Cheap but crowded neighbourhoods are being cleared across
China as part of a stepped-up “urbanisation” campaign by China’s
new leaders. The country aims to spend an estimated $6 trillion
on infrastructure, including housing, as a projected 400 million
people become urban residents over the next decade.

But in an ironic twist, the clearance of so-called “villages
within cities” removes cheap housing stock for the very people
targeted to fuel that migration, without providing sufficient
replacement units. The land is sold by municipalities to
developers who generally erect expensive apartment towers.

That throws into question how the government can achieve its
ambitious goal.

“On the one hand, the law doesn’t allow former farmers to
expand housing for migrant workers, on the other hand local
governments don’t have the money to build affordable housing
either,” said Li Ping, senior attorney for Landesa Rural
Development Institute in Beijing.

About 130 million Chinese migrants live in tiny, sub-divided
rooms rented out by former farmers whose villages have been
swallowed by sprawl, according to government surveys.

Policies to provide government-built housing while razing
these shabby “villages within cities” result in a net loss of
housing units, according to urban planners and academics, while
choking off the private rental market that for decades has
enabled China’s massive urban migration.

The dilemma poses harsh choices for those who have made
lives in the cities on the slimmest of margins, such as the
migrants in the converted shipping containers in Shanghai.

“They can’t just come and ask me to move. I have so many
products here that I sell. So much stuff worth at least tens of
thousands of yuan,” said Li Yanxin, a migrant from nearby Anhui
Province who runs a small convenience store out of his
container. His profits – and therefore his ability to pay for
his teenager’s education – depend on the low rent he found in
the container village.

Local officials put muscle behind a policy of clearing such
sites, often declaring these dwellings illegal by noting
non-agricultural land allocated to villagers cannot be used for
commercial purposes. Land reclassified as “urban” can be sold at
a huge profit.

“Not everyone can live in a high rise. Especially those of
us who work in the recycling business,” Zhang Baofa, who rented
out the used shipping containers in one of the more creative
solutions to Shanghai’s shortage of cheap housing.

Local officials, embarrassed by photos of the container
village circulating on the Internet, have vowed to remove the
site within days. On Thursday, after four years of operation,
they declared Li’s store to be unregistered.

“This is zoned as village land. I borrowed the land. I
bought the containers. I rented it out. I would know if it were
illegal,” Zhang said.

SEPARATE AND UNEQUAL

Chinese cities lack the visible slums of other developing
countries, thanks in part to communities such as Xinzhuang in
Beijing that collectively house about 3.4 million migrants just
within the capital.

A high whitewashed wall and strip of green lawn hide
Xinzhuang’s 10,000 residents from surrounding luxury apartment
blocks. Three black chickens scratch along a filthy gutter of
blue-grey water next to the public latrine. Rooms of about 12
square meters each house families of three, for an affordable
500 yuan ($80) a month.

“A regular apartment would be more comfortable, but it’s
about 2,000 yuan a month. That’s too much for the type of people
who live here. They want to save what they can. We fill the
lowest niche,” said landlord Dong Gang, whose former farmhouse
is now a two-story concrete structure divided into about 30
makeshift rooms.

One of the 1,000 original residents of Xinzhuang, he has
been renting to migrants for 20 years. Complicated zoning laws
mean that Dong can’t expand beyond the footprint of his original
home, hindering investments that might improve housing quality.

“In Beijing over the last two years they’ve been ‘cleaning
up’ crowded tenements – that raises rents and forces many out,”
said Hu Xingdou, a specialist in migrant issues at the Beijing
Institute of Technology.

Within the next two years, Beijing city is expected to allow
migrants to rent but not buy city-built housing units. Even so,
many migrants won’t qualify to rent, and the number of
government-built units often falls short of the number of
migrants displaced.

“There is going to be less of this type of housing, because
almost all cities have policies now to demolish ‘villages within
cities’,” according to estimates by Tom Miller, author of
“China’s Urban Billion”.

URBAN VILLAGES

For two decades, Chinese local governments have been able to
ignore the problem of housing migrants, thanks to the makeshift
villages and other arrangements that accommodate about 40
percent of migrants. The remainder live at factory dormitories
or tents and pre-fab housing set up on construction sites.

