban areas by 2010, up from 36.1 percent in 2000, although the previous census used a different counting method.

By 2010, 261.4 million Chinese were counted as "migrants," meaning they were residing outside of their home villages, towns or cities. Most of them are farmers from the poor inland who have moved to cities and coastal industrial zones to find work.

This was one of the surprises in the census data, said Wang.

"Given the rapid increase in migration in the 1990s you would expect the migrant stream would slow down, but in fact the opposite is happening. Think about it -- one in six Chinese are on the move away from home."

Factbox: China's 2010 Census

Source: Reuters

(Reuters) - China released its 2010 census results on Thursday, the first comprehensive review of the country's demographics in a decade.

Population experts have been warning that China could face potentially disastrous social and economic problems as the population ages and the number of Chinese of working age shrinks.

The following compares some key facts from the 2010 census with results of the 2000 census.

TOTAL POPULATION

* The 2010 census puts mainland China's (not including Hong Kong and Macau or Taiwan) total population at 1.34 billion, an increase of 5.84 percent from 2000.

* That's a sharply slower rate of growth than the 2000 census showed. China's 2000 census put the country's total population at 1.265 billion, a rise of 11.7 percent over the 1990 figure.

* The annual growth rate was 0.57 percent in the decade to 2010, compared with 1.07 percent in 1991-2000.

* The total population including Hong Kong, Macau and Taiwan in 2010 was 1,370,536,875. The report did not say how census-takers had compiled the data for Taiwan, which is a self-ruled island over which Beijing claims control.

* The government says 10 million workers were involved in conducting the census -- a figure similar to the previous census in 2000. Earlier reports had said the number of census workers this time was 6 million but it is not clear which categories of workers are covered by the different figures.

AGE OF THE POPULATION

* In 2010, 16.60 percent of the population was 14 or younger, a sharp decline from 22.89 percent in 2000.

* The old-age population continued to increase as a proportion of the whole, with citizens aged 60 or more accounting for 13.26 percent, 2.93 percentage points higher than in 2000.

* In 2010, 8.87 percent were 65 or older, compared with 6.96 percent in 2000 and 5.57 percent in 1990.

FLOATING POPULATION

* The 2010 census marks the first time China counted migrant workers based on where they lived and worked, not the location of their national household registration, or hukou.

* In 2010, 221.4 million people had left the locality of their registered address for more than six months. That represented a rise of 100.36 million -- or 82.89 percent -- over the 2000 figure.

* Calculating China's "floating population" hampered census workers in 2000, but experts estimated that the country had about 200 million migrant workers at the time.

GENDER RATIO

* China had 105.20 males for every 100 females, with females accounting for 48.73 percent of the total.

* In 2000, China had 106.74 males to every 100 females. Experts said this disparity was due to China's family planning policies, which encouraged under-reporting of female births and the practice of self-selective abortion after the sex of a child was determined using an ultrasound.

URBAN VERSUS RURAL

* Nearly half of the population -- 49.7 percent live in urban areas, showing a rapidly urbanizing China.

* In 2000, 36.09 percent of Chinese lived in cities, an increase of 9.86 percent points over the figure from the 1990 census. That figure used a different counting method than the 2010 census, however, which counts migrant workers living in cities.

GEOGRAPHICAL DISTRIBUTION

* The 2010 census showed the population of the eastern region grew to 37.98 percent from 35.57 percent in 2000. The other regions -- central, western and northeastern China -- all saw their populations decline as a percentage of China's total population.

* Since 2000, the decline in western China was the fastest, falling 1.11 percentage points.

* No information was given about which provinces were included in which regions.

* The top five provinces remained the same, but Guangdong jumped into first place, leap-frogging Shandong and Henan, which were the second and first most populous in 2010.

TOTAL FERTILITY RATE

* No data has been provided yet for the fertility rate in 2010.

* China's fertility rate, which stood at four births per mother in 1970, was 1.82 in 2000.

MINORITY POPULATION

* China's 55 registered ethnic groups, aside from the majority Han Chinese, accounted for 8.49 percent of the population, up from 8.41 percent in 2000.

* The average annual growth of the minority population was 0.67 percent, compared with 0.11 percent in the Han majority.

ILLITERACY AND EDUCATION

* In 2010, the number of people with a university education was 8,930 per 100,000, almost 2.5 times more than in 2000, when it stood at 3,611.

* In 2010, the illiteracy rate of people 15 years of age or older was 4.08 percent.

* China's illiteracy rate was 6.72 percent in 2000, and 15.88 percent in 1990.

China Economic Growth Faces Risks From Property ‘Shocks,’ World Bank Says

Source: Bloomberg News

April 28 (Bloomberg) --China’s real-estate market is a “particular source of risk” to growth given the importance of property construction to the world’s second-biggest economy, the World Bank said.

“Shocks to the property sector that would slow down construction significantly could have a large impact on the economy and on bank balance sheets,” the Washington-based lender said in its China Quarterly Update released in Beijing today. “A property downturn could affect the finances of local governments which do a lot of the infrastructure investment.”

Regulators told China’s banks last week to conduct more stress tests on their real-estate lending as the government steps up efforts to curb surging housing prices. A potential rise in bad debts on property loans and credit to local government financing vehicles risks triggering another state- funded bailout, Fitch Ratings said this month.

“With tension between the underlying upward housing price pressure and the policy objective to contain price rises, interaction between the market and policy measures could lead to a more abrupt than planned downturn in the real-estate market,” according to the report.

The bank today lifted its growth forecast for the world’s fastest-growing major economy to 9.3 percent this year from a 9 percent forecast made last month due to faster-than-expected growth in the first quarter. It also raised its inflation estimate to 5 percent from 4.7 percent.

Commodity-Price Shocks

“It is too early to stop the macro tightening”, the bank said. While food-price gains appear to have peaked, and its inflation forecasts “are not particularly worrying, the risks, including from further global commodity price shocks, call for vigilance,” according to the report.

Currency appreciation would help the government curb increases in prices by easing pressure from imported inflation, World Bank economists said today. Consumer-price inflation has exceeded government targets every month since July.

Yuan appreciation is a “pretty direct tool” and should be part of a broader arsenal to combat inflation, Ardo Hansson, the World Bank’s lead economist for China, said at a briefing in Beijing today.

Record Yuan

“The theoretical case and empirical evidence of the role of the exchange rate in these kinds of matters is so overwhelming that it shouldn’t really be an issue of debate,” said Louis Kuijs, the bank’s Beijing-based senior economist said at the same briefing.

The yuan rose to the strongest level in 17 years, touching 6.5015 per dollar in Shanghai today, according to the China Foreign Exchange Trade System.

The government should allow interest rates to play a larger role in macroeconomic policies to cut reliance on quantitative measures, such as lending quotas and reserve ratio requirements, the bank said in its report.

