Chinese policymakers have begun to selectively ease macroeconomic policy to support growth, according to Barclays’ analysts.  While full on easing won’t come until 2012, China will face a significant economic slowdown as the export sector feels the impact of a fragile global economy, and residential investment, which makes up 12% of GDP, falls drastically as the People’s Bank of China (PBoC) seeks to control a real estate bubble.

In their attempt to execute a “soft landing,” China’s leaders have engineered a slowdown by tightening policy over the last several quarters.  This was a response to unwanted consequences of prior stimulative policy.

China provides policymakers a clear example of the possible unwanted side effects of unorthodox monetary policy, which Fed Chairman Ben Bernanke has referenced in several speeches.  Barclays’ analysts explain that “extraordinary policies designed to stimulate growth during the past years have generated some unintended consequences, such as an asset bubble, overcapacity and imbalances.”

Those imbalances have been targeted in the recent tightening cycle.  For example, PBoC appears set on forcing property prices to fall by about 20% in 2012.  They have also pushed to lower shadow banking credit and non-bank lending. This has led to a slowdown in China’s economy, with GDP slowing steadily to 9.1% in the third quarter and inflation, as measured by CPI, falling to 5.5% in October.

Another consequence, of major importance, is the consistent fall in total social financing (TSF, a measure of total credit expended beyond just banking credit), which fell from RMB 4.2 trillion ($661 billion) in the first quarter of 2011 to RMB 2 trillion ($315 billion) in the third.

A look at Chinese stocks illustrates the case.  Big names like Dang Dang and Youku reported important third quarter losses recently, while Baidu’s stock has struggled to move anywhere in the last six months.  The iShares China ETF is down about 18% so far this year

Most, if not all, of China’s slowdown was government engineered, Barclays suggests, but policymakers are beginning to reverse the cycle.  The global economic slowdown will impact China’s exports, which make up a big part of GDP.  According to Barclays, a recession in the U.S. where output falls by 1% and in the Eurozone where GDP contracts by 3.5% would shave off 4 percentage points from Chinese GDP growth.

Even more worrying for the People’s Bank, a 10% to 30% fall in real estate prices would subtract 0.5% to 1.5% from GDP growth.  Barclays’ analysts explain:

The impact of such price changes would be most directly shown in fixed asset investment (FAI). Residential investment is about 25% of total FAI, while gross capital formation is about half of GDP. This implies that residential investment is about 12% of GDP. Residential FAI is currently growing 31% y/y, faster than the close to 25% pace for overall FAI. Consensus expects residential investment to decelerate sharply next year, given falls in both prices and volumes of property transactions. Based on historical experience, a 10-30% price decline could easily lead to slower residential investment, which would subtract 0.5-1.5pp from GDP growth.

In 2012, Barclays estimates that CPI will fall to 4% and GDP to 8.4%, with the economy cooling significantly in the second half of the year.  That will be the time when policy bias swings fully into the easing camp, and policymakers will probably go all out.  This means cutting reserve requirement ratios, asset purchases (much like QE), lowering bank deposit and lending rates, and adjusting the exchange rate policy to favor exports.

China, unlike the U.S. and most of the so-called developed economies, has a lot of firepower left.  But using it could fuel further asset bubbles and other such unwanted consequences.  China’s policymakers face a compelling task, they must avoid a “hard landing” or they could jeopardize the global economy, as much of the world today depends on Chinese demand, particularly for raw materials, to keep going. — Forbes

Chinese police said Thursday they had seized two-billion-yuan ($315-million) worth of counterfeit drugs and packaging in nationwide raids on fake medicine, the second such bust in recent weeks.

Police arrested 1,770 suspects and broke up more than 1,400 dens that made or sold fake medicine during the operation, which involved 16,000 police officers, the Ministry of Public Security said in a statement.

