Posts Tagged ‘China’

South China Sea: China Begins Surprise Military Exercises

October 27, 2016

By Morgan Chalfant

China will conduct military drills in the South China Sea on Thursday, less than a week after a U.S. Navy destroyer sailed near disputed islands claimed by Beijing in the region.

The Japan Times reported that China’s Maritime Safety Administration announced the planned day-long military exercises in a brief statement Wednesday. The country ordered non-military vessels to stay away from a designated section of the sea south of Hainan island and northwest of the disputed Paracel Islands.

China’s navy conducts military exercises in the South China Sea

The U.S. Navy on Friday sailed a warship close to the Paracel Islands, which are also claimed by Taiwan and Vietnam but occupied by China. The operation was conducted “in a routine, lawful manner without ship escorts and without incident” and “demonstrated that coastal states may not unlawfully restrict the navigation rights, freedoms, and lawful uses of the sea,” a Navy spokesman said last week.

The United States has periodically sailed warships close to disputed territories in the South China Sea in exercise of freedom of navigation, drawing ire from Beijing. The U.S. operations have abided by the rules of “innocent passage,” meaning that the warships do not sail within 12 nautical miles of disputed territories.

Some U.S. officials have accused China of “militarizing” the South China Sea by building up artificial islands and constructing air strips and reinforced hangars on some disputed features.

China lays claim to most of the South China Sea, though an international tribunal ruled in July that Beijing’s territorial claims have no legal or historical basis. China has rejected the ruling, despite efforts by the U.S. and other regional powers urging Beijing to accept it.

China periodically holds military drills in the South China Sea, including recent joint exercises with Russia in September.


China set to conduct military drills in South China Sea less than a week after U.S. patrol

By Jesse Johnson


China has announced that it will hold military exercises in the South China Sea all day Thursday, the country’s Maritime Safety Administration said in a short statement on its website.

The statement, posted to the site Wednesday, ordered nonmilitary vessels to stay away, giving the coordinates for a section of the waters just south of Hainan island and northwest of the disputed Paracel chain, which is claimed by Vietnam and Taiwan but controlled by China.

The announcement comes less than a week after a U.S. Navy warship sailed near the Paracels, drawing an angry rebuke from Beijing, which accused Washington of intentionally stirring tensions.

The U.S. operation Friday was the fourth “freedom of navigation” challenge in the past year to what Washington says are overreaching maritime claims by Beijing in the South China Sea.

That patrol reportedly sailed near Triton Island and Woody Island, the largest in the Paracels, and home to a key military airfield. Satellite images revealed in February that China had also deployed HQ-9 surface-to-air missiles to Woody Island.

China routinely holds drills in the waters, including a massive joint exercise with Russia last month. Experts, however, have pointed out that many of the announced military drills have taken place near the Paracels, which are closer to China and more firmly under its control than the hotly disputed Spratly chain more than 800 km south.

Beijing claims most of the South China Sea, through which more than $5 trillion in annual trade passes. Brunei, Malaysia, the Philippines, Taiwan and Vietnam all have rival claims.

In July, the Permanent Court of Arbitration in The Hague rejected Beijing’s expansive claims to much of the strategic waters. Beijing blasted the ruling, calling it “waste paper.”



China’s Debt Harming The Economy — The Forecast for China’s Economy

October 27, 2016


Profit growth in China’s industrial firms slowed sharply as some key manufacturing sectors stumbled on weak activity and rising debt, suggesting the world’s second-biggest economy remains underpowered despite emerging signs of stability.

The September data from National Bureau of Statistics (NBS) underlined the daunting task facing policy makers as the nation’s vast manufacturing industry grapples with slack demand, overcapacity and ballooning debt.

Industrial sector profits last month rose 7.7 percent to 577.1 billion yuan, slowing markedly after surging 19.5 percent in August, NBS figures released on its website showed on Thursday.

Earnings in industries such as electronics, steel and electricity were hit by a significant drop in growth, He Ping, a NBS official said in a note accompanying the data.

“Although industrial profits have got back on track with more stable growth, unfavorable factors still exist,” He said, noting weak demand at both home and aboard, and delayed payments put a strain on firms’ cash flow.

The official also cautioned about rising debt levels in the coal and steel sectors, stressing the importance of controlling debt risks as capacity cuts and structural reforms get implemented.

China’s debt has soared to 250 percent of GDP and the Bank for International Settlements (BIS) warned in September that a banking crisis was looming in the next three years.

Recent data showed some signs of stability, with annual economic growth of 6.7 percent in the third quarter matching the previous quarter, as increased government spending and a property boom offset stubbornly weak exports.

But the profits data suggest China’s economy continues to face a host of challenges as authorities try to wean businesses off cheap credit-fueled growth, temper a surge in home prices and curb rising debt levels and shadow banking activity.

“If you look at the structure of the economy, it’s actually worsening because the growth of SOEs and public sector growth is relatively stronger, but private sector growth is much weaker. This shows the quality of the growth is deteriorating,” said Yang Zhao, economist at Nomura.


Profits in electricity tumbled 23.2 percent on-year, as electricity prices were adjusted lower and revenue growth slowed. Earnings in general and special equipment manufacturing also turned negative, dropping 10.8 percent on-year.

Total profits for the first nine months stood at 4.64 trillion yuan ($684.77 billion), up 8.4 percent from the same period a year ago, the same pace as in the January to August period.

Industrial overcapacity, mainly in the traditional sectors, have been a drag on profits in recent months and analysts say the outlook for earnings in the sector could hinge on the progress made by policy makers to cut capacity.

Beijing has embarked on a campaign to cut capacity in the coal and steel sectors in the economy’s most significant transformation in two decades.

The August profit growth – the fastest pace in three years – was helped by Beijing’s splurge on infrastructure projects and a booming real estate industry and so was seen as unsustainable.

China’s producer prices rose in September for the first time in nearly five years, thanks to higher commodity prices.

“Profits were largely driven by a restoration in commodity prices such as coal and steel,” David Qu, economist at ANZ said in Shanghai.

But Qu said the outlook for steel prices remain cloudy, as “the tightening in the property market means potential demand could shrink.” .

Indeed, a subdued property market is expected to drag on growth in the first two quarters next year, as policy makers introduce curbs to cool home prices.

“We are optimistic that stable growth will last through end of this year, because they have to finish the projects started earlier,” said Merchants Securities economist Xie Yaxuan in Shenzhen.

“But property and its related industries will definitely affect growth in the first or second quarter next year,” Xie said.

(Reporting by Yawen Chen, Elias Glenn, and Beijing Monitoring Desk; Editing by Shri Navaratnam)


Bloomberg News

China Can Resist a Crash, But It Can’t Prevent One

The Forecast for China’s Economy

China Can Resist a Crash, But It Can’t Prevent One

Most people in China haven’t lived through a true economic crash, but some fear one is on the way. Tyler Cowen says the government’s brawn will let it overpower economic weaknesses after years of supercharged growth — but only for so long.



