China News from February 2 Global Market Digest

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1. I. China

Hong Kong shares inched down after surveys showed activity in China's factory sector unexpectedly shrank for the first time in nearly 2-1/2 years in January. Shares of China Minsheng Banking Corp Ltd, the country's biggest private lender, was the main drag weighing on the market on Monday as local media reported that its president was under investigation for corruption.

The Hang Seng index fell 0.1 percent, to 24,484.74, while the China Enterprises Index lost 1.2 percent, to 11,578.30 points.

Among the most actively traded stocks on Hong Kong's main board were Chaoda Modern Agriculture Holdings Ltd, down 45.5 percent at HK$0.60, China Minsheng Banking Corp Ltd , down 3.1 percent at HK$9.16 and China Construction Bank, down 1.1 percent at HK$6.16.

Chinese investment flowing from Shanghai into Hong Kong through the mutual market access pilot program took up 0.46 billion yuan ($73.49 million) of the 10.5 billion yuan daily quota.

Total trading volume of companies included in the HSI index was 1.6 billion shares.

The U.S.-China Business Council urged President Barack Obama and Chinese President Xi Jinping to hold another summit before the end of 2015 to propel discussions on trade and other bilateral concerns. 'We think the relationship warrants it,' USCBC President John Frisbie told reporters at a briefing to discuss the group's recommendations for improving economic ties this year.

The leaders have held two full-fledged summits since Xi became China's president two years ago. First, Obama hosted Xi in Sunnylands, Calif., in June 2013 and then Xi hosted Obama in Beijing in November, immediately after the annual Asia-Pacific Economic Cooperation leaders meeting. That suggests it may be the United States' turn to host a visit from Xi, Frisbie said.

The group, as we reported yesterday, also is urging the United States and China to finalize negotiations this year on a bilateral investment treaty this year. Asked for comment, USTR stopped well short of embracing that goal, but said it hoped for significant progress in the months ahead. "The next major milestone is the tabling of China's negative list, which they have committed to provide early in 2015," a USTR spokesman said. "We continue to emphasize to China that it is critical that its proposed negative list be limited, narrow, transparent and represent significant liberalization."

China recorded its first drop in coal production since 2000 last year, as the world's biggest greenhouse gas emitter pulls back on its use of the fossil fuel and switches to cleaner energy sources. According to the country's national coal association, China produced 3.5 billion tons of coal in the first 11 months of 2014, 2.1 percent less than the same period in 2013. The association estimates the drop for the entire year will reach 2.5 percent.

The report, quoted by the official Xinhua News Agency on Friday, said the profits of major Chinese coal companies dropped 44 percent in that same period to 110.5 billion yuan, or $18 billion, amid low global coal prices. In November, China pledged to stop the growth in its carbon emissions by 2030, and leaders are under pressure to fight air pollution affecting much of the country.

China depends on coal for 80 percent of its electricity supply and about two-thirds of total energy.

The country has quickly become a world leader in solar and wind energy and aims to produce 20 percent of its electricity through non-fossil fuel sources, including nuclear, by 2030, double the current share.

A coalition of trade associations is pushing back against Chinese policies that require tech companies operating in China to share source code and other intellectual property with the government and to incorporate Chinese standards, including Beijing's own encryption algorithms, into their products.

The standards, ostensibly aimed at improving China's cybersecurity, also require intrusive security testing of Western technology, according to a letter U.S. business groups sent Wednesday to the Chinese Communist Party's Central Leading Group for Cyberspace Affairs, led by President Xi Jinping. The letter is signed by top trade associations and industry groups, including the U.S. Chamber of Commerce, the American Chamber of Commerce in China, the Consumer Electronics Association, the National Association of Manufacturers and the Software and Information Industry Association. It specifically calls out new requirements for China's banking and telecommunications sectors, labeled "secure and controllable" policies, which the groups claim will actually make Chinese consumers less secure because their technology will be shut off from global supply chains.

1. U.S. International Trade Commission's decision Wednesday to place duties on Chinese solar panels is great news for SolarWorld, but it's a victory that could soon be undercut by another government move. The panel yesterday affirmed steep new duties, but the Commerce Department has proposed cutting existing anti-dumping duties on Chinese solar cells dramatically. If Commerce decides to go through with slashing the duties on the solar cells, it would have a large impact on the import dynamics.

The Obama administration is trying to broker an agreement between China and South Korea that would bring long-running talks on expanding the World Trade Organization's Information Technology Agreement to a successful conclusion, Froman said at the hearings.

Efforts to reach a deal on the tariff-cutting pact faltered last month in Geneva despite the United States and China reaching a breakthrough on what goods would be covered. The deal fell apart when China balked at South Korea's demand that it eliminate tariffs on additional products such as lithium batteries." At this stage, there are differences of views between Korea and China," Froman said. "We're trying to find ways to bridge those differences and encouraging China to be flexible in its approach in order to resolve the outstanding issues."