China to invest $375 billion on energy conservation, pollution: paper


China plans to invest 2.3 trillion yuan ($375 billion) in energy saving and emission-reduction projects in the five years through 2015 to clean up its environment, the China Daily newspaper reported on Wednesday, citing a senior government official.

The plan, which has been approved by the State Council, is on top of a 1.85 trillion yuan investment in the renewable energy sector, underscoring the government’s concerns about addressing a key source of social discontent.

China has set a target of reducing its carbon emissions per unit of GDP by 40-45 percent by 2020 from the 2005 level, and raising non-fossil energy consumption to 15 percent of its energy mix, Xie Zhenhua, deputy director of the National Development and Reform Commission (NDRC), was quoted as saying.

As part of broader plans to curb pollution, the government will also roll out tiered power pricing for eight energy intensive industries, while sectors that struggle with overcapacity will face higher power tariffs, Xie said.

The government will also gradually expand a carbon trading pilot program to more cities starting from 2015, with the aim of creating a national market, he said.

Seven cities and provinces, including Shanghai, were ordered by the NDRC in late 2011 to set up regional carbon trading markets.

Source: Reuters “China to invest $375 billion on energy conservation, pollution: paper”


Column: China’s Domesday debt survey


Like William the Conquerer before him, Premier Li Kequing is initiating his own Domesday survey in China, and this time the attempt to curb local abuses of power will have global economic consequences.

China’s State Council, chaired by Premier Li, has ordered the National Audit Office to begin auditing what could total $2 trillion or $3 trillion of debt taken on by local governments.

The Audit Office will suspend other work and give all staff “crash” training so that auditors can begin fanning out across the country this week, according to a report by the state-run People’s Daily.

The clear implication is that China is seeking to rein in local governments, which have helped along what is clearly a boom and may be a bubble by borrowing and spending freely on local development. For China, this will act as another brake on already slowing growth. For the rest of the world, it means less demand, especially for the kinds of raw materials and energy which go into real estate development and infrastructure.

William ordered the 1086 “Domesday Book” census of property, so called because it was said to be as thorough and wide-reaching as the final judgement, shortly after the Norman conquest of England in order to nail down who owned what and who might have usurped something belonging to the crown he now possessed. Premier Li, who assumed office in March, has a related but different problem. Despite laws against it, local governments have taken on huge debts, an amount estimated by the last audit at about $1.75 trillion at the end of 2010.

Analysts believe that has grown substantially since then, leading to growing concern about the country’s overall debt profile. While the IMF has estimated China’s total government borrowing to be a bit less than 50 percent of annual GDP (as compared to about 100 percent in the U.S.) local government debt has grown faster, and pays a higher rate of interest, than forms of borrowing more tightly controlled by the central government.

Of particular interest is a story in China Business News, citing an unnamed source, which said China had decided that it should cap its fiscal deficit at 3 percent of GDP, well below the 5 percent or more many economists estimate it may now be. To do that would likely require quite a savage cutting back on local government debt, or for central government to content itself with a smaller piece of the pie and all the diminished opportunities for reward, control and influence that implies.

THE HAND AUDITS ITS FINGERS

Taking a step back, the most surprising thing about this whole story is that a government, much less one in a single-party state, needs an audit to know how much its constituent parts have borrowed. Little wonder ratings agencies have expressed concern about the debt practices.

But the relationship between local and central government in China is complicated, and, in fact, local authorities have exercised much discretion in directing development, and, despite rules to the contrary, contracted much debt to fund it.

Because rural land in China is held, in essence, collectively, there is a huge and profitable opportunity for local governments in re-badging rural land as urban or industrial, paying off its occupiers, and selling rights or leases on for development. So-called Local Government Financing Vehicles are set up to do an end-run around prohibitions on local debt and allow governments to borrow the money needed to fund both development and the infrastructure it requires.

Much of this development has arguably been of low quality in recent years, producing extra manufacturing capacity which may not be needed and apartments to meet speculative demand. China clearly needs to transition to a model in which it depends less on investment and more on consumption, and reining in helter-skelter local development is as good a place to start as any.

That said, a crackdown on local borrowing will have large repercussions. As the U.S. demonstrated in the last decade, borrowing and spending money to dig holes in the ground and put up buildings is a great way to give the appearance of strong economic growth. Limit that and growth goes down with it, though perhaps the growth you get is more stable. Estimates of the likely run-rate of Chinese growth have been dropping sharply, and this will only exacerbate this trend.

Like everything in China today, what happens there matters everywhere. The big and easy-to-pick losers are the commodities and energy used in developing infrastructure, and those countries, such as Australia, which produce them.

This won’t be quite doomsday, but as one more piece of evidence that China is aiming for higher quality, if slower, growth, the local debt audit is a big story.

(James Saft is a Reuters columnist. The opinions expressed are his own)

Related posts:

  •  Debt crisis looms in Jiangsu Province dated July 27
  • China orders nationwide government debt audit dated July 29

China underwhelms with salvo to slim bloated industry


A worker wearing protective glasses welds steel products at a heavy equipment manufacturing factory in Luoyang, Henan province May 1, 2013.  Credit: Reuters/China Daily

A worker wearing protective glasses welds steel products at a heavy equipment manufacturing factory in Luoyang, Henan province May 1, 2013.
Credit: Reuters/China Daily

China’s edict to more than 1,900 companies to shut excess production capacity by September is the latest effort to slim down bloated industries, but in the key steel, aluminum and cement sectors the cuts are just a fraction of their surpluses.
Broader efforts, including credit curbs, raising environmental standards and energy efficiency will help slow the expansion of these sectors, but Beijing’s push towards industry consolidation will be slow to materialize, analysts said.