After many years of 7- to 10-percent growth, economies tend to overheat, creating bubbles that burst. That’s what happened to South Korea and Japan in the 1980s and 1990s. But China’s economy keeps plugging along (though probably not at its published growth rate of 6.7 percent), defying the predictions of doomsaying pundits. Some indicators show a recovery this year.

That doesn’t mean that the danger of a crash has passed, however. There is growing evidence of a real-estate bubble, and the economy seems increasingly dependent on government stimulus and private-sector credit growth.

I see a few reasons why the Chinese economy really is different from most Western models, and these imply that forecasting the Chinese economy is more like predicting the winner of a race than analyzing a bubble.

China’s Pain Points

Unlike the U.S., China is full of large, state-owned enterprises. That gives the Chinese government the ability to manipulate a large stock of asset wealth. The U.S. government is more dependent on flows of revenue from taxation and the private sector.

When bad economic news arrives, the Chinese government can instruct the companies it owns to spend wealth to keep workers employed. Think of this as using the companies to conduct fiscal policy rather than laying off workers, building another bridge or erecting another steel plant. Whereas Western economies take an immediate hit to income in bad times, the Chinese have been converting this into a hit to wealth, insulating themselves from major downturns.

That can be useful, but it also can be abused. Indeed, China has ended up with too few bankruptcies and significant excess capacity and lots of low-performing firms.

One problem comes when the stocks of corporate wealth are nearly exhausted, or perhaps sooner when managers of state-owned companies rebel against this policy and demand alternatives. Another problem is that too many low-productivity firms survive. So when the dramatic Chinese recession finally does come, it will be without the protective buffers of wealth that the U.S. had during its financial crisis.

Not only is China a poorer country to begin with, but it has been spending down its buffers to postpone a crisis. The decline in foreign-exchange reserves and the recent rapid run-up in debt levels are further signs of this phenomenon, namely that adjustments to wealth are substituting for shorter-run declines in income.

In the meantime, one of the biggest truths economists have learned over the last dozen years is that the Chinese economic system can postpone recessions for much longer than American or European systems. At least by traditional metrics, the Chinese system has showed signs of trouble and excess capacity at least since 2006.

Given that capacity for protection, might there be a chance that China can avoid an economic crackup altogether?

China has several factors going for it here, including increases in labor productivity, productivity-enhancing migration of labor to cities and technology transfers from abroad. A fourth set of factors, which have operated in the past but not so much now, are liberalizations and improvements in government policy. Even when Chinese businesses get into trouble, and might otherwise go bust or be forced to lay off workers, these broad rising tides often have come to the rescue.

So if you think China can reach the proverbial soft landing, your basic take should be that government-run fiscal policy will keep matters afloat long enough for underlying pro-growth forces to validate once more most of China’s struggling investments and debt burdens.

China’s Economic Data

If you are more pessimistic, your core scenario might run like this: Most Chinese have not yet lived through a true economic crash, and policy makers seem to have an increasing focus on the short term and maintaining political power. Given that dynamic, each time China postpones a major recession it encourages more debt and a greater overextension of investment. That requires stronger underlying positive forces to come to the rescue each time, whereas productivity improvements and urbanization probably are slowing down, although Chinese data as usual do not yield definitive answers.

China’s Debt Bomb

In any case, there is a race on, and much of the global economy depends on the outcome. It’s a question of ticking debt and bad investment decisions against the forces favoring Chinese economic catch-up. For all the talent of Chinese economic policy makers, it seems that the race keeps getting harder. I don’t expect the forces of catch-up to win every time.

I am optimistic about the longer-run prospects of the Chinese economy, given the extraordinary talent and ambition in that country. In the shorter run, I would not be surprised if China’s 1929 moment still awaits. I’m not sure if the passage of another year without major incident, as 2016 seems likely to be, should make me feel better about that.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Tyler Cowen at

To contact the editor responsible for this story:
Jonathan Landman at

US probes China-tied aluminum firms: report

October 26, 2016


© AFP/File | Agents from the Department of Homeland Security recently questioned US companies and former employees tied to Liu Zhongtian, founder of China Zhongwang Holdings Ltd, The Wall Street Journal reported

WASHINGTON (AFP) – US authorities are investigating whether companies tied to a Chinese billionaire evaded punitive tariffs on aluminum imports, according to a media report Wednesday.Agents from the Department of Homeland Security recently questioned US companies and former employees tied to Liu Zhongtian, founder of China Zhongwang Holdings Ltd, The Wall Street Journal reported, citing knowledgeable sources.

One suspicion is that aluminum from China Zhongwang is being imported into the United States in the form of pallets — which carry a low tariff — with the intention of melting them back down once in the country, according to the Journal.

Zhongwang aluminum products made in China are subject to import tariffs of as much as 374 percent because the US has found they are heavily subsidized.

The investigation is examining possible criminal and civil violations that may include smuggling, conspiracy and wire fraud.

China Zhongwang, which describes itself as Asia’s largest producer of extruded aluminum products, has denied wrongdoing, according to The Journal.

A Homeland Security spokesperson told AFP the agency cannot confirm the existence of any investigation into the matter.

Companies under scrutiny by Homeland Security include New Jersey-based Aluminum Shapes and Peng Cheng Aluminum Enterprise Inc in Walnut, California, according to the newspaper report.

The Commerce Department said in March it was investigating allegations China Zhongwang was transshipping aluminum to the United States via Mexico, also in a bid to avoid US import duties.

The government determined in 2010 that China Zhongwang benefited from illegal subsidies and was dumping its products on the US market.

The Commerce Department also is investigating whether Aluminum Shapes LLC imported aluminum pallets — which are subject to far lower tariffs — to be melted down for raw material, according to The Journal report. Aluminum Shapes has denied wrongdoing.

The latest investigation comes as US industry has campaigned against perceived trade violations by China as the global aluminum industry struggles with massive overcapacity.


China’s Corruption Campaign Likely to Fall Short of Communist Party Leadership

October 26, 2016

Conclave is expected to propose new anticorruption rules, but critics say measures won’t address systemic problems

During the past year or so, Chinese President Xi Jinping, who became Communist Party leader in late 2012, has imposed new rules targeting negligence or poor performance, and banned intraparty dissent against national policies.
During the past year or so, Chinese President Xi Jinping, who became Communist Party leader in late 2012, has imposed new rules targeting negligence or poor performance, and banned intraparty dissent against national policies. PHOTO: JU PENG/XINHUA/ZUMA PRESS

BEIJING—As Chinese President Xi Jinping looks to institutionalize his signature anticorruption campaign this week with stricter disciplinary rules, few expect him to impose changes that would restrain the country’s ultimate authority: the Communist Party.

Officials say a top-level party conclave concluding Thursday will anchor Mr. Xi’s nearly four-year disciplinary crackdown as a rules-based framework to check political behavior. Critics believe his efforts won’t deliver sustainable remedies for systemic corruption—such as increasing transparency and reducing the government’s role in the economy—and instead are aimed at cementing his own power.