As China’s cities and export industries boomed, cheap
private housing helped keep down the cost of labour, says Li
Jinkui of the China Development Institute in Shenzhen. He
estimates Shenzhen would have spent 25 years’ worth of annual
revenues to house the people who were renting in its “villages”
in 2000 – a population now estimated at 5 million people.

Of 1.35 billion Chinese, 690 million are estimated to live
in cities, but only about half of those can claim urban
residency status due to an archaic national registration system
that ties all citizens, and public benefits, to their hometowns.

City governments often lack figures for how many people
live in neighbourhoods targeted for demolition, but they can
document their destruction with precision. Beijing’s most recent
city plan notes that 171 “villages within cities” had been
“cleaned up” in the previous five years, but as of 2011, there
were still 100 left.

The loss of affordable housing could accelerate, according
to a Beijing plan released Thursday to catalogue “illegal”
buildings on collectively owned land and then destroy them next
spring. Coal briquettes burned in unheated slum villages
contribute to Beijing’s choking winter pollution.

European and American cities had huge programmes to replace
slums with public housing, Miller said. “The question is what
happens when they are demolished in China?”
($1 = 6.2158 Chinese yuan)

(Additional reporting by Langi Chiang in BEIJING; Editing by
Ken Wills)

The HSBC Purchasing Managers’ Index for March revived to 51.7 in March from 50.4 in February, but remained below a two-year high of 52.3 reached at the beginning of the year.

The pullback in February had raised concerns in financial markets that China’s recovery was losing steam. Indeed, official data earlier in March suggested the economy had started 2013 with only tepid growth after a burst in the fourth quarter.

Economists’ opinions were mixed on how much recovery momentum would be carried into the second quarter, with some pointing to weak commodity demand while others took comfort in the stronger March showing.

“Current readings around the 50 points level seem to us to be consistent with GDP growth close to 8 percent year-on-year, and investors should not expect numbers close to the 55 points readings from the past when GDP growth was firmer,” wrote Dariusz Kowalczyk of Credit Agricole-CIB in Hong Kong.

“We are sanguine about China beating its GDP growth target.”

The perk-up in March comes after the long Lunar New Year holiday that closed most of China’s factories for at least two weeks in February. The holiday falls in either January or February, distorting underlying trends early in the year.

A sub-index measuring factory output rose in March to 52.8, recovering from a dip in February, HSBC said.

Sub-indexes tracking new orders and new export orders both showed the pace of growth accelerating, indicating that manufacturing output should be supported in the near future.

ON TRACK

The March reading “implies that the Chinese economy is still on track for gradual growth recovery. Inflation remains well behaved, leaving room for Beijing to keep policy relatively accommodative in a bid to sustain growth recovery,” wrote HSBC’s China economist Qu Hongbin.

A reading above 50 indicates the pace of activity increased from the previous month.

That could belie weak January and February electricity output figures, cited by Capital Economics economists Mark Williams and Qinwei Wang, who conclude that first quarter growth is likely to be slower than the fourth quarter’s 7.9 percent.

They also looked at a drop in domestic freight volumes, but conceded construction activity and port volumes have improved.

Taken together, the signs are that “economic growth is slowing in the current quarter, much sooner than most had expected,” Williams and Wang concluded.

“The latest data suggest that growth in (quarter-on-quarter) terms has dropped back to the pace seen in mid-2012, before the policy-driven rebound took effect.”

Asia’s top companies, especially those in the export engines of China, Japan and South Korea, are less optimistic about their business outlooks as global demand remains sluggish, the latest quarterly Thomson Reuters/INSEAD Asia Business Sentiment Survey showed this week.

BUT RECOVERY MODEST

Snapshots of the diverse economy present a mixed picture.

A recent trip to Shanxi, China’s coal capital, revealed full stockyards and pessimistic managers, said roving analyst Nicholas Zhu of SDR Consulting.

“That shows downstream demand is relatively poor,” he said.

But a separate trip to agriculture-dependent Sichuan province painted a different picture.

