Abbott should lift his cheongsam on sovereign investment policy after China gas bid

Visiting Chinese Vice President Xi Jinping (R) meets with Australian Opposition leader Tony Abbott, in Canberra, June 21, 2010. (Xinhua/Rao Aimin)

Michael Sainsbury

The multi-billion bid by China’s State Grid for a range of power distribution assets in Victoria – including a 60 per cent shareholding in SPI (Australia) Assets – has exploded as an early test for Tony Abbott on Chinese investment in the run up to the September 14 election. Worth more than $5 billion, the deal would be the single biggest investment in Australia by a Chinese company

In his one visit to China last July since 2007, Abbott set the cat amongst the very sparse Beijing pigeons (birds don’t flourish in the city’s choking smog) when he made it very clear he was not keen on the country’s state owned corporations holding a majority stake in an Australian company.

“It would rarely be in Australia’s national interest to allow a foreign government or its agencies to control an Australian business,” the Opposition leader said.

There are very few agencies of China’s ruling Communist Party that are bigger or more powerful that the State Grid Corporation. It is the world’s biggest power company with revenues of about US$270 billion a year, assets of US$351 billion and employs a mind boggling 1.6 million people.

There was plenty of back peddling by the Opposition after Abbott’s comments which were widely reported in China – but no actual reversal. His problem is the xenophobic wing of the National Party, lead by Barnaby Joyce who rail against Chinese investment and in particular the relative small amounts being made in agriculture where the US, UK, Europeans and South Americans own vastly bigger stakes.

Abbott left most of the heavy lifting, as he has done generally on China, to his Foreign Affairs and Trade spokesperson and Liberal Party deputy Julie Bishop who came to China with a bevy of senior frontbenchers including Nationals leader Warren Truss for the Bo’ao Forum in April. This year’s forum was was also attended by the Prime Minister and a clutch of her Cabinet colleagues.

Ms Bishop explained that the coalition was looking at Foreign Investment Review Board rules and thresholds.

“The Coalition does believe that we need to look at the Foreign Investment Review Board rules, that’s why we had a working party look at particularly investment in agriculture and we have sought submissions and we have been receiving input from a whole range of people about how we can improve Foreign Investment Review Board rules including greater transparency, greater certainty, more uniformity in the thresholds…”

The State Grid bid looks to be the perfect time for Abbott tell the Australian people what changes the coalition plans to make – and whether an Abbott government would pass the State Grid deal which has not been officially valued but has been estimated to be worth north of $5 billion.

Little Red Blog has sought comment from Tony Abbott and Julie Bishop; we will let you know their responses.

Iron Man 3 soars in China’s super hero-sized box office

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Fan Bing Bing as Dr Wu’s wife in Iron Man 3. Source Baidu.

Michael Sainsbury

AFTER many months of teeth-gnashing in Hollywood over the future direction of the uber-lucrative Chinese box office, studio executives are breathing a sign of relief after the money spinning first week performance of Iron Man 3.

The third in the Disney/Marvel series has minted US$95 million in its first ten days in China and counting. It nailed down the comic book houses’ biggest ever in the territory ($65 million) salving the wounds of much worse than expected performances by Hollywood pictures such as The Hobbit: An Unexpected Journey and Skyfall. To put in perspective that’s more than the last Batman movie, The Dark Knight Rises, made during its entire Chinese run

For almost six months it has seemed that the Chinese worm may have turned, with a lukewarm response to Hollywood offerings, as locals showed a marked preference to a string of box office smashing local flicks lead by comedy Lost in Thailand, historical/marshall arts epic Journey to the West, rom-com Finding Mr Right and Iron Man competitor So Young.

The biggest fear in Hollywood was the China was running out be not another Japan, – until 2011 the world’s second biggest box office market and a avid consumer of Hollywood fare – but another India, where the most popular films are local “Bollywood” movies and US features eek out only a handful of millions. Even the India-set multiple Oscar winner Slumdog Millionaire was only a moderate success in its “home’ country.

But in China, in recent weeks first GI Joe Retaliation and now Iron Man, in spades have performed up to expectations and in the case of the latter way beyond. Now Iron Man is a something of special case, its aim originally was to be an official Chinese co-production (a monicker which is aimed to guarantee a higher percentage of box office receipts) but for reasons unknown its producers are believed to have opted out of the label. To get such an imprimateur films need to use certain number of Chinese stars and actors as well as behind the scenes production crew.

But there is also a dark side to making ‘adjustments’ to films in an effort to lock in bigger Chinese box office numbers as they come under the umbrella of the countries feared and often capricious sensors (Django Unchained was unceremoniously yanked off Chinese screens mid screening last month after originally being approved, it reappeared this week less some sex, nudity and violence).

Somewhat amusingly, Iron Man 3 ‘s producers decided to add 4 minutes of extra footage to the film for the Chinese market – a reverse from the small snips (or large ones in the case of Cloud Atlas which despite 20 minutes missing still over performed) often imposed by the sensors at SAFRT (State Administration of Film Radio and Television (China). Those extra minutes contained product placement for Chinese milk (which you drink at your own risk), an appearance by wildly popular actress Fan Bingbing (about to become an international name) and some mumbo-jumbo live saving operation to hero Tony Stark by an unexplained Dr Wu (Wang Xueqi).

Chinese internet users ridiculed the additions.

“Wang Xueqi and Fan Bingbing are just product placements aimed at the Chinese consumer. They’re there to attract more Chinese eyeballs and more money from Chinese people,” one comment read.

