Federal prosecutors sought to dismiss charges Friday against a Temple University physics professor who was accused of scheming to provide secret U.S. technology to China after being confronted with statements from physicists that investigators had misunderstood the technology.

The U.S. attorney's office in Philadelphia declined to comment on the four-page motion the office filed seeking to drop four counts of wire fraud against the professor, Xi Xiaoxing.

In its filing in federal court in Philadelphia, the government said only that the motion is based on "additional information" it received since the charges against the 57-year-old professor were filed in May.

Xi was chairman of Temple's physics department until his arrest. He voluntarily stepped down as chairman and remains a faculty member. He is a naturalized U.S. citizen born in China.

The dismissal motion comes after Xi and his lawyer, Peter Zeidenberg, gave a presentation on Aug. 21 to investigators. That presentation included affidavits from world-renowned physicists and experts who looked at the emails between Xi and contacts in China and explained that he was involved in a scientific pursuit that had a very narrow commercial application and did not involve restricted technology, Zeidenberg said.

"We're very relieved that the charges against my father were dropped," his daughter, Joyce Xi, said by telephone from the family's home in the Philadelphia suburbs. "It's been a very difficult time for our family and we're looking forward to regaining some normalcy in our lives."

The motion still must be approved by U.S. District Judge R. Barclay Surrick.

Federal prosecutors want the opportunity to confer with their own outside experts and have reserved the right to bring charges again, Zeidenberg said.

"We have no reason to think that that's going to happen," he said.

Asked how the government made such a mistake, Zeidenberg said he didn't know.

Prosecutors thought he was sending information related to a magnesium diboride pocket heater for which he had signed a nondisclosure agreement, Zeidenberg said.

When they arrested Xi in May, prosecutors said he had participated in a Chinese government program involving technology innovation before he took a sabbatical in 2002 to work with a U.S. company that developed a thin-film superconducting device containing magnesium diboride.

Superconductivity is the ability to conduct electricity without resistance. A superconducting thin film could be key to making computer circuits that work faster. Films of magnesium diboride are particularly promising for this use, and Xi helped develop a way to make them.

Prosecutors say he "exploited it for the benefit of third parties in China, including government entities," by sharing it with the help of his post-doctoral students from China. Xi also offered to build a world-class thin film laboratory there, according to emails detailed by prosecutors in May.

But Xi was sending information about a different device, which he helped invent. It was not restricted technology or supposed to be kept secret by a nondisclosure agreement, Zeidenberg said.

"It was typical academic collaboration," Zeidenberg said. "Nobody's getting rich off this stuff."

In any case, the pocket heater is patented and plans on how to make it can be looked up online, Zeidenberg said.

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Citi is telling clients not to worry about the effect of a slowdown in China on the UK economy — and, in fact, saying it could actually boost Britain.

China today trimmed its official GDP growth forecast for the year, the latest in a long string of signals that its booming economic growth is slowly cooling.

Commentators have blamed these fears for the recent stock market jitters in both the US and UK, but Citi says fears are overblown.

In a note sent to clients on Friday, analyst Michael Saunders and his team say: "We suspect that even a major China slowdown (if it happens) would have only modest effects on UK growth — perhaps enough to produce a mid-cycle slowdown for the UK, reinforce the trend to low-flation and keep the MPC on hold in 2016, but probably not a trigger for major weakness."

UK GDP growth is much more closely correlated to growth in advanced economies as opposed to emerging ones, Citi says, and trade links with China are relatively limited — exports make up just 0.8% of GDP, while investment from China into the UK was only 0.5% of total foreign investment in the UK in 2012, the latest data available.

In fact, the biggest impact China has on the UK is its influence over commodity prices — and in this area a decline is good for Britain. Here's Citi:

China’s recent slowdown has helped bring global commodity prices sharply lower since 2012-13 — hence providing a major boost to real incomes and consumer spending in the UK. Given this, we suspect that weakness in China’s economy has a bigger effect on UK inflation (downwards) than on UK real GDP growth. Even with our base case of a soft landing for China, we expect that UK CPI inflation in 2016 will average only about 1% YoY, far below consensus and MPC forecasts. With such low inflation, we expect UK household real income growth to average 3½% YoY in 2015-16 — stronger in both years than in any year over the period 2002-14.

In short, falling demand from China will mean falling oil prices. That means cheaper production and transportation costs for goods, as well as cheaper petrol. That brings prices down and means more money in the pocket of average Brits.

Of course, Citi say the UK could be hit by China if bigger trade partners like the US or Europe are hit by a slowdown. But that sort of domino effect scenario is much harder to predict and map.

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A world-renowned Ohio State University (OSU) professor who had access to restricted defense information as part of his work with NASA is under investigation by the FBI for failing to disclose his ongoing connections to Chinese scientists, The Columbus Dispatch has reported.

Professor Rongxing Li, 56, unexpectedly resigned from his position in the OSU Department of Civil, Environmental, and Geodetic Engineering in February 2014.

Li told OSU that he was going back to China to take care of his sick mother, and no one has heard from him since.

A month before resigning, Li submitted a proposal to work with NASA on its Mars 2020 project, which gave Li access to Department of Defense information that he was prohibited from sharing with China.

A month after he resigned, homeland security agents searched Li's wife, Jue Tian, before she boarded a plane to China and found thumb drives containing restricted defense information. Neither she nor her husband has been charged.

Li's research interests include "planetary exploration, digital mapping, spatial data structures, coastal and marine GIS, photogrammetry and remote sensing," according to his biography on the Planetary Robotics Vision Ground Processing project website. He had worked with NASA previously on missions such as the Mars Exploration Rover and the Lunar Reconnaissance Orbiter.

In his Mars 2020 NASA proposal, according to federal search documents reviewed by The Dispatch, Li claimed that he had no ties to China. However, OSU knew he had spent 2012 on sabbatical at Tongji University in Shanghai and subsequently launched an internal investigation into why Li had not notified NASA of his ties to China.

The university reportedly discovered that Li not only had ongoing connections with Tongji, but he had also allegedly collaborated on Chinese-government programs aimed at developing advanced technologies.

