Foreign investment in China slows

15 July 2011 Last updated at 08:31 GMT Foreign companies and investors have been to get a share of China's fast-growing market Foreign direct investment (FDI) in to China has slowed as the government steps up its efforts to rein in the country's economic growth rate.

In June, foreign investment grew just 2.8% to $12.86bn (?7.9bn) compared to a year earlier, down from May's 13.4%.

However, during the first six months of the year China attracted investments worth $60.9bn, up 18.4% on a year ago.

On Wednesday, China said its economy grew by 9.5% in the second quarter.

China's rapid expansion in recent years has seen it become the world's second-largest economy and one of the top destinations for foreign investors.

Last year foreign investors pumped $105.7bn in to the Chinese economy in an attempt to get a share of the fast-growing economy.

Asset bubbles? Continue reading the main story

Tighter credit conditions in 2011 have made the property sector vulnerable to a correction, particularly for high-end properties in China's largest cities”

End Quote Rajiv Biswas IHS Global Insight However, China's expansion has been powered by a credit boom in the country.

Chinese banks lent out record sums of money in the past two years to ensure that the country's high growth rate was maintained during the global financial crisis.

That has led to concerns that the current path of growth may not be sustainable and may have created asset bubbles, where some investments like property are overvalued.

"There are concerns about potential asset bubbles being formed in the Chinese property sector," said Rajiv Biswas of IHS Global Insight.

Mr Biswas added that while the introduction of measures by the government to curb lending had been good, investors were worried about their impact on growth.

"Tighter credit conditions in 2011 have made the property sector vulnerable to a correction, particularly for high-end properties in China's largest cities," he said.

At the same time, authorities have also had to tackle rising consumer prices that have been driven up by a surge in food and fuel costs.

That has seen the country's central bank raise interest rates three times this year.

Mr Biswas said that accelerating inflation coupled with higher cost of borrowing had investors worried whether China would be able to maintain its growth rate.

"A key lever of tighter monetary policy has been restrictive measures on lending by banks, which has significantly tightened credit conditions and corporate liquidity for Chinese firms, which has also impacted on investment decisions," Mr Biswas said.

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China arrests 36 in Alibaba fraud

1 July 2011 Last updated at 06:47 GMT Alibaba's reputation took a hit as a result of the online fraud on its e-commerce website Chinese police have arrested 36 people connected with operating an online fraud on Alibaba.com and other websites, the company has said.

Those arrested stand accused of duping overseas buyers of more than $6m (?3.7m) by posing as suppliers on the Chinese e-commerce websites.

The fraud resulted in the chief executive and chief operating officer of Alibaba quitting earlier this year.

Alibaba is China's largest e-commerce group.

"The arrest of the suspects hits online scammers hard," said Alibaba.com boss Jonathan Lu.

The company said the arrests were made following a 40-day investigation earlier this year.

Reduced complaints

Alibaba said it had introduced strict procedures in an attempt to prevent a repeat of such cases.

As a result, the number of fraud complaints received monthly by the website declined by 70% between February and June, Alibaba officials said.

The company said it would keep up its efforts to ensure the safety of its consumers.

"We will continue to co-operate with defrauded buyers and police to pursue the investigation, arrest and sentencing of those who commit crimes using our platform," said Linda Kozlowski of Alibaba.com.

"If scammers think they can hide on the internet and that no-one will go after them, they are wrong," she added.

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China raises income tax threshold

30 June 2011 Last updated at 14:02 GMT Controlling inflation is the Chinese government's top priority this year China has decided to raise the level at which people start paying income tax.

The standing committee of the National People's Congress is lifting the threshold from 2,000 yuan ($309; ?193) to 3,500 yuan a month.

The official Xinhua news agency said the committee had decided against a previous suggestion of 3,000 yuan after a strong online response from citizens.

The move came on the eve of the 90th anniversary of the founding of the ruling Communist Party.