Another said: The international version only has Wang at the start saying hello in Chinese + 1 second at the end wearing a surgical mask! Agh! The domestic version is 3 mins longer than the International one – actually all it is a couple of Chinese actors with nothing to do with the plot just makes netizens curse, if they deleted these scenes it wouldn’t matter at all.”

This indicates that that IM3 is succeeding despite the additions, rather than because of them and is winning customers because of old-fashioned reasons like strong blanket marketing, brand awareness and day and date release.

The reality is that films whose release in China is delayed suffer because they quickly become available in the pirate DVD shops which pepper the country. Skyfall, for instance, appeared in pristine digital copy on retail shelves a week ahead of its cinema release. It was a similar story for The Hobbit – to use just two recent examples. Still, movies like last year’s “Australian” shark-terrorises-flooded-supermarket cheapie Bait (in 3D) which cast a couple of leading Chinese characters showed that the right attention to the market can lead to a windfall

Cinema release is the be-all and end-all for earnings in China due to the vast pirate market. In four and half years in Beijing I have not even seen legitimate DVDs for sale – after all who can compete with perfect high definition releases being knocked out to punters for $2 each?

But the potential of the Chinese cinema audience is only just beginning to be exploited.

“At $148 million, last week’s cumulative PRC (China) gross easily beat the all-time weekly record of $136 million that was set during Valentine’s Day week less than three months ago,” China Film Biz blog noted after Iron Man’s opening week.

And Beijing based media lawyer Mathew Alderson from Us firm HarrisMoure points out:

“Although China has the second largest number of movie screens in the world, with at least 12,000 in late 2012, the country’s rate of screens per capita remains among the lowest in the world. The United States, for example, has roughly one screen for every 7,800 people; whereas China has only one for every 112,000. There are many cities in China with populations of more than

500,000 or even a million with no modern movie screens. Still, the vast majority of China’s multiplexes were built in the past five years so cinema infrastructure is generally modern and technologically advanced. More than 10,000 screens have digital projection and approximately 7,000 are 3D-capable.”

There’s certainly gold in them thar hills but just like any other sector plenty of landmines to dodge for the foreign investor and that’s before you get to the country’s opaque censorship system.

China’s export figures clear as mud

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Michael Sainsbury

CHINA’s long overdue (effective) admission this week that capital inflows have been included in its export figures has cast a pall over today’s news that exports are “up” 14.5 per cent compared to the same period last year.

On Monday the State Administration of Foreign Exchange (which has the fabulous acronym SAFE), the country’s powerful capital account gatekeeper, issued a new rule to regulate bank “dollar net open positions (NOP)” and for better scrutiny of export transactions.

“The rule, we believe, aims to curb intensifying arbitrage activities onshore, driven by CNY (Chinese yuan renminbi) appreciation expectations as well as the rate differential between CNY and USD,’ Standard Chartered (SC) economists said in a client note.

That’s economist speak for saying that money was flowing into China hoping to profit from a future appreciation of the Chinese currency against the US dollar.

Perhaps more fundamentally, SAFE also wants a harder look at foreign exchange transactions by exporters and importers against the backdrop of widespread suspicion about large fake export invoices in recent months which has seen export growth increasingly out of whack with other economic data. Fake invoice and dodgy dealing between merchants in China and Hong Kong – in all likelihood HK businessfolk with companies in both jurisdictions – are being targeted. This has no doubt been going on in some form since Deng Xiaoping opened up the economy in 1978 but has intensified recently as the economic downturn has hit real exports.

The deviation between export growth figures reported by customs and the industrial export value growth reported by the National Bureau of Statistics (NBS) has surged since the start of 2013 with the primary suspicion falling on fake export numbers declared to customs. In an environment where the economies of China’s two main exports partners Europe ( recessionary) and the US ( flattish) are hardly galloping, alarm bells have been ringing loudly.

“The disparity between China’s exports to Hong Kong and Hong Kong’s imports from China is now widely recognised. In the past four weeks, a team from the Ministry of Commerce, SAFE and other departments has been investigating this problem” SC said

“It was unclear what exactly was driving this disparity, but it was likely a combination of VAT export rebate shopping, as well as firms using fake trade documents to bring in money as well as taking advantage via Letter of Credit Discounting of cheaper borrowing costs offshore.”

So called “hot” money has also been flowing in – and this is the long term rather than short term piece of the puzzle – to buy real estate assets in a market that has been artificially dampened by two years of largely successful central government restrictions aimed at curbing house prices that are already beyond the reach of ordinary Chinese people in tier one cities.

Some economists believe that the figures may have been artificially pumped up by as much as 9 per cent (Louis Kuijs the former World Bank economist now at Royal Bank of Scotland) – others are kinder, with 6 per cent from Wang Tao at UBS.

But that doesn’t augur well for the Chinese economy and its boosters, despite the fact that dampened growth is exactly what the government wants, the problem is, it’s increasingly difficult to know just what is going on.

Indeed the new SAFE rules, a de-facto confession about dodgy numbers, has born out the very worst fears of those who scorn China’s economic data as being quite if not extremely unreliable. In turn that then casts doubt over where the Chinese economy is going. Something that Australia’s Treasury has not been particularly good at figuring out, now it appears they have an excuse. Maybe having just one representative in a country of 1.3 billion with hundreds of staff in Canberra is not the best deployment of resources (but that’s a conversation for another day.)

If you are interested official figures state export growth rose to 14.7 percent in April from 10 percent in March and import growth rose to 16.8 per cent from 14.1 per cent.