Either way, most observers expect Mr. Xi to emerge with a firmer grip on his 89 million-strong party, just as political jostling sharpens in its upper ranks ahead of a major leadership shuffle a year from now.

Throughout a campaign that has punished more than a million officials since late 2012, Mr. Xi has called for greater checks on political power—creating a “cage of regulations” that ensures cadres “dare not, cannot and don’t want” to be corrupt.

Some academics and party members say the new rules are likely to fall short. While the party’s Central Committee—more than 300 top officials—is expected to emerge from this week’s closed-door plenum with stricter standards for officials’ performance and accountability, they will likely spurn the necessary checks and balances to rein in graft over the long term.

“The challenge is whether the party can establish a more structured supervision system that’s less arbitrary and less dependent on the will of individual leaders,” said Li Chengyan,the director of Peking University’s Research Center for Government Integrity Building and a party member.

Whatever new measures the plenum adopts, “there won’t be any break from the party’s top-down structure,” Mr. Li said. “Without an authoritative leader wielding strong powers, political reforms will neither be successful nor be carried out quickly enough.”

Mr. Xi, who became party leader in late 2012, has during the past year or so imposed new rules targeting negligence or poor performance, and banned intraparty dissent against national policies. He empowered the party’s discipline-inspection agencies to police political loyalty, and stoked ideological fervor with campaigns such as encouraging the hand-copying of the party’s 15,000-character constitution.

At this week’s policy meeting, the party leadership may task its discipline-inspection agencies with more preventive duties in deterring graft and policing a wider range of disciplinary violations, according to Ling Li, a visiting professor of Chinese legal history at the University of Vienna.


WHAT IS IT: A roughly annual policy meeting of more than 300 officials from the party, government and military who make up the Central Committee. This year’s plenum is the sixth since late 2012, when Xi Jinping was named party leader.

WHAT HAPPENS: The closed-door plenum spans Monday to Thursday and takes place at a military-run hotel in Beijing. This year’s meeting centers on party discipline and is expected to produce new directives to improve internal supervision and loyalty of party members.

WHAT TO WATCH: Two documents—one on supervision regulations, the other on acceptable behavior for party members—are set to be approved. Announcements may come on corruption cases involving senior officials. Politicking for the party’s leadership shuffle a year from now is largely kept out of the public eye.

Stricter asset-disclosure rules for party members could be in the cards, though such a proposal likely faces internal resistance, other academics say. While the party has steadily toughened disclosure rules over the past two decades, requirements still fall far short of a so-called sunshine law that would require officials to publicly declare all their personal assets.

The party meeting, held at a heavily guarded hotel in Beijing, will likely be followed by an official account of the proceedings, while additional details may be released over subsequent days and weeks.

“In all likelihood, we are going to see a ‘rule-by-law’ system, which will emphasize prohibitions and punishments, rather than transparency, accountability and limited government,” saidMinxin Pei, a professor of government at Claremont McKenna College. “These cures [would be] worse than the disease itself in the eyes of some Chinese leaders, who believe that they would undermine the party’s monopoly on political power.”

In public, the party’s message has been consistent: Mr. Xi’s anticorruption campaign will be thorough and enduring, insulated from the whims of party politics.

This month, Chinese courts issued suspended death sentences to three former high-ranking officials who each accrued tens of millions of dollars through graft. State broadcaster CCTV aired over the past week an eight-episode documentary, co-produced with the party’s discipline-inspection commission, that tracked the corruption cases of more than 40 officials and showed their often-tearful confessions.

Among them was a former top executive at a state-owned pharmaceutical company, who explained how he flouted the party’s austerity regulations by throwing lavish seafood banquets in company conference rooms, and disguised his consumption of expensive baijiu by pouring the throat-burning liquor into nondescript plastic bottles.

Mr. Xi’s campaign remains popular. A survey this year by Pew Research Center found that 83% of Chinese respondents identified corruption as a problem—the highest share among the issues discussed—while nearly two-thirds believe the situation will improve during the next five years.

But the benefits from publicity around the campaign may be waning.

Mr. Xi’s crackdown “has been longer than any previous ones, and therefore created more fear and trepidation,” said Kerry Brown, professor of Chinese studies at King’s College London. “But we don’t know what the positive future vision is, and the plenum needs to spell that out.”

A recent study by two Chinese researchers suggested that a sustained and far-reaching anticorruption drive may prove detrimental to the party’s reputation.

Ni Xing and Li Zhu, a professor and a doctoral student respectively at Guangzhou’s Sun Yat-sen University, wrote in China’s Journal of Public Administration in June: “If local governments overflow with corruption, people will gradually attribute responsibility to the center as they perceive the center’s management failures to have led to such a state of affairs.”

Write to Chun Han Wong at

Philippines President Duterte Urges Japan: Invest more in Philippines — Constitutional changes discussed

October 26, 2016

Philippine President Rodrigo Duterte, left, and Japanese Prime Minister Shinzo Abe shake hands during a joint press conference following their meeting at Abe’s official residence in Tokyo, Wednesday, Oct. 26, 2016. AP Photo/Eugene Hoshiko, Pool
President Duterte is greeted by Japanese Prime Minister Shinzo Abe at the start of their meeting at Abe’s official residence in Tokyo yesterday. AP

Philippines, Japan to stand together on sea row

TOKYO – After telling American investors in the Philippines to pack up and leave, President Duterte courted Japanese businessmen yesterday to put their money in the country and contribute to its economic growth and make “meaningful changes” in the lives of people.

“Maybe, if you come to the Philippines, you just have to contend with the new dynamics of my country,” he said, apparently referring to his independent foreign policy.

Duterte has been assailing the United States due to its criticism of his bloody war against illegal drugs. His anti-US rhetoric was said to have spooked American businesses, but Duterte boasted the country could survive without them.

The President went to China last week for a state visit and declared “separation” from the US, but he clarified here that he merely discussed economics and not military alliance with Beijing.

The US and Japan have openly supported the Philippines in its maritime row with China, which has aggressively occupied the South China Sea. Japan also has a sea dispute with China.

In his meeting with Japanese Prime Minister Shinzo Abe, Duterte said they agreed to  collaborate on political, security and defense issues to create an enabling environment for the two countries’ economies to grow.

Duterte added, “Japan will continue to play an important role in modernizing the capabilities of the Philippines for maritime domain awareness and maritime security as well as in humanitarian relief and disaster risk reduction response.”

Both countries agreed to work together on peaceful settlement and adherence to the rule of law with regard to the disputed South China Sea.

But the issue on the rule of law referred only to the South China Sea dispute, not to Duterte’s controversial drug war that strained relations between the Philippines and the US, an ally of Japan.  Explaining his war on drugs and the need for the country to be able to stand on its own, Duterte said at present, “we are putting in place policies aimed at ensuring stability in the macro-economic policies,” increasing competitiveness and in crucial infrastructure, improving ease of doing business and investing further in human capital development by cultivating an “environment conducive for business.”

“We count on Japan to further extend its valuable support in our pursuits,” Duterte said, also citing the need for rural development and increasing agriculture productivity, in a speech at the Philippine Economic Forum attended by potential Japanese investors and Filipino business groups at the Prince Park Tower.