“I saw a lot of investment, not super-strong but still coming along,” Zhu added.

Shanghai copper futures are flat through the fourth quarter of 2013, implying that traders see relatively slack demand for the building material in coming months.

“Domestic demand is definitely not as strong as it used to be. Demand will climb but not as steeply as before,” said analyst Fang Junfeng of China International Futures Co., one of the nation’s biggest futures brokers.

Other PMI sub-indexes also pointed to an economy humming along but unlikely to deliver the blistering pace of growth seen in previous years.

Sub-indexes measuring both input and output prices fell, indicating overcapacity upstream and soft demand. That’s in line with over a year of falling producer prices, although official data has shown some signs that the decline is bottoming out. An employment sub-index also softened.

China’s export sector was badly hit in 2012 by a slump in demand from Europe and Japan.

In the first two months of 2013 combined, Taiwan data showed its export orders from mainland China grew by a cool 1 percent year-on-year. That primarily reflects demand for electronics components to be assembled in China and shipped elsewhere.

China .CSI300 stocks erased marginal early losses to move higher after the flash PMI data while the MSCI Asia ex-Japan share index .MIAPJ0000PUS rose about 0.2 percent. The Australian dollar firmed briefly.

As China’s economy matures, its pace of growth is expected to slow to a more sustainable footing — an expectation reflected in the nation’s 7.5 percent GDP growth target for 2013 released at the annual legislative session this month.

A new administration appears to have taken to heart critics’ warnings that even that growth rate could be threatened without further reforms, including liberalizing interest rates, making the yuan more tradable and curbing privileges of state-owned firms.

In the short term, the economy would likely respond more if there was any relaxation of government restrictions on the property sector, which supports over 40 industries. A third of Chinese expect home prices will rise in the second quarter, although the central government has said it will not ease curbs and indeed has rolled out new ones to keep home prices under control.

(Reporting By Lucy Hornby; Editing by Neil Fullick & Kim Coghill)

The HSBC Purchasing Managers’ Index for March revived to
51.7 in March from 50.4 in February, but remained below a
two-year high of 52.3 reached at the beginning of the year.

The pullback in February had raised concerns in financial
markets that China’s recovery was losing steam. Indeed, official
data earlier in March suggested the economy had started 2013
with only tepid growth after a burst of momentum in the fourth
quarter.

“Current readings around the 50 points level seem to us to
be consistent with GDP growth close to 8 percent year-on-year,
and investors should not expect numbers close to the 55 points
readings from the past when GDP growth was firmer,” wrote
Dariusz Kowalczyk of Credit Agricole-CIB in Hong Kong.

“We are sanguine about China beating its GDP growth target.”

The perk-up in March comes after the long Lunar New Year
holiday that closed most of China’s factories for at least two
weeks in February. The holiday falls in either January or
February, distorting underlying trends early in the year.

A sub-index measuring factory output rose in March to 52.8,
recovering from a dip in February, HSBC said.

The March reading “implies that the Chinese economy is still
on track for gradual growth recovery. Inflation remains well
behaved, leaving room for Beijing to keep policy relatively
accommodative in a bid to sustain growth recovery,” wrote HSBC’s
China economist Qu Hongbin.

A result above 50 means the pace of growth is accelerating.

Sub-indexes tracking new orders and new export orders both
showed the pace of growth accelerating, indicating that
manufacturing output should be supported in the near future.

MODEST RECOVERY

Other sub-indexes also pointed to an economy humming along
but unlikely to deliver the blistering pace of growth seen in
previous years.

Sub-indexes measuring both input and output prices fell,
indicating overcapacity upstream and soft demand. That’s in line
with over a year of falling producer prices, although official
data has shown some signs that the decline is bottoming out. An
employment sub-index also softened.

China’s export sector was badly hit in 2012 by a slump in
demand from Europe and Japan.

In the first two months of 2013 combined, Taiwanese data
showed orders from mainland China growing by a cool 1 percent
year-on-year. That primarily reflects demand for electronics
components that would be assembled in Chinese factories and
ultimately exported elsewhere.