Property companies including Poly Real Estate Group Co., the nation’s second-largest developer by market value, declined in Shanghai trading today amid the fifth straight daily drop in the benchmark index on speculation the government will increase interest rates. The Shanghai Composite Index closed 1.3 percent lower at 2,887.04.

Housing Curbs

Premier Wen Jiabao has ordered local governments to cap gains in new-home prices after curbs on mortgage lending, higher down payments and limits on purchases failed to stem increases. The government is studying rules to control developers’ profits to keep prices at a reasonable level, the China News Service reported yesterday. China also plans to build 36 million units of social housing over the next five years.

Growth in the prices of new homes slowed in Beijing and Shanghai in March, a statistics bureau report showed last week, as the government intensified property curbs. Of the 70 cities monitored in the survey, 67 posted gains, down from 68 in the first two months, the report showed.

Real estate “is not a sector that can be fine-tuned as easily,” Hansson said. The industry has been subject to many policy actions and there will be “long, variable lags” for the effects of government measures to become fully apparent.

The World Bank cut its projection for China’s current account surplus to 3.6 percent of gross domestic product this year, from its November prediction of 5.3 percent, citing higher commodity prices that affect the country’s trade pattern “substantially.”

China’s foreign-currency reserves rose by $197 billion in the first quarter, the second-highest on record, boosting its total holdings to more than $3 trillion even as the nation reported a trade deficit in the Jan. to March period.

The gains “don’t suggest large hot money inflows” because capital controls make it “not easy to bring into China dozens of billions of dollars”, Kuijs said. The increase is more likely related to some “ad-hoc” bank transactions or increased offshore settlement of trade in yuan, he said.

PetroChina’s Oil, Gas Production to Boost Profit, Offset Refining Losses

Source: Bloomberg News

PetroChina Co., Asia’s biggest company by market value, will benefit from higher oil and gas production this year as government controls on diesel and gasoline prices lead to refining losses, analysts said.

The Beijing-based company said yesterday first-quarter profit rose 14 percent from a year earlier to 37 billion yuan ($5.7 billion). The earnings missed the median forecast of 38.4 billion yuan in a Bloomberg survey of five analysts, after fuel price increases lagged behind crude oil costs.

“The upstream business is the real driver for PetroChina earnings, and it will have a better year than 2010,” Neil Beveridge, a Hong Kong-based senior oil-and-gas analyst at brokerage Sanford C. Bernstein & Co. Inc., said by phone. “PetroChina really was hurt by refining losses.”

Refining losses reached 6.1 billion yuan in the first three months after the government raised fuel prices by less than 6 percent while New York crude averaged 20 percent higher from a year earlier. That was offset by increased production of oil and natural gas, which is set to rise after PetroChina made its biggest overseas acquisition.

The shares fell 3.1 percent to HK$11.24 in Hong Kong trading today, while the Hang Seng Index dropped 0.4 percent. The stock is up 25 percent in the past year, compared with the 14 percent gain in the benchmark. PetroChina’s Shanghai-listed shares were unchanged at 11.68 yuan.

Cnooc Shares

Shares in rival Cnooc Ltd. (883), which doesn’t have refining operations, declined 2 percent to HK$19.20 in Hong Kong. The company said yesterday first-quarter revenue rose 59 percent to 48.5 billion yuan. It didn’t report profit.

Net income at PetroChina may climb 20 percent to 166.9 billion yuan in 2011, according to a mean estimate of 17 analysts compiled by Bloomberg.

The government is allowed to adjust oil-product prices when crude costs change more than 4 percent over 22 working days. China last raised gasoline and diesel prices by as much as 5.8 percent on April 7, its second increase this year, after crude hit a 30-month high.

Exploration and production accounted for 78 percent of PetroChina’s 2010 operating income and refining and marketing had a 12 percent share.

Chinese Demand

First-quarter crude output rose 4.3 percent from a year earlier to 219 million barrels and natural gas production climbed 7.1 percent to 639.3 billion cubic feet, PetroChina said in its earnings statement.

Oil refining gained 16 percent to 250.1 million barrels in the first quarter. PetroChina is planning to increase fuel output to meet demand from farmers and help supply the world’s biggest car market.

China’s economy expanded 9.7 percent in the first three months, beating a median forecast in a Bloomberg survey of economists for growth of 9.4 percent. The country’s fuel demand may rise 8 percent this year, the National Energy Administration said on April 22.

PetroChina has spent $9.2 billion since the start of last year on assets. In February, the company bought a C$5.4 billion ($5.7 billion) share of Encana Corp.’s gas assets in British Columbia and Alberta in its largest overseas acquisition.

The Chinese energy producer wants half its oil and gas output to come from overseas by 2020, Chairman Jiang Jiemin said in an interview last year. Less than a 10th of production now comes from abroad.

PetroChina was overtaken by Apple Inc. as the world’s most valuable company after Exxon Mobil Corp. last year.

Capital Buffers Shrink at China Banks

Source: Wall Street Journal  By Dinny McMahon

BEIJING—China's largest banks posted stronger-than-expected first-quarter earnings, but the size of their buffer against a potential spike in bad loans was revised downward after the regulator pushed them to account more conservatively for loans they made during a two-year lending binge.

Industrial & Commercial Bank of China Ltd.'s capital-adequacy ratio—the amount of capital that banks hold against the perceived risk of their assets— saw the biggest drop, falling 0.5 percentage point, and wiping out much of the bump it got from the almost 70 billion yuan ($10.8 billion) worth of capital it raised from a convertible-bond sale and rights issue last year.

China's banks sold tens of billions of dollars worth of equity and debt last year in an effort to restore their capital levels, after making 18 trillion yuan in new loans over 2009 and 2010.

A large chunk of that lending—the mainstay of the government's stimulus—went to local government-backed companies that were set up to fund infrastructure projects. But given that infrastructure projects typically don't generate revenue for years if at all, Beijing has started to worry about the scope for local governments to make good on the debt.

The banking regulator has since pushed banks to hold more capital against these loans based on the extent to which the projects' cash flows or collateral from the local government covers them.

This is a "one-off impact as Chinese banks adjusted the risk weighting of [local government financing-vehicle loans]," said Lucy Feng, a Hong Kong-based Nomura banking analyst. "But this has [now] been fully reflected in" the first-quarter disclosures.

ICBC's capital-adequacy ratio stood at 11.77% at the end of March, down from 12.27% at the end of last year and only a shade above the minimum 11.5% mandated by the banking regulator. It was at 11.57% at the end of the third quarter before the bank embarked on its rights issue and bond sale.