“We would like to see more investors and more businesses setting up shop in the Philippines,” Duterte, who is on a three-day official visit here, said.

While they are welcome to invest, Duterte said the businessmen would have to contend with new policies.

“I just want friendship with everybody. Go there but do not expect so much, expectations from maybe the policies of the West,” Duterte said.

Japan is the biggest trading partner of the Philippines, followed by the US and China.

“We look to Japan as a steady fulcrum in our regional engagements as the Philippines’ first and only bilateral free trade partner to date,” he said.

Duterte also recognized Japan as the Philippines’ “top source of approved investments and second major source of official development assistance.

“These economic development thrusts are necessary ingredients in making the growth impact on the lives of our people,” Duterte said.

“Aside from nurturing our people’s enterprising spirit through the promotion of micro, small and medium enterprises, the government is equally determined to generate more jobs by making it easier and more attractive to do business in the country,” he added.

While he dished out his displeasure against the US, Duterte was all praises for Japan, describing it as a great country that helped the Philippines “in so many ways in the past.”

Peace and security

Calling Japan as a “special friend” and “closer as a brother,”  Duterte asked for help on how the Philippines could boost the country’s defense system, particularly in air and naval assets.

Both leaders agreed to enhance military cooperation.

“Japan continues to play an important role in modernizing the capabilities of the Philippines for maritime domain and maritime security as well as humanitarian relief and disaster risk reduction response,” he added.

On the South China Sea row,  the two leaders acknowledged the importance of a rules-based approach to the peaceful settlement of maritime disputes without resorting to threat or use of force in accordance with the 1982 United Nations Convention on the Law of the Sea (UNCLOS), the UN Charter and relevant international conventions.

In a joint statement, Duterte and Abe also stressed self-restraint and non-militarization of the sea dispute.

Abe stressed the importance of the South China Sea in maintaining peace and stability in the region.

“The South China Sea issue is a matter of interest before the entire global community that is directly linked to regional peace and stability,” he said.

“With regard to the arbitration award, we have confirmed the importance of peaceful resolution of maritime disputes such as resolution in compliance with UN Convention on the Law of the Sea, amongst others, without resorting to threat or use of force,” the Prime Minister added.

Following  Duterte’s move to strengthen economic ties with Beijing,  Abe welcomed the President’s visit to Beijing in a bid to advance the bilateral relationship between the two countries.

As for Japan, Abe said “taking this visit by President Duterte as another opportunity, I look forward to further deepening our bilateral bond of friendship and to cooperate together towards the stability and prosperity of the region and the international community.”

Abe described the Philippines and Japan as “important partners,” sharing fundamental values including freedom, democracy and the rule of law.

“Both Japan and the Philippines are maritime nations and support to enhance maritime safety capability will be strengthened,” Abe said.

“I am very happy that we have just signed the documents covering the transfer of large patrol vessels as well as the letter of arrangement on the transfer of Japan Maritime Self-Defense Force trainer aircraft TC-90s,” the Prime Minister said.

Abe also welcomed the agreement on the promotion of agriculture for the consolidation of peace in Mindanao, stressing that “Japan supports the endeavors of President Duterte with regard to peace in Mindanao.”

As part of counterterrorism measures, Abe announced the transfer of high-speed small vessels and equipment. “Cooperation in the area of counterterrorism will continue to deepen going forward,” he said.

Japan also vowed to work closely with the Philippines on infrastructure development, especially  in Metro Manila and Davao areas.

He described his talks with Duterte as a “valuable exchange of views,” focusing also on the exploration of peace and stability.

Support for ASEAN chairmanship

Abe also expressed support for the Philippines’ chairmanship of the ASEAN next year. The Prime Minister also managed to express Japan’s concern anew on the threat of North Korea’s nuclear missile development.

In his reply, Duterte recognized Japan’s support.

“This is an important leadership role for the Philippines as we seek fully to realize the goal and rules-based, people-oriented and people-centered ASEAN,” Duterte said.

Duterte added Japan would be a crucial ASEAN dialogue partner “in ensuring the efforts to strengthen adherence to the rule of law as the bedrock of stable and secure relation in the ASEAN region and beyond.”

“The Philippines will continue to work closely with Japan on issues of common concern in the region and uphold the shared values of democracy, adherence to the rule of law and the peaceful settlement of disputes, including the South China Sea,” Duterte said.

Earlier, Duterte expressed confidence that more Japanese businesses would go to the Philippines as he noted Japan’s assistance for the country to achieve peace and development especially in Mindanao.

“Also crucial in our entire effort for economic development is the need to ensure peace and security in our country,” Duterte said.

“In this light, we appreciate Japan’s role in the peace-building efforts in Mindanao that is geared towards attainment of a more peaceful life for our country and the ending of a vicious cycle of poverty and conflict,” he added.

Complimentarily, Duterte said there was also the need to decentralize growth through agriculture development, particularly in rural areas that were more dependent on agriculture like Mindanao that had been producing the country’s top agricultural exports such as bananas, pineapples, coconut and also tuna.

“We must likewise pursue improved connectivity to infrastructure development projects. Japan has the corresponding capacity to be our reliable partner in all its resources, expertise and technical know-how,” Duterte said.

“More than just making a dent in improving poverty as statistics, these incentives are deliberately aimed at closing the inequality gap in the country’s development noticeable in the levers of urban and rural development,” he said.

Japan businessmen urge Charter changes
/ 12:35 AM October 27, 2016
BUSINESS FORUM At a luncheon in Tokyo, President Duterte tells Sadayuki Sakakibara (middle), chair of the Japan Business Federation, that he supports constitutional amendments that will pave theway for a federal form of government. —AFP

BUSINESS FORUM At a luncheon in Tokyo, President Duterte tells Sadayuki Sakakibara (middle), chair of the Japan Business Federation, that he supports constitutional amendments that will pave the way for a federal form of government. —AFP

TOKYO—Amendments to provisions in the Philippine Constitution that restrict foreign participation in certain areas of the economy are forthcoming, but limits to foreign ownership of land will remain, according to Finance Secretary Carlos Dominguez.

Dominguez made the announcement at the Philippine Economic Forum here as Japanese businessmen look forward to the lifting of foreign investment restrictions in the Constitution, which would allow them to be more involved with the Philippine economy.

“We expect the relaxation of restrictions on foreign investment currently stipulated by the Constitution,” Teruo Asada, cochair of the Japan-Philippines Economic Cooperation Committee, said at the Philippine Economic Forum, a few hours before President Duterte spoke at the same gathering.

“The Duterte administration already announced the constitutional amendments through a constitutional convention and I believe you’re discussing how to practice it,” Asada added.

He said he placed high expectations on Mr. Duterte’s “strong leadership and executive power.”

Starting next year

At the same forum, Dominguez said: “In the near future, the government has called for a constitutional convention to open up those areas of our economy that are limited by the Constitution, with the exception of land ownership.”