SLOWER GROWTH

Hong Kong and China stocks erased marginal
early losses to move higher after the flash PMI data while the
MSCI Asia ex-Japan share index rose about 0.2
percent. The Australian dollar also firmed marginally
against the U.S. dollar.

As China’s economy matures, its pace of growth is expected
to slow to a more sustainable footing — an expectation
reflected in the nation’s 7.5 percent GDP growth target for 2013
released at the annual legislative session this month.

A new administration appears to have taken to heart critics’
warnings that even that growth rate could be threatened without
further reforms, including liberalising interest rates, making
the yuan more tradable and curbing the privileges of the
state-owned enterprises.

A reshuffle of officials in charge of financial policy
includes a strong roster of policymakers who spearheaded the SOE
and bad-debt restructurings of the 1990s.

In the short term, the economy would likely respond more if
there was any relaxation of restrictions on the property sector,
which supports over 40 industries. A third of Chinese expect
home prices will rise in the second quarter, although the
central government has said it will not ease curbs and indeed
has rolled out new ones.

Australia’s Fairfax Media reported that the U.S. Department of Justice and the Australian Federal Police (AFP) were investigating allegations that BHP provided inducements, hospitality and gifts to Chinese and other foreign officials.

The U.S. Justice Department told Fairfax, in response to a freedom of information request, it was conducting “law enforcement proceedings” involving BHP, which supplied the materials for gold, silver and bronze medals used in Beijing. The Department of Justice declined to comment after U.S. office hours on Tuesday.

Australian police confirmed they had been working with foreign counterparts and local regulators on Australian aspects of the U.S. investigation, without providing further details.

BHP said it had been cooperating with “relevant authorities”, and in response to media queries said it believed it had complied with all applicable laws in regards to its Olympics sponsorship.

“BHP Billiton is fully committed to operating with integrity and the Group’s policies specifically prohibit engaging in bribery in all its forms,” BHP said in an emailed statement.

The world’s biggest mining company has been under investigation for possible corrupt practices since at least 2009, disclosing in 2010 that it had uncovered possible violations of some anti-corruption laws.

BHP said on Wednesday it could not comment on whether that investigation had been expanded or whether the probe referred to on Wednesday was separate.

Fairfax reported that between 2000 and 2008, BHP spent millions of dollars on a major Olympics sponsorship deal and hospitality package which according to a former China staffer involved more than 170 VIPs, including senior government officials and Chinese steel and mineral company CEOs.

Unlike most major consumer-focused sponsors, BHP’s involvement at the 2008 Beijing Olympics was targeted mostly at its close circle of Chinese buyers and employees.

“Most sponsorships focus on media buys and advertising. We’ve done almost none,” Maria McCarthy, the head of BHP’s Olympic sponsorship team, told Reuters in March 2008.

“Instead, we are focusing on community leveraging, stakeholder leveraging that involves governments and customers, and our staff,” she said.

A former BHP employee involved in the Olympics arrangements told Reuters the company had gone out of its way to comply with Australian rules and should have extensive documentation to share with investigators, if needed.

Fairfax Media said the officials BHP entertained included junior executives from China’s biggest listed steelmaker, Baosteel.

However the former BHP employee said Baosteel had specifically refused invitations from BHP during the Olympics, as the steel maker was the lead negotiator on iron ore contract talks and wanted to make a point that it was arms-length from the big iron ore miners.

At the time, BHP was championing market pricing for iron ore from annual contracts, a move that drew an angry response from Chinese steel mills forced to pay much more for raw materials as demand soared.

BHP was not one of the 12 sponsors in the International Olympic Committee’s elite “TOP” programme – companies such as Coca Cola, Adidas, McDonalds and Johnson & Johnson who paid for the right to market themselves worldwide as partners.

The miner was instead a local sponsor, as it had been for the 2000 Games in Sydney, paying Beijing organisers an undisclosed amount of money and providing materials for the 6,000 or so medals required for the Olympics and Paralympics.

In 2010, after receiving questions from the U.S. Securities and Exchange Commission, BHP said it had discovered possible violations of anti-corruption laws mainly related to some exploration projects that it had already terminated at the time.