The suspects were found to have used banned chemicals as ingredients for the counterfeit drugs, re-packaged expired pharmaceuticals and forged qualification documents, according to the official Xinhua news agency.

They had copied prescription tablets and injections from more than 100 domestic and overseas pharmaceutical firms, it added.

Most of the fake drugs were sold online or to illegal pharmacies or clinics, it said. The report did not mention whether anyone had died or fallen ill after taking the counterfeit medicine.

This is the latest such police action. On November 4, China announced it had busted a gang that produced and sold fake medicine — some made of animal feed — arresting 114 suspects and seizing more than 65 million counterfeit tablets.

It is also the latest in a string of food and drug safety scandals to hit the nation.

In 2007, Zheng Xiaoyu, former head of the State Food and Drug Administration, was executed for accepting $850,000 in bribes in exchange for granting approval for hundreds of medicines, some of which were later found to be dangerous.

The case triggered governmental pledges to improve supervision of the country’s food and drug industries, but incidents have nevertheless erupted since then.

One of the biggest scandals emerged in 2008 when huge amounts of the industrial chemical melamine were found to have been illegally added to dairy products, killing at least six babies and sickening another 300,000. — AFP

BEIJING (AP) — China said Friday that the safe return of an unmanned spacecraft that docked twice with an orbiting module was a major step in preparation for the launch of its own space station.

The Shenzhou 8 craft landed by parachute in China’s western desert late Thursday after more than two weeks in space. It docked twice with the Tiangong 1 module, which remains in orbit, during a mission proving China capable of successfully docking by remote control. Early U.S. astronauts did so manually.

“It represents a major breakthrough for our country’s space rendezvous and docking technology program,” said Wang Zhaoyao, deputy director of the China Manned Space Engineering Office.

China will conduct two more space docking missions next year, one of them manned, and plans to complete a manned space station around 2020. At about 60 tons, the Chinese station will be considerably smaller than the 16-nation International Space Station.

China has made steady progress toward a space station since a 2003 launch that made it only the third nation to put a man in space. Two more manned missions have followed, and China separately seeks to launch a lunar rover next year.

China started a space station program after being rebuffed in its attempts to join the ISS, largely on objections from the United States. The U.S. is wary of the Chinese program’s military links and the sharing of technology with its chief economic and political rival.

However, China has refused to rule out future cooperation with the U.S. or European space programs and says its craft could dock with the ISS and U.S. spacecraft with only minor adjustments.

Wang said the Shenzhou 8 landing also meant the recovery of 17 biological experiments carried out with Germany in the docking vehicle — the first instance of international cooperation since the beginning of China’s manned space program. — AP

A Taiwanese official will soon be deported after pleading guilty Friday to mistreating two housekeepers brought from the Philippines to work in her Missouri home, US prosecutors said.

Liu Hsien-hsien, director of the Taipei Economic and Cultural Office in Kansas City, Missouri, was arrested last week for allegedly treating her Filipino housekeepers like slaves.

Liu — who appeared in court in shackles and prison garb — had faced up to five years in jail if convicted of the single charge of fraud in foreign labor contracting.

“Under the terms of today’s binding plea agreement, the government and Liu jointly recommend a sentence of time served, which will trigger Liu’s immediate deportation from the United States upon being sentenced,” prosecutors said in a statement.

“Liu remains in federal custody until her sentencing hearing.”

The two housekeepers were certified as “victims of a severe form of human trafficking” and will receive government support for a visa which would allow them to legally remain and work in the United States, prosecutors said.

Liu, 64, admitted that she “fraudulently entered into employment contracts with two Filipino housekeepers” and admitted that she paid them “significantly less than the contractual amount and forced them to work excessive hours,” prosecutors said.

As part of the plea deal, Liu paid the women $80,044 in restitution for the hours that they worked without pay.

A date has not yet been set for Liu’s sentencing, but her lawyer told AFP that he was assured by federal probation officials that they would prepare the necessary pre-sentencing report quickly.