Agricultural Bank of China Ltd. said its capital-adequacy ratio fell to 11.40% from 11.59% at the end of last year. AgBank has plans to raise its capital level by selling 30 billion yuan worth of subordinated bonds in the near future, despite raking in $22.1 billion last year from its initial public offering.

Still, analysts said the latest results don't show signs of the banks' loan quality deteriorating, although government tightening moves in the housing market and government-led infrastructure development will eventually reverse the past decade's trend of improving loan performance.

Meanwhile, bank profits continued to grow strongly, although at a slower pace than last year, suggesting Beijing's moves to cool the economy are having an impact.

ICBC, China's largest bank by assets, said its net profit for the three months ended March 31 rose 29% from a year earlier to 53.79 billion yuan, higher than the average forecast of 51.69 billion yuan by five analysts.

At Bank of China Ltd., the country's third-largest bank, net income rose 28% to 33.44 billion yuan, above the 31.32 billion yuan forecast by analysts.

Net profit at China Construction Bank Corp., the second largest of China's banks, rose 34% to 47.19 billion yuan in the first quarter.

However, ICBC's first-quarter earnings gain lagged behind its 32% net-profit rise during the fourth quarter, and Bank of China's growth slowed from 34%.

On Wednesday, AgBank, China's fourth-largest bank, also reported forecast-beating earnings gains. But its 36% rise in first-quarter earnings was lower than its fourth-quarter growth of 83%.

China Construction Bank was the exception; its profit growth in the first quarter was faster than the 18% rise in the previous quarter.

"I expect the profit growth of the whole banking sector to slow this year, as the government's monetary tightening reduces the supply of credit," said Li Shanshan, a banking analyst at Bocom International in Beijing.

Beijing has repeatedly raised interest rates and the banks' reserve requirement ratio in recent months in an effort to rein in inflation, which in March rose 5.4% from a year earlier, its fastest rate in almost three years. While banks can charge more for their loans given the tighter credit conditions, the sharp reduction in lending growth has curbed profit growth, analysts said.

ICBC Profit Rises More-Than-Expected 29% on Banking Fees

Source: Bloomberg News

Industrial & Commercial Bank of China (601398) Ltd., the world’s most profitable lender, said first- quarter earnings rose 29 percent as the country’s economic growth spurred lending and fee income.

Net income climbed to 53.8 billion yuan ($8.3 billion), or 0.15 yuan a share, from 41.5 billion yuan, or 0.12 yuan, a year earlier, the Beijing-based company said in a statement today. That exceeded the 51.1 billion yuan median estimate of eight analysts surveyed by Bloomberg News.

Chinese banks led by ICBC are countering a slowdown in credit growth by charging more for corporate and home loans after the central bank raised interest rates four times since October and reduced the money available for lending to curb inflation. The banks are on course for 20 percent growth in profits in 2011 and 2012, according to Goldman Sachs Group Inc.

ICBC’s net interest income, which reflects the difference in revenue from lending and the cost of deposits, rose 25 percent to 85.4 billion yuan in the first quarter. Net fee and commission income from products and services such as credit cards, wealth management and insurance sales rose 42 percent to 25.9 billion yuan in the year, according to the statement.

Have You Heard

• Q+A: China's human rights record and the China-U.S. dialogue
• China Seeks Bigger Role in Australia Economy
• China risks getting old before it gets rich
• Special report: Does corporate America kowtow to China?
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Q+A: China's human rights record and the China-U.S. dialogue

Source: Reuters | photo: CCTV By Chris Buckley

BEIJING (Reuters) - Human rights is one of the most contentious issues in U.S.-China ties and the two powers are holding a two-day dialogue in Beijing about the issue, where Washington has said it will speak strongly about Beijing's crackdown on dissent.

Here are some questions and answers about Chinese human rights, the dialogue and U.S. policy.

WHY IS HUMAN RIGHTS SUCH A CONTENTIOUS ISSUE?

The United States has a tradition of pressing other states, especially communist states, about their restrictions on citizens' political, legal and religious rights.

Communist Party-ruled China has been a focus of such criticism from the White House, Congress and U.S. groups, especially since 1989, when the Chinese army crushed student-led protests for democracy centered on Beijing's Tiananmen Square.

In the United States, China's rights record can galvanize conservatives and liberals, religious groups, lawyers, and trade unionists, making for potent coalitions.

China has long rejected U.S. criticism as meddling and Cold War-style subversion. It has also honed counter-arguments: that the United States is hypocritical, that China is committed to its own version of human rights, and that providing basic subsistence and economic development takes priority over individual political rights.

The resulting friction can be volatile as U.S. criticisms overlap with worries about Chinese trade policies, mutual distrust over military intentions, and Chinese fears Washington is bent on overturning Communist Party rule.

WHAT ARE SOME OF THE CRITICISMS THAT CHINA FACES?

The United States, other Western governments, and human rights advocates in China and abroad have repeatedly criticized Beijing for a range of restrictions on citizens:

-- China's detention and jailing of dissidents and human rights advocates, often using sweeping state security laws and secretive Communist Party-run courts to punish critics.

Dozens of rights lawyers and activists have been arrested, detained or placed in secretive informal custody since February, when party fears of contagion from anti-authoritarian uprisings across the Arab world triggered a crackdown by China's domestic security apparatus.

-- Re-education-through-labor camps. This imprisonment system is used to hold people for up to three years, or four years on extension, without trial or easy means to appeal.

Labor-reeducation allows police to sidestep courts and critics say the system violates international rules and China's own laws. The camps hold tens of thousands of people accused of prostitution, illegal drug use, theft and other offences, and also dissidents and protesters.

-- Tibet and Xinjiang. Beijing faces international criticism that it is repressing religion and legitimate political demands in these two western regions with large ethnic minority populations who feel little affinity with the rest of China.

-- The United States has urged China to lift restrictions on Christian, Muslim and other religious groups. China says it respects citizens' right to worship, but it also demands that they accept party oversight and limits.

Groups, such as a Protestant "house" church in Beijing that has recently challenged those limits and sought a permanent place of worship, risk detention or arrest.

WHAT IS THE HUMAN RIGHTS DIALOGUE?

The United States, like a number of other Western governments, holds annual talks with China over human rights issues and it hopes the annual dialogue can be a way to influence Beijing.

But the U.S.-China talks have been stop-start. China and the United States resumed the dialogue in 2010 after Beijing refused to attend in 2009, reflecting anger over Washington's policies.

The talks were frozen from 2004 to 2008 over Chinese fury at the United States for sponsoring a resolution at the U.N. Human Rights Commission criticizing Beijing.

WHAT APPROACH HAS THE OBAMA ADMINISTRATION TAKEN?

Human rights have long jostled with other issues for attention when U.S. presidents meet their Chinese counterparts.

With China's growing economic and diplomatic clout, the agenda has even become more crowded and some critics have said the rights issue has been neglected under Obama.

