President Barack Obama announced on Friday that he had reached a "common understanding" with Chinese President Xi Jinping on curbing economic cyber espionage, but threatened to impose U.S. sanctions on Chinese hackers who persist with cyber crimes.

The two leaders also unveiled a deal to build on a landmark emissions agreement struck last year, outlining new steps they will take to deliver on pledges they made then to slash their greenhouse gas emissions.

Speaking after White House talks during Xi's first U.S. state visit, Obama quickly homed in on the thorniest dispute between the world's two biggest economies - growing U.S. complaints about Chinese hacking of government and corporate databases, and the suspicion in Washington that Beijing is sometimes behind it.

"It has to stop," Obama told reporters at a joint news conference in the White House Rose Garden, with Xi standing beside him. Obama said he and Xi made "significant progress" on cyber security. But he added warily: "The question now is, are words followed by actions?"

There were clear limits to Friday's deal. A White House statement said the two leaders agreed that neither government would knowingly support cyber theft of corporate secrets or business information.

But the agreement stopped short of any promise to refrain from traditional government-to-government cyber spying for intelligence purposes. That could include the massive hack of the federal government's personnel office this year that compromised the data of more than 20 million people. U.S. officials have traced that back to China, but have not said whether they believe the government was responsible.

Xi reiterated China's denial of any government role in the hacking of U.S. corporate secrets and said the best way to address the problem was through bilateral cooperation and not to "politicize this issue."

"Confrontation and friction are not the right choice for both sides," he said. China has routinely insisted that it too is a victim of cyber hacking.

The White House said the two leaders agreed to create a senior expert group to further discuss cyber issues, and a high-level group to talk about how to fight cyber crime that will meet by the end of 2015 and twice a year after that.

Obama made clear, however, that sanctions remained on the table. "We will apply those and whatever other tools we have in our tool kit to go after cyber criminals," he said.

Despite the lingering friction, analysts said the agreement was a significant advance.

James Lewis, senior fellow at the Center for Strategic and International Studies, said the White House had done better than he had expected.

He said a combination of factors, including better U.S. tracking of cyber attacks and a leaked plan for sanctions, helped push the Chinese toward agreement, but added that Beijing also got Washington to consider some Chinese concepts for norms of behavior and won U.S. support for its pursuit of corruption suspects.

Pomp and ceremony

Even as the White House rolled out the red carpet for Xi, there were tensions not only over cyber security but a litany of other issues, including Beijing's economic policies, territorial disputes with its neighbors and its human rights record.

Obama greeted Xi on arrival at the White House on Friday morning for an elaborate ceremony on the South Lawn, including a military honor guard and 21-gun salute. The two men struck a serious, businesslike tone when they appeared later before reporters, showing little sign of close personal rapport.

U.S. and Chinese officials sought to cast their talks in a favorable light by showcasing at least one area of cooperation – the global fight against climate change.

As part of their agreement, Xi announced that China, the world's biggest emitter of greenhouse gases, will launch a national carbon cap-and-trade system in 2017 to help contain the country's emissions. Such systems put limits on carbon emissions and open up markets for companies to buy and sell the right to produce emissions.

For Obama, the deal with China strengthens his hand ahead of a global summit on climate change in Paris in December.

But disagreements on other issues still loomed.

Obama told Xi at the morning welcoming ceremony that the United States would continue to speak out over its differences with China, but he reiterated that the United States welcomes the rise of a China that is "stable, prosperous and peaceful."

Xi, who faces a rising nationalism at home as well as pressure to get China's economic house in order, called for "mutual respect."

As the two leaders spoke, dozens of pro- and anti-Xi protesters gathered near the White House grounds, waving flags, beating drums and shouting slogans.

In their talks, Obama also pressed Xi to follow through on economic reforms and not discriminate against U.S. companies operating in China. Some analysts believe Obama has more leverage due to China's slowing economic growth, which has destabilized global markets.

At the same time, the Obama administration is still at a loss about how to curb China's assertiveness in the South China Sea, where Beijing has continued to reclaim land for potential military use despite conflicting claims with its neighbors.

Obama said he had "candid" discussions with Xi on disputes in the Asia-Pacific region. Xi defended his government's "right to uphold our own territorial sovereignty" and denied any plan to use its island-building efforts to create military strongholds.

In a reminder of potential flashpoints, the United State and China also finalized a plan aimed at reducing the risk of aerial collisions between warplanes in areas such as the South China Sea through adoption of common rules of behavior.

