Australia has approved a US$438m Chinese investment in iron ore producer Fortescue Metals Group only a few days after it stunned investors and blocked a separate Chinese mining investment.

China’s efforts to expand in Australia’s resources sector were given a substantial boost on Tuesday when Canberra approved Hunan Valin Iron and Steel’s A$1.2bn (US$771m) purchase of a stake in Fortescue Metals, the country’s third largest iron ore exporter.

There was also optimism that China’s Minmetals, which last week had its A$2.6bn agreed takeover of Oz Minerals blocked, would strike a revised deal. The Chinese group submitted a fresh bid proposal that excludes the Prominent Hill mine cited by Canberra as the reason for rejecting the initial offer on national security concerns.

Both developments will add to confidence Chinese entities are welcome to invest in Australia although Wayne Swan, Australia’s treasurer, demanded “formal and strict undertakings” from Valin and Fortescue.

However, Mr Swan’s biggest test will come later this year when he rules on Chinalco’s planned US$19.5bn capital injection into Rio Tinto, the debt-laden Anglo-Australian mining group. Australia’s Foreign Investment Review Board (FIRB) has until June 18 to make its recommendation on the investment by the Chinese aluminium group, to Mr Swan.

Mr Swan said on Tuesday that Valin must report to FIRB on its compliance with a variety of undertakings.

These include that any director appointed by Valin to Fortescue’s board complies with the company’s directors code of conduct; that any director nominated by the Chinese group declares any potential conflicts of interest relating to Fortescue’s marketing, sales, customer profiles, price-setting and cost structures for pricing and shipping; and that any Valin appointed director complies “with the information segregation arrangements agreed” between the two companies.

Andrew Forrest, Fortescue chief executive, welcomed the “passive investment” to be made by Valin, which includes about A$1.2bn for new and existing shares that will take the Chinese group stake to 17.4 per cent. Valin is restricted from lifting its holding beyond 17.55 per cent. Mr Forrest said Valin’s chairman had the right to join Fortescue’s board.

“I believe FIRB’s approval will be very welcome in China and it will strengthen the bipartisan relationship that exists between Australia and China, and Fortescue and the Chinese steel industry,” Mr Forrest said.

The A$645m in new shares Valin is buying will help finance the next phase of Fortescue’s iron ore operations in the Pilbara region of Western Australia.

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A Chinese spying operation obtained sensitive data from hundreds of government computers in more than 100 countries, according to a new report from Toronto University experts.

University of Toronto experts found 1,295 infected computers around the world and observed the operation stealing documents and watching and listening to users through webcams and microphones.

The report will spark fresh alarm about the extent of information warfare and, in particular, about Chinese hacking. The high proportion of “high-value” infections suggested the existence of a targeted spying operation rather than a criminal network.

The researchers could not establish that the Chinese government was behind the hacking effort – dubbed GhostNet – but they noted that the targets were groups of particular interest to ­Beijing, including Tibetan independence activists.

Among the 1,295 infected machines, 397 were “either significant to the relation between China and Tibet, Taiwan or India, or were identified as computers at foreign embassies, diplomatic missions, government ministries or international organisations”, the report said.

Triggered by a request from the Tibetan government in exile, the 10-month investigation found that several computers in the office of the Dalai Lama had been infiltrated by malware, virus-like software that hijacks a machine and makes it obey commands from the attackers.

The report said circumstantial evidence suggested that the Chinese state had exploited this set of high­profile targets for “military and strategic-intelligence purposes”. It said many attacks appeared to come from Hainan island, home of the Chinese military’s Lingshui signals intelligence facility.


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Beijing has devolved most of the responsibility for financing airport projects to regional authorities, but a study shows a risk of insufficient funds for fast-growing coastal province.

China risks misallocating investment by overspending on airport projects in poorer western provinces and skimping on allocations to some fast-growing coastal provinces in its $70bn plan to expand capacity until 2013, according to a study by McKinsey, the consultancy.

Of the 97 greenfield airport projects planned by Beijing until 2020, McKinsey categorises only 20 to 30 as offering “attractive” investment opportunities by addressing expected capacity shortfalls.

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China is unhappy. So much is clear as a book stating just this and recommending a confrontation with the west as a remedy has conquered the country's bestseller lists.

Unhappy China argues that the country should stand up to the west to claim its rightful place as a global power, and it looks to a patriotic young generation as a source of national strength and unity.

This comes just as China’s harassment of a US surveillance ship, which was branded by Washington as “aggressive, troublesome” behaviour, and Beijing’s proposal that the US dollar could be replaced as the main international reserve currency, gave powerful reminders of the country’s potential to become a global power both militarily and economically.