That’s after the Canton Fair last week said export orders were down almost 2 per cent, GDP was down last quarter and there are few signs of any recovery in Europe.

“We believe the strong trade growth is not indicative of a growth recovery” Nomura economists said “Instead, it may be partly driven by the fact that April had two more working days than it did last year. Moreover, it is inconsistent with the weak trade data in Korea and Taiwan, which suggests it may reflect continued capital inflows in April.”

So there you have it. As clear as mud.

Earthquake lays bare Party’s trust deficit

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Ya’an epicentre of last month’s earthquake. Source Google.

Michael Sainsbury

The loud, flashing and very ominous signs that everything was not going according to the Chinese Communist Party’s carefully laid and executed plans came only hours after last month’s deadly earthquake in the verdant but treacherous Himalayan foothills of China’s south western Sichuan.

The Chinese Red Cross (same name but no affiliation to the global charity – this one is under strict government control) almost immediately began to call for donations.

Like their humane sisters and brothers around the world, the Chinese are generous and responsive at times of national disaster and distress but the reaction on the Red Cross website was vicious. “Leave us alone”, “go away” “let us be” are some of the kinder translations of the message left by tens of thousands of Chinese. A commonly used word was gun (in Chinese pinyin), the closest translation is probably piss off.

As the tragic death toll of almost 200 amongst the 11,000 or so people who have been injured has been creeping up, the disaster has been just the latest event in China to get ordinary people talking about the failings of the country’s government and its ruling Communist Party.

The broader national conversation, jolted into fresh life by the disaster, has been playing out most publicly on the Twitter-like “weibo” services that have become the country’s major media platform. But it’s also the conversation you will get in taxi cabs and popular social gathering places: KTV (Karaoke) bars, massage parlours and restaurants.

Now there is no reason to believe that the Chinese government lead by its new Premier Li Keqiang does not want to save lives and help people. This, despite the most fulsome efforts of its clumsy but technologically savvy propaganda department to stage manage media coverage so it and its leaders and security forces look like heroes. It was a strategy that cost lives during the Wenchuan quake. Li’s mercy dash to the disaster site, night in a tent slept and eating of army rations was greeted by a collective eye roll by much of China, responses deadened by ten years of “Grandpa” Wen Jiabao meting out “help’ to ordinary Chinese people.

Unfortunately for the government the Chinese Red Cross has become something of a symbol of official corruption. Its reputation was trashed two years ago when a 20 year old employee of the charity named Guo Meimei, 20 – and who was known as “Guo Meimei Baby” – was flaunting her wealth via photographs on weibo of her Lambourghini and Porsche sports cars, her villa, sipping cocktails on business class flights.. Her position at the Red Cross of China triggered a national debate around how donations to government –run charities were used and suspicions were confirmed after copy of a 9859 yuan ($1420) meal bill paid by Shanghai branch of the Red Cross appeared online.

This earthquake was China’ first big disaster of the weibo era and it’s throwing up all the discontent that has been a feature of the Chinese internet since it exploded with the start of wiebo only 3 and half years ago.

The vexing thing for the authorities must be that by and large they appear to have significantly stepped up their game. The area is known for its steep hills, landslides and difficult access roads sans earthquakes. And the Chinese got plenty of practice in what to do and what not to do during the horrific Wenchuan earthquake of April 2008 which killed about 90,000 people and which occurred less than 100n kilometers away.

“I was struck by the massive commitment of resources being thrown into the area to help the survivors, clear roads, distribute food, offer medical help and put up temporary shelters. It also seemed to be much easier for reporters to get access to the disaster area than say in 2008. We had the People’s Armed Police taking us into where they were blasting etc. Perhaps because it was a much much smaller disaster than 2008 it has been more easily dealt with but speed of arrival and volume of rescue workers are both to be applauded,” Stephen McDonell, the Australian Broadcasting Corporations’ venerable China correspondent said.

Still, others have been more critical of the staged efforts that soak up time and energy better devoted to attending emergency situations.

What has become crystal clear – if it wasn’t already to anyone with even passing familiarity with weibo and the emerging Chinese political consciousness which has formed it, is that the Party has a very, very serious trust problem.

Having been snowed for so long with propaganda and had group memory loss (the lack of any idea about the Tiananmen Square massacre amongst young Chinese just the most obvious) forced upon them, Chinese people are waking up and starting to flight back – even if right now its just an angry get stuffed on a government website.

The unwritten pact that so many China watchers talk about: that the Party will keep growth bubbling along and (real) incomes rising and in exchange people will leave the government by and large alone as they pursue the material comforts denied to them and there forebears for so many decades – is visibly starting to crack.

This is a very, very serious problem for the Party.

Political theorists will give you this view and that on the path that these things take but again, what is obvious is the trend.

Each incident accumulates: each corrupt official, each naked land grab by property developers and their Party lapdogs, each flagrant flouting of China’s laws by courts controlled by the Party, each attempt to bury a carriage in a train crash, each jailing of justice crusaders, eaqch victory of the Party official over the laoboaxing (ordinary Chinese).

Still, despite their growing anger and disappointment with a government they did not choose and increasingly run by wealthy elites, Chinese people have donated generously to the earthquake. Their charity of choice, the one they trust to do the right thing with their money? One Foundation founded by Hong Kong born, Hollywood film star Jet Li.

That’s some problem for Beijing.

China’s harmony fantasy shot down

Sunday Livestock Market Kebab Preparation, Kashgar, Xinjiang, China

Michael Sainsbury

DEADLY ethnic violence has once again erupted in China’s far flung Xinjiang province amongst its 10 million strong Muslim Uighur population, leaving at least 21 slain.