Though such reports can sometimes take three months to prepare, defense attorney James Wirken said he hopes this one will be ready in a couple of weeks.

Liu is permitted to withdraw her guilty plea if the judge does not agree that time served is an appropriate sentence. In that case, she would then prepare for trial or some other resolution.

The case came to light after the second housekeeper sought help from a Filipino man she met at the grocery store.

She told him that Liu had taken away her passport, told her she was not allowed to leave the house without permission, made her work 16 to 18 hour days at a quarter of the agreed wages, monitored her with video surveillance cameras and restricted when she could sleep.

Liu also allegedly told the woman that if she “acted out, she would be deported” because Liu was “friends with local law enforcement and known well in the community,” charging papers said.

The previous housekeeper “went into a state of depression and stopped eating” as a result of the physical and verbal abuse, prosecutors said, citing testimony by an unnamed witness who works as a director at the Kansas City office.

The Taipei mission, which has several offices around the United States, serves as a de facto embassy.

Washington switched diplomatic recognition from Taipei to Beijing in 1979 but has remained a key ally and a leading arms supplier to the island. Beijing considers Taiwan a breakaway province. — AFP

Foreign Minister Kevin Rudd has assured China the boosting of US troops on Australian soil was not directed at Beijing while warning the country not to interfere in Canberra’s security decisions.

US President Barack Obama announced in Canberra on Wednesday that the US would deploy up to 2,500 Marines in the northern city of Darwin in what many see as a counterbalance to China’s growing might.

The US has viewed with concern China’s increasing assertiveness in the region on territorial disputes, as have many of China’s neighbours.

While Beijing’s official reaction has been relatively mild, the country’s state media has gone further, accusing Obama of trying to win votes by using his diplomatic ambitions in Asia to detract from his country’s economic woes.

Rudd said China, whose voracious demand for natural resources has made it Australia’s biggest trading partner, had been briefed about the announcement before it happened.

“It’s fair to say from what you see from the Chinese foreign ministry that they have reservations about what we have done, but Australia will not be changing its position,” Rudd told ABC television late Thursday.

“Number one position from us, and it’s based in absolute reality, is that this enhanced set of arrangements with the United States are not directed at any one country,” he said.

At the same time, Rudd, a Mandarin-speaking China expert and former prime minister, warned Beijing not to get involved in Australian policy decisions.

“Let’s just be very blunt about it, we are not going to have our national security policy dictated by any other external power. That’s a sovereign matter for Australia,” he said.

“We don’t seek to dictate to the Chinese what their national security policy should be. Therefore this must be advanced on the basis of mutual respect.”

Rudd dismissed suggestions the arrangement with the US could make Australia a potential target if tensions flared in the South China Sea.

“It is simply imprudent and wrong to speculate publicly on what might or might not happen in given strategic contingencies in the future,” he said.

The initial deployment of up to 250 Marines will occur from mid-2012 with the US planning to eventually send up to 2,500 troops to northern Australia as the two nations expand their 60-year military alliance. — AFP

The number of major Chinese cities posting a drop in home prices doubled in October, the government said Friday, in a sign efforts to cool the country’s surging property market are working.

The price of new homes in 34 out of 70 Chinese cities tracked by the government dropped in October from September, doubling from the 17 cities which had falls in September, the National Bureau of Statistics said.

China has introduced a range of measures aimed at bringing down prices in the last year, such as bans on buying second homes in some cities, hiking minimum down payments and introducing property taxes.

New home prices in another 20 cities were stable in October over the previous month while only 16 cities saw prices rise on a monthly basis, down from 24 in September, the bureau said in a statement.

Analysts said there was more room for housing prices to fall, as the government appeared unwilling to relent in its drive to tame the market.

“If the government would like to make things look good, they will not ease the curbs in the near term,” Regina Yang, a Shanghai-based director at property consultancy Knight Frank, told AFP.