Premier Li Keqiang has vowed to curb overcapacity as part of efforts to shift the economy away from investment in heavy industries, a move that could dampen its appetite for raw material imports such as iron ore, coal, copper and bauxite.

China is the world’s biggest producer of steel, aluminum and cement.

Beijing’s latest orders suggest less than 1 percent of steel and aluminum production capacity will shut by September, which analysts said will still leave a significant surplus. In cement, the shutdown will cover about 3 percent of production capacity, also only denting the excess.

“Many of these plants that have overcapacity problems have actually idled their production line for a while,” said Raymond Yeung, an economist with ANZ Banking Group. “So the actual impact of the cut on the rebalancing of supply will be pretty mild.”

China has ordered about 7 million metric tons of excess steel output to be shut in a sector that the China steel association says has surplus capacity amounting to 300 million metric tons.

It has ordered 260,000 metric tons of excess aluminum output to be shut when smelting capacity is 27 million metric tons and demand is about 21 million metric tons.

Many smelters ordered to shut were already running at production rates as low as 20 percent and the impact of the shutdowns will be offset by some 2 million metric tons of new projects due to start by the end of 2013, analysts said.

China has said 92 million metric tons of excess cement production must be phased out. Capacity is now about 3 billion metric tons a year and demand is 2.2 billion metric tons.

“The expansion of aluminum smelting plants happening in the western regions like Xinjiang will have a cheaper production cost and that will again hit domestic prices further,” said Liao Zhenyuan, an analyst at Minmetals Futures.

In base metals, China also plans to phase out 654,400 metric tons of copper production capacity.

The nonferrous metals association estimates there was more than 7 million metric tons of idle capacity last year and production capacity is expected to reach 40 million metric tons by 2015.

SLOW CONSOLIDATION

More broadly, analysts have said that for now Li will avoid radical macro reforms out of concern it could weigh too heavily on growth in the world’s second-biggest economy.

Beijing’s previous efforts to rein in “blind expansion” in some sectors have been thwarted by local governments that have offered cheap land, tax deductions, subsidies and loans to attract investment, the People’s Daily said on Tuesday, citing a spokesman for Ministry of Industry and Information Technology.

Of the 18 million metric tons of aluminum capacity added in recent years, only 800,000 metric tons were approved by the central government, the paper reported, adding that China also has 800 million metric tons of unapproved cement capacity.

In a sign of Beijing’s resolve to fix the problem, the State Council has talked about limiting credit and blocking approval of new projects. New and existing projects must include stricter rules on environmental protection and power consumption.

It has already issued tougher standards for the aluminum sector and similar rules are expected for steel, cement and other industries.

“Beijing is finally getting its message across that there will be no stimulus to help them this time, so there’s a wider recognition from these sectors that they need to restructure,” said Andrew Driscoll, a resource analyst with CLSA-Asia Pacific.

“But these industries tend to be big employers and have heavy debts, and the local governments also have vested interests to keep them alive. This will make the consolidation a very slow process.”

Source: Reuters “China underwhelms with salvo to slim bloated industry”


Analysis: China risks following Japan into economic coma


A salesperson, dressed as the Chinese god of fortune, hands out leaflets for a jewellery shop at a shopping district in Beijing July 26, 2013.  Credit: REUTERS/Kim Kyung-Hoon

A salesperson, dressed as the Chinese god of fortune, hands out leaflets for a jewellery shop at a shopping district in Beijing July 26, 2013.
Credit: REUTERS/Kim Kyung-Hoon

After decades of emulating Japan’s export-driven economic miracle, China appears in danger of following it into the same kind of economic coma that Japan is trying to wake up from 20 years later.

China is struggling to wean itself off a habit picked up from its more advanced neighbor: relying for growth on exports and credit-fuelled investment. That has left its economy lopsided, economists say, with massive over investment in property and industries rapidly losing their cost advantage, from mining and electronics to cars and textiles. Wages are rising, the return on investments falling.

With growth slipping, China’s President Xi Jinping and Premier Li Keqiang seem determined to avoid a U.S.-style financial crisis, complete with widespread bankruptcies and job losses.

Preventing such a crisis though could embalm diseased sectors, stifling efforts to make growth more sustainable and instead create the kind of “zombie” banks and companies that sucked the life out of Japan’s economy, economists say.

Add a population graying faster than Japan’s did, and economists worry China may be attempting the impossible.

“There is a huge amount of denial. People think that demographics don’t matter,” said Chetan Ahya, chief Asia economist at Morgan Stanley in Hong Kong. “I’m worried about the deflationary risk.”

Deflation may seem unlikely in an economy still growing at a 7.5 percent clip and where consumer prices are rising 2.7 percent a year. But economists warn that China in many ways resembles Japan in 1989, two years before its crash.

Like Japan, China relied on banks to funnel investment into export industries to create jobs and finance development. In return, interest rates were regulated to ensure banks a healthy profit. Because the most profitable loans were those to the least-risky borrowers, banks concentrated their lending on big state-owned companies.

As Japan did in the 1980s, China tried to remedy this by partially liberalizing the financial sector, creating new avenues of finance, a bond market and other non-bank lending. But as in Japan, this encouraged banks to lend more, not more wisely, helping fuel a property bubble. Things got worse in 2009, when China launched a 4 trillion yuan, credit-powered stimulus to ward off the global crisis.

While Japan saw credit expand from 127 percent of GDP to 176 percent between 1980 and 1990, China’s credit rose from 105 percent in 2000 to 187 percent of GDP last year, JPMorgan Chase in Hong Kong says.

CREDIT RISKS

China’s problem now is that each yuan of new investment is yielding a diminishing amount of new GDP. The slowdown is already creating signs of deflationary pressure: producer prices have been falling for 16 months and Morgan Stanley notes that real borrowing costs of 8.7 percent are outpacing the sector’s growth.