By next year, the government will open up areas of investment that have been administratively limited, he said.

Mr. Duterte is backing the move to amend the Constitution, mainly to pave the way for a federal form of government.

Investment destination

He has said that he prefers a constituent assembly over the more costly constitutional convention, which involves the election of delegates, to make changes to the fundamental law of the land.

Dominguez said this was a fine time to look at the Philippines as an investment destination, as he laid down the President’s economic agenda.

The economy is vibrant, the country has a young population and there is a lot of potential for expansion, he said.

The administration intends to sustain a 7-percent economic growth or to do better, and to bring down the poverty rate from 26.5 percent to 17 percent by 2022.

“The poverty reduction targets are our principal concern,” he said.

He also said there was a need for the country to modernize ports and domestic shipping, and reduce power costs.

Lynchpin of reform program

The administration is also working to reduce income and corporate income tax rates.

To raise state revenue, the reduction would be supplemented by taxes on products that damage public health and pollute the environment.

“I see the tax reform program we have now submitted to our Congress as the lynchpin of the broader reform program for building an inclusive economy. This is a propoor tax program with 40 percent of public spending directed toward pubic services,” he said.

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U.S. Homeland Security Examines Aluminum Deals For China Involvement

October 26, 2016

Investigation focuses on whether Zhongwang-made products were disguised to avoid punitive U.S. tariffs

The U.S. companies examined by Homeland Security investigators include New Jersey-based Aluminum Shapes.
The U.S. companies examined by Homeland Security investigators include New Jersey-based Aluminum Shapes. PHOTO: JOHN W. MILLER/THE WALL STREET JOURNAL

Federal investigators have launched a probe into whether U.S. companies linked to a Chinese billionaire illegally avoided punitive import tariffs on Chinese aluminum, according to people familiar with the investigation.

Department of Homeland Security agents in recent weeks questioned former employees of companies associated with Liu Zhongtian, the founder and chairman of aluminum giant China Zhongwang Holdings Ltd., the people said.

Homeland Security has been coordinating with the U.S. Department of Justice on the probe, some of the people said. Agents are investigating whether the companies committed criminal or civil violations that could include smuggling, conspiracy and wire fraud, they said.

The Journal reported in September that the U.S. Commerce Department is investigating whether Aluminum Shapes LLC, a New Jersey company, imported pallets to remelt as a way to avoid tariffs, part of a broader probe into Mr. Liu’s activities. The Commerce Department said preliminary findings would be released in coming weeks. Aluminum Shapes last month denied that the pallets were used as raw material for its plant.

Homeland Security’s investigation, which is in its early stages, is focusing on whether aluminum products that Zhongwang produced in China—and which are subject to U.S. tariffs as high as 374.15%—were brought into the U.S. in the form of shipping pallets at much lower tariff rates, people familiar with the matter said.

Homeland Security is also investigating whether nearly one million tons of aluminum shipped to Aluminicaste Fundición de México, a factory once owned by Mr. Liu’s son, were part of an effort to evade U.S. tariffs by routing the metal through another country to disguise its origins, the people familiar with the investigation said.

Liu Zhongtian, chairman of China Zhongwang Holdings Ltd., toasts the company’s share listing in Hong Kong on May 8, 2009.
Liu Zhongtian, chairman of China Zhongwang Holdings Ltd., toasts the company’s share listing in Hong Kong on May 8, 2009.PHOTO:IMAGINECHINA/ZUMA PRESS

Mr. Liu and China Zhongwang were subjects of a September Wall Street Journal article detailing allegations that firms linked to Mr. Liu routed aluminum through Mexico in an effort to disguise its origin and avoid American tariffs. Mr. Liu denied any connection to the Mexican stockpile.

Charles Pok, a California attorney who has represented Mr. Liu and currently helps run Aluminicaste, said it “is a totally misguided allegation” to claim the Mexico business shipped aluminum into the U.S. in circumvention of tariffs.

The U.S. companies examined by Homeland Security investigators include Aluminum Shapes and Peng Cheng Aluminum Enterprise Inc. in Walnut, Calif., according to people familiar with the matter.

“Most of the questions were about the pallets,” said Garry Goehring, a former Aluminum Shapes manager who says two Homeland Security agents recently interviewed him about his time at the company. The agents asked about Mr. Liu and whether pallets stored at Aluminum Shapes came from overseas, among other things, Mr. Goehring said.

Solomon Rosenthal, a spokesman for Aluminum Shapes, said the company isn’t aware of the Homeland Security investigation or of any illegal imports of aluminum shipping pallets. “We welcome an official investigation and will participate and assist in any way possible, as we have not engaged in any improprieties,” he said.

A China Zhongwang spokeswoman said the company hasn’t been contacted by U.S. authorities about an investigation and that neither Zhongwang nor Mr. Liu have ties to Aluminum Shapes or Peng Cheng.

In December 2014, Peng Cheng and Aluminum Shapes merged into Perfectus Aluminum, a California company launched by Mr. Liu’s son. Perfectus also is a focus of the probe, people familiar with the matter said. Perfectus and Peng Cheng couldn’t be reached for comment.

Aluminum Shapes has since been spun off from Perfectus, a Shapes spokesman said. Its owner, Jacky Cheung, also owns Perfectus and Aluminicaste. People familiar with the matter say Mr. Cheung is an associate of Liu Zhongtian. Mr. Cheung didn’t respond to requests for comment.

China Zhongwang is the world’s second-largest producer of “extrusions”—pipes, rods and panels used in finished products. Pallets are made by welding extrusions together.

The Commerce Department in 2010 found Chinese producers including China Zhongwang received illegal subsidies in China and were “dumping”—selling aluminum products below market price—in the U.S.

The Commerce Department slapped several of the Chinese producers with tariffs as high as 374.15%. Typical tariffs on other aluminum products are about 5%. That includes pallets, which aren’t subject to punitive tariffs even though they are made from extrusions.

U.S. aluminum-industry officials last year alleged to the Commerce Department that China Zhongwang disguised extrusions as pallets to export to U.S. companies controlled by Mr. Liu. Shipping records show large numbers of aluminum pallets were delivered from China to Aluminum Shapes and Peng Cheng in recent years.

Zhongwang says it has exported aluminum pallets to the U.S. and that it follows all established trade laws. An Aluminum Shapes spokesman last month said the company didn’t own the thousands of tons of Chinese-made aluminum pallets warehoused at its facilities and merely charged storage fees to the owner, who the spokesman said was a former Aluminum Shapes executive.

Mr. Goehring, the former Aluminum Shapes manager who says he spoke to investigators, said the agents showed him black-and-white photos of about three dozen individuals, including Mr. Liu, Mr. Pok and Johnson Shao, who headed Aluminum Shapes and Peng Cheng. Mr. Liu in June said Mr. Shao was China Zhongwang’s U.S. retail agent.

Mr. Pok said he would “cooperate with any investigation.” Attempts to reach Mr. Shao and Mr. Liu’s son were unsuccessful.