The deaths are just the latest in the growing wave of discontent in China’s outer provinces that has ripped the lid off the Communist Party’s fiction that the country’s minority groups live in kumbaya-singing blissful “harmony” under the central government’s benign rule.

In fact, the deaths come after a tragic wave of self-immolation by more than 100 Tibetans over the past 18 months, mostly dying in the process, in protest at Beijing’s ruthless cultural repression.

A local official said that twenty-one persons were killed including social workers and policemen. He told news agency Agence France Press that the violence broke out on Tuesday when three local officials reported a group of suspicious men armed with knives hiding inside a home in Selibuya township outside the city of Kashgar which is in the far west of Xinjiang less than 200 kms from the Pakistan border.

It’s the second outbreak of killing in recent months in resource-rich Xinjiang, home to about 23 million people, which borders on Pakistan, Afghanistan, Kazhakstan and Russia.

In March four people died in a bloody incident near Korla in central Xinjiang and last year, state media confirmed that 12 people died during violence at Yicheng near Kashgar.

Xinjiang was home to China’s biggest single ethnic conflict in decades when a pitched street battle broke out between ethnic “Han” Chinese and Uighurs in the Xinjiang capital Urumqi in July 2009. The official death toll was almost 200 but dozens of Uighurs were “disappeared” by Chinese authorities in the months after the conflict. Following the incident Beijing locked the province down, stationing tens of thousands of troops around Urumqi and Kashgar, the two main cities, as well as other major regional centres. The centre also stepped up its program of bulldozing ancient parts of Kashgar, more than 1,000 years old using the excuse that the buildings were not sound despite them having survived so long. Night markets that had operated for hundreds of years across the province were shuttered in the years after 2009 and the Chinese government continues its campaign of dispatching hundred of thousands of ethnic Chinese into the province – a program with stark similarities to the Party’s strategy in Tibet.

Regular troop patrols continue to comb both Xinjiang’s major cities during late afternoons and evenings to this day.

“The general trend towards repression that we see all over China is particularly pronounced in Xinjiang, where the Uighur population has become a minority in its own homeland.” Sam Zarifi, Amnesty International’s Director for the Asia-Pacific, said in July 2011.

Uighur groups have long complained of their people being relegated to second class citizens in their homeland – which was once briefly known as East Turkestan. China’s reply is that it is bringing economic prosperity to its outer provinces.

But there is a horrible irony that in the south of China, the Chinese are attempting to broker peace between the Burmese military and one of that country’s own restive and much-abused minorities the Kachin while continuing on its own violent oppression of the Uighurs.

For more shots of Kashgar and the livestock markets click here

Will Australia’s super-rich match American’s China education gift?

The young Australian blog and twitter spheres were agog this week with news that US private equity gazillionaire Stephen Schwarzman would tip in $100 million to fund a new scholarship endowment that will send more than 200 students annually to Beijing’s Tsinghua University.

Schwarzman has modeled his gift on the venerable Rhodes scholarships to England’s Oxford University that have thrown up leaders like Bill Clinton and Bob Hawke. People can quibble all they like about the model, and they are already but the intent is clear. And that is to provide an opportunity for young people showing precocious signs of wanting to be society’s leaders.

It’s been all the talk these past few days around the members of the burgeoning Australia China Youth Association, a terrific organisation that has already thrown up some amazing people who turn up regularly around Beijing and Shanghai at both work and play. There are four spots in the endowment set aside for Australians – the main cohort is of course Americans with 45 per cent of the places and 20 per cent from China – as well as from other nations around the world.

Schwarzman is looking for other wealthy donors to throw in another $200 million to build the fund up to $300 million. Given the critical importance of China to Australia – it’s our biggest export market and trading partner (by a country mile), biggest source of international students, growing source of major investment etcetera – wouldn’t it be terrific if one our moguls joined the American and helped tilt the scholarship balance back a little in Australia’s favor. There are already two Australians on Schwarzman’s advisary board, Kevin Rudd and former World Bank president Jim Wolfensohn.

If joint venturing is not their style, or they don’t like Schwarzman’s model then create another set of scholarships, competition after all is very healthy.

The government recent clever lift of Julie Bishop’s “reverse Colombo Plan” announced during Julia Gillard’s recent trip to China was a good first step.

The Australian business community which at last appears to have discovered where its prosperity is coming from should put its money where its mouth is on China.

Budding China scholars will find more detail at

http://en.wikipedia.org/wiki/Schwarzman_Scholars

Brazil’s iron ore ship finally comes in

Michael Sainsbury

Beijing

So. The first of the giant Brazilian iron ore ships from Vale, the world’s second largest iron ore producer and main competitor to Australian miners, has once more been allowed to dock in China.

The only previous time this happened, in 2011, was thought to be a mistake.

Known as the Valemax, the ships are the largest dry bulk cargo ships ever to ply the high seas; as long as three football fields and 400,000 tonnes a piece. They carry enough iron ore to make 270.000 tonnes of steel. Vale has ordered 35 of them which are all due to have been in service by this year.

The ships were banned in early 2012, for China’s usual opaque reasons but generally seen as being to protect its own freight business amid a worldwide glut. Yet the decision has appeared all the more odd because Australian companies were always seen as the Chinese steel industry’s number 1 enemies, not statist, Brazil.

This is not good news for Australian mining companies. Australia’s great advantage in selling China iron ore has always been its proximity and subsequent much lower cargo cost. This more than made up for slightly lower quality product.