Li reportedly had access to International Traffic in Arms Regulations information with NASA and with Raytheon, a defense contractor. Concerned that he might have provided China with this restricted information, OSU officials notified the FBI, which is now investigating the circumstances surrounding Li's abrupt resignation and mysterious disappearance.

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WASHINGTON (Reuters) - Senior U.S. and Chinese officials concluded four days of meetings on Saturday on cyber security and other issues, ahead of Chinese President Xi Jinping's visit to Washington later this month, the White House said.

Cyber security has been a divisive issue between Washington and Beijing, with the United States accusing Chinese hackers of attacks on U.S. computers, a charge China denies.

U.S. national security adviser Susan Rice had a "frank and open exchange about cyber issues" in her meeting this week with Meng Jianzhu, secretary of the Central Political and Legal Affairs Commission of the Chinese Communist Party, the White House said in a statement.

The Chinese delegation also had meetings with Federal Bureau of Investigation Director James Comey and representatives from the Justice, State and Treasury departments and the intelligence community, the statement said.

President Barack Obama said last month he would raise concerns about China's cyber security behavior when he meets with Xi in Washington.

The Obama administration is considering targeted sanctions against Chinese individuals and companies for cyber attacks against U.S. commercial targets, several U.S. officials have said.

Chinese hackers have also been implicated in the massive hacking of the U.S. government's personnel office disclosed this year. Two breaches of security clearance applications exposed the personal data of more than 20 million federal employees. 

(Editing by David Gregorio)

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BEIJING (Reuters) - China's factory output rose 6.1 percent in August from a year earlier, the National Bureau of Statistics said on Sunday, missing market expectations, while retail sales climbed 10.8 percent, higher than forecasts.

Analysts polled by Reuters had expected a 6.4 percent increase in factory output, quickening from July's 6.0 percent.

Economists had expected retail sales to rise 10.5 percent rise, the same pace as in July.

Annual growth in China's fixed-asset investment, one of the crucial drivers of the economy, slowed to 10.9 percent in the first eight months of 2015 from 11.2 percent in the January-July period, the bureau data showed.

Analysts polled by Reuters had forecast an 11.1 percent rise.

Some market watchers believe weak data over the summer is putting Beijing's official 7 percent growth target for the full year at risk.

That level would mark China's slowest expansion in a quarter of a century, but some economists believe current growth levels are already much weaker than official numbers suggest.

Persistently weak demand at home and abroad, slowing investment, industrial overcapacity and high local government debt levels are all weighing on activity.

(Reporting by Meng Meng and Kevin Yao; Editing by Kim Coghill)

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HONG KONG (Reuters) - Hong Kong's leader enjoys a special legal position that puts him above the legislature and judiciary, China's top official in the city said, raising some politicians' concerns about Beijing's expanding influence in the city.

Hong Kong's leader, the Chief Executive, reports to the central Chinese government. Thousands of the city's residents have held protests demanding full democracy, putting pressure on current leader Leung Chun-ying.

Speaking on Saturday, Beijing's chief liaison officer Zhang Xiaoming said political systems where branches of government could check the powers of others "is usually established in sovereign states" and that the chief executive's authority was above all.

"The dual responsibility of chief executive to the central government and Hong Kong has given him a special legal position which is above the executive, legislative and judicial institutions," Zhang told a forum to mark the anniversary of the Basic Law, the constitution under which China governs the former British colony as a special administrative region.

"Hong Kong is not a political system that exercises the separation of powers," he added.

Zhang's comments angered several lawmakers, who said Beijing was effectively giving the Chief Executive unchecked control. Legislative Council member Alan Leong told the South China Morning Post the Chief Executive was now "like an emperor" and Lee Cheuk-yan, chairman of the Labour Party, said the comments undermined the Basic Law.

A former British colony, Hong Kong was returned to Chinese Communist Party rule in 1997 under a "one country, two systems" form of government that gave it separate laws and wide-ranging autonomy but reserved ultimate authority for Beijing.

(Reporting by Donny Kwok; Editing by Miral Fahmy)

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Chinese leaders expressed deep concern for their country's economy last weekend at a meeting of G-20 nations in Ankara, Turkey.

That is weird for two reasons.

First, China's leaders are normally incredibly confident about their economy in public.

Second, amid the worry — despite the Chinese economy's visible slowdown and dramatic action over the past month — officials maintained that the economy would continue to grow at 7% annually.

Basically, that means Chinese officials just gave the game away: They expect us to believe that the country's economy will close this year growing the same way it did last year: 7%, always 7%.

Something here doesn't fit.

Here's what they said

The reports started leaking out on Friday, when Japan's finance minister, Taro Aso, revealed that Zhou Xiaochuan, governor of China's central bank, had repeated several times in a meeting that the Chinese stock market bubble had "burst."

This is the same stock market that the government helped inflate and has since been trying to prop up. Goldman Sachs strategists estimate that China's "national team" of state-backed brokerages and funds has pumped about $240 billion into the stock market since June.

It is also the same stock market that China has been trying to "purify" and that has been falling because foreign investors don't understand China's growth model, according to Chinese media.

Admitting that the market was a bubble, and that it has now popped, is a big step.

Of course, that's just the stock market — a stock market in which only 5% of Chinese people are invested. Far worse is what was reportedly said about the country's real economy.

According to Japan's Nikkei news service, Chinese finance minister Lou Jiwei told a group of delegates that China would face up to 10 years of tough economic conditions. The next five years, he said, would most definitely be painful.

That doesn't tally with the 7% growth target China keeps repeating, a target that China's richest man has dubbed a fantasy.

Contrast what was said this weekend with what you read in China's state media and you get a picture of policy going forward. It's not pretty at all. It is the picture of the government whose carefully laid plans have gone awry.

The plan goes awry

Right now, China is trying to move its economy from one based on foreign investment to one based on domestic consumption. Leaders knew that as this happened, the economy would slow down.

President Xi Jinping called this "The New Normal" and prepped his people for change and the country's heavily indebted state-owned enterprises (SOE) for reform and restructuring.

Here's where Zhou's comments about the stock market bubble come in. To keep fresh cash flowing to SOEs and other corporates, the government encouraged people to invest in the stock market in Shenzhen and Shanghai.