Property developers have been hit hard by the measures and a lack of funds after the government hiked interest rates and restricted bank lending to rein in surging inflation and cool real estate prices.

“The target is to control fast rises in property prices without sharp falls, which may cause economic and social instability,” Yang added.

The property sector is a major driver of economic growth and land sales to developers are an important source of revenue for cash-strapped local governments.

But Premier Wen Jiabao recently dashed hopes that measures to control the property market would be relaxed, saying housing prices should return to “reasonable levels”.

Housing prices in the capital Beijing, commercial hub Shanghai and the southern cities of Guangzhou and Shenzhen — among the most speculative markets — all fell slightly in October from September, figures showed.

But only two cities — coastal hubs Ningbo and Wenzhou, which has been hit by a lending crisis — recorded falls in housing prices on a year-on-year basis in October.

The latest figures added to the already gloomy outlook for the property sector and dealt a blow to China’s listed real estate companies.

China Vanke, the nation’s largest developer, ended down 3.2 percent at 7.07 yuan ($1.11) on Friday morning while Poly Real Estate fell 3.4 percent to 9.04 yuan.

“Sentiment towards the property sector, which has long been weak due to slipping sales, declining earnings and a gloomy outlook for the next few years, was hurt further,” Haitong Securities analyst Zhang Qi told AFP. — AFP

The death toll from a blast at an illegal Chinese coal mine has risen to at least 30, state media reported, as hopes of finding survivors faded.

Thirteen miners were still trapped underground at the remote Sizhuang Coal Mine in Shizong county, in the southwestern province of Yunnan, according to Xinhua.

But the provincial rescue headquarters earlier said: “The air is thin and the chances of survival for the trapped miners are slim.”

Families of the victims will get a compensation package of 660,000 yuan ($75,500), while 17 of them have already received 10,000 yuan for funeral expenses.

Hundreds of rescuers are continuing the search, in which about 240 tonnes of coal dust have been removed and a 250-metre stretch of tunnel cleared.

The mine was hit Thursday by a “coal and gas outburst” — a sudden and violent ejection of coal, gas and rock from a coal face.

Xinhua said the mine was operating without a licence after its permit was revoked a year ago.

The chief of China’s work safety watchdog, Luo Lin, described the mine’s safety measures as “very poor” and blamed lax supervision by local authorities.

The mine’s bosses have been detained and an investigation is under way.

China’s Vice Premier Zhang Dejiang was quoted as saying: “The latest coal mine accidents ring the alarm, warning us that accident prevention is a complex, difficult, and urgent task.”

Coal mine accidents are common in China, where work safety is often neglected by bosses seeking a quick profit.

Last year, 2,433 people died in coal mining accidents in the country, according to official statistics — a rate of more than six workers per day.

Labour rights groups, however, say the actual death toll is likely to be much higher, partly due to under-reporting of accidents as mine bosses seek to limit their economic losses and avoid punishment. — AFP

China surveyed the ruins of another dismal World Cup qualifying campaign on Saturday as North Korea’s bid hit the wall and Australia’s progress was checked by lowly Oman.

China’s loss against Iraq left Juan Antonio Camacho’s men all but out of the running for Brazil 2014, needing a hatful of goals in their final two matches and for other results to go their way.

Younis Mahmoud’s injury-time strike gave Iraq a 1-0 victory in Doha late on Friday and effectively extended China’s wait for a second appearance on football’s biggest stage after their winless showing in 2002.

“China played bravely, but we won the match and the result has almost guaranteed our place in the last 10,” said Iraq’s coach, Brazilian legend Zico.

“The game went as we predicted. We knew China would attack, so we focused on defending in the first half before sealing victory late on.”

The result raised questions over the future of Camacho, the former Real Madrid coach who arrived in August with a remit to steer the potential Asian giants through qualifying.