It said then that the SEC’s requests for information did not relate to any activity in China or any of BHP’s sales and marketing activities.

The additional cargoes were bought by private animal feed
mills, which had already bought 240,000 tonnes in late February,
with domestic prices expected to remain high.

Traders said large buyers, such as state-owned COFCO, are
holding back from big purchases as they wait for U.S. corn
prices to fall still further, while Sinograin, the manager of
China’s state reserves, may also turn to the United States after
its domestic restocking programme ends on April 30.

Sinograin is currently buying only from the domestic market,
but it bought more than 6 million tonnes of U.S. corn in late
2011 and early 2012 to replenish low state reserves.

The Chicago Board of Trade December corn futures contract
, which tracks the crop harvested this fall, lost 7.1
percent over the first two months of 2013, in the second worst
winter performance for the new crop contract in a decade.

But the declines have failed to dent growers’ enthusiasm for
planting the feed grain this spring, said farmers in the United
States, the world’s largest corn exporter.

Sinograin has not been restocking at full tilt because
domestic prices are hovering above government-set stockpile
prices, company president Bao Kexin told reporters last week on
the sidelines of the annual parliament session, but declined to
give details.

The stockpile plan will end on April 30 and Beijing has set
a price of 2,100 to 2,140 yuan per tonne, but physical prices
<0#ASCORN-CN> in the northeast reached as high as 2,260 yuan per
tonne on Tuesday.

Bao also declined to say if the company would continue to
import corn this year, adding that such decisions require
government approval. State stockpiles are higher now than last
year.

“We expect Sinograin will import again this year if it
cannot buy enough at home. U.S. new corn prices are very cheap
and attractive for the company,” said one corn trader.

U.S. pre-tax corn prices were about 23 percent below
domestic rates in the port city of Shenzhen. Even with import
and value-added taxes included, the U.S. new corn price is about
14 percent lower.

New Hope Group, China’s largest producer of animal feed,
urged Beijing to issue more corn import quotas to benefit pig
breeders and meet rising demand for animal protein as the
country urbanises.

“For feedgrains of soy and corn, control over imports should
be relaxed, or if necessary, more import quotas should be issued
or even the quota restriction scrapped,” Liu Yonghao, chairman
and founder of the group, told reporters on the sidelines of
annual parliament session.

China, the world’s largest soy importer, buys about 60
percent of globally traded soybeans.

Traders do not expect Beijing to soon lift corn quota curbs,
but the government may be willing to issue more quotas to
state-owned firms under its World Trade Organisation
obligations.

China sets its annual corn import quota at 7.2 million
tonnes, 60 percent of which is allocated to state
firms.. China imported 5.2 million tonnes of corn
in 2012, a record, but imports remain only a small part of the
total, amounting to about two weeks of domestic consumption.

(Editing by Clarence Fernandez)

In December, state television reported that poultry suppliers to fast-food chain KFC had fed chickens drugs and hormones to accelerate growth. Chinese food safety authorities also said they had found excessive amounts of antibiotics in samples tested from 2010 and 2011.

Yum Brands Inc, which owns KFC, has blamed the food safety scare for cutting same-store sales by 25 percent in the first two months of the year. It releases its February sales figures later on Monday.

“This has been a very big lesson for us that we need to pay attention to and increase food safety efforts,” Liu Yonghao, founder of China’s largest private agribusiness New Hope Group, told reporters on Monday. New Hope, China’s top feed producer, owns Liuhe, one of China’s largest chicken producers.

Liu said the excessive antibiotics were tracked to independent chicken breeders who supply Liuhe, not to poultry raised by Liuhe itself.

“Some breeders used too much antibiotics or medicines. These non-standard materials got into the supply chain, and the media reported on it,” Liu said.

Yum said in January it had stopped sourcing from Liuhe in August and had stopped sourcing from a plant run by Yingtai Food Group before state television aired its report.

Liu said, “We are already back to normal. All the plants are back online. What should be closed or fixed has already been closed or fixed, and our company has released a pledge to improve food safety measures.”