Shipping from Australia to China to costs about $7 per tonne using with capesize ships of 180,000 tonnes, the same sized ship from Brazil is $17 per tonne, Tim Murray, J Capital Research’s ace iron ore analyst (and a favorite LRB China bear) explains.

Murray says that Valemax can take double the volume so it will probably cost about $10 per tonne China from Brazil now which will bring price pressure on Australian iron ore.

To cope with the ban Vale built a floating hub in the Philippines and is constructing a permanent, land-based transhipment centre in Malaysia which is scheduled to open in 2014 and will give it a nifty pan Asian distribution centre.

So now as iron ore prices once more start to look softer, here come the Brazilians with a better deal.

If Andrew Forrest’s Fortesuce Metals Group needed any more encouragement after its near death experience last July to run as fast as it can in ramping up its capacity to get its cost per ton down this would be it. Still, others argue that conversely, cheaper Brazilian iron ore – the world’s best with a purity of about 64 per cent (compared with top Pilbara ore at 62 per cent and lesser product such as FMG’s at 58 per cent) – could actually be good for FMG with Chinese mills increasingly preferring a mix of 64 per cent ore and 58 per cent, cutting out BHP particularly and a chunk of Rio Tinto’s product (it also mines a fair bit of 58 per cent). Whichever way you cut it, the big ships change the game somewhat.

There’s slightly better news, albeit by way of schadenfreude, for Australia’s iron ore giants from China this week, with further details of the trials of Shan Shanghua, the belligerent former chief of the China Iron and Steel Association. Readers close to the iron ore sector will recall that Shen was the bloke who effectively – and inadvertently – blew up the 40 year long tradition of annual iron ore price negotiations between Chinese steel mills and the big three miners (as well as Vale, Rio Tinto and BHP Billiton).

CISA took over the price negotiations from China’s premier steelmaker, Shanghai based Baosteel in 2009 after the price on 2008 hit record highs. But Shan failed to reach any deal, in the process four Rio Tinto executives including Australian Stern Hu were arrested and later jailed for taking bribes and a China version of industrial espionage that would be seen as business intelligence in the west. During this process Shan made himself no friends, quite probably on the Chinese side as well, and he was shifted out for the job as soon as a decent interval was allowed to pass.

Now it has emerged that in the job he held previous to his CISA role he himself had his hand in the till, embezzling more than US$600,000 – it is alleged.

That may be small comfort to Hu and his colleagues but show that in the world of underhanded (Chinese) business, what goes around often also comes around.

You can read the full report on Shan from Caixin magazine here:

http://english.caixin.com/2013-04-15/100514612.html

China’s economy no longer a growth story

Michael Sainsbury

Beijing

In newspapers across the globe this morning and on websites yesterday China’s quarterly GDP and other monthly data were trawled through with the focus on the “shock” of slightly slower growth. There were “fears” about slower “recovery”, concerns about new “stimulus”, gold took its worst tumble for years and stockbrokers quaked in fright(about their bonuses) dumping shares. This is not because China’s economy was growing at a slower pace than expected but because they know that market sentiment dictates worse than expected numbers from China means people sell, hence a big morning slump as they all try to outsell each other and some bargain hunting after lunch push the index back up. That old China story, fast growth versus slow growth.

For the kangaroo riding on the dragons back the action is usually more marked elsewhere, unsurprising when we send it more than 30 per cent of our exports and two-way trade climbed to $122 billion last year. But the simple story for the markets Chinese growth, faster or slower, is an old one – not that you would know it from many reports.

Of course it’s hardly head scratching that we are seeing slower growth, after all that is now government policy.

“It’s not impossible to grow faster..,we don’t want to grow too fast,” Xi said at the Bo’ao Forum for Asia ten days ago. “I don’t think China can sustain super-high or ultra-high-speed growth,” he said. Xi said China’s slowdown last year to 7.8 per cent economic growth is “partially due to our efforts to control the speed of growth.” Yes there are other factors such as weak export markets from China’s major customers as well as an ageing work force and rising labour costs, which is seeing some low margin manufacturing move to other countries such as Vietnam and Bangladesh. But in a county where the government still controls so much of the economy, its policies count for a lot.

The new(ish) China story is about if and how the country can institute a new model of lower more sustainable higher quality growth. It has mounting debt and the China bears believe too much of this is bad debt, it needs to be cleaned-up and can’t be in an environment where the government is printing money to keep growth romping along at 8 per cent or more. The Chinese government, like those in the west has kicked the debt can down the road for too long. Now it needs to switch gears to promote growth based on consumption and a burgeoning services sector. It needs growth that won’t see the waste, bad debt, debilitating pollution and increasing alienation of its people from an increasingly distant and different ruling class. Whether the new government can structurally shift the investment decisions away from government and back towards the private sector is yet to be seen. It’s much harder to report – growth up or down is a gift really –but some outlets aren’t really trying and that’s dudding the reader. Not to mention that newspapers still insist on wasting increasing precious space running a yarn that’s 24 hours old by the time more readers get to it. You really think if they haven’t picked it up on the internet by then that there is any interest?

The economic rebalancing, as many like to call (away from investment towards consumption) is a very big ask for the Chinese leaders and is much riskier and difficult to manage than government spending and cheap export driven go-go growth. Those days are over and as Xi Jinping and Li Keqiang embark on a new set of economic reforms – getting the order right is just one important wrinkle – the Chinese economy is likely to offer more surprises than not.