That's why, until June, both indexes had seen a glorious year-and-a-half-plus rally of around 150%.

Then in June both indexes crashed. Then they crashed again in August. The Shanghai Composite, which had gained 60% for the year until the first crash, is now down 2% for 2015.

So that's one thing to freak out about. The corporate capitalization plan didn't work.

Meanwhile, in the real economy, the New Normal has started slowing China down faster than officials expected. Export and manufacturing data for July came in much weaker than expected, falling 9% from the same time the year before.

At the same time, the services sector (the growth driver leaders are dreaming of) and property market (China's traditional growth driver) aren't growing fast enough to make up for losses elsewhere in the economy.

That, in part, is why on August 11, China devalued the yuan. Exports recovered a bit in August, falling only 6%, but that isn't comforting anyone in Beijing.

7%?!

"Another month of shrinking exports adds to the gloom on China's growth outlook," Bloomberg economist Tom Orlik wrote. "With new real estate construction also contracting, the main external and domestic sources of demand are both down. The scene is set for further easing. The key question is whether that will include a further weakening of the yuan."

China has been walking a tightrope with the yuan — it is willing to allow the currency to fall a little to help spur exports, but not so much that it leads to capital flight. And right now it is spending a lot of money keeping the yuan steady at about 6.37 per US dollar.

China's central bank, the People's Bank of China (PBOC), has had to expend its big pile of foreign-exchange reserves selling dollars and buying yuan to create demand for the currency. The weaker the demand for yuan in the market, the more buying the Chinese have to do.

And we know demand is weak, because the PBOC burned through $94 billion to $110 billion in foreign reserves in August. That's the largest drop in reserves in the country's history.

In other words, the PBOC can't do this forever. There needs to be more easing, but the government has already cut rates and enacted looser policies to spur growth in the property market (among other things). It's unclear what the government can do next that will really make an impact.

And there's another reason this can't last forever. There are already rumblings within the Chinese Communist Party that some loyal to former President Jiang Zemin want Xi to end the New Normal. Xi has made it clear through the Chinese media that "retired" leaders should stay retired.

So we may have some serious infighting on our hands if this situation gets worse.

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Chinese industrial production, retail sales and urban fixed asset investment figures were released over the weekend with all bar retail sales disappointing to the downside.

From a year earlier industrial production increased by 6.1%, higher than the 6.0% pace of July but below expectations for an expansion of 6.4%.

Disruptions caused by the massive explosion at the Tianjin port midway through the month, along with factory closures prior to the September 3 Victory Day parade to ensure blue skies for the event, are largely believed to have been responsible for the downside miss.

Elsewhere urban fixed asset investment – essentially urban infrastructure spending – grew by 10.9% in the year to August. The figure was below the 11.2% pace of July and expectations for a deceleration to 11.1% and marked the slowest annual increase in investment since December 2000.

On the other side of the ledger, retail sales topped expectations, increasing by 10.8% from levels of a year earlier. The figure was higher than the 10.5% pace of July, also the level eyed for August.

Whether due to the mixed nature of the report, the fact it portrays what the Chinese government is attempting to implement – greater levels of household consumption to offset weakening industrial activity – or the widely-held belief that most Chinese data is spurious in nature, the market reaction to the news in early Asian trade has been near non-existent on Monday.

Clearly this data dump – once a noted market mover – has lost its market potency over recent years.

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If Huayi Brothers has spent the last ten years securing its status within the film industry, then over the next ten years, the company must develop out of the traditional film business and into new enterprises.

When it came out last year that Huayi Brothers were leaving the film studio that put out the top three highest-grossing domestic films, many took it as a sign they were “getting away from movies”, but from their actions, it seems the Huayi Brothers are actually getting closer to the Web.

Businesses under the Huayi Brothers brand have been organized into three groups: film and television, brand licensing and live entertainment, and online entertainment.

Online entertainment includes new media, games, and other Internet related products. In the first quarter of this year, online entertainment generated more than 410 million yuan in revenue, accounting for 66.65% of total revenue. Online entertainment accounted for the biggest portion of first-quarter revenue, and was also the fasted growing, increasing 14,000 times over last year.

“Huayi listed five years ago, so we’re just in time for this stage where the Internet in China is exploding,” said Huayi Brothers chairman, Wang Zhongjun. He continued by saying: “So now we have this huge business area, online entertainment.”

Wang Zhongjun put up the initial funding to develop Huayi Brothers’ online business. The most direct result of this is his generosity in giving out stock incentives. When the new media division underwent equity reform, almost 50% of stocks were given to the team. “We hope to encourage online innovation and use new shares to attract talent,” Wang explained.

According to a stock transfer report revealed by the National Small and Medium Enterprise Stock Transfer System, Huayi Brothers’ subsidiary, Beijing Huayi Brothers Chuangxing Entertainment Technology Co., Ltd. (formerly Huayi Brothers New Media Technology Co., Ltd.), currently holds 53.14% of shares in Huayi Chuangxing, while Brothers & Sisters (Tianjin) Cultural Information Consulting Partnership holds 46.86%.

Huayi Chuangxing owns 100% of Beijing Huayi Brothers Digital Media Technology Co., Ltd., 100% of Star Movies Alliance (Tianjin) New Media Technology Co., Ltd., 100% of shares of Huayi Brothers New Media (Tianjin) Co., Ltd., and 19.61% of Yi Ming Commodities (Tianjin) E-commerce Co., Ltd.

Huayi Brothers New Media Company CEO Hu Ming revealed that in spinning off an independent online entertainment company, they intend for it to one day go public on its own.

It is clear that the core reason for the partition is the interaction between Huayi Brothers and New Media. They have different corporate genes, and partitioning reduces obstacles to online innovation.

Investing in all stages of the production chain, making games the focus

Internally, Huayi Brothers has made sufficient structural adjustments. Externally, the company is investing in and making acquisitions at all stages of the production chain.

In 2014, Huayi Brothers merged with online ticket sales platform Maizuo.com. At the same time, they invested in technology companies supplying 60% of China’s movie theaters with projection equipment.

