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By Keith Bradsher | The New York Times

August 23, 2012

After three decades of torrid growth, China is encountering an unfamiliar problem with its newly struggling economy: a huge buildup of unsold goods that is cluttering shop floors, clogging car dealerships and filling factory warehouses.

The glut of everything from steel and household appliances to cars and apartments is hampering China's efforts to emerge from a sharp economic slowdown. It has also produced a series of price wars and has led manufacturers to redouble efforts to export what they cannot sell at home.

The severity of China's inventory overhang has been carefully masked by the blocking or adjusting of economic data by the Chinese government -- all part of an effort to prop up confidence in the economy among business managers and investors.

But the main nongovernment survey of manufacturers in China showed on Thursday that inventories of finished goods rose much faster in August than in any month since the survey began in April 2004. The previous record for rising inventories, according to the HSBC/Markit survey, had been set in June. May and July also showed increases.

"Across the manufacturing industries we look at, people were expecting more sales over the summer, and it just didn't happen," said Anne Stevenson-Yang, the research director for J Capital Research, an economic analysis firm in Hong Kong. With inventories extremely high and factories now cutting production, she added, "Things are kind of crawling to a halt."

Problems in China give some economists nightmares in which, in the worst case, the United States and much of the world slip back into recession as the Chinese economy sputters, the European currency zone collapses and political gridlock paralyzes the United States.

China is the world's second-largest economy and has been the largest engine of economic growth since the global financial crisis began in 2008. Economic weakness means that China is likely to buy fewer goods and services from abroad when the sovereign debt crisis in Europe is already hurting demand, raising the prospect of a global glut of goods and falling prices and weak production around the world.

Corporate hiring has slowed, and jobs are becoming less plentiful. Chinese exports, a mainstay of the economy for the last three decades, have almost stopped growing. Imports have also stalled, particularly for raw materials like iron ore for steel making, as industrialists have lost confidence that they will be able to sell if they keep factories running. Real estate prices have slid, although there have been hints that they might have bottomed out in July, and money has been leaving the country through legal and illegal channels.

Interviews with business owners and managers across a wide range of Chinese industries presented a picture of mounting stockpiles of unsold goods.

Business owners who manufacture or distribute products as varied as dehumidifiers, plastic tubing for ventilation systems, solar panels, bedsheets and steel beams for false ceilings said that sales had fallen over the last year and showed little sign of recovering.

"Sales are down 50 percent from last year, and inventory is piled high," said To Liangjian, the owner of a wholesale company distributing picture frames and cups, as he paused while playing online poker in his deserted storefront here in southeastern China.

Wu Weiqing, the manager of a faucet and sink wholesaler, said that his sales dropped 30 percent in the last year and he has piled up extra merchandise. Yet the factory supplying him is still cranking out shiny kitchen fixtures at a fast pace.

"My supplier's inventory is huge because he cannot cut production -- he doesn't want to miss out on sales when the demand comes back," he said.

Part of the issue is that the Chinese government's leaders have decided to put quality-of-life concerns ahead of maximizing economic growth when it comes to two of the country's largest industries: housing and autos.

Premier Wen Jiabao has imposed a strict ban on purchases of second and subsequent homes, in the hope that discouraging real estate speculation will improve the affordability of homes. The ban has resulted in a steep decline in residential real estate prices, a sharp fall in housing construction and widespread job losses among construction workers.

At the same time, the municipal government in Guangzhou, one of China's largest cities, has sharply reduced this summer the number of new car registrations it allows so as to reduce traffic congestion and air pollution.

Municipal officials from all over China have been flocking to Guangzhou to ask for details. Xi'an, the metropolis of northwestern China, has already announced this month that it will limit car registrations, although it has not settled on the details.

The Chinese auto industry has grown tenfold in the last decade to become the world's largest, looking like a formidable challenger to Detroit. But now, the Chinese industry is starting to look more like Detroit in its dark days in the 1980s.

Inventories of unsold cars are soaring at dealerships across the nation, and the Chinese industry's problems show every sign of growing worse, not better. So many auto factories have opened in China in the last two years that the industry is operating at only about 65 percent of capacity -- far below the 80 percent usually needed for profitability.

Yet so many new factories are being built that, according to the Chinese government's National Development and Reform Commission, the country's auto manufacturing capacity is on track to increase again in the next three years by an amount equal to all the auto factories in Japan, or nearly all the auto factories in the United States.

"I worry that we're going down the same road the U.S. went down, and it takes quite some time to fix that," said Geoff Broderick, the general manager of Asian operations at J. D. Power & Associates, the global consulting firm.