While its early days, Xi appears to be very committed to reform. His anti-corruption and waste-cutting drive through the ruling Communist Party is continuing apace – indeed the reduction in official banqueting and gifts has been cited and an interesting public indication of this has been the recent slew of articles in major Communist Party mouthpieces praising one of the Part’s great reformers, Hu Yaobang on the anniversary of his death. Hu was sacked as Party chief in 1995 and whose subsequent death four years later on April 15, 1989 triggered protests that would lead to the deadly calamity in and around Tiananmen Square 10 weeks later.

This relentless focus on growth makes people either forget or fail to realize that the quantum of China’s economy increases each year, a fair bit bigger than two years ago and double the size it was about seven years ago. And if we just check yesterday’s figure, it was growth of 7.7 per cent, on fudged highly contentious numbers, China’s leaders seem to come up with numbers. I don’t think that Australia has ever, in one year grown 7.7 per cent. But the figures are universally – including within the country’s leadership seen as rubbery, a the very least something that was probably worth including in every story having a look at the country’s numbers.

China’s monthly figures have become know as its data dump, without apparent irony in reference to the whiffy nature of many, if not most of the numbers. The final word in this should go to freshly installed Premier Li Keqiang, who has been reported as saying the only piece of data he uses as a guide to where Chinese economy is going is electricity production.

Analysis of the numbers themselves are a dangerous and treacherous road that has slipped up even the most ass-covering researchers and commentators in a country which confounds rivals who have state of the art data collection several light years ahead of China. That a poor developing nation where millions still get about by donkey and cart can produce national GDP figures less than two weeks after the books are ruled off for the month.

Then there is the grey economy which a study in 2010 said could be large as 30 per cent of the regular economy, some of this would caught be official figures but by no means all – so there are unseen forces pulling at both end of the figures.

One summer does not a swallow make and so one dip in (already contentious) GDP in China does not the Australian economy break. Indeed it would have to get a whole lot worse from here to have a material impact on the Australian economy, despite what the screen jockeys in Phillip St think, or think the market thinks. Steel production, the main game for Australian miners, continues climb although more slowly than before. Premier Li’s determination to focus on a fresh wave of urbanisation should give miners medium term comfort, at the very least. And while official inflation is down, everyone in central Beijing is whingeing about prices going up and up. For now, that’s a good thing.

Gillard wraps up China trip with a big win

The Prime Minister’s four ring circus trip to China was the biggest, the best and – to borrow from the Roger Moore Bond flick The Spy Who Loved Me – it was Gillard and beyond. China Ambassador Frances Adamson and her team pulled it off organisationally without any visible hitches, a substantial achievement.

The pity is that Gillard didn’t mount a trip of this scope when she came in 2011, the heavyweight politicians (they will have pleased to get a good look at Labor’s likely next leader in Bill Shorten) and relatively extensive itinerary send the message the Chinese – and I would hope Australians - want. We are engaged and interested and we want more.

But the early stumbles – the first of three major speeches missed its mark, the second at a Communist Party training school in Shanghai was dull and forgettable will be forgotten after her triumph in elevating Australia’s formal contact with the country with whose destiny we are inextricably and increasingly linked to a yearly summit.

It’s an idea that has been pushed by diplomats for years and comes after Australia’s relationship with China has been buffeted and damaged in recent years with Gillard’s failure to take responsibility for it from the day she knifed her boss and Rudd’s failure to capitalise on his years in China and fluent Mandarin, contributing factors.

Gillard’s China visit was a trip of two halves but it’s the second one you want to be ahead at the end, of so we will put the trip firmly in the win column.

Not only was the trip big but the Prime Minister was keen to remind everyone about just how big the trip was, a little guilt about her neglect of China perhaps. It has been a heavyweight parliamentary delegation one PM, three Cabinet Ministers (countless bag carriers and flunkies) - the PM certainly raised the bar this visit, but it would not have been very hard. Bob Carr has seemed a bit surplus to requirements up until now but yesterday he met China’s top two foreign affairs officials State Councillor Yang Jiechi (newly promoted from Foreign Minister) and Yang’s replacement the well-regarded Japanese-speaker Wang Yi. Carr may have been better off on his own trip in a month or two to spread the love a bit more evenly but one suspects he did not have much say in the matter.

To help the biggest passenger jet in the RAAF fleet (an Airbus A330) was drafted into service to move the masses, it must rank either near or at the very top of travelling parties in terms of total people numbers (including a couple of dozen media representatives and a dozen or so Air Force crew). For the record, the food, wine and service was all terrific and the crew friendly, competent and generally impressive. The PM and ministers moved around the cabin chatting to the media pack; Carr was particularly entertaining on the Sanya-Shanghai leg but what goes on tour….I can also recommend the blinding efficiency of being in a motorcade that runs from the tarmac to the hotel, its the upsides of these authoritarian governments that can turn all those red lights green at will and just for you. Shanghai and Beijing traffic has never looked less daunting.

It was a big trip for Gillard too. Her first trip in April 2011 (and first in government) was to Beijing only and embarrassingly short, especially in light of the two year wait for a second visit. She was nervous – as you would be in the wake of Hurricane Kevin who lefty a trail of damage in Beijing during his tenure -and on that visit neither brought or took away nothing. It was a waste. Two years have improved her grasp of geopolitics and presentation skills generally but the podium is not her natural habitat and her office has had to spend so much time and energy fighting fires, as many of her media staff seem unable to capitalize on good news.