In May, Chaofan, an online marketing platform in which Huayi Brothers owns shares, listed shares on Hong Kong’s Growth Enterprise Market. Chaofan provides digital marketing services, including digital advertising, social media management, and creative and technical services.

In July, Chinese life services platform, Dmall, reached a strategic partnership agreement with Huayi Brothers.

Huayi Brothers appears to be getting poised for the future. In April, a fully owned subsidiary of Huayi Brothers, Huayi Brothers (Tianjin) Interactive Entertainment Limited, invested 24 million yuan in Baofeng Magic Mirror, giving them an 8% share in the company. Baofeng Magic Mirror develops and operates virtual reality technology.

But what people are most interested in is what Huayi Brothers is doing in the gaming field. The company’s earnings report for the first half of 2015 estimates profits to be between 450 and 540 million yuan, an increase of 10 - 30% over the previous year. Profits from their primary business were estimated at 150 to 240 million yuan - triple last year’s profits. This can all be credited to Huayi Brothers’ gaming expansion.

In their June financial report for the first half of the year, not long after acquiring Yinhan Games, Huayi Brothers’ revenue from games was only 75 million yuan, just 15.5% of total income.

By the third quarter of 2014, the company’s reports showed game revenue at 289 million yuan, accounting for 30% of overall income.

Game revenue has since been grouped together under online entertainment, so it is impossible to know the exact numbers for Huayi Brothers’ game revenue. However, online entertainment is growing rapidly. In the first quarter of this year, online entertainment revenue was 419 million yuan, more than half as much as the total online entertainment revenue for all of 2014.

Game companies are more liquid than film and television companies. By acquiring stock in a gaming company and issuing consolidated financial statements, a film and television company can become more profitable.

At the same time, by developing and publishing games, the game company helps the film company to accumulate intellectual property. Wang Zhongjun himself said publicly: “I look forward to Huayi’s game business joining the troika of film, talent management, and television to become the fourth horse pulling our carriage.”

Tencent and Alibaba providing an Internet shot in the arm

Aside from Huayi Brothers’ own adjustments to its strategy described above, infusions from outside are also an important part of the company’s Internet strategy. On August 21, Huayi Brothers completed a 360 million yuan private placement, giving Alibaba, Tencent, and Ping An 8.08%, 8.08%, and 2% shares in the company respectively.

Following the completion of private placement, Huayi Brothers and Tencent will cooperate on intellectual property. Alibaba has stated that over the next three years, they will work with Huayi Brothers on film production, advertising, distribution and merchandising through their ecommerce platform.

As recently as the evening of July 27, Huayi Brothers released a public statement saying the company was planning a major foreign business investment project; the project would mainly involve film and the Internet, and the amount invested would exceed one billion yuan. 

This story was originally published by QQ.com. Translated by Tyler Olson.

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By now, the whole world knows Russia has been trying to pivot toward China in response to the US and European Union sanctions that specifically targeted the Russian oil and gas industry.

On September 3, during a meeting of Russian President Vladimir Putin and Chinese President Xi Jinping in Beijing, China's CNPC and Russia's Gazprom signed a memorandum of understanding for a third project that will be developed in the next five years.

Though this seems to be a win-win situation for both nations, one must consider that there have been several delays in most of the previous China-Russia deals.

China and Russia finalized a gas deal in May 2014 that involved construction of two pipelines that would transport Russia's gas to China.

The first pipeline, originating in East Siberia, was called the Power of Siberia pipeline, while the one originating in West Siberia was called the Power of Siberia 2, or Altai, pipeline. The equity firms in China suspended the Power of Siberia 2 project in July, leaving the Russians in jeopardy.

The ongoing Chinese economic slowdown and stock market crash would mean Russia needs to be wary of China's investment plans. Statistics from InvestorIntel even revealed that Russia's exports to China dipped by 20% when compared with last year's.

In fact, China invested just under $1.6 billion into Russia in 2014 while Russia invested a whopping $151.5 billion during the same year into the Chinese economy.

With the China story fizzling out, Russia is now planning to build up its presence in China's neighbor India. With huge internal energy consumption and a bustling economy, India is set to grow faster than China in 2015 and 2016, according to the recent projections from the International Monetary Fund.

After China, India is the next best logical alternative for Russia to strengthen its Asian ties and move away from Western sanctions.

Can Russia hedge its bets by starting to invest in India?

India's oil imports from Russia were under 1% until the recent Annual India-Russia summit that was held in December 2014 in New Delhi. During the meeting between Putin and Indian Prime Minister Narendra Modi, both countries signed several crucial bilateral agreements.

The agreements had a bilateral program "on enhanced cooperation in oil and gas sphere," which included oil and gas exploration and production along with future LNG supplies and new projects.

The Russians have, in fact, already started their investments into India's oil and gas sector. Russia's Rosneft and India's Essar Oil Limited signed a term sheet (non-binding) on July 8 with reference to a multimillion-dollar deal between the two companies.

The term sheet stated that the India-based Essar Group would be selling a 49% stake of its Essar Oil division to Rosneft for over $1.5 billion. "The financial terms of the deal are being discussed while both companies are exploring a part-crude and part-cash deal," a source close to the development said.

Earlier, in December 2014, during the same day of the India-Russia Annual Summit, Rosneft clinched a deal to supply close to 10 million tons of crude oil annually to Essar Oil for a period of 10 years. Russia's decision to invest in India's Essar Oil is a highly strategic one.

Also, India's internal demand for oil is set to increase from 224 MT in 2014 to 310 MT by 2030 while its requirement of gas would more than double from 51 bcm in 2014 to 114 bcm in 2030. Essar Oil also has close to 1,600 retail gas stations located all across India. Essar and Rosneft plan to more than triple the number of retail gas stations in the coming two years.

Apart from the Essar deal, Rosneft has also sold a 15% stake in Vankorneft (a subsidiary of Rosneft that was formed in 2004 for developing and maintaining a major Russian oil and gas field called Vankor) to India's state-owned Oil and Natural Gas Corporation Limited (ONGC) for a reported $1.25 billion.

While the deal with India has been sealed, Rosneft is still negotiating with China's National Nuclear Corporation (CNPS) for a stake in Vankorneft. One can clearly see that Russia's energy deals with India have been on schedule without any significant delays and hurdles, unlike the deals struck with China.