One risk, therefore, is that China’s reforms push growth low enough to trigger a wave of defaults that shakes the entire financial system.

“It’s very important to slow down the growth of credit,” said Grace Ng, senior China economist at J.P. Morgan in Hong Kong. “But if we slow and de-leverage too much you could have too much downside risk on the real economy.”

The bigger risk, she and others caution, is that to avoid social unrest Beijing refuses to tolerate such pain, instead encouraging banks to keep troubled borrowers afloat by rolling over their loans like Japan’s banks did in the 1990s, preventing them from lending to profitable new ventures that could revive growth.

Beijing’s recent efforts to blunt the slowdown are thus drawing mixed reviews. Last week’s announcement by Premier Li that Beijing would cut taxes on small businesses and red tape for importers is seen as welcome restructuring, while boosting credit for foreign trade and speeding up railway investment smacks of mini-bailouts.

Likewise, some economists saw the central bank’s move this month to eliminate a floor on lending rates as a positive step towards making banks price loans according to their risk. Others saw Japan-style “regulatory forbearance,” a way to help banks refinance loans for their best customers so they can pass the savings to needier borrowers of their own.

“Since profit margins will be cut, banks will try to increase lending volumes by reducing their credit standard,” said Wataru Takahashi, a former Bank of Japan official who is now a professor at the Osaka University of Economics. “This is the story of the Japanese banks in the late-1980s.”

JAPAN COULD OFFER SOLUTION TOO

Some economists caution against exaggerating the similarities. “Comparing it to Japan in the 1990s is a little bit too much,” said Changyong Rhee, chief economist at the Asian Development Bank in Manila.

China’s lower development, Rhee and others say, gives it a reservoir of demand that affluent Japan did not have. China’s poor, inland provinces do not suffer from overcapacity and it will not take long before China needs the infrastructure projects that now might look like white elephants.

China’s push to move more citizens into its cities represents another source of growth.

But lower development also makes it harder to weather weak job growth or stagnant wages. And urbanization may not be as potent as it once was: with more than half of China already in the cities, the median age in rural areas is roughly 40, not a demographic prone to relocating for new career opportunities.

Ultimately, it may be demographics that put China most firmly on Japan’s deflationary trail. Thanks to its one-child policy, China’s working age population is already shrinking. That’s what happened to Japan in the 1990s, resulting in lower consumption and sharply lower growth rates.

The solution may lie – where else – in Japan, where the government is fighting deflation with aggressive new policies to lower borrowing costs, by boosting government spending and, though it has implemented few of them yet, by removing bottlenecks to growth.

“Two things are needed to avoid deflation after a credit binge,” said Ahya at Morgan Stanley. “One is good fiscal and monetary response and the second is structural reforms.”

Source: Reuters “Analysis: China risks following Japan into economic coma”


China: New-type Submarine Launched Missile when Deeply Submerged in a Drill


Xinhua reports on July 27, “On July 26, South Sea Fleet of Chinese navy successfully organized a life-ammunition drill under complicated electromagnetic environment focusing on such goals as the drill concerning battle command at sea based on information system, joint long-range attack by various arms of the services, air force combat for control of sky and comprehensive anti-aircraft and anti-missile capability.

“The drill was organized and directed by South Sea Fleet with participation mainly by the new-type main battle troops accompanied by parts of the navies and air forces of the North and East Sea Fleets and some students of navy’s universities and colleges.

“Under strong electromagnetic interference, a certain new-type submarine cruising deep underwater took the lead by launching submarine-launched missiles. Its attack was immediately followed by waves after waves of attack at target vessels on the sea by new-type frigates, missile fast-boats, aircrafts, and land-based missiles. Fighter jets conducted battles for control of the sky to intercept medium-height, high and super low targets under the command and guidance of early warning aircrafts.

“At the stage of comprehensive anti-aircraft and anti-missile combat, under wave after wave of missile attacks from various directions and with various kinds of interference, the fleet of destroyers and frigates and anti-aircraft and anti-missile units responded calmly and intercepted all the attacking missiles. For a time, the sea area of the drill was filled with fires, smoke and thundering explosion.”

The report said that according to the person in charge of naval training, the drill was an annual routine military training drill of the navy under the environment of real war and was successful in attaining expected goals.

Source: Xinhua “South Sea Fleet Drill with New Weapons: New-type Submarine Launched Missiles” (translated from Chinese by Chan Kai Yee)

However, we are mainly interested in the unspecified new-type submarine that is able to launch missiles when deeply submerged in the sea.

Was it the new-type submarine in Sanya that Xi Jinping visited on April 11?

Was it a Type 096 Zhou-class nuclear submarine mentioned in the article that The Mirror monthly will publish in August?

The drill scenario is similar to the one that after a strategic nuclear submarine has launched a submarine-launched strategic missile and exposed its position, lots of enemy warships and aircrafts rush to attack the submarine. All Chinese various arms of the services have to conduct long-range attacks at enemy warships and aircrafts to protect the submarine.

Related post
China Developing Super Quiet and Fast Strategic Nuclear Submarines dated July 26


China orders nationwide government debt audit


China’s National Audit Office will conduct an audit of all government debt at the request of China’s State Council or cabinet, it said in a statement on Sunday, underlining concern over rising debt levels in the world’s second biggest economy.

The audit office, responsible for overseeing state finances, made the announcement in a one-sentence item on its website, but gave no details on the audit.

The official People’s Daily newspaper said separately on its website, citing unidentified sources, that an urgent order for the audit was issued on Friday and work will start this week.