If there was a logistically more complex and difficult trip, no-one could name it although much of that wound was self-inflicted due to the decision to go to the awkwardly sited Bo’ao Forum for Asia. There was a late swap of the western city of Chendgu where Gillard was to have opened the Australian consulate, an overdue fifth in China (counting Hong Kong). There were administrative problems of some kind with the lease but she should have gone in any case. It’s been 18 months since the announcement, the Consul General has been appointed although not named and it would have made a better statement to the Chinese and Australian business as the next wave of growth in China (and Australian prosperity) is coming from its inland western provinces. It would have aced the largely wasted 15 hours Shanghai (meeting with the Party Secretary aside) which looked like the add-on it was.

Still, there was a strong message about financial services and Australia’s eagerness to bring our expertise (and financial services companies) to China boosted by the presence of ANZ’s Mike “Mr Asia” Smith and his Westpac counterpart Gail Kelly who only made her first trip to China three years ago (that still puts her ahead of many Australian CEOs and senior executives).

But Gillard saved the best for last – and indeed was so determined to try and keep the news in the can until yesterday she and her office almost shot off all their toes - the announcement of annual formal meeting between the Australian Prime Minister and Chinese Premier - as well as a strategic economic dialogue between Australia’s Treasurer and the head of the National Development and Reform Commission, China top economic ministry. There will also be an annual dialogue between the countries two Foreign Affairs Ministers.

This see’s Australia move up a good peg up the relationship ladder though its not the only country to hold annual talks China, US have at a number of levels (although not leader) and indeed we have with the US (AUSMIN) and others. While it formalizes something that already by and large happens by dint of meetings on the sidelines of G20/APEC and the like. The new dialogue is overdue and goes some way to repair the “she’ll be right” attitude of the past five years. Australia’s success in building the people to people relationships through more informal but regular will be the real test of success. But this, particularly from the Chinese side, gives the imprimatur for that to charge ahead now.

Having not made it to China as Education Minister Gillard made some amends yesterday with a high school visit and dinner with tertiary education representatives. It’s her long-time personal focus area and a vital cog in the Australia-China relationship with the $16 billion international student market our second biggest export, the iron ore of our services export sector. The sector where Australia was the global first mover/innovator has been in turmoil over the past three years falling into a perfect storm; its competitiveness due to high fees, the soaring dollar and intense competition from the US particularly, reputational damage due to poor regulation of the sector’s bottom tier and poor/badly co-ordinated government policy in immigration/education. China represents about 25 per cent of the market so it’s critical. It’s been on the decline for the past three years and this has hit some universities hard although the situation appears to have been stabilized and early signs show indicate numbers up this year. We can’t get complacent about this again, as we did especially on the reputational stuff where any more than one strike in the bad box could see serious long term damage.

At Chenjunglun High School in inner Beijing she answered personal questions and others that had a surprising focus on the environment, as stage managed as these are the interest in and awareness of the environment in China is surging and I suspect unstoppable. It’s suddenly got equal billing with economic growth and China’s efforts to halt, ameliorate and repair the untold damage that reaches into every corner of the country will be critical to the nation’s future.

Tony Abbott won’t have been pleased with at least one of the choices in the collection of Australian novels and non-fiction titles that Gillard presented to the school, climate change sceptic bête-noire Tim Flannery’s The Weather Eaters.

Gillard got both sides of the fame coin in Beijing yesterday, a city which has a habit of handing out lessons to unsuspecting Foreigners. First there was the dark side when snap happy Chinese attendees threatened to get out of control after – of all things – an Australian Chamber of Commerce business lunch. One you agreed to one snap with a fan, where do you stop?

But the upside of being PM is that you also get an immaculately drilled honour guard and marching band in Tiananmen Square as she did in the late afternoon when she met with Li. It’s been windy and cool in Beijing (it’s sandstorm season) but unusually clear the past few days.

Almost three years into her Prime Ministership, Gillard has finally looked as though she is serious about Australia’s most important foreign relationship, China is much more complex and far, far more difficult than the US. The Asian Century White Paper was policy-lite, a waste of taxpayer’s money and most importantly a missed opportunity. Gillard has unforgiveably allowed things to drift both politically, economically with nil movement on a Freed Trade Agreement and governemnt’s political expediency in refusing to actively agitate in any serious way on behalf of Chinese Australians Matthew Ng, Charlotte Chou and Du Zuying (and perhaps others the government won’t tell us about) who have been denied justice and liberty and had the Chinese government sign off on the theft of their assets by Communist Party officials and their friends. These people have had their families shattered .This is a disgrace, Australian citizens deserve better.

Government officials will deny this until they are purple but you can bet that if it was in some other developing nation it would be a different story.

And while the concrete result of this trip has been most encouraging the signing and talking is the easy bit, it’s making our new “strategic partnership” work for us economically and security-wise that’s the real test. So the hard work starts now.

Australia’s uncertainty about China dominates PM’s visit

Michael Sainsbury

Bo’ao, Hainan Island

In their wisdom, Canberra’s powers-that-be decided to designate the unusually heavyweight Bo’ao Forum, a logistical nightmare of an event held on the tropical Chinese island of Hainan, as the centrepiece of Julia Gillard’s second trip to China as prime minister.

The forum is named for the one-time fishing village that now resembles a seaside version of the infamous inner-Mongolian ghost city of Ordos. There is a five-star conference hotel nestled among verdant golf links and further out, miles of empty apartment blocks. Hainan’s property bubble has been one of China’s worst, and it has popped. The PM’s travelling party of officials and press gallery media stayed two hours away at the $500-a-night Hilton Resort in Sanya.