So what is Russia's future energy strategy?

Back in 2007, Putin predicted that Russia would be exporting 35% of its total crude oil and 25% of its total gas supply to China by the year 2025. Putin even expected that China would become a major trading partner of Russia and would surpass the EU by the year 2030.

With the ongoing Chinese economic slowdown and other project delays, however, expectations may have been raised too high.

On the other hand, Russia is not giving up on Europe. Russia's Gazprom recently announced an "Asset swap"agreement with European players that included BASF, Royal Dutch Shell, E.ON, and OMV.

This move would enhance the Russian-EU partnership in coming years as it would increase Russia's presence in Europe and, in return, allow the EU to acquire more Russian gas.

Still, Europe is not much of a growth market. And if China is not going to live up to its billing, then Russia will probably look to expand its relationship with India.

China has been responsible for a large portion of global growth over the past decade, but the future may belong to India. That is why Russia wants to get in on the market early.

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SHANGHAI (Reuters) - China's stocks fell on Monday after data suggesting economic growth was running below the 2015 target level of about 7 percent heightened concerns about the health of the economy.

The economic concerns offset the impact of plans announced at the weekend to reform the bloated state-owned enterprise sector and produce "decisive" results by 2020.

Underscoring the fragility of China's financial markets even after some respite last week, currency traders suspected the central bank intervened to prop up the yuan in onshore markets, which wobbled following a report that net capital outflows in the first quarter of the year were more than $100 billion.

"China's economy faces relatively big downward pressure, so investor sentiment remains weak," said Gu Yongtao, strategist at Cinda Securities.

China's stock markets have been on a roller-coaster ride in the past few months, falling close to 40 percent since June and prompting frantic efforts by authorities to restore confidence. Still, at their peak this year, they were up more than 150 percent compared with the lows of 2014.

A surprise devaluation of the yuan in August further roiled markets, reinforcing concerns the economy was weaker than previously thought and forcing China to burn through its foreign exchange reserves to keep the currency stable.

A flurry of economic data in the past week has fed those concerns and prompted Premier Li Keqiang to try to reassure markets that China is on track to meet its main economic growth targets. The government has said it expects GDP growth of around 7 percent this year.

Price data pointed to increased deflation pressure and lower-than-expected industrial output and investment figures this weekend raised further doubts.

"Overall, the economy is very weak and the central bank may have to continue cutting interest rates and banks' reserve requirement," said Zhou Hao, senior economist at Commerzbank AG in Singapore, adding he thought growth would dip below 7 percent in the July-September quarter.

China's benchmark CSI300 index of the biggest listed stocks in Shanghai and Shenzhen closed down 1.97 percent, while the Shanghai Composite Index dropped 2.67 percent.

China CSI300 stock index futures fell, some by as much as 7 percent, underlining investor scepticism in the stock market's upside potential. 

REFORMS TO 'ZOMBIE' COMPANIES

Government plans on restructuring of state-owned enterprises (SOEs), including allowing private investment, appeared to offer little for investors to feed off.

The mammoth task could involve some 25,000 enterprises owned and managed by local governments and more than 100 managed centrally under the State-owned Assets Supervision and Administration Commission, or SASAC.

"The plan has long been expected," said Cinda's Gu. "So interest toward the theme could be short-lived."

On Monday, Zhang Xiwu, deputy head of SASAC, told a news briefing that China would centralize state-owned capital in key industries, while restricting state investment in industries not in line with national policies.

"We will make more efforts in reforming 'zombie enterprises', long-time loss-making enterprises and in disposing of those low-efficient and non-performing assets," Zhang said.

The yuan erased some early losses following suspected intervention by the central bank via state-owned banks, traders said.

The currency <CNY=CFXS> was changing hands at 6.3692 per dollar in the spot market onshore, marginally higher than the previous close.

The price spread between the offshore and onshore yuan markets remained narrow, indicating overseas investors were heeding the indirect warning delivered by China last week, when state-owned banks - appearing to act on behest of the central bank - massively bid up the yuan in offshore markets in London and Hong Kong.

The offshore market continues to price in a slight discount however, suggesting expectations persist that the yuan will fall.

(Reporting by Samuel Shen and Pete Sweeney; Writing by Neil Fullick; Editing by Rachel Armstrong)

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Some more bad news for Macau's high rollers — or what is left of them.

On Thursday, the Hong Kong-based investment bank Daiwa Capital Markets published a report saying that as much as $258 million had been stolen from a junket operating inside Wynn Macau.

In Macau, junkets operate as third parties within casinos, bringing in cash that high rollers — the VIPs who bet big at the casino — use to leverage their bets.

It is suspected that employees of Dore Holdings, the junket working inside the casino, made off with the cash.

For its part, Wynn told Bloomberg its casino didn't lose any money, but the company's stock has still fallen 9% on the news.

The reason for the drop is that the heist has the potential to do serious damage to the high-roller market in Macau, which makes up a chunky 50% of gambling revenue on the island.

For more than a year, Macau casino revenues each month have been down 30% to 50% year-over-year, according to government figures.

China's general economic slowdown is one factor, but more important is Chinese President Xi Jinping's anticorruption drive.

It has scared people into being more conservative in the world's largest gambling hub.

The number of visitors to the island has been capped, their debit cards are monitored, and authorities have gone after illegal gambling ads on the mainland.

High rollers have been hit the hardest in this scenario. They are the ones with the conspicuous cash, and the conspicuous consumption. As a result, revenue from high-roller play is down 56% since this time last year.

Then there are the heists.

A $1.3 billion heist from the junket Kimren in April 2014 zapped liquidity from the junkets. Some analysts called it Macau's "Lehman Moment."

That money has to come from somewhere, and that somewhere is investors. Since Macau started to boom in the early 2000s, investors in junkets have come to expect returns of 1% to 2% on their investment in high rollers' luck.

When the heist happened in April 2014, investors started withdrawing their funds. Daiwa analysts think that will happen again.

"As a whole, the junket segment never recovered from this liquidity squeeze since," it wrote in its note reporting the heist. "We are already seeing signs of this today, with individuals purportedly rushing to the junket (Dore) in an attempt to withdraw funds."

