Shanghai Power Politics: China Shuts Out Iran (Shan Shan)

Two weeks ago, the 10th Shanghai Cooperation Organization (SCO) Council summit, held in Tashkent, Uzbekistan, approved the SCO Rules of Procedure and the regulation on procedure for future membership expansion.

Before the summit, Chinese diplomats ritually pointed out that approval of the admission regulations was the first step in forming the basis for a future expansion of SCO membership and would serve as a cornerstone of the organization's rules for external links.

Behind this formality, however, was a more significant story: for now, Iran will not allowed to  join the organisation.

The ostensible reason was that the SCO's regulations proscribe that “any country under UN sanctions cannot be admitted”. At the time of the meeting, Iran was subject to a 4th round of restrictions; a few days after the meeting, the UN Security Council passed yet another resolution.

Iranian President Mahmoud Ahmadinejad did not attend the summit, although he visited the Shanghai Expo and took part in celebrations at the Iranian pavilion on June 11. The Chinese Foreign Ministry maintained that Ahmadinejad was only visiting the country to attend the Expo, but analysts said he “is here to seek more support from China to water down fresh sanctions”.

The rejection of Iran's membership is far from the entire story, of course. The relationship between China and Iran is still stable. "There is no reason to control or weaken the relationship (with China)”,  Ahmadinejad told a news conference after his visit to the Expo.
Moreover, this summit focused on economic cooperation and security issues in Central Asia, especially in Afghanistan, such as drug trafficking, terrorism ,and organized crime. Besides, the unrest in in Kyrgyzstan is another hot issue at this summit.

The fact remains, however, that Iran was kept at arm's distance. Zhang Xiao, deputy director-general of the Foreign Ministry's department of European and Central Asian affairs, indicated that the SCO is only considering the legal basis for expanding membership, indicating that there is a long way to go before formal accession will even be contemplated.

Furthermore, Beijing is more cautious than Russia, the other main power of the SCO. According to China Daily, Chinese President Hu Jintao told his Russian counterpart Dmitry Medvedev that SCO cooperation and exchange with outside countries should be done in a proper and stable manner, and on the basis of improving the strength of the bloc. "Blind expansion will spoil it (SCO) with excessive enthusiasm".

Pang Zhongying, a senior expert on world politics at Renmin University of China, assessed, "For a regional bloc, it is definitely not the more the better. Now the European Union has 27 members, and we can see more complex problems. The same reason also resulted in a loose APEC (Asia-Pacific Economic Cooperation forum). One of the approaches to ruin a bloc is encouraging it to admit more members."

Add the complicated situation in central Asia and the main concerns of the SCO, and it appears that Iran will be observing the group from outside for some time to come.

China This Week: Hu Visits Canada, The Currency Issue, Building Ties with Australia

Hu's Canadian visit & G20 summit: Chinese President Hu Jintao left Beijing for Canada on Wednesday to pay a state visit and to attend the 4th Group of 20 (G20) summit scheduled for 26-27 June in Toronto.

Strained ties between Beijing and Ottawa started to warm when Canadian Prime Minister Stephen Harper visited China last December. Ottawa had aggressively criticized Beijing for its human rights record, but after the financial meltdown last year, its tone softened slightly. The Harper Government, asserting that "new global realities demand a modernized Canada-China relationship", began to downplay rights-related issues.

Sources said the two countries are expected to sign contracts on energy, telecommunication industries, and tourism.

Looking towards the G20 summit, China said the meeting should focus on the recovery of world economy rather than a specific issue such as the RMB (yuan) exchange rate.

The fluctuations of the Chinese currency: The yuan rose by more than 0.4 percent --- the biggest rise in a day since it was revalued in 2005 --- on Monday, close to hitting its trading limit of 0.5 percent. But the currency on Tuesday then went through its biggest decline since December 2008, weakening 0.23 percent to 6.8136 per dollar.

"The dollar has been strong on the international markets in the past two days and it's normal for the yuan to weaken against the dollar today," said Liu Dongliang, currency analyst of China Merchants Bank. The yuan will not rise continually and strongly, contrary to the expectations of some US politicians and industry players, Liu added.

The Fair Currency Coalition, an alliance of US industry, agriculture, and worker organizations, urged the US Congress to pass effective legislation on the yuan issue, despite China's pledge to make its currency more flexible.