U.S. Secretary of State Hillary Clinton became a target for such criticism in 2009, after she said discussing China's human rights should not interfere with cooperation over the financial crisis, climate change and security threats.

The Obama administration has since openly criticized China for detentions of dissidents, policies in Tibet and other contentious issues, and officials have also argued that sometimes quiet diplomacy can be more effective than public condemnation.

In January, President Barack Obama held a summit with his Chinese counterpart Hu Jintao and raised rights issues.

Obama not commented extensively in public on China's crackdown, however, perhaps calculating that turning the volume of public criticism up would simply harden Beijing's unyielding position.

China Seeks Bigger Role in Australia Economy

Source: Wall Street Journal By Dinny McMahon

BEIJING—China aspires to play a greater role in Australia's economy, one of the country's top leaders said Tuesday, signaling Beijing's aspirations for its companies to make inroads beyond simply extracting resources.

Speaking alongside Australian Prime Minister Julia Gillard at an Australia-China business forum in Beijing, Vice Premier Li Keqiang said Chinese companies could play an important role in the construction of Australian infrastructure, and that energy and resource cooperation between the two countries needs to go beyond "buying and selling" and involve more research and development, and investment.

China's state-owned firms have been expanding aggressively overseas in recent years, snapping up mining and energy resources around the globe to help fuel the country's breakneck economic growth.

Its construction companies and equipment manufacturers also have built up a presence overseas, predominantly in developing countries where, backed by cheap funding from Chinese banks, they are building much needed infrastructure in record time.

China now appears to be eyeing developed markets, where many countries also urgently need new infrastructure, but where the quality of Chinese workmanship is often regarded as suspect.

"We would encourage capable and responsible Chinese companies to take part in Australia's" construction sector, said Mr. Li, seemingly addressing such concerns. He said areas where Chinese concerns could play a role include port and rail construction, the Australian government's planned rollout of a national broadband network and postdisaster reconstruction. Australia suffered major cyclone and flood damage earlier this year.

Australia also is in dire need of key transport infrastructure, with the existing network unable to cope with the rapid increase in export demand for the country's mineral resources.

In the 2010 financial year, Australia exported 46.55 billion Australian dollars (US$48.6 billion) of goods to China, more than nine times the amount a decade ago. Iron ore makes up more than half of that figure and is up more than 25 times in the decade.

Ms. Gillard said she discussed infrastructure development in Australia during her meeting with Chinese Premier Wen Jiabao earlierin the day.

Chinese construction firms have already started testing the waters in developed economies. Huawei Technologies Co. and ZTE Corp., China's flagship telecommunication-hardware companies, have blazed a trail, with Huawei already having a significant presence in Australia.

Still, overseas investment hasn't always been smooth sailing. U.S. concerns about Huawei's military background and opaque corporate governance have made it difficult to break into that market. In Australia, domestic political opposition to a wave of Chinese investment emerged in 2009. Australians remain uneasy, with a poll by the Sydney-based Lowy Institute for International Policy showing 57% of respondents think the government has been allowing too much Chinese investment into the country.

In his speech, Mr. Li. called for an "open and nondiscriminatory [policy] for all China's companies investing in Australia, including state-owned enterprises."

Despite Australia's need for infrastructure, China's involvement in the sector may still face some roadblocks. Chinese construction companies operating in the developing world often bring in their own labor, causing tension in the local communities in which they operate.

Speaking earlier in the day at the same forum, Shen Heting, vice president of China Metallurgical Group Corp., one of the country's major mining companies, said he would like it to be easier for skilled Chinese workers in the construction sector to be granted visas to work in Australia.

"I'd like to call on the Australian government to reverse the English requirement for skilled workers from China," he said.

Mr. Shen said that Western Australia's Pilbara region, the epicenter of Australia's iron-ore boom is in dire need of labor, and Chinese workers would require less than the high wages being offered to attract employees to one of Australia'remote areas.

Asked whether Australia would contemplate making it easier for Chinese workers to go to Australia, Ms. Gillard said on Wednesday "I think we've got the visa settings right." She added: "We will never countenance people coming to work in Australia and being paid less than Australian terms and conditions."

China risks getting old before it gets rich

Source: Reuters By Sui-Lee Wee

BEIJING (Reuters) - The harsh logic of China's one-child policy is starting to unravel, and census data to be released on Thursday may well stoke debate whether the aging nation should relax restrictions.

Demographers worry that without change, China will become the first country in the world to age before it gets rich.

Once seen as key to averting a Malthusian disaster of over-population, China's choke on family size to usually one child in cities and two in the countryside now threatens its economic future, many demographers say, with fewer people left to pay and care for an increasingly grey population.

They say maintaining that policy is a mistake with profound implications for the world's second-largest economy.

"China is on a downhill demographic vehicle in terms of low fertility and rapid aging," said Wang Feng, director of the Brookings-Tsinghua Center for Public Policy, who specializes in China's demographics.

"By continuing the one-child policy, the effect is to step on the gas pedal. It's a vehicle that's going downhill and you're making it go faster. That makes no sense."

Chinese demographers, and even members of the Communist Party-run parliament, have called for looser restrictions. Those wanting change may seize on the data, when China reveals the main findings of its 2010 census, the last since 2000.

Still, experts say the government will be reluctant to abolish the policy, as anxious as ever about feeding its people who account for around one-fifth of the world's population.

President Hu Jintao said on Wednesday that China would continue to "uphold and perfect reproductive policies (to) earnestly stabilize a low birth rate", Xinhua news agency reported, implying no great changes to the one-child ethos.

Proponents argue that smaller families -- using less resources and with more to spend on the children they do have -- was crucial to economic success and will remain so.

"China will not adjust current family-planning policies, and has not studied making adjustments to those current policies," an official from the country's family planning authority said last year, according to a report from Xinhua.

"NO CHOICE"

For now, the one-child policy remains a key plank of government thinking, and its enforcement can be brutal.

Just 24 days after she gave birth to her first child, local government officials dragged Li Hongmei from her bed, bundled her into a car and forced her to be sterilized.

"I didn't agree, but there was no choice," the 24-year-old Li told Reuters by telephone. "They said if I didn't do it, they will take my husband away for a long period of time."

The officials told Li, from Hefei in eastern Anhui province, that because her husband had a daughter from a previous marriage her household had hit the quota of two children.

Her circumstances are echoed by thousands of other women in China, whose family planning law began in 1979 to limit births in the world's most populous nation.

The 2010 census numbers could show China has 1.41 billion people, compared to 1.27 billion in the 2000 count.

It is also expected to show a shrinking number of young people, growth in the number of elderly and the fastest urbanization in Chinese history, according to demographers.