What's more, the worst may not be over for Wynn. It's still unclear how much Dore lost, and the casino may still have to step up for some losses once the dust has settled.

"Wynn may still face some form of bad debt in the event that the junket's remaining capital base is unable to absorb the loss," Daiwa wrote. "Continued junket closures are a real possibility, and as previously highlighted, we have already witnessed an acceleration of junket closures in the past 2 months. There are at least 11 VIP rooms slated for closure in Aug/Sep 15 alone, based on our count."

Here is Wynn's stock since last week:

These are the type of conditions that prompted Rob Goldstein, president and chief operating officer of Las Vegas Sands Corp., to say last week that the junket system in Macau was "broken."

He may not have gone far enough in saying that. Wells Fargo analyst Cameron McKnight estimates a 29% to 33% decrease in gambling revenue for the island as a whole.

It seems there is worse still to come for Macau and its high rollers.

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It rains a lot in Singapore — approximately 94 inches a year.

But rather than let that water evaporate wastefully on the streets and sidewalks, Singapore sets a standard the rest of the world would be smart to adopt: The city-state soaks up water like a giant sponge.

By recycling the rainwater through built-in runoff capture systems, Singapore can reduce both the costs of water purification and its environmental impact.

Scientists believe our global water crisis is only getting worse. By 2025, two-thirds of the world population will struggle to find water and 1.8 billion people won't have any at all.

Using recycled water could be a solution.

In China, roughly a dozen cities have started brainstorming what that might look like — turning so-called "grey infrastructure" into green infrastructure by adding the ability to store rainwater. Mostly, these plans address rampant flooding that could quickly clear small towns and villages.

But no country has such a robust system already in place as Singapore, where half the land area is equipped to capture rainwater in gutters, barrels, tanks, and reservoirs.

The most sophisticated of those systems is at the Changi Airport. Between 28 and 33% of all water used in the airport comes from captured rainwater, which is stored in two reservoirs.

One reservoir balances the flow of water when tides are high, while the other collects runoffs from runways and green areas.

Each year, the infrastructure saves the airport more than $275,000 for non-potable uses, like flushing toilets and performing firefighting drills.

Scattered elsewhere around Singapore are capture systems on top of high-rise apartment buildings, in which 86% of citizens call home.

Rooftop harvesting equipment saves roughly 14 cents per cubic meter of water over relying on nearby rivers and streams or purifying water that flows through soil.

When the rainwater isn't collecting on roofs, it's soaking into the urban environment at-large.

There's a fascinating backstory to Singapore's urban sponge scheme.

In the mid 1980s, Singapore's crisis of clean water got so bad that the country had no choice but to get creative. While it had plenty of rainwater, it had no way of capturing it. Water would mix with soil and other contaminants making it unfit for use. So, in 1986 Singapore took the first step in water conservation, creating the the Sungei Seletar-Bedok water scheme.

The existing Seletar Reservoir was dammed to divide it in half. The separation essentially allowed polluted runoff water to collect elsewhere, in the Bedok reservoir, which was designed for treatment, while the cleaner part of the storm water collected in newly created Lower Seletar Reservoir.

In the decades since, Singapore has transformed its culture into one that prizes its ability to reuse rainwater. Even residents in the outskirts have transformed their homes into capture systems as a means of watering their lawns or, with the right treatment, staying hydrated.

If other countries want to have any hope of avoiding a water crisis, they'll need to get as creative as Singapore. 

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Despite claims in August that it would stop reclaiming land in the South China Sea, Beijing is continuing to pursue construction of man-made islands flush with military equipment. 

Citing the Center for Strategic and International Studies (CSIS), The Washington Post reports that China is planning large-scale construction on the recently dredged Subi Reef and Mischief Reef, including a new airfield. The new airfield, when operational, would allow China to establish interlocking zones of air control over the region. 

In addition to the airfield, China is also planning on equipping the recently dredged islands with anti-aircraft weapons and various naval vessels, Michael J. Green, a senior CSIS vice president, told the Post, citing Chinese officials. This combination of weapons would further solidify China's position within the region. 

These developments, Green told the paper, would establish “overlapping air control over the South China Sea, and not just from one airfield but from three. ... [I]t won’t stop the U.S. policy of asserting freedom of navigation, but it makes it a lot more complicated operation.”

The construction on the Subi and Mischief Islands follows the pattern of China's previous construction on the Fiery Cross Reef. In April, satellite images from Airbus Defense and Space located and identified a 3,000-meter (9,842-foot) long military-grade runway, as well as construction of seawalls on the island for an artificial harbor. 

According to CSIS, Subi Reef is already equipped with a potential 3,000-meter airstrip in addition to a helipad and a military facility. Mischief Reef, which is rapidly being expanded, is equipped so far with two military facilities and fortified seawalls. 

"China appears to be expanding and upgrading military and civilian infrastructure — including radars, satellite communication equipment, antiaircraft and naval guns, helipads and docks — on some of the man-made islands," the US-China Economic and Security Review Commission stated in a staff report from December 2014.

The continuation of construction and dredging on the islands, despite China's promises to stop, will likely cast a cloud over Chinese President Xi Jinping's state visit later this month. The US has repeatedly called on China to halt construction in the region so as to not inflame regional tensions. 

The expansion of Chinese construction in the South China Sea is kicking off a series of territorial disputes with Beijing's neighbors in the south, all of whom also have competing maritime claims to the reefs and islands.

Taiwan, Malaysia, Vietnam, and the Philippines all have military bases within the South China Sea on islands that those countries control.

As of June 2015, China has reclaimed more than 2,900 acres of land since December 2013. View the details of the power struggle below:

SEE ALSO: Every surface ship in the Chinese navy, in one chart

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WASHINGTON (Reuters) - China appears to be building a third airstrip in contested territory in the South China Sea, a U.S. expert said on Monday, citing satellite photographs taken last week.

The photographs taken for Washington's Center for Strategic and International Studies (CSIS) think tank on Sept. 8 show construction on Mischief Reef, one of several artificial islands China has created in the Spratly archipelago.