He defended the practice, common to industrial breeders in China and North America, of raising chicks to adulthood in just over 40 days rather than the natural span of three to six months through feeding and light control in sealed coops. The technique requires careful disease control in the crowded flock.

“After a month of tests the market has been opened again. Whether in Beijing, Sichuan or Shandong, across China the market has been opened again. Following inspections, our product meets the standards,” Liu said.

In an interview with Reuters in 2006, Liuhe executives said they had carefully studied the American poultry industry’s practices for accelerated chicken raising.

Most of Yum’s nearly 5,300 restaurants in China are KFCs.

(editing by Jane Baird)

China said last year it would allow private investors
greater entry into a number of restricted sectors, including
finance. China’s banking sector is dominated by big state-owned
banks, and the state also owns a majority share in nine of the
10 second-tier commercial banks.

“For these mid-sized banks, it wouldn’t be a big deal for
the state share to fall below 50 percent,” said Liu Yonghao, who
is vice chairman of Minsheng Bank and owns its
biggest shareholder.

“Because the big state banks already dominate 70 percent of
China’s financial sector, even if these mid-sized banks were 100
percent private, the state would continue to control the
sector.”

He wouldn’t comment on whether he, or Minsheng, would be
interested in buying state shares.

“If these banks are opened further, it won’t affect the
nation. There will only be good results, no negative results,”
he said, addressing why he felt the government should start a
stake selldown targeting mid-tier banks.

“The big state banks are too big. I hope we can gradually
change them.”

Liu is a deputy to China’s legislative body, which is
currently holding its annual meeting, and uses his position to
lobby for rural and private business concerns.

Liu, a mathematics teacher who began selling eggs with his
brothers in the early days of China’s market reforms, said that
further privatizing the mid-tier banks would allow more banking
support for small or private firms, which currently have
difficulty getting loans from state-owned banks in China.

Liu’s egg business grew to become New Hope Group, which
today is China’s largest private agribusiness focusing on animal
feed, poultry and meat.

Liu said he was optimistic about further reform under
China’s new administration, which will be formally named this
week.

“We can feel that in the new administration China will keep
emphasis on reform and opening. Financial reform and opening is
of key importance, because most of the banking industry is
government-controlled,” he said.

China has already taken steps in recent months to partially
liberalise interest rates, viewed by many as a necessary reform
in moving to a more market-based economy. Traditionally, banks
have relied on the spread between state-set deposit and lending
rates to make money.

Market-based interest rates would narrow that spread, Liu
said, forcing banks to shift their focus to providing more
services to customers in order to compete.

Minsheng’s rivals among the mid-sized commercial banks
include China Merchants Bank and Pudong Development
Bank.

(Reporting By Lucy Hornby and Coco Li; Editing by Ken Wills)

China’s consumer price index rose 3.2 percent in February from a year earlier, a 10-month high, official data released on Saturday showed. The pick up in inflation from just 2 percent in January was driven by a 6 percent increase in food costs.

Prices that rise too much could jeopardize a government preference to allow economic growth to stabilize after it eased in 2012 to its weakest full-year pace in over a decade. Growth only started to pick up in the fourth quarter after a seven-quarter-long slide.

But if policymakers move too quickly to dampen inflation, they could equally jeopardize the very growth they are trying to nurture. It is a dilemma China’s incoming leaders Xi Jinping and Li Keqiang may have hoped they would not have to face so early in the economic recovery.

“This year I think there are three priorities – to stabilize economic growth, which is not too big of a problem, and to stabilize the prices of goods, where already it looks like there could be some pressure,” said Zhao Xijun, deputy director of the Finance and Securities Institute at Renmin University. Zhao says the third priority is to reduce the risk from hidden debt, such as off-book wealth management products.

There are already indications China’s central bank is shifting its policy focus to inflation from growth. China needs to control inflation as a priority, the central bank said in its fourth-quarter policy report in February, shifting from a pledge in its previous report to support the economy above other needs.

POLICY DILEMMA

Pressures on China’s meat prices highlight not only the challenge of bringing inflation under control but also in shifting the economy more towards consumer-led growth, Beijing’s stated goal after decades of export-led expansion.