Mr. Goehring said he quit in 2014 after Mr. Liu accused him of financial improprieties, which he denies. Aluminum Shapes confirmed Mr. Goehring was a former employee.

The agents also inquired about Chinese workers at the New Jersey plant, Mr. Goehring said. In 2014, Aluminum Shapes brought workers from China to install equipment, according to Mr. Goehring and internal documents reviewed by the Journal.

Officials with U.S. Customs and Border Protection, part of Homeland Security, examined aluminum imported by Shapes in 2015 and decided they weren’t the kind of extrusions covered by the tariffs, a Customs letter the company provided to the Journal says.

Write to Scott Patterson at and John W. Miller at


Ingots stack up at Aluminum Corp. of China, or Chalco, which was able to keep a struggling smelter open thanks to government incentives.
Ingots stack up at Aluminum Corp. of China, or Chalco, which was able to keep a struggling smelter open thanks to government incentives. PHOTO:IMAGINECHINA/CORBIS

China’s hydropower plans in Tibet won’t impact downstream water supply

October 26, 2016
By Chen Aizhu | BEIJING
A hydropower plant on the Yarlung Zangbo River in Tibet. The region could become the country’s biggest hydropower generator. Photo: Xinhua

China’s plans to build large hydropower stations in Tibet are designed to meet growing domestic demand for electricity and will not have a major impact on the ecosystem or on downstream water supplies, a senior government official said.

Tibet could become China’s biggest hydropower generator, with its rivers capable of carrying a total capacity of 140 gigawatts, around a quarter of the national total potential capacity, according to government estimates.

China last year started commercial operations of the Zangmu hydropower facility, the largest so far built in Tibet, and began building another plant in Shigatse earlier this year, also on the river Yarlung Zangbo, the upstream section of the transboundary Brahmaputra.

“Our hydropower development in Tibet falls under the country’s broad sector planning and meets strict standards. They will not have much impact on the environment, or any impact on downstream water supplies,” Wang Haizhou, vice chairman of the Tibetan Automous Region told reporters on Wednesday.

India and other downstream countries such as Vietnam have long expressed concern that China’s upstream dams could disrupt their water supplies.

Fresh concerns arose at the beginning of October when China’s official news agency Xinhua reported that a tributary of the Yarlung Zangbo had been blocked to facilitate the construction of the 4.95 billion yuan ($731 million) Laiho hydropower project, due to go into full operation in 2019.

The 2,900-km Brahmaputra flows southeast from Tibet through the Himalayas into northeast India’s Arunachal Pradesh state before entering Bangladesh and merging with the lower section of the Ganges, before it empties into the Bay of Bengal.

“The amount of water dammed is tiny compared to the total net river flows (in Tibet),” said Wang.

China hopes to make Tibet a key part of its cross-country “West-East Power Transmission” project designed to deliver electricity generated in the remote west to markets on the eastern coast through ultra-high voltage power lines.

So far the grid infrastructure connecting remote western regions with the rest of China remains deficient, forcing delays to large-scale projects like the one planned to be built on the Nu River in Yunnan province, developers have said.

China’s hydropower generators already have a surplus of capacity, and utilization rates at plants in the southwestern provinces of Sichuan and Yunnan have plunged as a result of slowing local demand and grid bottlenecks.

Researchers from China’s Academy of Science involved in ecological protection work in Tibet said on Wednesday that the region should curb small hydropower plants and promote more solar and wind power, echoing a policy that’s already in place in neighbouring hydropower-rich Sichuan province.

Tibet’s existing two major hydropower plants, the Zangmu and the Guoduo project on the upper reaches of the Lancang (Mekong) river, have a combined installed capacity of 657 megawatts, 0.2 percent of China’s total hydropower capacity.

China’s total hydropower capacity stood at more than 300 gigawatts last year following the completion of several large-scale dams in southwest China, raising concerns from environmental groups that water supplies in downstream countries such as Vietnam will be disrupted.

(Refiles to correct official’s name in 4th and 8th paragraph.)

(Reporting by Chen Aizhu in BEIJING; Additional reporting by David Stanway in SHANGHAI; Editing by Tom Hogue)

Duterte Says Japan: ‘Closer than a brother’ — Duterte Tells Prime Minister Shinzo Abe “No military alliance with China.”

October 26, 2016
File photo

Metro Manila (CNN Philippines) — A “special friend who’s closer than a brother.”

President Rodrigo Duterte had nothing but kind words for Japan as he and Prime Minister Shinzo Abe issued a joint statement on Wednesday.

“Japan’s official development assistance for the Philippines is second to none,” Duterte said on his second day in Tokyo.

Describing his visit as a “defining moment in solid, strategic partnership between the two countries,” Duterte mentioned various aspects of cooperation that were agreed upon — including respect for the rule of law, respect for basic human rights, and a free and open economy.

The two leaders also discussed continuous cooperation to maintain regional peace, stability and prosperity in the region — and the importance of a rules-based approach to the peaceful settlement of maritime disputes.

Related: Japan to join U.S. in South China Sea patrols

Duterte also thanked Japan for its intention to provide high-speed boats and other equipment to enhance the Philippines’ anti-terrorism capabilities and the transfer of a TC-90s training aircraft.

Meanwhile, Abe accepted “with pleasure” an offer from Duterte to visit the Philippines at a convenient time, according to the Department of Foreign Affairs.

Foreign troops out of the Philippines by 2018

Earlier, Duterte spoke at an economic forum, where he again said all foreign military forces should out of the Philippines.

And gave a time frame: in two years.

“I want them out, and if I have to revise or abrogate agreements, I will,” the President said.

Apart from the U.S., Australia also deploys troops to the country as part of another visiting forces deal.

Related: Duterte: I only want to see Filipino troops on PH soil

Duterte then continued to explain his anger with the United States — saying that instead of helping in the campaign against drugs, the country’s supposed friend chose to “make it hard” for him.

“We will survive without the assistance of America. Maybe, a lesser quality of life, but we will survive,” Duterte said. “If there is one thing I would like to prove to America and everybody is that there is such a thing as the dignity of the Filipino people.”

The President had also said that his visit to China last week was solely about business, and nothing about military deals.

CNN Philippines’ Ina Andolong contributed to this report.


PH has no military alliance with China, Duterte assures Abe

/ 07:36 PM October 26, 2016


TOKYO – As the Philippines and Japan moved to strengthen their strategic partnership, President Duterte personally assured Prime Minister Shinzo Abe that he has no military alliance with China and that he would insist on the rule of law in the South China Sea.

Abe, in turn, backed Mr. Duterte’s move to improve ties with China and said he and the Philippine President have confirmed the importance to them of the peaceful resolution of disputes and compliance with the United Nations Convention on the Law of the Sea.


“In that regard, Japan welcomes the effort of President Duterte visiting China and endeavor to improve and further advance the bilateral relationship between the Philippines and China,” Abe said following his bilateral meeting with the Philippine President.

Japan is embroiled in its own territorial dispute with China, which involves uninhabited islands in the East China Sea, and has a strategic interest in the maritime disputes in the South China Sea.