The audit could indicate increased official concern over the systemic risk from rising debt levels in China, especially debt of local governments, as top leaders slow economic growth in order to promote reform.

A local government buckling under the weight of its own debt is a troubling scenario for the leadership, and one that Deutsche Bank has said could potentially pose a systemic and macroeconomic risk to the country.

Standard Chartered, Fitch and Credit Suisse have estimated local government debt in China at the equivalent of anywhere between 15 percent and 36 percent of the country’s output, or as much as $3 trillion based on World Bank GDP figures for 2012.

Vice Finance Minister Zhu Guangyao said earlier this month that the government did not know precisely how much debt local governments had built up.

The audit office warned in a June report that debt levels among local governments are rising and the financial burdens and risks are not being properly managed. It put total debt of a sample of 36 local governments at 3.85 trillion yuan ($628 billion) at the end of 2012.

China’s budget law forbids local governments from taking on debt directly, but they have borrowed heavily through special-purpose vehicles, while many have also borrowed from companies in private arrangements at high cost, with the money often used in speculative real estate projects.

($1 = 6.1316 Chinese yuan)

Source: Reuters “China orders nationwide government debt audit”

Related post:
China: Debt crisis looms in Jiangsu Province dated July 27


EU, China resolve solar dispute – their biggest trade row by far


Workers install a solar panel in Jiuquan, Gansu province, July 14, 2013. Credit: Reuters/Stringer

Workers install a solar panel in Jiuquan, Gansu province, July 14, 2013. Credit: Reuters/Stringer

China and the European Union defused their biggest trade dispute by far on Saturday with a deal to regulate Chinese solar panel imports and avoid a wider war in goods from wine to steel.

After six weeks of talks, the EU’s trade chief and his Chinese counterpart sealed the deal over the telephone, setting a minimum price for panels from China near spot market prices.

European solar panel makers accuse China of benefitting from huge state subsidies, allowing them to dump about 21 billion euros ($28 billion) worth of below-cost solar panels in Europe last year, putting European firms out of business.

Other European industries that have accused China of dumping have faced imports of about 1 billion euros a year.

Europe planned to impose hefty tariffs from August 6 but, wary of offending China’s leaders and losing business in the world’s No. 2 economy, a majority of EU governments – led by Germany – opposed the plan, which led to the compromise deal.

“We found an amicable solution,” EU Trade Commissioner Karel De Gucht said. “I am satisfied with the offer of a price undertaking submitted by China’s solar panel exporters,” he said, referring to the minimum price for China’s imports.

Chinese Commerce Ministry Spokesman Shen Danyang welcomed the deal, hailing a “positive and highly constructive outcome”.

An EU diplomatic source said that in the solar agreement, the agreed price was 0.56 euro cents per watt, near the spot price for Chinese solar panels in July in Europe, according to solar exchange pvXchange.

Under the terms of the deal, China will also be allowed to meet about half Europe’s solar panel demand, if taken at last year’s levels. EU consumption was about 15 gigawatts in 2012, and China will be able to provide 7 gigawatts without being subject to tariffs under the deal, the EU source said.

COURT CHALLENGE

That did not satisfy some EU solar manufacturers who said the minimum import price agreed still constitutes dumping and accused the European Commission of breaking EU law by failing to protect European industry.

European solar panel manufacturer association EU ProSun said it will go to the European Court of Justice in Luxembourg to challenge the deal.

“Even the biggest EU trade conflict ever must still be resolved on the basis of the applicable law,” said EU ProSun’s president, Milan Nitzschke.

However, China has sold solar panels for as little as 0.38 cents a watt, according to the European Commission, which handles trade issues for EU states, and tariffs would also hurt EU panel installers, who benefit from cheaper Chinese panels.

Chinese manufacturers such as U.S.-listed Trina Solar (TSL.N), Yingli Green Energy (YGE.N) and Suntech Power Holdings (STP.N) are among those exporting to Europe.

Chinese solar panel production quadrupled between 2009 and 2011 to more than the world’s entire demand as it took advantage of a growing market for renewable energy in the face of concerns about climate change.

But the global financial crisis and ensuing euro zone crisis have forced European governments to withdraw generous subsidies for solar energy. That, along with Chinese imports pushing down prices, have sent many European solar companies into bankruptcy.

German group Conergy (CGYGk.DE) filed for insolvency this month.

Still, those concerns have become secondary to the much larger EU-China trade relationship at stake over the panels dispute.

Europe is China’s most important trading partner, while for the EU, China is second only to the United   States. Chinese exports of goods to the bloc totaled 290 billion euros last year, with 144 billion going the other way.

Responding to the EU’s move to impose duties, China launched an anti-dumping inquiry into European wine sales, which may have led to exporters in France, as well as Spain and Italy, being hit with retaliatory duties.

EU and Chinese diplomats now expect that case to be dropped as a goodwill gesture, although officials declined to comment on Saturday.

Source: Reuters “EU, China resolve solar dispute – their biggest trade row by far”


China: Debt crisis looms in Jiangsu Province


Workers walk at a demolished quarter at an abandoned steel plant in Wuxi, Jiangsu province September 26, 2012. REUTERS/Aly Song

Workers walk at a demolished quarter at an abandoned steel plant in Wuxi, Jiangsu province September 26, 2012. REUTERS/Aly Song

Migrant workers collect steel for recycling at a demolished quarter at an abandoned steel plant in Wuxi, Jiangsu province September 26, 2012. Credit: REUTERS/Aly Song

Migrant workers collect steel for recycling at a demolished quarter at an abandoned steel plant in Wuxi, Jiangsu province September 26, 2012. Credit: REUTERS/Aly Song

The nightmare scenario for China’s leaders as they try to wean the country off a diet of easy credit and breakneck expansion is a local government buckling under the weight of its own debt. Few provinces fit that bill quite like Jiangsu, home to China’s most indebted local government.