Brenda L. Foster, President of American Chamber of Commerce in Shanghai, warned that the yuan policy move will not significantly reduce the US trade deficit with China.

Chinese VP wants trade deal with Australia: China is keen to strike a free trade pact with Australia soon and opposes any return to protectionism in response to the global economic crisis, China's vice-president, Xi Jinping, said Monday.

His visit to Australia has focused on its burgeoning exports of iron ore, coal and natural gas that are supporting the expansion of Chinese manufacturing.

China has been quick to fill a slump in investment in the Australian resource sector since the global downturn. But Australia is cautious about allowing Beijing-controlled companies to buy the mines that are commanding record prices because of Chinese demand.

China is Austria's biggest trading partner, biggest export market and biggest importer. Despite the global financial crisis, Australia's exports to China rose by 31 percent in 2009.

South China floods toll continues to rise: Heavy rains and floods in south and central China killed 211 people and left 119 others missing as of 4 pm Wednesday, according to the Ministry of Civil Affairs.

More than 29 million people in southern and central provinces have been affected by the inclement weather, with about 2.4 million people evacuated, a statement from the ministry said.

The floods have caused economic losses of around 42.12 billion yuan ($6.2 billion), with more than 1.6 million hectares of farmland flooded and about 195,000 houses collapsing.

China’s auditors find local misuse of  funds: According to a report to the 15th session of the Standing Committee of the 11th National People's Congress, the country's local governments had run up bank loans totaling 2.79 trillion yuan ($410.3 billion) by the end of last year, most of it to fund infrastructure construction and to help pay for government stimulus package projects.

Auditors also found more than 20 billion yuan ($2.9 billion) of policy loans were misused by policy-based financial institutions

Funds embezzled from public finances totaling more than 94.116 billion yuan ($ 13.82 billion) had been recovered or returned. More than 790 people in connection to the cases had been investigated.

Tariff concessions for 33 countries: The Ministry of Finance said  that China would grant zero tariff status to 4,762 categories of commodities now imported from 33 of the world's least developed countries from 1 July.

The list include 26 African countries and seven from other regions. Aquatic products, textiles, farm produce, glass products, steel, and minerals are to be exempted from tariffs.

Since 2001, China has put 41 of the world's least developed countries on the zero-tariff list.

Hong Kong, Ireland sign tax pact

Hong Kong signed its 13th comprehensive agreement for the avoidance of double taxation (CDTA) with Ireland on Tuesday.

Hong Kong's Secretary for Financial Services and the Treasury, K C Chan, said: "The agreement will encourage Hong Kong enterprises to leverage on the success of Irish companies in the areas of technology, research and development, while facilitating Irish enterprises to tap into the Asian market, particularly the vast Mainland market, using Hong Kong as a gateway."

Hong Kong is actively seeking to establish a network of CDTAs with major trading and investment partners, and has concluded them with partners including Belgium, Thailand, Vietnam and the United Kingdom.

Chinese boat seized by Indonesia: A Chinese fishing boat, registered to South China's Guangxi Zhuang autonomous region, and its crew of nine were detained by an Indonesian gunship Tuesday in the South China Sea.

After negotiations, the boat was released the same day. However, eight fishermen who had been taken aboard the Indonesian ship were injured, with one seriously. A preliminary investigation by the region's border defense department showed there might be abuse involved, said Qin Yongjun, spokesman with Guangxi's public security department.

China This Week: The Economic Front

Shan Shan updates EA with the latest economic news from China:

Warning to Google "Multinationals 'should respect laws in China": Chinese trade experts said on Tuesday that Google's description of China's Internet restrictions as an unfair barrier to free trade is groundless, as the country's Internet regulations apply to everyone and are in accordance with the rules of the World Trade Organization.

"It is understandable that different countries have various laws and regulations with regard to the Internet,", said Wang Lequan, director of the research center on transnational corporations at the Ministry of Commerce.  "As long as these regulations fulfill China's commitment to the World Trade Organization, multinationals should respect that.”

China This Week: Kyrgyzstan, Beijing’s Help for US; Latest on Economy

Google said last week that it would ask the US and governments in Europe to press China to lift Internet restrictions.

Warning of Real Estate Risks: The credit risks associated with home mortgages are growing and a "chain effect" may reappear in real-estate development loans, the China Banking Regulatory Commission said in its annual report.