Automakers in China have reported that the number of cars they sold at wholesale to dealers rose by nearly 600,000 units, or 9 percent, in the first half of this year compared to the same period last year.

Yet dealerships' inventories of new cars rose 900,000 units, to 2.2 million, from the end of December to the end of June. While part of the increase is seasonal, auto analysts say that the data shows that retail sales are flat at best and most likely declining -- a sharp reversal for an industry accustomed to double-digit annual growth.

"Inventory levels for us now are very, very high," said Huang Yi, the chairman of Zhongsheng Group, China's fifth-largest dealership chain. "If I hadn't done special offers in the first half of this year, my inventory would be even higher."

Manufacturers have largely refused to cut production, and are putting heavy pressure on dealers to accept delivery of cars under their franchise agreements even though many dealers are struggling to find places to park them or ways to finance their swelling inventories. This prompted the government-controlled China Automobile Dealers Association to issue a rare appeal to automakers earlier this month.

"We call on manufacturers to be highly concerned about dealer inventories, and to take timely and effective measures to actively digest inventory, especially taking into account the financial strain on distributors, as manufacturers have to provide the necessary financing support to help dealers ride out the storm," the association said.

Officially, though, most of the inventory problems are a nonissue for the government.

The Public Security Bureau, for example, has halted the release of data about slumping car registrations. Data on the steel sector has been repeatedly revised this year after a new method showed a steeper downturn than the government had acknowledged. And while rows of empty apartment buildings line highways outside major cities all over China, the government has not released information about the number of empty apartments since 2008.

Yet businesspeople in a wide range of industries have little doubt that the Chinese economy is in trouble.

"Inventory used to flow in and out," said Mr. Wu, the faucet and sink sales manager. "Now, it just sits there, and there's more of it."

Hilda Wang contributed reporting.

>> Original Source

By FRANCE24 International News 24/7

August 01, 2012

Beijing reacted furiously Wednesday to new US sanctions imposed on a Chinese bank over transactions with Iran, urging Washington to revoke them and saying it would lodge an official protest.

China's foreign ministry urged the United States to lift the sanctions on the Bank of Kunlun, which it said violated the "norms of international relations" and damaged relations between Beijing and Washington.

US President Barack Obama on Tuesday imposed new economic sanctions on Iran's oil export sector and on a pair of Chinese and Iraqi banks accused of doing business with Tehran.

Obama said the new measures underlined the United States' determination to force Tehran "to meet its international obligations" in nuclear negotiations, according to a statement released by the White House.

The US president accused the Bank of Kunlun and the Elaf Islamic Bank in Iraq of arranging transactions worth millions of dollars with Iranian banks already under sanctions because of alleged links to Tehran's weapons program.

In a brief statement, China's foreign ministry expressed "strong dissatisfaction and firm opposition" to the US move and said it would officially protest the decision.

"Citing its domestic law, the US imposed sanctions on a Chinese financial institution, which seriously violates the norms of international relations and damages China's interests," the ministry said.

"China has regular relations with Iran in the energy and trade fields, which have no connection with Iran's nuclear plans," it added.

The banking dispute comes after Washington and Beijing clashed last month over proposed United Nations' sanctions against Syria, which were vetoed by China and Russia, provoking criticism by the Obama administration.

The US has steadily worked to punish Iran over its nuclear development, which it has describes as a key global security threat.

Iran says it has a right to enrich uranium for civilian nuclear energy and research. Western powers, however, fear it is attempting to stockpile enough highly-enriched fuel to have a "break-out capability" to build a bomb.

The latest sanctions came on the same day the US State Department branded Iran "an active state sponsor of terrorism" in its 2011 annual terrorism report.

Separately, the US Treasury Department said that Bank of Kunlun provided services to at least six Iranian banks that have been placed under US sanctions because of their alleged roles in Iran's weapons of mass destruction programs.

Bank of Kunlun declined to comment on the announcement to impose sanctions.

>> Original Source

By BBC World News

July 21, 2012

Customs officials have seized 10,000 counterfeit Olympic flags at Heathrow Airport.

The flags, which display the Olympic rings on a white background, could be sold for about £100,000, the Border Force said.

They were sent from China and were due to be delivered to an importer in Norwood, south London.

The importer of the flags is not thought to have been aware they were fakes.

The Border Force revealed its officers seized the flags last week.

Locog confirmed they were not official merchandise and they will now be destroyed.

Border Force Heathrow director Marc Owen said: "Counterfeiting is not a harmless crime - it is a huge criminal business estimated to cost the UK economy around £1.3 billion a year.