Calls for Obama to take a harder line with China have echoed from Congress to the 2016 Republican presidential campaign. But his approach was tempered because the U.S. and Chinese economies are so closely bound together.

On Friday night, Obama was to host a lavish black-tie state dinner where guests will dine on Maine lobster and Colorado lamb.

Despite the ceremonial honors, the Chinese Communist leader, who came to Washington on the heels of Pope Francis, received nothing like the wall-to-wall U.S. news coverage given the popular pontiff, who drew adoring crowds wherever he went. 

(Additional reporting by Jeff Mason, Valerie Volcovici, Joseph Menn, Julia Edwards, David Brunnstrom, Roberta Rampton, Phil Stewart; Writing by Matt Spetalnick; Editing by Frances Kerry and Ken Wills)

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WASHINGTON (Reuters) - Donald Trump was succinct last week when asked how the United States should respond to climate change.

"It's not a big problem at all," the leader in opinion polls for the Republican presidential nomination told a radio talk show host. "If you look at China, they're doing nothing about it."

This week, Chinese President Xi Jinping came to Washington and agreed to take new measures.

Standing alongside President Barack Obama at the White House, the Chinese leader committed his country to a series of ambitious policies aimed at countering the rise in global temperatures.

Xi said China would introduce a national cap-and-trade system in 2017 that would limit carbon emissions across major industrial sectors, from electricity to iron and steel production.

He also pledged to match tougher U.S. fuel standards on heavy trucks planned for 2019, and committed $3.1 billion to help poor countries adapt to climate change.

"President Xi has lifted the final political excuse of inaction in Washington,” said Li Shuo, a campaigner for environmental group Greenpeace.

China's aid money matches a similar pledge made last year by Obama, though the money has yet to be delivered to the UN-backed Green Climate Fund because of Republican refusal to appropriate the funds.

Despite the joint announcement by Xi and Obama, some Republicans remained adamantly opposed to a climate deal.

"If the president was serious about achieving a substantive climate agreement, he would spend more time working with Congress instead of developing press releases with the Chinese government," said Senator James Inhofe of Oklahoma. "These public pledges sound good but come with serious economic consequences for the United States."

For his part, Trump has not made any public comments about the agreement since it was announced. He did not immediately respond to an emailed request for comment on Friday.

The pledges mean that the world's two biggest carbon emitters have now aligned their climate diplomacy going into negotiations for a global accord in Paris this December. 

It marks a long evolution from the Kyoto climate talks in the 1990s, when China refused to sign any agreement that would limit carbon emissions. That position undermined support for the Kyoto agreement in the U.S. Congress, which refused to ratify it.

That sentiment remains strong among Republican lawmakers and some Democrats, who oppose U.S. measures to limit carbon emissions because, in part, China has been reluctant to do the same.

The result has been a standoff between Obama and Congress that hit a nadir in 2010 when the Senate balked at passing the administration's attempt to enact a national carbon market. 

Now Xi says China will move ahead with just such a market.

“The irony is rich: emissions trading is an American idea; now it's become an American export,” said David Sandalow,  a fellow at Columbia University’s Center on Global Energy Policy and former under secretary of energy for policy and international affairs.

Other parts of the Chinese package reveal a similar change — in tone, at least.

China's financial pledge is a “watershed moment” for climate diplomacy, environmental groups say, because it shows a willingness to share the billions of dollars believed required to help poor countries shift to low-carbon economies and deal with the effects of a hotter planet.

China has long seen itself as a developing nation that is expected to be on the receiving end of any international largesse.

Jake Schmidt, international policy director of the Natural Resources Defense Council, said this change in attitude removes a common complaint about China from Congressional opponents.

“China is not going to be the recipient of U.S. climate financing, which is how some of our friends on the Hill are painting it,” said Schmidt. “This is a better narrative.”

In fact, Obama is the more likely leader who will be forced to show up in Paris without money. The first $500 million of the president's $3 billion pledge is held up in thorny budget negotiations on Capitol Hill, where some Republican lawmakers have vowed to block any international climate funding.

(Editing by Bruce Wallace and Ken Wills)

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For the first time, Apple's latest iPhone was available to pre-order in China at the same time as the rest of the world. After barely a day, shipping times in China had already slipped to "3-4 weeks" for the 6S Plus. 