Song Qiang, one of the book’s five authors, says that for a rising power like China, there are only two choices open to it: to become a hegemon or to get cast aside.

“I’d rather choose the first,” he said in an interview.

Wang Xiaodong, another of the authors, argues that the financial crisis has proved that the US has failed in world leadership and that “we can do it better”. Even without the crisis, he believes China must become a superpower.

“For a country as big as China, the need will arise to secure sufficient resources,” he said.

The nationalism of China’s “angry youths” shocked many in the west when they protested against the rejection of their Olympic torch run in Paris, attacked the western media for alleged bias and lies in its coverage of unrest in Tibet and called for a boycott of the French retailer Carrefour’s outlets in their country.

For the book’s authors, they are China’s only heroes and these views sell. Unhappy China jumped to the top of the bestseller list of online bookstore dangdang.com soon after publication on March 12.

As the initial 100,000 copies were selling out quickly, the publisher rushed to print another 50,000 early this week.

In the country’s lively internet blogosphere, the book has created something of a stir.

On Qihoo, a search site, a search for the book title returned more than a million listings.

All major web portals and social networking sites have their own Unhappy China forums where supporters and critics face off.

“The book appeals to the section of this increasingly diverse society which is frustrated that the leadership is not taking a firmer hand in foreign policy,” said Russell Leigh Moses, a Beijing-based political analyst. He added that the treatise represents a challenge for the Chinese government.

“The fact that this book is out means that such ideas have some traction,” said Mr Moses.

“However, it’s a sign of just how divided this society is and how uncertain the future is that it doesn’t sweep the system in a storm but causes so much friction.”

Some bloggers reject the book as the bitter rant of ultra left-wing intellectuals who feel sidelined under Beijing’s policies of reform and opening.

Others agree with the goal but differ on the authors’ view that Beijing should go for it and assert itself right now.

“China is still too weak to seek confrontation with the west,” said an anonymous blogger.

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Kingfisher is planning to cut its shop space in China by 40 per cent over the coming two years as Europe's biggest home improvement chain overhauls its loss*making Chinese operation.

Ian Cheshire, who rep­orted a 75 per cent plunge in Kingfisher’s pre-tax profits for the year after notching up £230m of exceptional charges linked to the Chinese venture, said the business was salvageable but needed to be pared back.

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When Chinese ships recently harassed the Impeccable, a US navy surveillance ship, in the South China Sea, they inadvertently shone the spotlight on brewing tensions in the region that were slowly moving on to the US radar.

By surrounding, and then blocking, the Impeccable, the Chinese navy inadvertently succeeded in explaining what Robert Gates, US defence secretary, meant when he referred to “coercive diplomacy and other pressures” in a nuanced speech to Asian defence officials in Singapore last year.

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China deployed more missiles across the Taiwan Strait during the past year in spite of a decline in tensions since a new Taiwanese president was elected, the Pentagon says.

In its annual report on the Chinese military, the US defence department said China was “rapidly developing coercive capabilities” to deter Taiwan – which Beijing considers a renegade province – from seeking de jure independence.

“These same capabilities could in the future be used to pressure Taiwan toward a settlement of the cross-strait dispute on Beijing’s terms while simultaneously attempting to deter, delay or deny any possible US support for the island in case of conflict,” the report said.

“This modernisation and the threat to Taiwan continue despite significant reduction in cross-strait tension over the last year since Taiwan elected a new president.”

The report, mandated by the US Congress, comes just a few weeks after an incident in the South China Sea in which five Chinese naval, fisheries and fishing ships harassed the USNS Impeccable, a US navy ship used for detecting submarines. Defence experts say the Chinese navy is increasingly trying to challenge the US Seventh Fleet, which has long been the dominant naval power in the region.

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The prices of China-made goods are falling again as bargaining power shifts back to overseas buyers, according to executives at Li & Fung, the world's largest trade sourcing company.

A deflationary price trend has re-established itself after three-and-a-half years of steady increases in the so-called “China price” – a once unbeatable benchmark for global manufacturers – and coincides with double-digit falls in the country’s exports over recent months. The value of China’s exports fell 25.7 per cent year-on-year in February, exacerbating a 17.5 per cent decline in January.

Hong Kong-based Li & Fung, whose turnover reached HK$110.7bn ($14.2bn) last year, said export prices for Chinese manufactured goods began to fall in the second half but stayed flat for all of 2008.

“This year prices are falling considerably and I expect that to continue for the full year,” said Bruce Rockowitz, president of Li & Fung’s trading arm. He added that prices were down “at least 5 to 10 per cent” compared to 2008.