Hefty borrowings through banks, investment trusts and the bond market by Jiangsu’s provincial, city and county governments have saddled the province north of Shanghai with debt far higher than its peers, public records show.

Many of the province’s mainstay industries, including shipbuilding and the manufacturer of solar panels, are drowning in overcapacity. Profits are dwindling, and the government’s tax growth is braking hard.

That leaves Jiangsu vulnerable as President Xi Jinping and Premier Li Keqiang slow the country’s giant economy to push through reforms aimed at reducing its reliance on the massive investment that made the country the factory to the world in favor of more services- and consumption-led growth.

As part of that, Beijing has ordered a clamp down on provincial government borrowing and land sales, the mainstay income for many local administrations. But equally, Beijing expects local governments to absorb much of the cost of downsizing many industries, leaving provinces like Jiangsu caught between a rock and a hard place.

Standard Chartered, Fitch and Credit Suisse have estimated local government debt in China at the equivalent of anywhere between 15 percent and 36 percent of the country’s output, or as much as $3 trillion based on World Bank GDP figures for 2012.

“China’s local government debt, if not better managed, can potentially pose a systemic and macro economic risk to the country,” said Jun Ma, Deutsche Bank’s greater China chief economist.

“This has historic precedents in Brazil where in the three crises of 1989, 1993 and 1999, the root cause was the state government’s excess debt,” he said.

Little public information is available on the total debt of Chinese local governments. Indeed, earlier this month China’s Vice Finance Minister Zhu Guangyao said Beijing did not know the precise level of their debts either.

But from what ratings agencies and think-tanks can piece together, Jiangsu may be the standout debt risk among China’s 31 provinces.

Looking at bank loan books, they can see that China’s eastern provinces including Jiangsu have the highest concentration of government debt. Jiangsu then looms large because of its reliance on costlier and alternative forms of financing, which they said suggested that cheaper bank loans and land sales are not giving the authorities the funding they need.

The risk that Jiangsu might pose to the Chinese economy in a crisis is clear. On its own, the province would be a top 20 global economy with GDP greater than G20 member Turkey. Its 79 million population tops that of most European countries.

Provincial government officials declined to comment for this story.

SIGNS OF STRESS

Some major employers in the province have been pushed to the brink, and – at a time of mounting fiscal pressure on the local government – are seeking bailouts from heavily indebted authorities in order to survive.

Earlier this month, China’s biggest private shipbuilder, China Rongsheng Heavy Industries Group (1101.HK), called on the local government for financial help as it teetered on the financial brink. Media reports said it had laid off 8,000 workers.

Wuxi Suntech, an arm of China’s biggest solar panel maker, earlier this year filed for bankruptcy protection. Sources have said it also hopes for financial assistance from the government of Wuxi, a major Chinese city in the province.

In other signs of stress, Chinese national media have reported that some struggling localities are forcing employees to raise funds for them, setting individual targets as high as 600,000 yuan ($97,800). Unless targets are met, employees are not allowed to work, leading many to turn to relatives and friends for cash.

The government of Binhu district in Wuxi tried to dock civil servants’ wages as it was running out of cash, residents said. The plan was quickly retracted.

Borrowing and selling land to property developers are the only major ways that local governments can raise funds. While charged with developing their local economies, three quarters of the tax revenue they raise goes straight to Beijing.

Residents in Huazhuang Street, a village in Wuxi city area, say the local government did not have enough money to pay them for the houses they demolished to clear land for developers.

“My father had 600 square meters of property but lost 170 square meters,” said Jia Yanfang. “The government told him he has too many houses and refused to pay him.”

As Beijing has clamped down on bank credit for local governments, Jiangsu’s fund raising using alternative financing, or shadow banking, has soared.

Governments in the province accounted for 30 percent of all investment trusts sold in China in 2012, Shenzhen-based data provider Use-Trust said.

Wuxi alone raised 9.2 billion yuan this way, offering investors in its trusts returns of close to 10 percent, well above bank borrowing rates of around 6 percent. The funds were partly used to pay for the demolition of villages to make way for property developments and to build industrial parks.

Governments in Jiangsu sold 343 billion yuan in bonds last year through financing companies, Wind Information Co Ltd, a Chinese data provider, said. That was three times greater than Guangdong, China’s wealthiest province.

Perhaps not surprisingly, Jiangsu has accounted for the lion’s share of the rise in China’s bad debts. A central bank official was quoted in Chinese media last month saying Jiangsu made up 40 percent of the increase in the first five months of 2013.

“The market would welcome some controlled defaults to check the moral hazard but I am not sure if the Chinese government is ready to do that,” said Sean Keane, managing director of Triple T Consulting, which provides policy advice to central banks and regulators.

Jiangsu also appears to be anticipating more debt problems. It approved a plan in April to set up a bank for bad debt, the first such regional bank of its type in China.

By most standards, Jiangsu’s economy is growing strongly. But it is also slowing down quickly leaving many factory production lines idle.

Its GDP growth braked to about 10 percent last year from 15 percent five years earlier. The provincial government’s fiscal revenues rose almost 14 percent in 2012, but that was a sharp slowdown from more than 42 percent in 2007.

In the southern part of Wuxi, where several steel trading firms and warehouses are located, some workers say business has never been so slow.

“There are many companies with no cash,” said Eva Chen, who works at a distributor for one of China’s state steel makers. “If they have no cash, we don’t give them the goods. Our focus right now is to grab sales and grab cash.”

Source: Reuters “Is China’s debt nightmare a province called Jiangsu?”