The regulator has told banks to report on risk exposure by the end of June to help prevent a credit boom from leading to more bad loans. Property prices rose by 12.4 percent year-on-year in May, the second-fastest increase on record.

The State Council issued a directive warning that some  quasi-independent financing vehicles, often used by local governments to fund infrastructure projects, were dangerously loaded with debt.

This is China's latest effort to tackle the mounting debt worries of local governments, which analysts have warned could become financial time bombs.

Chinese business confidence falls: Chinese confidence in the economy has fallen in the second quarter of the year because of concerns over rising production costs and shrinking demand, according to a survey by the People's Bank of China. Confidence has risen since the first quarter of 2009.

The report had a silver lining, with entrepreneurs  "prudently optimistic" about demand for exports.

WTO blocks US poultry ban on China: China appears to have notched up a victory in a dispute over a US ban on poultry imports, criticised in an interim report of the World Trade Organization.

"We think the US will not try to impose a similar ban in the next fiscal year, since it would be regarded as open defiance of the latest WTO ruling," a Ministry of Commerce official said Wednesday.

China's $47 billion for Qinghai quake reconstruction: China plans to spend 32 billion yuan ($46.8 billion) on the reconstruction of parts of northwest China's Qinghai Province battered by a 7.1 magnitude earthquake in April, the government said.

The money would mainly came from the central budget, supplemented by funds from the Qinghai government, donations and corporate funding, according to a circular published on the government's website, www.gov.cn.

The main reconstruction tasks should be finished in three years, according to the circular.

China This Week: Kyrgyzstan, Beijing's Help for US; Latest on Economy

Shan Shan writes for EA:

China and Kyrgyzstan: China has evacuated 1,299 nationals from Kyrgyzstan where ethnic clashes have left at least 187 people dead, the Foreign Ministry said Thursday.

The ninth and last chartered flight of China Southern Airlines, with 148 Chinese nationals aboard, landed at an airport in Urumqi, capital of northwest China's Xinjiang Uygur Autonomous Region, early Thursday morning from Osh in southern Kyrgyzstan.

"After three days of efforts, the vast majority of Chinese nationals in Osh have been flown home," said Sun Dali, deputy director of the Department of Consular Affairs with the Foreign Ministry. "But we will continue to pay attention to and contact the Chinese nationals who are still staying in Kyrgyzstan, and offer immediate assistance to them in light of the changes of the local situation."

Meanwhile, China's Ministry of Commerce (MOC) said that the Chinese government has offered emergency humanitarian aid to Kyrgyzstan. The 5-million-yuan ($732,064) in assistance, including medicine, medical equipment, food, drinking water, blankets and tents was announced by the Chinese Foreign Ministry.

Beijing boosts holdings of US Debt: China has boosted its holdings of United States Treasury debt for the second straight month. The move is a gesture of assistance to Washington, easing concerns that lagging foreign demand --- and thus lower American exports --- will force the US Government to pay higher interest rates to finance its debt.

China's holdings of US Treasury securities rose by $5 billion to $900.2 billion in April, the US Treasury Department said. China is the largest foreign holder of Treasury securities, and the monthly gains in March and April come after six consecutive months when Beijing was either reducing its US holdings or keeping them constant.

The Chinese gesture to the US was made despite (or possibly because of) public exchanges between Beijing and Washington over the value of the Chinese currency.

China's Foreign Ministry on Monday responded to US calls for a rise in value of the yuan, thus assisting US exports to China,  saying that this was not to blame for the American trade deficit with China. The statement was also aimed at the US Congress, which has been threatening to press China over exchange rate policy.

During the first quarter of this year, US exports of goods to China increased about 50 percent compared to the same period in 2009.

The Latest on the Chinese Economy: China's consumer price index rose 3.1 percent in May compared to 2009, the National Bureau of Statistics has announced. This was a rise from April's figure of 2.8 percent and the trend earlier this year of 2.5 percent.

There may be further pressure on the economy: the producer price index rose 7.1 percent in May, up from April's 6.8 percent.

The official news was balanced by figures showing a 27.5 percent rise in foreign direct investment and a 48.5 percent rise in Chinese exports.

VP on Overseas Tour: Chinese Vice President Xi Jinping is travelling this week, making official visits to Bangladesh, Laos, New Zealand, and Australia.