While many people in China will have picked up their new iPhone in one of Apple's official stores today — and witnessed scenes like this at the flagship store in Beijing — others will have bought their new smartphone from one of many fake Apple dealers throughout the country.

The fake Apple store phenomenon first came to light in 2011, but more are springing up all the time.

There are more than 30 Apple Stores in the southern Chinese town of Shenzhen. But Apple only has one official store and five authorised dealers in the area.

That means that most of the stores in the area — a busy 1km shopping corridor — are unauthorised fakes, but still generally sell real Apple products.

Many of them have been kitted out to look exactly like real Apple stores. The sales staff wear blue T-shirts with a white Apple logo, and display iPads, iPhones and Apple Watches on the same wooden tables you'd see in a real Apple Store.

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This week, earnings out of two American corporate giants told us everything we need to know about the future of the Chinese economy. 

Namely: Construction activity is on the decline, and consumer spending is soaring. 

On Thursday morning, industrial giant Caterpillar announced that it would lay off up to 10,000 employees amid a decline in its core businesses. 

Caterpillar said the current market was displaying, "a convergence of challenging marketplace conditions in key regions and industry sectors — namely in mining and energy." Following this announcement, shares of the company got crushed, and the news was generally received as bad for the global economy, and, in particular, China.

Later on Thursday, however, Nike announced earnings that crushed expectations, with sales in China coming in particularly strong. In China, the company's footwear sales rose 36% in its most recent quarter as futures orders were up 27% when excluding the impact of China's currency devaluation in August. 

Following this news, Nike shares rallied to an all-time high.

This chart of Caterpillar and Nike stock tells you everything you need to know about the direction China's economy has gone in the last several years: spending up, building down. 

Now, of course, this is the result that China's government has been hoping to engineer. 

But it hasn't been a smooth road, and Nike is only one example of real consumer strength in China. 

Earlier this summer, markets got spooked by suggestions that Apple's much-ballyhooed entry into China's market might not be going as well as planned. And this news in July seemed to plague markets all the way until the late-August market chaos that broke out, leading to, among other things, Apple CEO Tim Cook sending CNBC's Jim Cramer an email to reassure investors about Apple's sales in China.  

Additionally, the broader commodity complex — which includes things like oil, copper, and iron ore — has seen a sharp decline in 2015, partly due to oversupply from the market (like in oil), but these moves have also been attributed to slowing demand from China. And while there is considerable debate about just how much China's economy is slowing, even the government's own figures show that the economy is growing at its slowest pace in about 25 years.  

But in a note to clients this week, Goldman Sachs' energy analyst Jeff Currie said that China appeared to at least be on the mark in shifting its economic goals.

"While China is simply part of the global glut in commodity supply, from the demand side it tells a far more important story," Currie wrote.

"For years, China-watchers have emphasized the need for China to rotate its economy away from investment and towards consumption, with domestic demand eventually replacing manufacturing output as the driver of growth. However, it wasn't until 2015 that this rotation has become reality."

Overall, however, China's economy is showing signs of slowing, with manufacturing data this week indicating the sector has slowed to its worst level since March 2009, right at the depths of the financial crisis. 

And this comes on a background of a summer that saw wild swings in the Chinese stock market take center stage in global markets, with the Federal Reserve noting in their latest policy statement that it is now "monitoring developments abroad," something markets took to mean, basically, China. 

Noted short-seller Jim Chanos, who has been among the more bearish commentators on China in the last couple years, said this week that really no matter what the statistics say about China's economy, the problem is that the debt inside the Chinese system has simply grown to dangerous and unmanageable levels. 

But, of course, the Chinese government insists that its economy is growing at 7% a year — the slowest pace in 25 years but still among the fastest rates in the world today. In short, China's multidecade economic miracle is still, by the government's numbers, still sort of hanging together. 

And while skepticism about the veracity of these figures fuels most of the debate around whether China is successfully engineering the shift in its economy, one of America's most popular brands would make it seem, at least in a way, like China is pulling this off. 

SEE ALSO: Jim Chanos explains where investors can find the 'real China'

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China needs to reinvent its economy.

That's the word from four Goldman Sachs executives who weighed in on China's lagging economic growth in a video published by the banking giant.

The four execs, including CEO Lloyd Blankfein, said that China needs to transform into a capitalist and consumer-driven economy — but it's going to be a slow and gradual process.

The video was published prior to the announcement on Tuesday that Blankfein had "highly curable" lymphoma.