The committee said that raising the threshold was "necessary and timely", would reduce the tax burden on people with low incomes and would also help to reduce inequality.

Analysts said the government was concerned to stem any social unrest because of the widening gap between the rich and poor.

"It is a serious attempt to maintain social stability and redress the problems of inflation," said Steve Tsang, director of the China Policy Institute at the University of Nottingham.

The rate of inflation in China hit 5.5% last month, its highest level in almost three years.

Food prices, which make up a large proportion of poorer families' spending, were 11.7% higher in May than a year earlier.

Some 82,707 citizens commented on the draft plans, according to Xinhua, of whom 83% said the threshold should be higher.

"The change was made thanks to the appeal by netizens and comments that we received," committee member Ye Qing said on the social networking site Weibo.

About 12% of the workforce earn more than 3,000 yuan a month.

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Unequal China?

29 June 2011 Last updated at 22:36 GMT By Dr Damian Tobin School of Oriental and African Studies Many in China's rural provinces are left behind as urban wealth grows quickly The rapid growth of China's economy over the past three decades has been greeted with largely unquestioned assumptions that increasing affluence would lead to a happier, wealthier and more equitable society.

Of course, such assumptions came with an implicit acceptance that some would get rich faster, but also that these benefits would eventually trickle down.

The emergence of a middle class, combined with high levels of personal savings and low levels of personal debt, offers tantalising evidence of China's new-found wealth.

Yet, behind these headlines, there is compelling evidence that although economic growth has created vast wealth for some, it has amplified the disparities between rich and poor.

Continue reading the main story

Over the next weeks we will profile six of China's richest entrepreneurs, and report how they fit into the country's society.

These disparities indicate an often hidden vulnerability in China's rapid growth, but one which is neither unique nor new to China's leadership.

Wealth Contradictions

One of the most fascinating contradictions of China's rapid growth under the auspices of the communist party has been the rapid emergence of private wealth.

The privatisation of state enterprises and the housing and social benefits that accompanied them, the re-zoning of rural land for industry, and a construction boom, created enormous possibilities for personal wealth.

The 2010 Credit Suisse Global Wealth Report noted that these forms of wealth, which accounted for much of the $9,600 in real assets per adult in China, were extremely important forms of wealth creation.

But they also came at a cost.

The report showed that although the average wealth per Chinese citizen was $17,126 - almost double that of other high growth economies such as India - median wealth was just $6,327.

The latter suggests that wealth created has not been evenly distributed.

Such inequalities also highlight a contradiction in that although the monetisation of previously state-owned assets undoubtedly benefited many of China's emerging middle class, it ultimately came at a cost to the public who would now have to finance these goods and services out of personal savings.

Divide between urban and rural ...

The wealth data, although a less rigorous measure of inequality, is also reflected in more conventional measures of inequality.

China's cities are growing rapidly

In 2010, China's Gini-coefficient - a measure of how wealth is distributed in a society - stood at 0.47 (a value of 0 suggests total equality, a value of 1 extreme inequality).

In other words, inequality in China has now surpassed that in the United States, and surged through the 0.4 level in the mid-2000s.

A Gini-coefficient of 0.4 is generally regarded as the international warning level for dangerous levels of inequality.

Looking only at the data for the whole country, however, conceals the growing disparity between urban and rural areas.

Even after three decades of rapid growth China remains a very rural economy.

Despite the continued growth in urbanisation, some 50.3% of China's mainland population (or 674.15 million people) continue to live in rural areas.

In 2010, rural residents had an annual average per capita disposable income of 5,900 yuan ($898). That's less than a third of the average per capita disposable income of urban residents, which stood at 19,100 yuan ($2,900).

As the chart shows, the gap between urban disposable and net rural income has persistently widened since 1978.

... is getting larger

Disparities in income data are also reflected in household consumption patterns and the access those households have to basic consumer services.

The Engel coefficient, which measures how much of their income households have to spend on food, has been consistently higher for rural households.