FEWER YOUNG

Since the last national census in 2000, a pool of millions of young workers has powered China's roaring export sector, catapulting it to the world's fastest-growing major economy.

That pool is drying up. Wang said the median age of the Chinese population is now 34 years old. He estimates that by 2050, half the population will be 50 or older, assuming the fertility rate is 1.6.

That will place enormous strain on the country's finances and could threaten the underpinnings of the economy, which needs a young populace to drive consumption.

The population dependency ratio, the proportion of those too young or old to work, is seen rising for the first time after falling for over 40 years, while the ratio of those aged 15-59 is predicted to peak and then slowly start to fall.

When about 25 percent of the population hits 60 years and above, their level of per capita income will be, at best, only a third of the level of Western aging countries, said Wang.

PENSIONS

And in China, the transition will happen in three decades, compared to Europe, which has aged gradually over the past 100 years, said Du Peng, deputy director at the Center for Population and Development Studies at Renmin University.

Economists say the government is ill-prepared.

"At the moment, the biggest problem is that there is no comprehensive social security coverage," said Wang Xiaolu, an economist at the China Development Research Foundation. "There is a large number of people not covered by social security."

Special report: Does corporate America kowtow to China?

Source: Reuters  By Nick Carey and James B. Kelleher

SHEBOYGAN, Wisc. (Reuters) - China's rise as a manufacturing power has benefited American factory owners in at least one way.

The Middle Kingdom's insatiable appetite for second-hand machinery means that small U.S. businesses can make a quick buck by selling old equipment there.

For some American manufacturers, however, the idea of shipping even used stuff with no book value to their chief overseas rival is anathema.

Many of the machines at Bob Chesebro's factory in this Wisconsin city on the shores of Lake Michigan do something seemingly mundane: they sew the toes of the socks he makes closed. In China that is still often done by hand -- a labor-intensive task that other developing countries will eventually do more cheaply as Chinese wages rise.

Chesebro, chief executive and third-generation owner of Wigwam Mills Inc, one of America's few remaining sock makers, refuses to surrender his edge. His equipment ends its days as scrap metal in a dumpster behind his plant.

"We have taken the view that if we sell these machines we're just going to put them in the hands of people who will compete against us," he said.

In several ways, Wigwam defies the conventional wisdom of today's global market. It has managed to succeed making a relatively high-volume, low-cost commodity product, employing hundreds of workers right here in the United States. It has done so by boosting its productivity and developing niche products like hiking and medical socks in-house.

Given the savage nature of the competition you might expect Chesebro to vent mainly against Chinese-style capitalism. But like dozens of manufacturers and others across America interviewed for this story, his anger isn't directed at China, which he and others say is doing what it deems as necessary to boost its own people's prosperity. Instead, their ire is aimed at the U.S. government and American multinationals for not stepping up to the plate and defending long-term U.S. interests.

"I don't blame the Chinese, they're just pursuing their national interest," said Patrick Mulloy, a member of the Congressional U.S.-China Economic and Security Review Commission. "I blame us for not realizing what's happening to us and for doing nothing about it."

Prior to China's accession to the World Trade Organization almost a decade ago, free trade proponents argued that the move would create American jobs and eliminate the country's trade deficit. Neither prediction has proven accurate.

The U.S. trade shortfall with China hit a record high $273 billion last year and government data shows some 40 percent of factories with more than 250 employees closed down from 2001 to 2010.

While it can't all be laid at China's door, it is not a coincidence that after decades of more gradual decline, U.S. manufacturing took a nose dive after China's entry into the WTO.

Cheap labor is one huge advantage for China, of course. But numerous academics, former trade officials and labor union officials say predatory trade practices, subsidized exports and other controversial economic policies also make Chinese companies tough to compete against.

And they warn that unless the U.S. works out a way to bolster and promote the sector, future prosperity and America's superpower status will eventually be at risk. This is only underlined by the U.S. economy's fragile state, with the jobless rate at 8.8 percent, growth tepid, and a huge government budget deficit and debt burden.

Even China's rising production costs may present an increasing threat, they argue. It means that China will be less able to rely on being the cheap maker of textiles, toys, furniture and plastics to create jobs -- some of that production is increasingly going to go to places like Bangladesh and Vietnam.

Instead, Beijing is increasingly focused on moving up the chain to higher valued technology-based goods -- which puts it in direct competition with the remaining power base of the U.S. manufacturing sector. And the technology-transfer terms that many big American companies are agreeing to when they do deals in China, and the research centers they are opening up there, means they could in some cases be signing their own death warrants.

Peter Navarro, a professor of economics and public policy at the University of California, who correctly predicted the U.S. housing bust, predicts that the crash America faces if it neglects manufacturing for too long is "going to be far worse."

"Over time the problems Americans are seeing with their economy are only going to get worse as China rises," he said. "We're heading for a collision and the longer that collision is delayed the harder it's going to be."

CHINA INC VERSUS JAPAN INC

Still, free trade proponents have warned repeatedly that any protectionist measures would result in a costly trade war that neither side can win. They also argue that the United States has only itself to blame for its economic problems.

In an interview at the Hilton Chicago during Chinese President Hu Jintao's visit to the city earlier this year, Doug Oberhelman, CEO of heavy equipment maker Caterpillar Inc, which has 11 Caterpillar plants and R&D centers and some 15 percent of its workforce in China, acknowledged there would always be "frictions" between the two countries.

"But the fact is ... we need each other desperately," he said. "We need peace."

Local manufacturers, though, say the first shots have been fired, and they question whether the g multinationals are wrongly pursuing a policy of appeasement.

They complain that Chinese companies benefit from a raft of subsidies -- from what they see as an undervalued yuan currency, to artificially cheap or even free land in some cases, low-interest loans and even subsidized energy bills -- and the U.S. government and major companies say or do little in response.

"We're in the middle of an economic war with China," said Milton Magnus, president of Leeds, Alabama-based M&B Hangers, America's last maker of metal coat hangers, who also destroys his old machines, which are designed and built in-house. "The Chinese want what we have and we're just sitting back and giving it to them."

But it isn't just a war over cheaper products like coat hangers and socks.

Mounting evidence also suggests China is appropriating proprietary technology from Western firms and then using it to compete directly in ever more advanced fields.

The Chinese government has also been accused by foreign businessmen of changing the rules at home to favor local manufacturers for government contracts over foreign competitors.

Small manufacturers say they have increased productivity to compete. Wigwam's Chesebro says he has not replaced staff who retired or moved on over the years, reducing headcount to about 260 from 500 over the past two decades and his machines are now far more efficient. But small manufacturers insist labor costs are not relevant when in many cases heavily-subsidized goods from China have been sold in America for below what the local manufacturers pay for raw materials.