China's current growth strategy has led to "inefficient allocation of capital and resources," with "less focus on privatization and more emphasis on state-owned enterprises," according to Mark Schwartz, the chairman of Goldman Sachs Asia Pacific.

"Going forward, China needs to focus ... on having a more sustainable growth model, even if growth rate is a bit lower than it was in the past," said Robert Zoellick, the chairman of Goldman Sachs International Advisors. "This is not going to be a process that's going to be done in a quarter, or year, or two years."

Sustainable growth requires China to enact structural changes, such as developing capital markets, and cultural changes like creating an institutional investment culture, so that "mistakes that inevitably get made can be rectified," said Blankfein.

Part of that means China needs to create a business culture that can easily recycle failed enterprises.

"If you build a business ... that nobody uses, fees don't get paid. If fees don't get paid, debt doesn't get serviced. If debt doesn't get serviced, the bank takes it over. They plow it over, and you move on," he said.

The World Bank has already warned China about the need to reduce the role of government-owned enterprises in the economy, saying it could slow China's growth further.

"It's a real bootstrap problem. It's an execution problem. I'm absolutely convinced that the Chinese leadership knows the problems," Blankfein said.

"That being said, it's a very, very, very difficult undertaking to perform."

China's leadership has proposed reform, but many believe that the changes required are yet to materialize.

"It won't be a smooth, easy run for China — it's never that way for anyone," Blankfein said.

"This could very well be a century where China represents the incremental demand in the world, and all the focus of the world is upon China for the economic support of many, many countries, but that doesn't mean every year belongs to China," Blankfein said.

Watch the video on Goldman Sachs' website.

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Eclectica Asset Management, the UK-based hedge fund founded by Hugh Hendry, faltered in August.

Eclectica's flagship fund fell 7.1% over the month, dragged down by its exposure to European equities. That drop left the fund up 2.7% for the first eight months of the year, according to an investor update.

The average macro fund fell 1.29% in August and is down about 0.75% for the year,according to Hedge Fund Research.

The Scottish fund manager placed the blame on the market's reaction to the People's Bank of China's unexpected devaluation of the currency.

"Up until August, Chinese stocks had been an idiosyncratic asset class waxing and waning independently of other global markets. This changed abruptly with the currency devaluation. Pandora's Box had been opened," Hendry wrote. 

He added: "Was the Chinese economic slowdown so severe that it prompted the currency intervention? We don't think so but other investors are less sure and the aftershocks reverberated through almost every financial markets from US Treasuries to European stocks which fell over 9% during the month and have now almost given back all the gains following the enactment of QE earlier this year."

While the Chinese economic slowdown will have an impact on global equity prices, Hendry thinks that we may be approaching the end of a "dark period for stocks."

More from Hendry: 

"Today's environment seems analogous to the greatly mistimed bout of bearish sentiment that enveloped markets from 1983 to mid-1984 and marked the end of an especially dark decade for bond investors. As economic data began to show a US economy recovering from the [Volcker] induced interest rate shock[,] the fixed income market, conditioned by the inflation of the 1970s, panicked and sold treasuries once more pushing the 10-year yield back up from 10% to 14%, the S&P fell 15%. Today the fear is almost the reverse: that the Chinese economy is set to suffer a growth slump and generate similar deflationary forces to those experienced in 2008 with evident and profoundly negative repercussions for global equities. But as we have noted previously with the S&P 500 having lost 80% of its value relative to Treasuries over the last 15 years (and even more so for the DAX and the Nikkei relative to their domestic bond markets) there is an argument that we are approaching the end, not the beginning of a dark period for stocks relative to bonds, and that we should be wary of reinventing the deflationary ghosts of the past decade.

"For now, it is likely that the Chinese economy will be the principal determinant of global equity prices. On the one hand we think this is a positive as it will provide cover should the European or Japanese monetary authorities wish to boost their economies further. But on the other hand, the immediate return from global equities will likely be constrained to the upside until Chinese economic data [stabilizes]..."

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BEIJING/WASHINGTON (Reuters) - On Friday morning, Chinese President Xi Jinping enjoyed the symbolic high point of his first state visit to the United States — a 21-gun salute as he stood with President Barack Obama outside the White House.

For most Americans, it was a sideshow: the main news networks were deep into their fourth straight day of blanket coverage of Pope Francis' historic U.S. visit.