Food prices typically rise ahead of the Lunar New Year holiday — which occurred in February this year. But since the holiday ended, meat prices, especially for beef and lamb, have stayed elevated.

“Accelerating food prices mean less growth in spending on other goods and services in the economy,” Carl Weinberg, the China-watching chief economist at New York consultancy High Frequency Economics, wrote in a client note.

Retail beef prices in Beijing city markets are higher compared with supermarkets outside Boston. Pork, China’s staple meat, is about 50 cents/kg below the U.S. price, a Reuters comparison of standard retail prices show.

That’s a direct hit on the spending power of Chinese, whose average income is about a tenth that of Americans.

Loss of farmland and farm labor to urbanization – China’s cities are swelling as they absorb hundreds of millions of people – and grazing restrictions due to land degradation add to food production costs.

“The more the economy develops, the harder it is to raise calves,” said Wang Jimin, who tracks China’s cattle trends at the Chinese Academy of Agricultural Science’s Rural Economic Development Institute.

“In the short term, I don’t see meat prices falling unless there are a lot of imports.”

After an international outbreak of mad cow disease a decade ago, China will only allow beef imports from Australia, New Zealand and Uruguay, so options to tame prices with imports appear limited.

INFLATION EXPECTATIONS

China’s beef production has decreased every year since 2008, although it could rise by less than 1 percent this year, U.S. Department of Agriculture estimates suggest.

“Cattle take at least a year to raise, not like chickens which need a few months at most. Poultry producers can respond to the market much faster,” Yang Shaohui, a poultry vendor in Beijing, said. His chicken was selling for about a third of the price of the beef at a nearby stall.

High feed costs will also help elevate pork prices for the near future. Rising pork prices are expected to drive broader inflation gains by the third quarter.

“It’s a question of fundamentals, not monthly CPI fluctuations,” said Shi Tao, livestock analyst at eFeedlink in Shanghai. He expects a reduction in pork supplies this year because some pig breeders dropped out of the business after losing money last summer.

Rising food prices represent a sensitive area for China’s Communist Party leadership given that social tension has often accompanied past price hikes.

They can fuel inflation expectations that lead to a broader rise in inflation and the risk that the central bank will tweak monetary policy to keep a lid on the price pressures.

But policymakers should resist the temptation for pre-emptive action, said Ting Lu, chief China economist at Bank of America/Merrill Lynch in Hong Kong.

“Though policymakers should be wary of inflation later this year with an economic growth recovery, it’s too early to call for significant monetary tightening at present yet,” he wrote in a note to clients.

(Editing by Nick Edwards and Neil Fullick)

China is studying the procedures of the Committee on Foreign Investment in the United States, or CFIUS, as it sets in motion its own security review, Chen Deming told reporters on Friday at a briefing at China’s annual parliament session.

China, the world’s fifth-largest source of outbound investment, regularly complains that the U.S. blocks access to plum investment prospects on national security grounds.

China’s largest-ever foreign takeover, the $15.1 billion purchase of Canadian oil firm Nexen Inc NXY.TO by state-owned oil company CNOOC Ltd. (0883.HK: Quote, Profile, Research, Stock Buzz) in February cleared a CFIUS review, its last regulatory hurdle.

The U.S. attached the condition that CNOOC could not operate Nexen’s many wells in the U.S. Gulf of Mexico, although the Canadian unit could, the Wall Street Journal reported.

“I hope CFIUS can be more open and transparent, because companies never know whether their bid meets the requirements or not,” Chen Deming said, adding that “unfair” conditions had been attached to the Nexen approval.

“We need clearer guidelines on what conditions might violate U.S. security, to reduce risk for companies that want to invest. We hope to reduce disappointment and the cost of failed bids.”

U.S. treasury officials have sought to include information on CFIUS in regular meetings with Chinese officials, in the hopes that China will adopt some CFIUS features for its new national security review, particularly setting deadlines to respond to investment review requests.

International trading house Glencore (GLEN.L: Quote, Profile, Research, Stock Buzz) has been waiting for months for a ruling from MofCom — which regulates anti-trust issues — for its planned takeover of zinc miner Xstrata (XTA.L: Quote, Profile, Research, Stock Buzz).