Japan is also a close ally of the United States.

Mr. Duterte’s assurance to Japan that he would keep ties with it intact came on the heels of his four-day state visit to Beijing.

At the start of his expanded bilateral meeting with Abe, Mr. Duterte told the Prime Minister that he would remain an ally.

“You can rest assured, and I give you my word, that we would stand by you when the time comes,” he said.

He repeatedly assured the Japanese leader that the Philippines is not in a military alliance with China.

He also said he would seek a peaceful resolution of the Philippines’ maritime dispute with China in accordance with international law.

He also told Abe that when the time comes for him and Beijing to discuss the issue, he would cite the ruling of the arbitration court on the Philippine case against China, which invalidated its claim to nearly the whole of the South China Sea.

“Whether we like it or not, that someday we’ll have to talk about it and present our side and I said, in front of you, I cannot go out of the arbitral doctrine. I’m limited to what it says,” he said.

“There were no military alliances, no nothing, only pursuit of trade and commerce,” he added.

Mr. Duterte also said Japan would be a crucial dialogue partner of the Association of Southeast Asian Nations, which the Philippines will chair next year, in efforts to ensure adherence to the rule of law.

“The Philippines will continue to work closely with Japan on issues of common concern in the region and uphold the shared values of adherence to the rule of law and the peaceful settlement of disputes including the South China Sea,” he said.

In his meeting with Abe, Mr. Duterte also told the Prime Minister that the Philippines would remain “true and loyal” ally.

He noted as well that the issues that the Philippines and Japan were similarly situated, alluding to their maritime disputes with China.

He later assured Japan that he would remain by its side.

Stronger ties between the two countries would help promote peace in the region, they said in their joint statement.

“The two leaders look to their network of friendship and alliances, in particular the ever stronger ties between the Philippines and Japan, to help promote peace, stability, and maritime security of the region,” they said.

Mr. Duterte and Abe also signed five agreements during their expanded bilateral meeting.

These are:

-the Memorandum of Cooperation between the Ministry of Internal Affairs of Communication of the Government of Japan and the Presidential Communications Operations Office

-the exchange of notes on Harnessing Agri-business Opportunity through Robust Environment Supportive of Entrepreneurship Transformation

-the exchange of notes concerning the maritime safety capability improvement project for the Philippines Coast Guard.

-the loan agreement between the Japan International Cooperation Agency and Philippine government for the maritime safety capability improvement project for the Philippines Coast Guard, which would get two new large patrol vessels.

-the memorandum of Implementation for the transfer of TC-90 aircraft from Japan to the Philippines, and the exchanges of documents concerning the letter of arrangement on defense equipment TC-90

Mr. Duterte thanked Japan for all the assistance it has given to the country.

“Japan’s Official Development Assistance for the Philippines is second to none in terms of real value and the positive impact on the lives of the Filipinos,” he said.

The two countries agreed to harness the ODA as a tool for “positive economic and structural changes in the Philippines.”

They also agreed to work together on political, security, and defense issues in order to create an enabling environment for their economies to grow.

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Philippine, Japanese leaders sign military, economic deals

By MARI YAMAGUCHI, Associated Press

Philippine President Rodrigo Duterte delivers a speech at the Philippine Economic Forum in Tokyo, Wednesday, Oct. 26, 2016. Duterte is on a three-day official visit to Japan. (AP Photo/Eugene Hoshiko)

(AP) — The leaders of Japan and the Philippines agreed Wednesday to cooperate in promoting regional peace and stability and endorsed Japan’s provision of patrol boats and military training aircraft to bolster Philippine maritime security, without discussing their alliances with the U.S., whose relationship with Manila has quickly become strained.

Philippine President Rodrigo Duterte said he expected Japan to continue playing an important role in maritime security in the region, including the South China Sea, where Manila has territorial disputes with Beijing. Japanese Prime Minister Shinzo Abe said South China Sea disputes affect peace in the entire region and that he welcomed Duterte’s recent efforts to improve ties with China.

Japan and the Philippines signed agreements including Japan’s provision of two coast guard boats and T-90 military trainer aircraft as part of its contribution to step up Philippine maritime security capability. Japan also agreed to support infrastructure and agricultural promotion projects in the Philippines to help economic development.

The two leaders did not mention the Japan-U.S. security alliance, or one between the Philippines and Washington. Japan is a staunch U.S. ally and hosts 50,000 American troops, while Duterte, who took office this summer, has repeatedly spoken of distancing his country from Washington, often in crude terms.

The presence of U.S. troops in five Philippine military camps was established under a security deal signed under Duterte’s predecessor as a counterbalance to China’s growing military assertiveness in the region.

Earlier Wednesday, Duterte said that he wants his country to be free of foreign troops, possibly within two years. “I want them out,” he said.

“I want to be friends to China,” he told an audience of businesspeople in Tokyo. “I do not need the arms. I do not want missiles established in my country. I do not need to have the airports to host the bombers.”

Since taking office at the end of June, Duterte has reached out to Beijing while criticizing U.S. foreign policy. His approach has caused consternation in both the U.S. and Japan.

Abe was expected to hold another round of talks with Duterte later Wednesday and was expected to ask him specifically about his foreign policy.

The Philippine leader spoke about the U.S. at the end of his prepared remarks on economic development and investment, saying he was addressing what he knows is “what is in everybody’s mind.”

“I may have ruffled the feelings of some but that is how it is,” he said. “We will survive, without the assistance of America, maybe a lesser quality of life, but as I said, we will survive.”

Duterte is on a three-day visit to Japan. After two rounds of talks with Abe, he is attending a banquet hosted by the Japanese leader. On Thursday, he is set to meet Emperor Akihito.


Associated Press videojournalist Emily Wang contributed to this report.

Associated Press

U.S. risks injuring its standing and credibility with several Asia-Pacific countries if the Trans-Pacific Partnership (TPP) trade deal is rejected

October 26, 2016


Prime Minister Lee Hsien Loong was interviewed by Ian Bremmer, President of Eurasia Group and Editor-at-Large and Foreign Affairs Columnist at Time Magazine on Oct 20, 2016.PHOTO: MINISTRY OF COMMUNICATIONS AND INFORMATION

By Pearl Lee
The Straits Times

SINGAPORE – The United States risks injuring its standing and credibility with several Asia-Pacific countries if the Trans-Pacific Partnership (TPP) trade deal is rejected by its lawmakers, Prime Minister Lee Hsien Loong said.

It will be a “very big setback for America” as some countries, like Japan, have gone out of their way to support the 12-nation Pacific Rim trade pact, he added.

The pact, which the Obama Administration supports, is before Congress which is in recess until after the Nov 8 presidential election.

Mr Lee, speaking last Thursday (Oct 20) in an interview with US weekly magazine Time and published in its latest edition, also said the pact needs to be ratified by January.

Otherwise, it would be a “casualty” of the US presidential election because both candidates – Mrs Hillary Clinton and Mr Donald Trump – are opposed to it.

Mr Lee indicated he was not optimistic of the pact being ratified by then.