Many cities, such as Beijing and Shanghai, now have coefficients lower than 30, reflecting the vast differences between these cities and the rest of China.

These patterns are hardly surprising, given that rural households must necessarily spend a higher proportion of income on food.

It is also unsurprising, given that even as late as 2009 three of China's poorest provinces - Tibet, Yunnan and Sichuan - were identified by China's banking regulator as having more than 50 unbanked counties.

This meant that they lacked even basic access to financial services.

What is surprising is how different urban and rural households are when it comes to durable goods such as cars, washing machines and fridges, considered normal essentials for households in the developed world.

Urban households Rural households

(ownership per 100 households) Source: National Bureau of Statistics of China

More worrying is that the above trends may conceal an emerging rural divide.

The rural Gini-coefficient increased from 0.35 to 0.38 between 2000 and 2010, suggesting growing inequality within rural areas.

Of particular concern is the large pool of migrant labour.

At the end of 2009, China had an estimated 229.8 million rural migrant workers, of which about 149 million are thought to work outside their registered home area.

The official average monthly wage for these workers, many of whom work in manufacturing and assembly, amounted to 1,417 yuan, though unofficial reports suggest many earn less that 1,000 yuan a month.

Moreover, because these migrants work outside their registered area, the low wage rates conceal enormous personal sacrifices, which include long working hours, poor housing conditions, and, most significantly, a loss in welfare benefits associated with the household registration system known as Hukou.

A price worth paying?

The question for China is whether the scale of such inequalities is a tolerable price of growth.

Migrant workers are feeding China's economic boom, though some struggle to feed themselves

It is not a new question.

Even by 1978, urban per capita incomes were already growing at more than double the rate of rural farm incomes, and the post-1978 reforms appear to have further widened this gap.

It is clear that China's leadership has recognised how damaging such disparities can become in what is now the world's second-largest economy.

The government wants to lift some 40 million or so rural residents out of poverty; since 2004 it has worked to raise minimum wages for migrant workers, improve rural incomes through tax cuts and enforce labour contract law.

The Chinese leadership also tries to force labour-intensive and low-value added industries to move to rural areas.

Although such reforms have been described as a return to central planning or supply-side management, they suggest a recognition that the benefits of growth have not necessarily trickled down to Chinese society's poorest.

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China and Germany ink $15bn deals

29 June 2011 Last updated at 04:35 GMT China has been looking to foster stronger ties with its key trading partners China and Germany have signed trade deals worth $15bn (?9bn) following meetings between the two country's leaders in the German capital Berlin.

Chinese Premier Wen Jiabao and German Chancellor Angela Merkel also targeted an increase of bilateral trade to 200bn euros ($284bn; ?178bn) over the next five years.

Germany is by far China's biggest trading partner in the European Union.

China and Germany are the two biggest exporters in the world.

Premier Wen said the focus of the meeting was to "boost the growth potential of bilateral trade... and to once again double our bilateral trade volume in five years".

The deals include an agreement between Airbus and China Aviation Supplies for delivery of 88 A320 planes with a list price of $7.5bn.

'Helping hand' Premier Wen's Europe trip comes at a time when many countries in the region are facing sovereign debt problems.

As countries like Greece struggle to pay back debt and restructure their finances, China has offered some reprieve to the region's economies.

"China has expressed support for Europe at various times," he said.

"In other words, when Europe is in difficulty we will extend a helping hand from afar," he added.

However, the Chinese premier did not give details of the amount of debt it may purchase or which countries' debt it may look at.

"We will, according to need, definitely purchase certain amounts of sovereign debt," Premier Wen said.

China has vast amounts of cash available, with its foreign exchange reserves at a record high of more than $3trn.

"The exchange reserves put China in a strong position to help Europe," said Duncan Innes-Ker, of the Economist Intelligence Unit.

Diversifying exposure

However, analysts said that China's support for countries in the middle of the European debt crisis was also driven by its own ambitions.