"Labor costs have nothing to do with it," said Bill Upton, president of Pelham, Alabama-based Vulcan Threaded Products Inc. Vulcan makes steel bars and rods for everything from air conditioning units to sprinkler systems, is the last American firm of its kind, and won a trade case against Chinese competitors in 2008.

"We have a lean, efficient operation and we can compete against anyone in the world on a level playing field. But there's no way we can compete against finished goods that cost less than the raw materials," Upton said.

Even when American manufacturers do successfully pursue cases alleging unfair competition they may not come out on top. A case can cost around $1 million in legal fees, and often takes more than a year plus a lot of management time that could be spent more productively. And they claim even after penalties have been imposed, Chinese competitors often merely circumvent customs duties and other barriers by trans-shipping goods through third countries.

Still, free trade proponents point to the example of "Japan Inc" in the 1980s -- when there were fears that Japan's rise as a manufacturer threatened future American prosperity -- as evidence that concerns over foreign competition can be overblown.

Yet a key difference between "Japan Inc" in the 1980s and "China Inc" is that Japan discouraged foreign investment, whereas China has embraced it.

Back then, some key U.S. multinationals made a great deal of noise in public, and in the U.S. Congress, about unfair Japanese trading practices. Their interests were aligned with the smaller domestic manufacturers.

But today, multinationals profit hugely from China and have less incentive to rock the boat. Only last week, Yum Brands Inc, the owner of the KFC, Pizza Hut and Taco Bell fast food restaurants, reported its operating profit was 75 percent greater in China than in the U.S. in the first quarter.

"The big difference is that no one made any money off Japan Inc," said Diane Swonk, chief economist at Mesirow Financial. "But some people are making a lot of money off China Inc."

SILENCE OF THE CEOS

Big American companies with investments in China are afraid to criticize Beijing because of the controls it has over just about any access to the Chinese market. They fear too strident a stance could mean they will lose contracts or even be ostracized as Google Inc was after a dispute with China over censorship and hacking.

"The Chinese government controls all the levers of the economy, from import and export licenses on up," said Victor Shih, an assistant professor of politics at Northwestern University. "There are so many ways for the Chinese government to retaliate it is no surprise businesses are so reluctant to criticize it."

But multinationals and their CEOs have a great deal of influence on debate in Washington and more widely in the country. They have often lobbied aggressively against any measures they deem protectionist, so their relative silence is seen by many smaller manufacturers and others as weakening the U.S. in its trade relationship with China.

"The issue today is that the firms hurting the most are not as politically connected as the firms that are benefiting the most," Mesirow's Swonk said.

There are no easy answers to America's predicament, for either the administration of U.S. President Barack Obama or the businesses that have bet heavily on China.

The WTO, for instance, ruled on March 11 that the United States could not levy extra duties on Chinese goods that the American government had described as subsidized and unfairly priced.

But such difficulties are not a reason for multinationals to roll over easily in the face of Chinese demands, say critics of their behavior.

Critics and academics warn that multinationals trading technology for market access have frequently found themselves a few years later losing out in export markets to Chinese competitors who were formerly their partners.

"The companies that hand over proprietary technology do so in the hope that they'll be the ones to get the better end of the bargain," said Eswar Prasad, a trade policy professor at Cornell University and a senior fellow at the Brookings Institution. "But so far the Chinese have come out ahead in most cases. Hope springs eternal, but it's a very dangerous bargain to make."

The handing over of proprietary technology also raises questions about the impact on U.S. national security, especially in trying to keep the Chinese military from being belligerent toward American allies in the Asia-Pacific region.

In a recent RAND Corp report "Ready for Takeoff: China's Advancing Aerospace Industry," the authors stated there is "no question... that foreign involvement in China's aviation manufacturing industry is contributing to the development of China's military aerospace capabilities."

This contribution, the report later states is "increasing China's ability and possibly its propensity to use force in ways that negatively affect U.S. interests and would increase the costs of resisting attempts to use such force."

Another risk to not talking more openly and directly about America's China problem is that it leaves the field open to extreme rhetoric and populist politics.

A solid majority of Americans in opinion polls say they view China as an economic threat and if America's dysfunctional relationship with the country is not addressed more openly, some fear it could prompt a marked protectionist swing in American politics.

"It would be better to deal with issues like the undervalued renminbi more directly and openly," said Menzie Chinn, a professor of public affairs and economics at the University of Wisconsin. "I am concerned that if these problems are allowed to fester for too long, voters will force Congress into an open trade war. And that would be bad for everybody."

For instance, real estate tycoon Donald Trump has been playing the China card as he considers whether to seek nomination as the 2012 Republican presidential candidate, and his support in polls has been rising.

In recent months the garrulous star of NBC's reality show "The Apprentice" has referred to the Chinese in various national television interviews as "enemies" and "abusers" and says that he "would love a trade war with China." He told Reuters he would put a 25 percent tax on all goods from China.

"Saying China is the enemy may sound like an extreme opinion, but it can become a mainstream opinion if uttered in public often enough," said Steven Schier, a politics professor at Carleton College in Minnesota.

GREAT EXPECTATIONS

It is all a far cry from where things were back in 2000. The debate in the U.S. Congress on normalizing trade relations with China -- a step that would help China join the WTO -- saw lawmakers, lobby groups and businesses line up to stress that increased trade with China would be a win-win situation for Americans.

"Opening China's markets to U.S. products and services... is the biggest single step we can take to reduce America's growing trade deficit with China," said Robert Kapp, then president of the U.S.-China Business Council and now a consultant for companies seeking to do business with China, at the time. "We're not talking about a 'gift' for China ... we're talking about bringing home the bacon."

The bacon may have arrived in the form of the profits American companies have been able to make in China but it certainly hasn't for the American workforce.

According to the U.S. Bureau of Labor Statistics (BLS), the number of U.S. manufacturing jobs fell by a third to 8.1 million from 12.2 million during the past decade -- more jobs lost than in the previous two decades combined. BLS data also show that from the first quarter of 2001 to the first quarter of 2010, a full 39 percent of U.S. manufacturing plants with more than 250 employees closed.

Chinese membership of the WTO has been a disaster for local manufacturers, says Charles Blum, president of trade consulting firm International Advisory Services Group Ltd and an official at the Office of the U.S. Trade Representative under President Ronald Reagan.

"It doesn't really matter how small your manufacturing operation is, the sector is systematically being hollowed out," he said. "We figured the global market would take care of itself and that as a result the United States would turn out to be the winner. But it hasn't quite worked out that way."

Small businesses have traditionally been the backbone of America's economy, providing at least half the jobs, hiring more quickly when a recovery begins after a recession, and accounting for many more patents per employee than large firms.

Henry "Hank" Nothhaft, a serial entrepreneur and currently CEO of Tessera Technologies Inc, which specializes in miniaturization technologies for electronic devices, says most innovation occurs on the factory floor, so he worries that American innovation will slide with the erosion of the country's manufacturing base.