China-based exporters began to claw back pricing power in 2005 after steep increases in labour, raw material and other input costs forced them to pass on more of the burden to overseas buyers. But this advantage now appears to be ending.

“Deflation [in the supply chain] is here to stay,” said William Fung, managing director. “Buyers have more of an upper hand again.”

China accounts for just over half of the company’s sourcing business. Despite dramatically slower growth for China’s export sector last year, the value of Chinese goods sourced by Li & Fung increased 27 per cent thanks to a series of acquisitions and outsourcing deals.

Last year Li & Fung purchased Van Zeeland, a US handbag company, and Germany’s Miles Fashion. Over the past two years retailers including Toys “R” Us, Timberland, Sanrio – the Japanese company famous for its “Hello Kitty” product lines – and Liz Clairborne have contracted out their sourcing operations to Li & Fung.

Despite a 20 per cent increase in turnover, Li & Fung on Wednesday reported a 21 per cent decline in net profit, to HK$2.42bn, for 2008. Mr Fung attributed the profit fall to a series of “one-off” events including HK$254m in restructuring costs at companies it has recently acquired, especially in the US.

“Many of the functions of the businesses we took over in America are being transferred to Asia and other places,” he said. “Our overheads are going where the factories are going.”

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China's central bank proposed replacing the US dollar as the international reserve currency with a new global system controlled by the International Monetary Fund and expanding the role of the multilateral lender's Special Drawing Rights.

The goal would be to create a reserve currency “that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies,” Zhou Xiaochuan, governor of the People’s Bank of China, said in an essay posted in Chinese and English on the central bank’s website.

Although Mr Zhou did not mention the US dollar, the essay gave a pointed critique of the current dollar-dominated monetary system.

“The outbreak of the [current] crisis and its spillover to the entire world reflected the inherent vulnerabilities and systemic risks in the existing international monetary system,” Mr Zhou wrote.

Analysts said the proposal was a clear indication of Beijing’s fears that actions being taken to save the domestic US economy would have a negative impact on China.

“This is a clear sign that China, as the largest holder of US dollar financial assets, is concerned about the potential inflationary risk of the US Federal Reserve printing money,” said Qu Hongbin, chief China economist for HSBC.

For now, China has little choice but to hold the bulk of its $2,000bn of foreign exchange reserves in US dollars and this is unlikely to change in the near future.

To replace the current system, Mr Zhou suggested expanding the role of Special Drawing Rights, which were introduced by the IMF in 1969 to support the Bretton Woods fixed exchange rate regime but became less relevant once that system collapsed in the 1970s.

Today, the value of SDRs is based on a basket of four currencies – US$, Yen, Euro and Pound Sterling – and they are used largely as a unit of account by the IMF and some other international organizations.

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China's rejection of Coca-Cola's $2.4bn deal for Huiyuan Juice is based on questionable logic and could be retaliation for previous US protectionism, say competition lawyers.

China’s ministry of commerce (Mofcom) stunned bankers, lawyers and investors on Wednesday by blocking the deal, which would have been the largest foreign takeover of a Chinese company. The decision was based on competition grounds, namely that Coke might abuse its dominant position in China’s fizzy drinks industry by imposing bundled sales of juice drinks.

Mofcom also said the deal would have had an adverse impact on China’s smaller domestic juice makers.

The single-page ruling has prompted a barrage of comment from competition lawyers, who say China is using the anti-monopoly regime – which was beefed up last August – to thwart politically-sensitive foreign investment.

Lovells, the law firm, said: “There are question marks as to the logic behind such reasoning as is provided in the decision.” Kirstie Nicholson, a Beijing-based lawyer with Lovells, said concerns about bundling could have been dealt with by imposing behavioural conditions or penalties should it occur.

However, some lawyers said other anti-trust regimes have used concern over bundling to try to stop deals, and that China’s evolving anti-trust rulings would mature. An example was the European Union trying to block General Electric’s takeover of Honeywell in 2001, a ruling that was later overturned in court.

Allen & Overy, the London-based international law firm, criticised the explicit defence of Huiyuan’s smaller rivals, noting that “the fundamental goal of competition law is to protect competition, not any select group of competitors”.

John Taladay, partner in the Washington practice of Howrey, said the anti-trust unit within Mofcom was not an independent agency like in the US and the European Union, and was therefore “not immune to political pressure”. He added: “You have to wonder if [the decision] isn’t payback for resistance that Cnooc faced when it tried to acquire Unocal.” China National Offshore Oil Corp withdrew its 2005 bid for Unocal, the US oil company, after a political backlash in Washington.