About a quarter of China's foreign exchange reserves are invested in euro-denominated assets, according to various estimates.

"It has a strong interest in the euro not collapsing as a result of the current crisis," said Mr Innes-Ker.

"It is willing to take risks to achieve its long-term goal that the euro serves as an alternative to the dollar as a reserve currency," he added.

Mr Innes-Ker said that the longer China maintains the link between the yuan and the US dollar, the more its economy will be affected by US monetary policy.

"China's dependence and exposure to the US dollar creates issues for its own economy to the extent that it's a hostage to US monetary policy," he said.

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China property rating downgraded

15 June 2011 Last updated at 05:40 GMT China's strict credit policy is likely to hit new home sales, thus affecting property prices Rating agency Standard & Poor's has downgraded its outlook for China's property market from stable to negative due to the country's tightening credit policy.

The agency said as credit becomes more restricted there was a possibility of a downturn in the sector.

The news comes as latest data showed that foreign direct investment (FDI) in to China slowed down in May.

Rising property prices have become a hot political issue in China.

Restrictive policy

Beijing has been trying to rein in lending in an attempt to control surging property prices.

On Tuesday, China's central bank raised the reserve requirement ratio for the banks to a record high of 21.5%, effectively reducing the amount of cash that they can lend.

Government figures also showed that Chinese banks made fewer loans in May compared to April.

The agency said that all these measure are likely to hit the sector hard.

"We're likely to see more negative rating actions in the next six to 12 months," said Standard & Poor's credit analyst Bei Fu.

"Tightened onshore credit conditions and increasingly restrictive government policy have deepened the market downturn," Ms Fu added.

Slowing investment

While authorities have been working towards restricting domestic credit, the rise in foreign investment in China has also slowed.

According to the commerce ministry, FDI was $9.2bn (?5.6bn) in May, a rise of 13.4% compared with the same month last year.

This was lower than April's 15.2% increase and less than half of March's 32.9% year-on-year surge.

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China inflation at 34-month high

14 June 2011 Last updated at 11:24 GMT The rise in food prices has hit a lot of Chinese shoppers in the pocket Inflation in China hit its highest level in 34 months despite the government's efforts to rein in rising prices.

Consumer prices in China rose by 5.5% in May, compared with the same month last year, according to the National Bureau of Statistics.

Food prices continued to be the biggest factor as they surged by 11.7%

The rising cost of food and commodities have pushed up the cost of living and become a hot political issue in China.

Analysts warned that prices are likely to rise even further.

"For now, it seems certain that China's CPI will hit 6% in June," said Xu Biao of China Merchants Bank.

Rate rise

Chinese authorities have said that fighting rising prices is a top priority for them.

It has set a target of keeping the inflation rate at 4% for the year.

The country's central bank has raised interest rates four times since October last year, in an effort to curb lending and rein in rising prices.

Analysts said that the latest data is likely to force the bank to raise the cost of borrowing once again.

"CPI reached a new record, increasing concerns of another interest rate rise," said Xian Fang Ren of IHS Global Insight

"We expect the central bank to raise interest rates next week," Mr Ren added.

Inflation is a particular concern in fast-growing economies across Asia. region.

In India, the wholesale price index of inflation rose faster than expected in May to 9.05%, caused partly by an increase in the cost of manufactured goods.

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China rejects Gmail spying claims

2 June 2011 Last updated at 09:37 GMT Google said the cyber-spying campaign targeted Gmail accounts of US officials and journalists China has rejected allegations of involvement in a cyber-spying campaign targeting the Google e-mail accounts of top US officials, military personnel and journalists.

A foreign ministry spokesman said it was "unacceptable" to blame China.

Google has not blamed the Chinese government directly, but says the hacking campaign originated in Jinan.

The US company said its security was not breached but indicated individuals' passwords were obtained through fraud.

Google said Chinese political activists and officials in other Asian countries were also targeted from the Shandong city, which is 400 km (250 miles) south of Beijing.