"If the manufacturing ecosystem goes, then innovation and engineering go with it," he said. "This means that future innovation is going to occur over in China and not here in the United States."

CHINA CHANGES COURSE

Meanwhile, the Chinese, if anything, have been getting more demanding.

Some business leaders and academics have noticed that the Chinese government's industrial strategy became more aggressive from 2006 onwards.

New rules "seek to appropriate technology from foreign multinationals" in key industries like avionics, power generation and high-speed rail, according to a December 2010 article for the Harvard Business Review called "China vs the World," by academics Thomas Hout and Pankaj Ghemawat.

"These rules limit investment by foreign companies as well as their access to China's markets, stipulate a high degree of local content in equipment produced in the country, and force the transfer of proprietary technologies from foreign companies to their joint ventures with China's state-owned enterprises. The new regulations are complex and ever changing."

Distracted by the financial crisis in 2008 and 2009, governments and multinationals have only really become aware of this shift in Chinese policy over the past year or so, Hout, a former partner at the Boston Consulting Group, said in a telephone interview.

"The Chinese have managed to time this beautifully," he said. "Even people like myself who have really been paying attention were caught out and it's only been clear for the past year or so what's going on."

A growing number of Western firms who thought they were getting a good deal by trading technology for access to China's market have also belatedly found out that they were mistaken.

In 2004 and 2005, China set up partnerships with Kawasaki Heavy Industries, France's Alstom, Germany's Siemens and Canada's Bombardier to build high-speed trains for China.

At first Kawasaki exported finished trains, then the group of foreign companies subcontracted the production of basic components to Chinese train manufacturer Sifang and then assembled them in China.

Then in 2009 the government began requiring that prospective bidders for Chinese high-speed rail projects form minority joint ventures with state-run manufacturers and hand over their latest designs and that 70 percent of the equipment had to be produced locally.

While aware of the flow of technology to the Chinese side, Kawasaki saw its joint venture as an opportunity to gain access to China, which was rapidly expanding its high-speed rail network. China has been by a long way the world's largest market for new rail lines in recent years.

Now, Chinese companies build faster, cheaper trains than their former mentors make and compete against them in global markets. Kawasaki has complained that trains built by Sifang are based on its own technology. Similarly, Siemens was elbowed aside by its erstwhile partner, the China National Railway Signal and Communication Corp, when it came to constructing the high-profile Beijing-Shanghai high-speed link.

Other times, technology is pilfered. Glen Tellock, CEO of crane maker Manitowoc, says that while American companies find intellectual property theft a major problem, "the answer from the Chinese is always 'what's the harm?'"

In "China vs the World," Hout and Ghemawat write that Chinese firms have "come to dominate the global silicon-wafer-panel business, aided by low-cost financing and inexpensive land sales."

Local governments provide companies with land cheaply or even free. Chinese firms are provided land grants in excess of what they need, so they build apartment buildings on the land, which then pays for research costs and offsets start-up losses. State-owned banks provide Chinese firms with loans at below prevailing interest rates and sometimes local governments pay the interest on their behalf.

Hout and Ghemawat also examine the solar panel industry, an area that the Obama administration has championed as a way to create "green" jobs for the future.

But Chinese competition pushed solar panel prices down 50 percent in 2010 from 2009, hurting Western manufacturers. China now exports most of its solar panels and Chinese firms control half of the German market and a third of the U.S. market.

China's Suntech Power Holdings Co Ltd is the world's largest solar panel maker. while Yingli Green Energy and JA Solar Holdings Co Ltd are also major competitors in the industry.

Hout says China is now seeking to catch up with Western firms in the aviation and power generation industries.

"NOT NAIVE OR STUPID"

In January, General Electric Co. announced a joint venture with Aviation Industry Corporation of China (AVIC) to develop electronics for the C919, a single-aisle commercial jetliner. That raised concerns that GE runs the risk of creating Chinese competitors through the proprietary technology it will provide as part of that joint venture.

"Multinationals are a little too optimistic about how much they can control the technology transfer process," the Brookings Institution's Prasad said. "The Chinese are very keen to build up their aviation industry and they've made it very clear what they want from GE to make that happen."

In a January 19 interview with Reuters, CEO Jeff Immelt, who also heads Obama's jobs council, insisted the company was "not naive or stupid" about doing business in China. "We really do think a lot about it," he said. "There is a multitude of ways to succeed in China. It's going to be the biggest economy in the world. The only question is when."

This tone differed markedly from comments Immelt made in July last year at a private dinner in Rome -- remarks that caused him no little trouble. "I really worry about China," he told a group of executives, as reported by the Financial Times. "I am not sure that in the end they want any of us to win, or any of us to be successful."

GE initially contested the FT report then changed tack when a spokesman said Immelt's remarks "do not represent our views."

Behind the scenes there does appear to be mounting worry among U.S. multinationals over Chinese policy. A report commissioned by the U.S. Chamber of Commerce ("China's Drive for 'Indigenous Innovation': A Web of Industrial Policies") examines a Chinese plan for science and technology from 2006 to 2020 that is "considered by many international technology companies to be a blueprint for technology theft on a scale the world has never seen before."

"Indigenous innovation" refers to a Chinese government policy designed, among other things, to favor Chinese firms for state contracts and require technology transfer if Western companies want to participate.

"With these indigenous innovation industrial policies, it is very clear that China has switched from defense to offense," the chamber report said.

During his state visit here in January, China's Hu said the country would ease up on the program. The U.S. government has since publicly stated China needs to make good on that promise, though so far it is not clear that anything has yet changed.

What has also not changed is how keen American multinationals are to get into China, even if there are long-term concerns over the conditions attached to doing business there. And their willingness to keep silent about things they do not like.

Ralph Gomory, a research professor at New York University's Stern School of Business who worked for IBM for three decades, said the problem for U.S. multinationals is that the focus on short-term profit easily outweighs long-term worries.

"The Chinese are exploiting our weaknesses," he said. "They see the strength of America as the strength of our corporations and that the driver is profit. So they have merely said bring your plant over here and we'll make sure you make a big profit."

It means that shareholders of the American multinationals like Caterpillar may be doing well in the short term -- after all its share price has doubled in less than a year largely on demand from China and other emerging markets. However, middle class Americans have not seen the benefits in terms of jobs created or wages increased.

When asked about GE's recently announced Chinese avionics joint venture and how he would look at it if he held GE shares, the Brookings Institution's Prasad said, "If I had GE shares in my 401(k) that I intended to hold for the next 20 years, I would be very worried," he said. "But if I was just holding them for short-term gain I wouldn't be concerned. And I suspect that's also how people inside GE look at it."