“After its elimination, the national team will have nothing important to do for two years, until the qualifying phase for the 2014 Asian Cup,” said the Oriental Morning Post in a commentary.

“Jose Antonio Camacho won’t have any opportunities to prove himself. For the Chinese federation and Chinese football, what is the point of employing such a well-paid coach?”

Regional champions Japan romped into the fourth and final qualifying stage with a 4-0 win over Tajikistan, and Uzbekistan also went through in Group C after beating North Korea 1-0.

For the North Koreans, the result destroyed their dream of reaching consecutive World Cups after their showing at South Africa 2010, which ended a 44-year absence from the tournament.

Jordan went through as the only team still on maximum points as they downed Singapore to make it four wins out of four in Group A.

But Australia’s perfect record was tarnished by a shock 1-0 loss against minnows Oman, which came despite the presence of star men Harry Kewell, Mark Schwarzer and Brett Emerton.

Amad Ali’s 18th-minute strike, Oman’s first in their last three qualifiers, slowed Australia’s march to the last round and blew the race for Group D’s second spot wide open.

“I realised what went wrong and we’re going to work on that and the two trainings (sessions) will be sufficient for that,” Australia coach Holger Osieck told journalists.

“I will analyse it together with the team, but we didn’t show the cohesion… that we normally have and that was one of the reasons why we didn’t play our game.”

Saudi Arabia beat Thailand 3-0 to lie second behind Australia but just a point ahead of the Thais and Oman, with all to play for in their last two games.

South Korea have one foot in the next round after a 2-0 away win over the UAE which left coach Cho Kwang-Rae confident of taking the final step in Beirut on Tuesday.

“We are ready to extend this winning momentum to the next match against Lebanon,” Cho told journalists in Dubai.

But Lebanon will fight tooth and nail to retain second spot in Group B after going two points clear of Kuwait with a 1-0 win in Kuwait City.

Group E leaders Iran were frustrated by a 1-1 draw with Bahrain, against whom they smashed six last time around, and Qatar dumped out Indonesia 4-0.

Singapore, the UAE and Tajikistan are also eliminated as the bottom teams in their respective groups with no chance of reaching the top two spots in their last two games.

Ten teams will reach the round-robin fourth stage, where four tickets to Brazil 2014 are up for grabs along with a place in an intercontinental play-off.

The third round’s final two sets of games will be played on Tuesday and February 29. — AFP

China’s Middle East envoy Wu Sike cautioned Syria during a visit to Damascus of the dangers of a government crackdown on dissent that he said “cannot continue,” he told reporters in Cairo on Sunday.

Wu said that he “affirmed to senior officials in Syria of the danger of the situation and that it cannot continue,” during his visit to Damascus on Thursday.

He said President Bashar al-Assad’s regime must “respect and respond to the aspirations and rightful demands of the Syrian people,” according to an Arabic translation of his remarks in Mandarin by an interpreter travelling in his delegation.

Wu said China supported an Arab League proposal for Assad’s regime to hold talks with dissidents, some of whom he met during his visit to Damascus.

“Syria has to show some flexibility in that regard in order to help the Arab League implement its proposal,” he said, when asked whether he believed Assad’s regime should negotiate with overseas-based dissident groups.

China, along with Russia, vetoed a Western-drafted resolution at the UN Security Council on October 4 that would have threatened Assad’s regime with targeted sanctions if it continued its campaign against protesters.

Asked whether China would veto further resolutions if the regime continued its crackdown, which the UN says has killed more than 3,000 people, Wu said he warned Syrian officials of the dangers of the continuing unrest.

He added that the “international community must respect Syria’s sovereignty” and that China “would continue its efforts internationally and in the Security Council to find a solution.”

Asked whether China would raise the pressure on Assad, he said: “At this time we must concentrate on ending the bloody clashes” through the Arab League’s efforts.

Syria has been shaken since mid-March by an unprecedented protest movement against the regime of President Bashar al-Assad. — AFP