It’s been a big year at the clubby forum — the best stuff always happens in the bar (all day) or Andrew Forrest’s presidential suite — with more heads of state than usual. Rankings matter a great deal here; there is a very clear pecking order inside the Communist Party, where ranks mean almost everything. So you can only imagine the gnashing of the teeth when Gillard was ranked just 11 in the Bo’ao conference program. That’s one rung below New Zealand. (The China/New Zealand Free Trade Agreement inked in 2008 still rankles with Australia, which is now seven years into negotiations with no deal in sight.)

All this says plenty about Australia’s uncertainty with its relationship with China (its biggest trading partner). This has emerged as the theme of the trip. It was the main topic of conversation at Forrest’s high-level business forum. How badly has Australia’s relationship with China dwindled, and how can we forge something broader and deeper?

The latter was one of the four themes — along with trade/investment, defence and education — that Gillard outlined when she stepped off her plane into the sticky Sanya heat on Friday. The pattern for the weekend had been set: short press conferences away from the conference venue — and the occasional conversation-free photo op — to which media were bussed in and out. Speeches handed out ahead of delivery. No surprises or, God forbid, spontaneity. But the PM is having drinks tonight in Beijing …

At Gillard’s first press conference, Minister for Everything Craig Emerson appeared behind her, stage left, but there was no sign of Foreign Minister Bob Carr, one of the last grown-ups left in cabinet, who even at that early stage must have started to wonder why he was on the trip.

But the big-ticket item of her five-day trip was the weekend’s meeting with newly anointed Xi Jinping, who has quickly emerged as China’s strongest leader since Deng Xiaoping. Since stepping up as Communist Party chief last November, Xi has spoken plainly, announced a pogrom on official excesses and gifting (denting the hopes of luxury brands) as part of a broader crackdown on corruption. In doing this, as well as hewing to a more nationalistic line in his theme of the “Chinese dream/national rejuvenation”, he has revealed himself as Communist Party rarity: a natural and gifted retail politician.

But he will need all the tricks in the book to paper over the widening cracks in the “China model”. The new style was not in evidence at Bo’ao, as he delivered a by-the-numbers speech about regional co-operation. Gillard’s speech was another stab at being tough, and appeared aimed at a domestic audience. Given only six minutes, she opted to warn about worsening regional security — given this is mainly China’s, rather than North Korea’s fault, she may have played the wrong card. She managed to focus on climate change in a regional context and drew on Australia’s long relationship with China, but was shaded by New Zealand PM John Key, who sold his country like a pro.

Her meeting with Xi was more successful. The pair agreed to take the “relationship to a higher level”. Gillard was clearly taken with the apparently charming Chinese leader, describing him as having “intellectual and policy substance” with “a keen eye for the future” who has a “deep understanding of Australia”.

But there seems to be some problem with the new regular strategic dialogue Australia has been hankering after. Gillard seemed to say yesterday it would not happen yet; it’s too early in the Xi administration.

Today’s People’s Daily, the Communist Party’s mouthpiece, had a prominent story pushing the idea. Xi said China and Australia had agreed to foster a strategic partnership built upon mutual trust and mutual benefit, the paper said. “I hope the two countries can enhance communications, expand co-operation, accelerate negotiations on bilateral free trade agreements, and diversify trade and investments to push bilateral ties to a new height,” Xi told Gillard.

The paper then went on to say it would be at prime ministerial level — so Gillard and new Premier Li Keqiang rather than Xi. Perhaps that’s the problem. The Chinese are very strict on protocol and see Governor-General Quentin Bryce and Xi as heads of state. Gillard and Li are prime ministers. This is where the stumbling block seems to be. When quizzed on the Chinese story in Shanghai this morning, Gillard sidestepped the question and then positively snapped when quizzed again, refusing to engage any further. So already there seems to be trouble in paradise.

Still, to give Gillard’s office one thing, she can pull a crowd. From a situation last year when it was a struggle to find an Australian to talk to outside Andrew Forrest’s posse, this year Bo’ao was lousy with Aussies. There was the perennial Bob Hawke, one of the forum’s founders, who regaled folks at Forrest’s Saturday night cocktail party with a well-worn but well-told joke and a rousing sing-a-long of Waltzing Matilda. Also loitering around the conference have been former Liberal ministers Peter Costello (a speaker) and Alexander Downer (representing Gina Rinehart). Liberal Deputy Leader Julie Bishop worked the conference rooms and its main bar with practised ease, galled that Gillard used the conference to announce a wholesale lift of Bishop’s “reverse Columbo plan”.

“And people wonder why oppositions don’t release policy too far ahead of elections,” Bishop mused to Crikey.Gillard’s other initiative so far is another imitation, with “G’day China” to be rolled out as an Asian take on the successful “G’day USA”.

Still, for a trip to China aimed at building ties with the Chinese, Gillard has so far not spent much time with the locals. She has met Bo’ao convenor Zhou Wenzhong and Chinese attendees at a business meeting. Gillard also met with the conference’s bona fide rock star: IMF chief Christine Lagarde, who dazzled with her all-French chic.

But what, readers may be asking, of the first bloke Tim Mathieson? Spotted collecting flowers on the tarmac at Sanya on Friday, there was radio silence on his movements until lunchtime yesterday when an email titled: “Mr Mathieson’s program” arrived in journalists’ inboxes. In this missive it was revealed Mathieson would meet Xi’s superstar folk-singer wife Peng Liyuan to discuss anti-smoking strategies. By all accounts his men’s health campaigning had caught her eye. But in its wisdom the Prime Minister’s Office did not send a photographer. Could have been the pic of the trip …