The White House said it was investigating the reports but did not believe official US government e-mail accounts had been breached.

Safety tips

It is extremely difficult for analysts to determine whether governments or individuals are responsible for such attacks, says the BBC's Adam Brookes in Washington.

But the fact that the victims were people with access to sensitive - even secret - information raises the possibility that this was cyber-espionage rather than cyber-crime, adds our correspondent.

Continue reading the main story Maggie Shiels Technology reporter, BBC News, Silicon Valley

Security experts say they are seeing an increase in these so-called spear phishing incidents in which attackers go after specific information or assets and aim at "high value individuals".

One consultant described it as an "epidemic", while another said such attacks are all too easy to perpetrate given the amount of information that lives on the internet about people - from their Twitter stream to their Facebook pages to sites that trace your family tree.

A smart attacker can assemble enough information to "influence and convince" a target that they are receiving a genuine email from someone they know.

However, Chinese foreign ministry spokesman Hong Lei told a news briefing: "Blaming these misdeeds on China is unacceptable.

"Hacking is an international problem and China is also a victim. The claims of so-called support for hacking are completely unfounded and have ulterior motives."

On Wednesday, Google said it had "detected and has disrupted" a campaign to take users' passwords and monitor their emails.

"We have notified victims and secured their accounts," said the company. "In addition, we have notified relevant government authorities."

The e-mail scam uses a practice known as "spear phishing" in which specific e-mail users are tricked into divulging their login credentials to a web page that resembles Google's Gmail web service (or which appears related to the target's work) but is in fact run by hackers.

Having obtained the user's e-mail login and password, the hackers then tell Gmail's service to forward incoming e-mail to another account set up by the hacker.

In an advisory message released on Wednesday, Google recommends several steps for users to take to improve the security of Google products:

Enable two-step verification, such as using a mobile phone to which Google sends a second password to enter on sign-inUse a strong password (mix of letters and numbers, avoiding family names, birth dates etc) for Google that you do not use elsewhere. Here's a video to help. Enter your password only into a proper sign-in prompt on a https://www.google.com domain. Check your Gmail settings for suspicious forwarding addresses or delegated accounts

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MGM China shares rise 2% on debut

3 June 2011 Last updated at 11:43 GMT Rising gambling revenues in Macau have driven up the profits of casino operators in the territory MGM China has made its debut on the Hong Kong stock exchange as investors continue to bank on Macau's gambling boom.

The shares ended the day up 2% at HK$15.62. During the session, the company's shares rose as much as 6%.

MGM China is one of only six companies that have licences to operate casinos in Macau.

The company priced its stock at HK$15.34 per share, the top end of its expected range, raising $1.5bn (?912m).

Continue reading the main story

[Young people] know they will get a job in a casino and have a pretty good life. There's less drive to compete”

End Quote Ricardo Siu University of Macau Gambling revenues in Macau have been rising, turning it into the world's biggest gambling market.

Booming market

Major Asian economies are witnessing robust growth, which has helped revenue and profits of Macau's casino operators rise substantially.

Gambling revenue in Macau surged 57% in 2010 to $23.5bn (?14.4bn).

As a result, investors have made a beeline for shares of the leading operators in the territory.

Shares of SJM Holdings, the largest casino operator in the territory, have risen by 240% in the past year.

Galaxy Entertainment, which runs six casinos in Macau, has seen its stock price surge by 380%.

Analysts say that as the profile of Macau keeps rising, investors are betting on the operators in a bid to grab a share of the success.

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MGM China share sale makes $1.5bn

27 May 2011 Last updated at 06:02 GMT The share sale will give MGM full control of its operations in the Chinese territory MGM China has raised $1.5bn (?912m) through a share flotation in Hong Kong, as investors look to grab a slice of Macau's gambling boom.

The company priced its stock at HK$15.34 per share, the top end of its expected range.

Gambling revenues in Macau have been rising turning it into the world's biggest gambling market.