CHINESE EXCEPTIONALISM

For their part, the Chinese tend to view technology transfer as being fair trade for access to its growing manufacturing base and its potential as a consumer market of 1.3 billion people.

"The Chinese response is typically that multinationals have come to China because it has a huge market," Northwestern's Shih said. "The Chinese say that in doing so 'you have implicitly signed up for technology transfer as the price of entry to that market.'"

Criticism of subsidies also tends to fall flat as the Chinese point to subsidies for key industries and the farming sector in Europe and the U.S. as proof that they are not alone in supporting their own interests.

Rejection of Chinese bids for a number of American companies on national security grounds, including California oil company Unocal, have also allowed Beijing to allege that Washington has protectionist policies. (For a special report on a U.S.-China M&A Cold War, click here: link.reuters.com/tub98r )

Certainly there is a sense that after many years of humiliation at the hands of foreign nations -- in particular in the 19th century when China was forced, in the words of the late British economist Angus Maddison, to cede a "welter of colonial enclaves" -- that the Chinese are merely returning to their place as a top power.

Just as many in the United States believe in "American exceptionalism," or the idea that the country is inherently superior to the rest of the world, the Chinese see a return to the top as their destiny.

"The Chinese feel they are returning to the level they were at 500 years ago and that it's where they belong," said Eamonn Fingleton, a writer who has been following China since the 1980s. "China sees no reason why it should not be the world's number one power."

And there are those in the United States who say that rather than fear competition from China, America should embrace and welcome it because the country's rise has been accompanied by cheap consumer goods that have kept a lid on inflation.

"The Chinese are going to move up the supply chain but they are not a threat to us," said Dan Griswold, who specializes in trade at the Cato Institute, a conservative think tank. "China merely wants to regain its rightful place among the leading economies of the world."

FEW EASY PATHS

But there are a growing number of groups that seek to address what they say is America's China problem, and they are bringing together manufacturers, agricultural groups, labor unions and even the occasional local chamber of commerce.

"We believe in free but fair trade," said Tony Paglia, vice president for government affairs at the Youngstown/Warren Regional Chamber of Commerce in northeastern Ohio, of the chamber's backing for proposed legislation that would impose duties on goods from countries that manipulated their currencies. "All we want is a level playing field for our members."

As well as handing over technology, multinationals like GE and Caterpillar have increasingly moved research and development to China, and experts like Hout worry that will cause America to lose its innovative edge.

"I'm afraid that they've managed to lure us into a bit of a trap," Hout said. "The Chinese are merely using a much older playbook and are holding our multinationals hostage."

Although American spending on R&D ($402 billion in 2010) is quadruple China's ($103 billion), Hout and Ghemawat estimate that at current growth levels China will catch up with U.S. spending by 2020. Factoring in what they estimate could be a 40 percent undervaluation for the yuan, they estimate that spending parity will come by 2016.

The real problem for America is that it has few easy alternatives when it comes to solving its Chinese puzzle and leveling that field.

Pressuring the Chinese government to allow the yuan to revalue seems a straightforward solution, for example, and is one that U.S. administrations have been suggesting for some time. Economists say a substantial revaluation would make a sizable dent in the U.S. trade and current account deficits.

But there would be a downside as well as positive consequences for Corporate America.

The large number of U.S. multinationals producing goods in China for export means that any significant appreciation would hurt their profits, said Sunil Chopra, a professor at Northwestern University's Kellogg School of Management.

One politically sensitive consequence of an appreciation of the yuan could also come in the form of higher prices for consumers at retail stores, which would hurt poorer people hardest. "We get a major rise in import prices from China, who does it hurt the most?" Mesirow's Swonk asked. "People who shop at Walmart and Target."

Hout said that although the Obama administration has been more vocal about problem issues with China than his predecessor George W. Bush, America needs to take far bolder action.

"The United States is so wedded to the multinational processes of the WTO, which take forever and provide only rifle shot results," he said. "We've got all this stuff fleeing the United States and we've been very inactive when it comes to playing hardball."

"The obvious reaction would be to rely on reciprocity," he added. "If the Chinese insist that American firms have to form joint ventures in China and have to adhere to local content requirements, then the U.S. government should enact requirements for Chinese firms wishing to ship goods here that they must do likewise. But we've seen nothing from the U.S. government."

GETTING TOUGH

Others recommend getting tougher with China in the same way President Reagan got tough with Japan at times, by being willing to impose more customs duties or file more cases through bodies like the WTO.

Reagan, with the backing of his Commerce Secretary Malcolm Baldrige and a number of CEOs angry over Japanese trade policy, was unafraid to impose duties on Japanese goods. Reagan also brokered a semiconductor trade agreement with Japan that prevented the dumping of Japanese semiconductors on the U.S. market.

"They (Reagan and Baldrige) were the most activist leaders for a long time in defending U.S. manufacturing and took action necessary to do so," said Gil Kaplan, an international trade lawyer who worked in the Reagan administration. "They realized that we need a manufacturing sector in the United States."

Kaplan said that although proponents of free trade fear a trade war with China would be inevitable if the U.S. government took a tougher line on unfair subsidies, "we need to demonstrate that we are not afraid to take action."

"We do have to act now," he said. "At some point in time we're going to reach a tipping point where we won't be able to come back. In some industries so much of the supply chain has gone that it's going to be difficult to come back."

Kaplan and others say the government's actions do not necessarily have to be limited to taking action against the Chinese, but could take the form of greater support for American manufacturers.

A common practice in developed nations, for instance, is to have a Value Added Tax that provides manufacturers with tax rebates as an added incentive to export goods.

"We don't just have to focus on the negative," said Tessera's Nothhaft. "We can find ways to support our own companies and make the playing field a little more level."

For many local manufacturers, the lack of a real public debate is discouraging to say the least. They feel disenfranchised, outgunned and outmaneuvered by the influential U.S. multinationals who argue for more free trade while small manufacturers want fair trade as well.

"The politicians in Washington don't represent you and me, they represent the special interests who pay their bills," said Richard Gill, president of Polyfab Corp, a plastic molding company in Sheboygan County, Wisconsin. "Our decline is not inevitable. We can still turn this around. But things are going to get a lot worse if we don't do the right things to stop it."

Carleton College's Schier said "increased middle-class radicalism" shown by the power of the conservative Tea Party movement will likely be followed by increased radicalism in general as more voters are hurt by the decline of manufacturing and the lack of jobs more than two years after the height of the financial crisis.

"America's political elite would rather not give the debate much oxygen because they haven't come up with any real solutions," Schier said. "But the majority of the public has a sense there's something very wrong with our relations with China."

"It's a prescription for chronic instability," he said. "You can't build a long-term working majority in a situation like this. Voters are going to zig and zag and we'll likely see backlash after backlash."