The images show a rectangular area with a retaining wall, 3,000 meters (3,280 yards) long, matching similar work by China on two other reefs, Subi and Fiery Cross, said Greg Poling, director of CSIS's Asia Maritime Transparency Initiative (AMTI).

"Clearly, what we have seen is going to be a 3,000-meter airstrip and we have seen some more work on what is clearly going to be some port facilities for ships," he said.

Security experts say the strip would be long enough to accommodate most Chinese military aircraft, giving Beijing greater reach into the heart of maritime Southeast Asia, where it has competing claims with several countries.

News of the work comes ahead of a visit to Washington next week by Chinese President Xi Jinping. U.S. worries about China's increasingly assertive territorial claims are expected to be high on the agenda.

A new airstrip at Mischief Reef would be particularly worrying for the Philippines, a rival claimant in the South China Sea. It would allow China to mount "more or less constant" patrols over Reed Bank, where the Philippines has long explored for oil and gas, Poling said.

Three airstrips, once completed, would allow China to threaten all air traffic over the features it has reclaimed in the South China Sea, he said, adding that it would be especially worrying if China were to install advanced air defenses.

Satellite photographs from late June showed China had almost finished a 3,000-meter airstrip on Fiery Cross.

Satellite images from earlier this year showed reclamation work on Subi Reef creating land that could accommodate another airstrip. Poling said the latest images made it obvious that such an airstrip was being built at Subi.

China stepped up creation of artificial islands in the South China Sea last year, drawing strong criticism from Washington, which has spoken against militarization of outposts there.

Asked about Mischief Reef on Monday, China's Foreign Ministry spokesman Hong Lei repeated China's claim to "indisputable sovereignty" over the Spratly Islands and its right to establish military facilities there.

(Additional reporting by Ben Blanchard in Beijing; Editing by Jonathan Oatis)

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The Dow Jones Transportation index has been warning us: by August 25, it was down 19% year-to-date before bouncing. It’s now off 13%. Not all is well in the transportation sector – and by extension in the global economy.

The World Trade Monitor, when I last wrote about it on July 22, painted a very un-rosy picture of global trade by having dropped the most since the Financial Crisis.

In granular detail, the weekly China Containerized Freight Index (CCFI) fell to 820.91 on Friday, hobbling along near its multiyear low set in June. It tracks contractual rates and spot rates for shipping containers from major Chinese ports to major ports around the world. It’s 22% below where it was in February and 18% below where it had been in 1998, when it was set at 1,000!

Spot rates from Shanghai to the US West Coast per 40-foot container equivalent unit (FEU) are down 33.4% from a year ago, according to the Shanghai Containerized Freight Index (SCFI); spot rates from Shanghai to the US East Coast are down 41%.The Drewry Container Freight spot rate from Hong Kong to Los Angeles is down 38%. That’s the east-bound trade, where rates had been collapsing all year.

Westbound rates had been holding up. For example, rates from Rotterdam to Shanghai, which tracks the cost of shipping exports from Europe to China, as measured by the weekly World Container Index (WCI), had been hanging in there all year, even if at relatively low levels ranging from $750 to $870 per FEU, according to JOC’s market data. But after August 20, when it still stood at $869 per FEU, it started plunging. By September 10, it hit $611, down 30% in three weeks.

The beaten-down shipping rates are the result of an oversupply of container ships and weak global demand for manufactured goods.

Global air freight has also gotten hit, with traffic down 0.7% in July from a year ago, according to the International Air Transport Association, even as air cargo capacity jumped 6.7%.

“The disappointing July freight performance is symptomatic of a broader slowdown in economic growth,” IATA Director General Tony Tyler pointed out in the report. And the consequences are beginning to cascade through the industry: The Wall Street Journalreported that Nippon Cargo Airlines, Japan’s biggest cargo carrier, canceled an order for four 747-8F freighters from Boeing.

So trade is not exactly the picture of a thriving global economy. Conditions, instead of getting better, are getting worse.

The underlying theme: yes, global trade is in trouble and the global economy is getting mired down, and yes, neither QE nor ZIRP can do anything about it because they’ve been deployed all along for years, and this is happening despite or because of them … but at least the US economy is picking up speed, it is the cleanest dirty shirt out there. And US GDP growth for the second quarter confirmed that. That’s been the underlying theme.

But now the Cass Freight Index for North American is raining on this theme.

In August, according to the index, the number of shipments dropped 1.2%, after having already dropped 1.6% in July. It’s down 4.6% from August last year. It about matched August 2013, and both were the lowest Augusts since 2010. With the exception of January and February, the index has been lower year-over-year every month. In the spring and perhaps even early summer, we might have thought that this was statistical noise or a longer-lasting blip, but now it has become a morose pattern of year-over-year shipping volume declines:

The Cass report explained the August debacle this way:

"Generally, retailers are stocking up for fall sales, but high inventories and a rising inventory to sales ratio slowed ordering earlier this year. Inventory levels – for retail, wholesale and manufacturing – are well above the high point prior to the inventory drawdown at the beginning of the Great Recession.

Inventories have been climbing during a period of low inventory carrying costs. Interest rates have been the lowest in recent history, warehouse space was abundant and lease rates low, and taxes and insurance costs were flat."

Sooner or later, businesses will try to whittle down their inventories, either by selling more or by cutting orders – and the first just isn’t happening to the extent needed.

In terms of shipping expenditures, the index dropped 2.0% in August, after a 4.5% drop in July, on a combination of lower volume and lower rates. A drop in shipping expenditures in August is not uncommon, but year-over-year, the index is down 8%. It was the worst August since 2012. The index has been significantly below last year for the past six month, and the trend is getting worse:

Cass lamented that the drop in freight spending in August was “sharper than expected” as truck spot prices dropped “due to abundant capacity.”

It remained optimistic, however: “Despite many headwinds, the transportation sector continues to grow and prosper, largely because consumers are back in the marketplace. The Conference Board’s Consumer Confidence Index leapt up in August, rising 11.5%.”

Alas, as the electronic ink was drying on the Cass report Friday morning, the University of Michigan Consumer Sentiment index was released. And it dropped 6.2 points to 85.7, the lowest level since September last year, far below forecast, and the largest drop since September 2013. This trend in consumer confidence has already shown up in other measures as well [read… Market Rout Hammers Economic Confidence of Americans ].