The TPP, co-founded by Singapore, will create a giant free-trade zone and give the 12 countries access to 800 million consumers, representing one third of global trade.

It is a key thrust of the US’ foreign policy in Asia aimed at countering China’s rising influence in the Asia-Pacific.

Mr Lee said China sees trade as an extension of its foreign policy, going around to countries “with lollipops in its pockets” like giving aid or building them a Prime Minister’s office. The US does not “do these retail items”, he added.

“The one big thing which you have done is to settle the TPP, which Obama has done. It shows that you are serious, that you are prepared to deepen the relationship and that you are putting a stake here which you will have an interest in upholding,” he added.

But its credibility will take a hard knock if the pact falls through.

Japan’s Prime Minister Shinzo Abe “has made very difficult arrangements on agriculture, cars, sugar and dairy,” Mr Lee noted.

“Now you say, ‘I walk away, that I do not believe in this deal.’ How can anybody believe in you anymore?” Mr Lee said.

Similarly in strategic issues, he added. Citing North Korea, he said the country is unpredictable and is developing its nuclear capabilities and missiles.

“You do not want the South Koreans to do that, you do not want the Japanese to do that. What is the restraint on them? It is your credibility as an ally and as a deterrent.

“I do not think failing to ratify the TPP will strengthen that at all.”

There also seems to be a lack of strategic trust between US and China, Mr Lee said.

“The Chinese are convinced that you are trying to slow their growth and you are convinced that the Chinese may do something unpredictable.”

To ensure China does not push against the interest of the US, dialogue between them must happen at the top, he said.

Mr Lee noted that the US-China relationship is broad, but also different from that of the US and Soviet Union during the Cold War.

Then, they could rely on “backchannels” like former US Secretary of State Henry Kissinger’s relationships with former Soviet ambassador to Washington Anatoly F. Dobrynin and former Soviet foreign minister Andrei Gromyko.

“They were opponents, but they made some progress,” he added.

“Now you have the mechanisms with China… But I am not sure the degree to which you are able to engage and come down to brass tacks,” he said.

On the domestic front, Mr Lee discussed the challenges confronting Singapore as it restructures its economy and prepares its people for disruptive technologies and a future it cannot quite define.

“There are things you can do to help: training, transition assistance, social support if people are out of a job. But you cannot stop the change from happening,” he said.

China Central Bank Seeks More Control Over Wealth-Management Products

October 26, 2016

High-yielding investment products will be subject to capital and other regulatory requirements

Total debt now accounts for 225% of China’s gross domestic product

The People's Bank of China has moved to rein in the $4 trillion market for high-yielding investment products.
The People’s Bank of China has moved to rein in the $4 trillion market for high-yielding investment products. PHOTO: REUTERS

BEIJING—China is ratcheting up efforts to curtail credit growth in murky areas of its financial system, putting under scrutiny popular investment products that have flown under the radar of regulators.

In the latest move, the central bank is requiring commercial banks to count high-yielding wealth-management products as part of their overall credit, according to a notice dated Oct. 20 that was reviewed by The Wall Street Journal. With the action, the People’s Bank of China is seeking to strengthen oversight over investment products peddled by banks as a way to boost lending.

In the past year, China’s easy-money policy has sent capital bouncing from stocks, bonds and commodities to real estate in search of returns. Wealth-management products have appealed to many Chinese savers amid a dearth of investment options. Much of the funds have been channeled into bonds, which has kept money flowing to sectors already plagued with overcapacity—like steel and property—at the expense of sectors in dire need of capital. Officials and analysts say the central bank hopes the rule, expected to be phased in gradually, will act as a deterrent against these products.

“The central bank is taking the step with a goal to reduce leverage in the economy,” said Peng Yuanyuan, a research analyst at Pengyuan Credit Rating Co., a Chinese ratings agency.

Press officials at the central bank didn’t respond to a request for comment.

The action follows other recent steps Beijing has taken to try to rein in rapidly rising debt levels that economists say could threaten China’s financial stability. Since late September, more than two dozen cities have tightened home-lending requirements in a bid to cool down a property frenzy. Authorities are also restricting developers’ ability to raise funds from bond sales. In early October, the State Council unveiled a plan that lets corporate borrowers give their lenders equity stakes in return for debt forgiveness.

Still, many economists including those at the International Monetary Fund say China so far has failed to present a full-fledged strategy to tackle its debt overhang. Total debt now accounts for 225% of China’s gross domestic product, according to the IMF, compared with around 125% at the end of 2008.

A main challenge for Beijing is how to control credit without hurting growth. As China moves slowly toward a more consumption-oriented economy like the U.S.’s, the government finds itself having to turn to the old playbook of credit-fueled investment to reach the leadership’s growth target, set at between 6.5% and 7% for this year.

“The central bank is tightening the screws on banks’ off-balance-sheet activities, but that doesn’t mean a change of stance in the overall accommodative monetary stance,” a senior government adviser said.

Chinese regulators have been playing a Whac-A-Mole game with banks and other financial institutions for years, and it is unclear how effective the new requirement will be, analysts and economists say. Regulators sought to crack down on banks’ rampant sale of wealth-management products a few years ago, asking them to bring onto their balance sheets products with explicit bank guarantees. Banks then turned to marketing the products as safe, implying guarantees without writing them into investment contracts. That enabled banks to keep them off their books and to not have to put up any capital cushions against defaults.

As of the end of June, according to Moody’s Investors Service, off-balance-sheet wealth-management products outstanding totaled more than 20 trillion yuan (roughly $3 trillion) of the 26 trillion yuan comprising all such products sold by Chinese banks. Under the new PBOC rule, banks would have to count portions of the 20 trillion yuan as part of their overall credit, subjecting to the same capital and other regulatory requirements as other assets on their balance sheets.

That is in line with the central bank’s newly formed “macroprudential assessment” framework aimed at bringing banks’ risk exposure more into the open. But some banking officials say details have yet to be worked out and they don’t expect the new requirement to immediately eat into their capital base. Others in the banking industry say small lenders,the primary sellers of these products in recent years, are likely to be more affected by the mandate than big state-owned banks.

A typical off-balance-sheet wealth-management product now offers an annual yield of about 4%, much higher than the 1.5% interest rates on bank deposits and 2% yields on government bonds. To get investors the promised returns, banks often invest the funds in bonds, currencies and other financial assets. In some cases, banks have repackaged loans as wealth-management products and then sold them to consumers—a strategy that has let them get around regulatory restrictions on lending.

Individuals who have bought into these products are often of the belief that banks will guarantee the returns on them. For instance, when a wealth-management product sold by a bank in eastern China incurred a loss late last year, many investors demanded that the bank pick up the tab. In a statement, the bank said the WMP was created by an outside fund firm and the bank’s marketing of the product was in line with rules and regulations.

Write to Lingling Wei at and Chao Deng at

Corrections & Amplifications:
China’s central bank issued a notice to banks on Oct. 20. An earlier version of this article incorrectly stated the date as Oct 10. (Oct. 26, 2016)