Chinese officials have sought to play down concerns that the rejection was forced by a public outcry over the loss of a leading juice brand.

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China may convert more navy ships into fishery vessels to patrol the South China Sea, the China Daily reported, as Beijing seeks to extend its reach over disputed islands that straddle key Asian shipping lanes.

”China will make the best use of its (retired) naval ships and may also build more fishery patrol ships, depending on the need,” Wu Zhuang, director of the Administration of Fishery and Fishing Harbor Supervision of the South China Sea, told the newspaper.

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China Mobile posted an 11 per cent rise in fourth-quarter net profit as subscriber growth and competitive pricing helped offset the impact of the economic slowdown.

HONG KONG, March 19 – China Mobile missed forecasts with an 11 per cent rise in quarterly earnings as subscription and usage growth slowed faster than expected, and it warned of rough times ahead as the global downturn dampens its home market.

Analysts said growth for the world’s largest mobile carrier by users would slow even more this year as its rivalry with China Unicom and China Telecom heats up and China’s economy loses steam amid the global financial crisis.

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Beijing's decision to block Coca-Cola's proposed $2.4bn takeover of juice maker Huiyan, a deal that would have been the largest foreign takeover in China, has drawn widespread public support.

In an online poll conducted by a leading website, more than 80 per cent of 120,000 respondents strongly agreed with the rejection. More than two-thirds said foreign investments in Chinese companies were generally bad and hurt national brands.

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China formally rejected Coca-Cola's proposed $2.4bn takeover of the country's leading juice maker on competition grounds.

The decision represents a major blow to multinational companies seeking to make acquisitions in China.

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The World Bank lowered its forecast for China's 2009 economic growth but warned Beijing that it would be thwarting its own medium-term goals if it tried to offset the slowdown by further boosting investment.

The World Bank on Wednesday lowered its forecast for China’s GDP growth this year to 6.5 per cent, down from 7.5 per cent it predicted at the end of November last year, following a huge drop in exports and shrinking private sector investment.

The downgrade widens the gap between domestic estimates, which overwhelmingly predict that the country will hit its official target of 8 per cent growth this year, and more pessimistic forecasts from international economists.

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Faced with the impact of a slowing global economy on its coastal export base and 6m university students set to graduate this June, China is once again sending young university graduates back to the countryside.

Xiao Lisheng had big ambitions when he entered university four years ago. He expected a bright future in an export company in the booming coastal metropolis of Shanghai.

But now, as he prepares to graduate with a degree in international economics and trade, his future looks as if it may lie with the Communist party’s educational league in the far-flung and impoverished north-west region of Ningxia.

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State Administration of Foreign Exchange made ill-timed investments to amass an estimated $80bn loss on foreign equities and other investments

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Chinese Premier Wen Jiabao on Friday urged the US to take measures to guarantee its “good credit”, expressing concern about the “safety” of his country’s huge holdings of US government debt.

Mr Wen’s shot at the US’s deteriorating fiscal position – on the eve of this weekend’s G20 finance ministers’ meeting – was paired with a promise to increase China’s public spending this year to boost its economy if needed.

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China will increase public spending further this year to boost its economy if needed and already has contingency plans in place to do so, Premier Wen Jiabao said on Friday at his annual press conference.

Speaking at the closing of the National People’s Congress in Beijing, Mr Wen said he was “worried” about the value of China’s large holdings of US assets and warned the US to take measures to guarantee its “good credit”.

Wen also said that China would maintain the “basic stability” of its currency but cautioned that pressure from other countries would not force it to change its exchange rate policy.

China has pledged to achieve an 8 per cent growth rate this year, which Mr Wen said was difficult but possible, and the government has said it will run a 3 per cent budget deficit this year in order to finance stimulus measures.

“We have prepared contingency plans to handle greater difficulties,” he said. “We have prepared enough ammunition and we can launch new economic stimulus policies at any time.”

The Chinese government is the largest foreign holder of US public debt and Chinese officials have shown increasing signs of concern that the sharp increase in US government spending will lead eventually to inflation and a collapse in the dollar.

“We have lent a huge amount of money to the United States,” Mr Wen said. “Of course we are concerned about the safety of our assets. To be honest, I am a little bit worried. I request the US to maintain its good credit, to honour its promises and to guarantee the safety of China’s assets.”

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China's industrial output growth ground almost to a standstill at the start of the year, coming in below market expectations, but a continued surge in bank lending in February spurred optimism that business activity could soon rebound.

Retail sales also slowed in the first two months, though only slightly, showing that Chinese consumers, like the broader economy itself, remain in better shape than their counterparts around the world.

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