China Developing Super Quiet and Fast Strategic Nuclear Submarines


A Chinese submarine on the ocean surface. (credit: AsiaNews)

A Chinese submarine on the ocean surface. (credit: AsiaNews)

Washington Times carries Bill Gertz’s post on July 23 titled “China deploys new class of strategic missile submarine next year” at The Washington Free Beacon, saying that US defense officials expect that China will “begin the first sea patrols next year of a new class missile submarine”.

What it meant was China’s second-generation Type 094 Jin-class strategic nuclear submarine carrying 12 JL-2 submarine-launched ballistic missiles (SLBMs) with a range of 7,000 km.

The next day, Hong Kong’s pro-Beijing The Mirror monthly revealed to Taiwan’s Central News Agency in haste an article it was going to publish in its next issue, giving some shocking information about China’s strategic nuclear submarines.

The Mirror’s report by Liang Tianren reveals that the Jin-class submarine is China’s second-generation strategic nuclear submarine. Along with it, there is China’s second-generation Shang-class nuclear attack submarine.

After China’s success in producing two Type 094 Jin-class and two Type 093 Shang-class submarines, according to the report, “China began development of its third-generation nuclear submarines, i.e. Type 095 Sui-class attack nuclear submarines and Type 096 Zhou-class strategic nuclear submarines and began producing them in 2007. The existence of the third-generation submarines is an undeniable fact.

“It is said that the Zhou-class ballistic missile strategic nuclear submarine has strong ability to break out of island chains alone. The number of ICBMs it carries has risen to 16 from 12 for Xia-class and Jin-class submarines. Each submarine can carry 160 separately guided nuclear warheads.

“The report says that China has now begun development of its fourth-generation nuclear submarines in conformance with its policy of ‘completing the earlier generation, building the present generation and researching in advance into the next generation’

“According to briefing by relevant people, the fourth-generation nuclear submarines are revolutionary submarines. They adopt unprecedented method of propelling by magnetic liquid without screw propeller. It is free of tail and horizontal rudders and possibly has not even a surrounding shell. Therefore, it generates no mechanical or cruise noise at all and will be a real ocean black hole.

“It is reported that the fourth-generation submarines under development has a speed of 100 knots in theory, quicker than all high-speed torpedoes ‘let alone being hit by them.’”

Source: Taiwan’s Central News Agency “Hong Kong media: Mainland is developing fourth-generation submarines” (translated from Chinese by Chan Kai Yee).

The above report is quite different from Washington Free Beacon’s post. China’s official media mil.huanqiu.com says in its report on Free Beacon’s post on July 25 titled “US media: China’s Type 094 nuclear submarine is expected to begin ocean patrol carrying JL-2 missiles”, “Official Information published by the United States is not very accurate while that from Free Beacon is even more unreliable.”

The following is the full text of Washington Times report:

Red tide: China deploys new class of strategic missile submarines next year

By Bill Gertz – The Washington Free Beacon

Tuesday, July 23, 2013

China’s navy is expected to begin the first sea patrols next year of a new class of strategic missile submarines, highlighting a new and growing missile threat to the U.S. homeland, according to U.S. defense officials.

“We are anticipating that combat patrols of submarines carrying the new JL-2 submarine-launched ballistic missile will begin next year,” said one official familiar with recent intelligence assessments of the Chinese strategic submarine force.

China’s strategic missile submarine force currently includes three new Type 094 missile submarines each built with 12 missile launch tubes.

The submarine patrols will include scores of new JL-2 submarine-launched ballistic missiles (SLBMs) on the Type 094s. The submarines are also called Jin-class missile boats by the Pentagon.

The missile submarine patrols, if carried out in 2014, would be the first time China conducts submarine operations involving nuclear-tipped missiles far from Chinese shores despite having a small missile submarine force since the late 1980s.

The Washington Free Beacon first reported in August that China carried out a rare flight test that month of the JL-2, a missile analysts say will likely be equipped with multiple warheads.

That test was carried out in the BohaiSea near the northeastern coast of China, according to officials familiar with reports of the test.

Defense officials said the JL-2 poses a “potential first strike” nuclear missile threat to the United States and is one of four new types of long-range missiles in China’s growing strategic nuclear arsenal.

The Air Force National Air and SpaceIntelligenceCenter earlier this month published a report on missile threats that identified the JL-2 a weapon that “will, for the first time, allow Chinese SSBNs to target portions of the United States from operating areas located near the Chinese coast.” SSBN is a military acronym for nuclear missile submarine.

The Pentagon’s most recent annual report on China’s military stated that Beijing’s Navy has placed a high priority on building up submarine forces.

In addition to the three Type 094s currently deployed, China will add at least two more of the submarines before deploying a new generation missile submarine dubbed the Type 096, the report stated. It was the first time the Pentagon has revealed the existence of the follow-on strategic missile submarine.

“The JIN-class and the JL-2 will give the PLA Navy its first credible sea-based nuclear deterrent,” the Pentagon report said.

Chief of Naval Operations Adm. Jonathan Greenert told Congress in May that he was not worried by the Chinese naval buildup, including the new missile submarines, but that it is a development that needs to be watched.

Greenert boasted during a House defense appropriations subcommittee hearing that “we own the undersea domain.”

The Chinese navy is “not there yet” in terms of undersea power despite deploying a current force of 55 submarines, both diesel and nuclear powered, Greenert said.

“I would just say that I’m vigilant,” he said in response to questions about the Chinese submarine buildup. “I would hate to say that I’m worried, yet, because I’m not necessarily worried. Very vigilant and we need to pay attention and understand the intent. And challenge them on that intent.”

David Helvey, deputy assistant defense secretary for East Asia, told reporters in May that the Chinese are investing heavily in undersea warfare programs and submarines.