"For the gangs behind it, it is low-risk and high-reward.

"In the run-up to the Olympics we have been working closely with Locog to thwart those who would seek to illegally profit from the Games and protect UK consumers from the fakers."

Locog commercial director Chris Townsend said: "Fake products not only undermine our ability to raise the revenues needed to stage and host the London 2012 Games, but the fake goods themselves are likely to be of inferior quality."

>> Original Source

By BBC World News

March 26, 2012

China's biggest maker of equipment for the phone industry, Huawei, has been barred from bidding for a huge project in Australia.

It was told late last year that it should not try to bid for work on Australia's National Broadband Network.

The $37.5bn (£24bn) project aims to connect almost every Australian home to a very high speed internet connection.

An Australian Financial Review (AFR) report says that Huawei has been barred over security concerns.

Without making direct reference to the Chinese firm, Australian Prime Minister Julia Gillard said: "The National Broadband Network is a huge infrastructure project and you would expect that as a government we would make all of the prudent decisions to make sure that that infrastructure project does what we want it to do and we've taken one of those decisions."

Jeremy Mitchell, director of corporate affairs at Huawei Australia said: "While we're obviously disappointed by the decision, Huawei will continue to be open and transparent and work to find ways of providing assurance around the security of our technology."

Huawei hopes to become the world's biggest seller of equipment to the telecoms industry by the end of the year and has already broken into markets in Asia, Africa and Europe.

But last year a US Congressional Committee said the firm could post a security risk.

One of the reasons cited was that the company's founder Ren Zhengfei was in the Chinese Army until 1984.

>> Original Source

By Eric Abrahamsen | Latitude | International Herald Tribune - The Global Edition of The New York Times

March 12, 2012

Last Wednesday I tried to close my bank account. I won't pretend that the Bank of China is the most Orwellian institution in the world, but in terms of human suffering inflicted by bureaucracy, it has to make the long list.

I have learned to dread my constant visits to the local branch, where I wait in line behind 40 retirees, have my passport photocopied and learn from a preternaturally calm teller that whatever it is I would like to do, it can't be done today. The reasons change; the outcome is the same. Over the years fatalism has ripened through defeatism into despair.

I've dreamed of closing the account for years, all the while gripped by an irrational certainty that they simply wouldn't allow it: we regret to inform you, sir, that your transaction cannot be completed at this time.

Last Wednesday I nearly failed. Armed with most of the paperwork I've produced in my 34 years of life, I approached the window and stated my intent, searching the teller's face for the slight crease of the brow and shake of the head that would signal the inevitable. She stared intently at her screen, the minutes lengthening.

I couldn't help overhearing a British man next to me in the midst of a breakdown. For reasons he could not fathom they would only let him withdraw half the amount he wanted; he would have to wait until next week for the other half. But why? And why did they need yet another photocopy of his passport? And what exactly were they doing with his money?! Mounting rage began to derail his otherwise fluent Chinese. I admired his principles, but wished I could whisper to him: peace only comes to those who abandon hope.

My teller cleared her throat, and suddenly I was hurtling through an entire circus-full of hoops: entering my PIN eight times in five minutes; calling a number to cancel online banking that had never worked because it required Internet Explorer; signing 15 sheets of paper. Then it was done. I was released onto the street, relieved of the crushing weight of a single plastic card. I rejoiced.

The bank called me at 5:21 that evening. "Oh God," I thought. "They will never let me go." In settling the account the teller had inadvertently given me four mao, about seven cents, too much. Could I pop by the bank and drop it off? Summoning what dignity remained to me I suggested that, as it was her error, perhaps she could produce the four mao herself. She was dubious but hung up. Ten minutes later her supervisor called back saying they really did need that four mao or else the poor lady wouldn't be able to leave work for the day.

Accustomed to being at their mercy, I resigned myself to getting back on my bike. But then the revelation hit: I had them! I had stymied the great machine with nothing more than the change in my pocket. It was a heady feeling, charged with years of general resentment at bureaucrats everywhere, and in my elation I may have behaved with less than perfect grace.

When the supervisor promised that someone would come by my home to collect the four mao in person, I began to feel silly.

And I felt even sillier a half hour later, when I went out onto the street and found my bank teller standing there in her uniform, along with a colleague and a young man who appeared to be a boyfriend. All three were full of giggling apology: "Such a stupid thing; we know! Sorry to cause you so much trouble! Thanks for your understanding!" Four bright coins changed hands, then the three hopped on their bikes and were gone.

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