The swoon knocks the foundation out from under the theory that higher consumer confidence would finally drive Americans to splurge and generate more orders and more shipping volume. That hope has been out there, and companies counted on it, but it just isn’t happening.

SEE ALSO: China's trade data is horrible again

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Chengdu  has the most  successful economy of any mainland Chinese city, a US-based think tank has concluded after looking at such factors as job growth, foreign investment and high-value-added industries.

Shanghai and Tianjin  came second and third respectively, while Beijing landed hard in 13th place in the rankings by the Milken Institute.  

Chengdu, the capital of Sichuan  province, was singled out for its “human capital, central government support, established industries in high-end aerospace and aircraft design, and a more recently developed electronics manufacturing sector”, according to the institute.

The study pointed to two ways cities were developing on the mainland. In the case of Tianjin and Shanghai, the institute saw urbanisation, industrial clustering and infrastructure investment bolstering larger regional economies.

But the recent slowdown in economic growth “suggests that a new approach centring on technology, private investment, and consumption” would replace the previous strategy.

The study is the first time the institute has ranked mainland cities. It assessed 266 at the prefecture level and above and divided them into two categories – 34 first and second-tier cities, and the rest as third-tier cities.

Instead of valuing projected economic growth, the report examined factors over different time periods, including job and wage growth, gross regional production, foreign direct investment and the strength of high-value-added industries.

Chengdu, home of several respected universities, has emerged as a key economic growth engine in the mainland’s southwest,  enjoying  lower labour costs.   

Other cities that performed well include Dalian in Liaoning  province, Nanjing in Jiangsu province, Hefei in Anhui , Xiamen in Fujian, and Changchun in Jilin.

Chongqing, which ranked ninth, stood along with Chengdu as the only two inland cities to make the top 10.

Shenzhen, which has evolved from a low-cost manufacturing base to the country’s information technology hub, came in just under the wire, taking the No 10 spot.

In the ranking of third-tier cities, Jiangsu was home to  seven of the top 10, with Suzhou taking the top spot.

A strong transport network, including airports, highways and high-speed rail lines connecting cities throughout the Yangtze River Delta played a crucial role in the province’s economic growth, the report said.

The institute released its “Best-Performing Cities China 2015” report in Beijing on Monday.

PACK LEADERS

1 Chengdu, Sichuan

2 Shanghai

3 Tianjin

4 Dalian, Liaoning

5 Nanjing, Jiangsu

6 Hefei, Anhui

7 Xiamen, Fujian

8 Changchun, Jilin

9 Chongqing

10 Shenzhen, Guangdong

Source: Milken Institute

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BEIJING (Reuters) - Iran wants China's help to resolve tensions and unrest in the Middle East and is ready to play host to more Chinese firms once sanctions against it are lifted, Iran's foreign minister said on Tuesday

China and Iran have close diplomatic, economic, trade and energy ties, and China has been active in pushing both the United states and Iran to reach agreement on Iran's nuclear program.

Under the multilateral deal, agreed in July, sanctions imposed by the United States, European Union and United Nations will be lifted in return for Iran agreeing to long-term curbs on a nuclear program that the West has suspected was aimed at creating a nuclear bomb.

"China and Iran find mutual benefits in many areas," Iranian Foreign Minister Mohammad Javad Zarif told his Chinese counterpart, Wang Yi, at the beginning of a meeting in Beijing.

China is the biggest customer of Iranian oil and Zarif said their economies were "complementary". The two countries faced "similar challenges as well as opportunities", he said.

"I agreed with Minister Wang Yi that we share similar views on regional issues, which should be solved in a political way. We would like to cooperate with China on issues in Yemen, Syria and the Middle East, seeking a political solution," he said.

China has traditionally been a low-key diplomatic player in the region, despite its reliance on its oil, calling for negotiated settlements and decrying threats or the use of force.

"We both agree that the unrest in West Asia and North Africa regions is not sustainable, it should be solved in a political way and we should seek a solution that can address the concerns of different parties," Wang said.

Zarif thanked China for its role in the nuclear talks.

"After the agreement is implemented, illegal sanctions imposed upon Iran by Western countries will be lifted, a lot of Chinese companies will have more chances to cooperate with Iran," he said.

China had long objected to unilateral sanctions imposed on Iran by the United States and Europe, though it has supported U.N. ones, and had denounced threats of force.

Wang said China would fulfill its promises and play an active and constructive role in implementing the nuclear agreement.

In July, Chinese President Xi Jinping told U.S. President Barack Obama that China would work with the United States and others to ensure the implementation of the agreement. Xi visits the United States later this month.

(Reporting by Ben Blanchard; Editing by Robert Birsel)

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There's a lot of excess debt in China. And the JPMorgan Asia financials analysis team led by Josh Klaczek thinks it knows just how it will end.

The team estimates that the peak of China's credit cycle will see about one in 12 loans, or 8.2%, becoming "nonperforming," which is when borrowers are late with their interest payments and don't have a plan to pay them.

That figure drops to around 5.5%, or a bit more than one in 20, if you take out the shadow banking system.

To put it in perspective, the US had a nonperforming loan ratio of about 7% in the run-up to the 2008 financial crisis, and Japan was at 11% for its 1990 bust.

It means the problems in China, and Asia as a whole, still have a while to play out.

Here's what the analysts have to say (emphasis ours):

These ratios don't indicate a crisis, but do argue for patience in calling an end to recent stress. NPL cycles typically take 11 quarters from trough-to-peak, and we're about one-third of the way through in Asia.

JPMorgan think is it will be a while before China's stock market recovers, because all this bad debt will have to be worked through the system and losses taken by banks before investors will get back on board.

The Shanghai Composite is down about 41% from its peak and, if this graph is correct, there's further to fall:

China's debt level has a lot to do with hot money that has flowed in from abroad. It has given the country a temporary boost and allowed its companies to borrow, but international creditors are always looking for the next big thing and can withdraw quickly.

It happened in Spain, Japan, and South East Asia, all of whom met a bad end when the bubble finally burst.

Here's the JPMorgan chart:

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