Still, the Chinese have not yet conducted an underwater test firing of a submarine-launched missile, Helvey said. “We see China investing considerably in capabilities for operations in this area,” he said.

A 2008 report produced for the U.S.-China Economic and Security Review Commission said there are indications China is planning to deploy an anti-satellite missile on its missile submarines.

That missile includes the last stage of a ground-launched “direct-ascent” ASAT missile on top of a JL-2. The commission report quoted a 2004 article by Liu Huanyu of the DalianNavalAcademy as saying “by deploying just a few anti-satellite [missile] nuclear submarines in the ocean, one can seriously threaten the entire military space system of the enemy.”

Mark Stokes, a Chinese military affairs analyst, said the first Chinese ballistic missile submarine patrols next year would not be surprising.

“The most significant question is which organization controls, stores, and ensures the readiness of the nuclear warheads that ostensibly would be mated with the SLBMs on patrol,” said Stokes, with the Project 2049 Institute.

China maintains tight secrecy over its nuclear forces, such as how many are deployed, how they are controlled and stored, over fears that any public discussion would undermine their deterrent value.

“The [Central Military Commission] has traditionally entrusted only the Second Artillery Corps with centralized control over nuclear weapons,” Stokes said. “The CMC granting the PLA Navy the power to develop and maintain its own independent infrastructure for warhead storage and handling would be a significant departure from past. This kind of decentralization would have implications well beyond the navy.”

Richard Fisher, an expert on Chinese military affairs, said the commencement of missile submarine patrols would fulfill the ambitions of Chinese Communist Party leaders since Mao Zedong in the early 1960s.

“With three Type 094 SSBNs now called ‘operational’ by the Pentagon, it is possible that one Type 094 could be maintained on constant patrol,” said Fisher, with the International Assessment and Strategy Center.

“Three Chinese SSBNs versus 14 for the U.S. Navy may not seem to be cause for concern, but if one assumes the JL-2 has a 8,000-kilometer (about 5,000 miles) range akin to its closely related DF-31 ICBM, then the Type 094 could handily cover critical Alaskan air and missile defense bases from protected areas in the Yellow Sea, and from the eastern coast of North Korea, could cover the U.S. Navy’s SSBN base at Kitsap Island in Washington state,” he said.

Fisher warned that Obama administration plans to cut U.S. nuclear forces could increase the risk of a future Chinese first-strike attack.

“Should the Obama administration be successful in its goal of reducing U.S. nuclear warheads down to about 1,000, then it is conceivable that the Kitsap Base could become responsible for a much larger proportion of the U.S. nuclear retaliatory capability,” he said. “Such a move could result in a significant increase in risk for the United States.”

Considering the “uncertainties” about the actual levels of China’s current and future nuclear arsenal, “it would be most unwise to consider further nuclear reductions, and that could threaten a robust U.S. nuclear triad of ICBMs, SSBNs and bombers,” Fisher said.

On China’s next-generation missile submarine, Fisher said the Type 096 could have an longer-range “JL-3” missile capable of hitting targets throughout the United States.

Thomas M. Skypek, a national security analyst, stated in a 2010 paper that China over the next 10 years could build several types of strategic missile forces, ranging from a modest force of four Type 094 submarines, to a force with two Type 094s and up to eight Type 096s, each armed with 24 JL-3 missiles fitted with multiple warheads.

“In its drive to develop a credible at-sea nuclear deterrent, Beijing will look to field stealthier submarines with more MIRVed ballistic missiles, providing far greater capability than the first- and second-generation SSBNs and SLBMs could offer,” Skypek stated.

Skypek said China’s military has encountered problems with the Type 094 JL-2. However, he added the Chinese navy’s “current trajectory suggests that China is on the cusp of a significant leap in capability and will soon deploy a credible sea-based nuclear deterrent.”

“Once fully operational, the [Chinese] SSBN fleet, even with a modest number of boats, will enhance China’s strategic strike capabilities and strengthen Beijing’s overall deterrence posture by providing enhanced range, mobility, stealth, survivability, penetration, and lethality.”

Japan’s government warned in a defense white paper made public earlier this month about the threat posed by the JL-2. “Once the JL-2 reaches a level of practical use, it is believed that China’s strategic nuclear capabilities will improve by a great margin,” the white paper stated.

Chinese Maj. Gen. Yao Yunzhu, a researcher, suggested in May that U.S. efforts to increase missile defenses in Asia will produce a buildup of China’s strategic nuclear arsenal.

“The current development, especially the deployment of missile-defense systems in East Asia would be, in Chinese eyes, would be a very, very disturbing factor having implications for the calculation of China’s nuclear and strategic arsenal,” said Yao Yunzhu, a senior researcher at China’s Academy of Military Science.

Yao also said joint U.S. missile defenses in Asia have “implications for China.” The Pentagon is working closely with Japan on joint missile defenses to counter the threat posed by North Korean missiles.

The Wall Street Journal, quoting “Chinese experts,” reported in May that U.S. military moves in Asia were unlikely to affect China’s nuclear force buildup, including the launch of missile submarines in 2014.

However, the number of nuclear warheads and strategic missiles could be “adjusted” based on U.S. military plans in Asia.

The Obama administration has launched a “pivot” to Asia that includes a buildup of U.S. military forces in the region and an increase in exercises with Asian allies and friends.

Deputy Defense Secretary Ashton B. Carter announced in April that the Navy will deploy a fourth nuclear-powered attack submarine in Guam by 2015.