China has blocked almost all attempts by foreigners to buy steel mills as well as a number of other high-profile deals, for instance an attempt by Coca-Cola (CCE.N: Quote, Profile, Research, Stock Buzz) to purchase private juice maker Huiyuan.

Chinese officials regularly bring up CNOOC’s failed $18.5 billion attempt to buy U.S. oil firm Unocal in 2005, which the U.S. side blocked over national security concerns. Since then, Chinese investment in the U.S. has soared to about $10 billion, Chen estimated.

“Roughly one dollar of every three dollars we want to invest in the U.S. gets approved, so the approval rate is not very high, but conditions are improving,” he said.

“When I meet with American governors or mayors, they really welcome Chinese corporate investment.”

Chinese investments in the U.S. now include auto parts, steel and real estate; while most U.S. manufacturing firms operate wholly-owned or joint-venture facilities in China.

CNOOC’s deal with Nexen is not the only Chinese energy investment in the United States. Chinese oil company Sinopec has recently announced a shale-gas joint venture with American gas developer Chesapeake Energy (CHK.N: Quote, Profile, Research, Stock Buzz).

Asked if China had a strategy to invest in the U.S. energy sector, Chen said Chinese companies determine their own acquisition targets while the government provides support and advice, but does not have strategic targets for specific countries.

Nonetheless, the Chinese government has in the past blocked private Chinese firms’ attempts to buy overseas companies. Most recently, China’s top planning body said it would not approve a private company’s purchase of an African iron ore mine unless state-owned companies had a share in the deal.

(Additional reporting By Shen Yan; Editing by Kim Coghill)

China’s second-largest food manufacturer by revenue is
looking at potential targets in Southeast Asia, Australia and
Brazil, vice president Ge Junjie told Reuters on Thursday.

An estimated 6 million tonne surplus in global sugar supply
means it’s a good strategic time to buy, Ge said, adding the
company was also interested in expanding its international
portfolio in wine, cookies, chocolate, and dairy.

“The next step in our international strategy is sugar. At
the moment Chinese per capita sugar consumption is only 10
kilograms a year; the international average is 15 kilograms,”
said Ge, who has spent his career in the sugar industry, working
for state-owned Shanghai Sugar, Cigarette and Wine Group before
it was merged into Bright Food in 2006.

“As China urbanizes and the Chinese people’s consumption
spending increases, average sugar consumption will rise. So
that’s good for us as a discretionary food company.”

Bright Food targets total revenues of 150 billion yuan
within the next three years, implying average growth of 12
percent a year. It expects its international sales to account
for 25 percent of revenue by 2015, up from 15 percent now.

Bright Food is considering an overseas listing, Ge said,
without elaborating. The group has four units listed in
Shanghai: Shanghai Jinfeng Wine Co, Shanghai Haibo
Co, Shanghai Maling Aquarius Co and
Bright Dairy & Food Co.

Bright Food bought a controlling stake in British cereal
maker Weetabix last year, following on its 2011 purchase of
Australian biscuit, fruit and dairy producer Manassen Foods in
2011. In 2010, it bought a majority stake in New Zealand’s
Synlait Milk. The same year, it was outbid in an effort to buy
the sugar and renewable energy unit of Australian conglomerate
CSR.

Bright Food generally targets overseas brands that have
strong sales networks and want to penetrate the growing Chinese
market.

“No matter how good the product is, if there is no synergy
with the China market, we won’t pursue it,” he said.

Bright Food, the nation’s fourth-largest dairy producer, has
invested in dairy farms over the past few years in line with
government requirements that dairy producers control their
supply sources.

A 2008 scandal in which at least 6 babies died and 50,000
were hospitalized after drinking formula tainted with the
chemical melamine was blamed in part on dairy processors’
practice of buying milk from small, independent dairy farmers.

Over 70 percent of Bright Food’s raw milk supply is from its
own farms, Ge said, built over the past two years with 50,000
cows imported from Australia. The company is also investing in
feed production, in a departure from its usual focus on retail
and distribution.