As is often the case, the reasons for the trip are vague in Chinese official media, but the Australian and New Zealand legs, with meetings with New Zealand Prime Minister John Key and Australian Prime Minister Kevin Rudd, are likely to focus on Pacific security. Laos and Bangladesh? Look for some signs regarding Chinese overseas investment.

China This Week: Pipelines to Myanmar, US Penalties, Google's Concession

New EA correspondent Shan Shan launches our China This Week feature:

China Starts Pipelines to Myanmar

China National Petroleum Corporation (CNPC), the country's largest oil and gas producer and supplier, has announced that work has started on construction of two oil and gas pipelines between China and Myanmar.

In a statement posted on its website, the CNPC said that the pipelines, each of 1100 kilometres, are expected to run from the Kyaukpyu port on Myanmar's west coast and enter China at Ruili in Yunnan Province. The oil pipeline has a designed transport capacity of 22 million tonnes per year, while the natural gas pipeline has capacity of 12 billion cubic meters annually.

The statement did not say when the project would be finished.

US Sets Penalties on Chinese Drill Pipe: The US Commerce Department Tuesday set preliminary duties on imports of $119.2 million drill pipe from China. The department said in a statement that it "determined that Chinese exporters of drill pipe have received countervailable subsidies of 15.72 percent”. Based on these rates, the department will instruct US Customs and Border Protection to collect a cash deposit or bond.

The department said that it will make its final determination in August.

Agricultural Bank of China's Share Plan Approved: Agricultural Bank of China (ABC) has been given the go-ahead by Chinese regulators for what could be the world's largest share flotation. China's securities regulators Wednesday approved the initial public offering as the lender finalized preparations for its dual listing in Shanghai and Hong Kong.

ABC plans to sell up to 22.24 billion A-shares on the Shanghai Stock Exchange and up to 25.41 billion shares in Hong Kong.

However, analysts cannot agree on the likely amount Agbank will raise. It is considered the weakest of China's "big four" banks because its main customer base is within China's poorer rural communities. The offer is also complicated by the continuing uncertainly in global financial markets.

Natural disasters kill 157 in China in May: Natural disasters in China in May left 157 people dead and 22 missing, and caused about 45.17 billion yuan ($6.61 billion) in direct economic losses, the Ministry of Civil Affairs said on Wednesday.

Disasters, including floods, storms, landslides, droughts, snowfalls, freezing temperatures, and earthquakes, caused the evacuation of 842,000 residents and affected the lives of more than 64.57 million people, the ministry said in a statement on its website. Natural disasters hit 5.17 million hectares of farmland in May, destroying about 956,000 hectares of crops.

The damage caused by natural disasters in May was much more severe than in previous years. Yunnan, Guizhou, Hunan, Jiangxi, Guangdong and Chongqing were the provincial-level regions worst hit.

Shenzhen to Raise Minimum Wage: The minimum wage in Shenzhen City in south China's Guangdong Province will increase in July by 10 percent to 1,100 yuan per month ($161.04), municipal authorities said Wednesday.

"The pay rise will increase costs for labor-intensive companies, but I hope those companies will take this as an opportunity to speed up their technological innovation and industrial upgrading to boost their competitiveness," said Wang Min, head of the city's Human Resources and Social Security Bureau.

Shenzhen's move comes after a series of pay rises in China. Beijing will increase its minimum wage by 20 percent to 960 yuan from July 1.

The most dramatic rise has been at Foxconn, an IT contract manufacturer which will raise salaries for assembly workers at its production base in Shenzhen by 66 percent to 2,000 yuan per month from October 1.

Google agrees not to collect Wi-Fi data in Hong Kong: Google has ceased operating its Street View cars in Hong Kong and undertaken that, when the cars recommence driving, they will not collect Wi-Fi data, Hong Kong's   Privacy Commissioner for Personal Data said on Tuesday.

Google has agreed to provide the Commissioner access to the payload data collected by the Street View cars and shall render such assistance as may be required to facilitate the Commissioner's understanding of the process of the collection and the interpretation of such data.

In the meantime, Google shall securely store the data, including any backup, archives, or copies and shall not tamper with same or allow anyone to have unauthorized use or access which may contravene the laws of Hong Kong. Google has also assured to completely delete the payload data at the direction of the Commissioner and to provide the Commissioner with an independent third party's verification of the deletion.