China charges Bo Xilai with corruption, paves way for trial


China's former Chongqing Party boss Bo Xilai during a NPC meeting in March 2010, when he was media’s favorite. Picture taken March 6, 2010. Credit: Reuters/Jason Lee

China’s former Chongqing Party boss Bo Xilai during a NPC meeting in March 2010, when he was media’s favorite. Picture taken March 6, 2010. Credit: Reuters/Jason Lee


China charged disgraced senior politician Bo Xilai with bribery, abuse of power and corruption on Thursday, paving the way for a potentially divisive trial that President Xi Jinping will want smoothly handled as he pushes major economic reforms.

Bo, 64, could appear in a court in the eastern city of Jinan in Shandong province within weeks, capping the country’s biggest political scandal since the 1976 downfall of the Gang of Four at the end of the Cultural Revolution. He has not been seen in public for 17 months.

Xi, who formally took power in March, will be eager to put the Bo scandal behind him and have unstinted support from the Communist Party as he embarks on an ambitious rebalancing of the world’s second-largest economy.

But the trial of Bo, a charismatic and well-loved leader to some and a power-hungry politician to others, could sharpen rifts.

Bo’s ouster exposed deep disagreements in the party between his leftist backers, who are nostalgic for the revolutionary era of Mao Zedong, and reformers, who advocate faster political and economic reforms.

Bo committed serious crimes and will be indicted on the charges of bribery, embezzlement and power abuse, state news agency Xinhua quoted the indictment as saying. He had been informed of his legal rights and interviewed by prosecutors, it said.

Bo, as a civil servant, took advantage of his position to seek profits for others and accepted an “extremely large amount” of money and properties, Xinhua said.

“No matter who you are, whether you have a high or low position, you will be severely punished if you break the law,” state media cited Friday’s People’s Daily as saying in an editorial.

“Bo Xilai’s indictment again shows that everyone is equal in the eyes of the law … and nobody has special rights,” it said.

Bo is certain to be found guilty. His wife, Gu Kailai, and his former police chief, Wang Lijun, have both been convicted and jailed over the scandal, which stems from the murder of British businessman Neil Heywood.

The government in September last year accused Bo of corruption and of bending the law to hush up the murder.

China’s prosecutors and courts come under Communist Party control and they are unlikely to challenge the party’s previous accusations.

Still, there were no really explosive charges, like plotting a coup, indicating the party wants to move on and not let Bo distract or deeply split them, said Joseph Cheng, a political scientist at Hong Kong’s City University.

“This tells us there has been a lot of lobbying behind the scenes to perhaps protect Bo from the death penalty and also limit any broader damage,” Cheng said. “I think the authorities would like to keep this low profile.”

State television’s main evening news focused on the clean-up after an earthquake this week in remote Gansu province, in contrast to some previous announcements on the Bo case which topped the widely watched bulletin.

“MISTAKES ARE MISTAKES”

But the government does appear concerned about the public reaction to Bo and any fallout, and Xinhua called on people to support the Communist Party’s decision.

“Often after problematic officials are rooted out, we see the media looking back wistfully at their time in office saying how they dedicated themselves to the people,” the agency said in a commentary about the charges against Bo. “Success may be success, but mistakes are mistakes.”

Xi, however, has shown no sign of any anxiety, appearing relaxed during a tour of central Hubei province this week, where he called for a deepening of reforms to meet economic challenges.

“The higher levels in the party will most probably already have reached a compromise about Bo Xilai so as not to harm the party’s fundamental interests or allow there to be any challenges to the new leadership team,” said Zhang Lifan, a Beijing-based political commentator and historian.

Many analysts say it is unlikely Bo would receive the death penalty. They expect the court to hand down a suspended death sentence, which effectively means life in prison, although the term can be reduced to 15 or 20 years.

“It would be immensely controversial if they executed him, it’ll be inconsistent with Xi Jinping’s efforts to move people forward and unite people and calm things down,” Jerome Cohen, a law professor from New York University and an expert in Chinese law, said before the indictment.

Prosecutors in Jinan indicted Bo, Xinhua said, meaning the trial will take place there.

Bo’s lawyers, Li Guifang and Wang Zhaofeng, did not respond to request for comment. Government and court officials in Jinan could not be reached.

About two dozen uniformed and plainclothes police officers hovered around the gates of the main courthouse in Jinan, but there were no signs that the trial was imminent.

Xinhua did not say when Bo’s trial would start. But according to Chinese law, charges must be served to the defendant and lawyers at least 10 days before a trial begins.

A source with direct knowledge of the case said no definite time had been set for the trial.

TEST OF REFORM

Since becoming Communist Party boss in November, and president in March, Xi has made battling corruption a key objective of his administration, warning that the problem is so severe it could threaten the party’s survival.

Analysts say how the trial will be carried out will reflect the government’s willingness to promote legal reform.

“If the trial is extremely cursory and raises more questions than answers, it will be a bad signal for legal reform and the role the party intends to give to the law,” said Nicholas Bequelin, a researcher at Human Rights Watch.

“If someone is tried in a very suspicious manner, people will draw a conclusion that this was a political fight that this person lost and was disposed of.”

After his appointment as party chief of Chongqing in 2007, Bo turned it into a showcase of revolution-inspired “red” culture and his policies for egalitarian, state-led growth. He also won national attention with a crackdown on organized crime.

His brash self-promotion irked some leaders. But his populist ways and crime clean-up were welcomed by many of Chongqing’s 30 million residents, as well as others who hoped that Bo could take his leftist-shaded policies nationwide.

Bo has been accused of receiving more than 20 million yuan ($3.26 million) in bribes and embezzling another 5 million yuan, Hong Kong’s South China Morning Post reported on Wednesday. That is about a third of the amount the government accused former railways minister, Liu Zhijun, of accepting in bribes. Liu was given a suspended death sentence this month.

Source: Reuters “China charges Bo Xilai with corruption, paves way for trial”