MGM China is one of the only six companies that have a licence to operate casinos in Macau.

The company is a joint venture between MGM Resorts International, which owns some of the biggest casinos in the US and Pansy Ho, the daughter of casino mogul Stanley Ho, the largest casino operator in Macau.

Rising profile

The biggest beneficiary of the share sale is expected to be Ms Ho.

According to the previous arrangement, MGM and Ms Ho owned an equal 50% stake in the company.

However, according to an agreement between the two in April, Ms Ho will sell 21% of her stock, hence pocketing most of the cash from the sale.

According to some estimates, this may see her net worth swell to as much as $5bn, propelling her over her father, Stanley Ho, who's fortune is estimated to be around $3bn.

MGM's stake in the company will increase to 51% after the share sale.

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UK's credit rating is downgraded... by China

24 May 2011 Last updated at 11:02 GMT Despite George Osborne's best efforts, the Chinese agency said slow growth would keep the deficit high The UK's credit rating has been cut by the Dagong rating agency of China.

The agency blamed the UK's sluggish growth, which it said would be stuck in the 1.3%-1.5% range for two more years, hurting government finances.

The downgrade from AA- to A+ puts Britain on a par with Chile and heavily-indebted Belgium, and the US, which Dagong downgraded in November.

In contrast, the big three Western rating agencies all still award the UK - and the US - the top AAA rating.

Dagong kept a negative outlook on the UK's rating, suggesting that more downgrades may be yet to come.

Deficit overshoot

"Obviously this is not one of the main rating agencies that markets pay close attention to," noted Sarah Hewin, European head of economic research at Standard Chartered.

But she said the comments could still have an impact on market sentiment, just because they are a reminder that all is not well in the UK.

"Although the fiscal side is being tackled, [Dagong] sees relatively low growth and high inflation," she explains.

The Chinese agency forecast that because of the slow growth, the budget deficit would still overshoot the government's 7.9% to 9% target, despite George Osborne's best austerity efforts.

It also warned that persistently high inflation could necessitate future rate hikes, increasing the UK's borrowing costs, while contagion from the eurozone debt crisis was also "likely to further worsen the government's fiscal status".

Politics of ratings

The three Western rating agencies - Moody's, Standard and Poor's, and Fitch - were heavily criticised for awarding excessively high ratings to mortgage securities and other debts that turned out to be toxic during the financial crisis.

Yet despite this failure, they remain highly influential because Western fund managers and banks typically face limits on what they can invest in that are based on credit ratings.

In contrast, Dagong's ratings are not widely relied on by investors outside China.

Some critics suggest that Dagong's ratings may offer a more impartial view of the true health of government finances in Europe and North America.

The Chinese president, Hu Jintao, called last year for global regulators to impose a more consistent methodology for the way in which sovereign governments are rated.

But while the Western agencies have threatened to review their ratings of both the US and UK in the past, none has yet to take action.

Meanwhile, Dagong - founded in 1994 - rates its home country of China AA+, three notches above the UK and US, and much higher than the People's Republic is ranked by the three western agencies.

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Wal-Mart China executives resign

24 May 2011 Last updated at 06:54 GMT Wal-Mart opened its 100th store in Beijing in 2007 Two top Wal-Mart executives have resigned from the company's China business, at a time when the US retail giant is trying to expand in a key growth market.

Wal-Mart China chief financial officer Roland Lawrence and chief operating officer Rob Cissell have left "to explore other opportunities", the company said in a statement.

It did not name any replacements.

Wal-Mart entered China in 1996 and now has 333 stores there.

This includes 104 stores operated by Trust-Mart, in whom Wal-Mart bought a 35% stake in 2007.

Wal-Mart competes with France's Carrefour and the UK's Tesco in China.

Shanghai-based retail analyst Marie Jiang, from Pacific Epoch, said the departures could cause some concern.

"The psychological impact [of the departure of the executives] is seen to be larger than the material as employees of its China operation may see an unstable top management team," she said.

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