Xi's U.S. trip has — at least in terms of U.S. media coverage — been firmly overshadowed by the wildly popular pontiff, raising questions over its timing and contrasting sharply with the wall-to-wall coverage of Xi by Chinese media.

China's tightly controlled state media has focused heavily on the pomp, ceremony and shows of respect Xi has been treated to in Seattle and then Washington.

The adoring domestic coverage is important for Xi, who is grappling with Chinese market instability and a flagging economy at a time when he is seeking to consolidate his grip on the leadership ahead of a crucial Communist Party congress in 2017.

On a visit to a high school in Tacoma, near Seattle, where Xi and his singer wife Peng Liyuan were serenaded by the school choir, state television showed children screaming their appreciation. A day earlier, Xi had quoted Martin Luther King and sprinkled references to U.S. pop culture into his speech to tech executives.

China has also stressed Xi's personal connection to the United States, with the Xinhua news agency carrying a video on its Facebook page - not mentioning that Facebook is blocked in China — showing him putting on a friendly face for Americans.

"From Iowa visitor to White House guest," the English-language video explains, referring to a brief 1985 visit when Xi was an animal-feed official in Hebei, Iowa's sister province.

The pope's visit to the United States, by contrast, has barely featured in the Chinese media. The Vatican has had no formal diplomatic ties to Beijing since shortly after the Communist Party took power in 1949.

Francis, the most socially progressive pope in generations, has drawn large crowds and the kind of welcome normally reserved for rock stars during his first U.S. visit, which ends in Philadelphia on Sunday. U.S. live news networks have hung on his every word and step.

ONE-SIDED MEDIA BATTLE

Talk of the pope dwarfed any attention given Xi's visit, according to data provided by MediaMiser, which tracks news and media content online, on television and radio.

From Aug. 26 to Sept. 25, tweets in the United States about Francis topped 765,000, compared to 107,000 for Xi, according to MediaMiser. Online articles from Sept. 20-24 mentioned the pope nearly four times more than Xi. On television, the pope was mentioned over 25 times more.

Francis flew out of Washington, heading to a rapturous reception in New York and a star turn at the United Nations General Assembly, just as Xi was arriving.

Under Xi, U.S.-Chinese relations are at a low, hurt by tensions over cyber theft and China's assertive moves in Asian maritime disputes.

"To be contrasted with someone who has no military, no economic might and be completely eclipsed, I think it’s astounding. I don’t think the Chinese are noticing the contrast in messages,” said Jorge Guajardo, the former Mexican ambassador to China from 2007 to 2013 who lives in Washington.

Chinese officials played down any suggestion that the pope's visit had eclipsed Xi.

"The pope's visit, we noticed that and that ... he is welcomed by the public. His visit has his own bearing here. President Xi's visit has its own bearing," said Chinese delegation spokesman Lu Kang.

Xi slid further down the U.S. news agenda on Friday morning, when Republican House of Representative Speaker John Boehner announced his resignation. The big networks quickly cut off Xi speaking at a news conference with Obama to follow a briefing by Boehner.

Chinese officials have kept security around Xi's visit particularly tight, limiting his ability to go off script and interact with the public. He left his wife Peng to fill that role in Washington, where she accompanied First Lady Michelle Obama to name a new-born panda at the Smithsonian National Zoo.

Officials in Tacoma said the security preparations had been grueling.

"We met with advance teams six or eight times over the summer," Tacoma Mayor Marilyn Strickland said of Xi's visit to the high school.

Ming Xia, a political science professor at New York's City University who traveled to take part in an anti-Xi protest outside the White House, said the pope's humility during his visit had highlighted what he called Xi's arrogance.

"The pope was praying with the homeless and said we are all equal in the eyes of God, the real father. Xi thinks he's the father of the Chinese people — he has assumed the power of God."

(Additional reporting by Megha Rajagopalan and SueiLee Wee in Beijing; Michael Martina in Washington,; Edward McAllister in New York; writing by Stuart Grudgings; editing by Mary Milliken)

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Over the last few months investors have moved from worry to worry about China's economy.

The first worry was about China's real GDP growth numbers.

Then the country's stock markets crashed in June and August, and Wall Street worried about the government's handling of that.

With economic indices flashing red, the government then devalued China's currency.

Now Wall Street is moving on to another worry, the banking system.

Over the last week, S&P, Moody's, and Macquarie have all published warnings about debt, nonperforming loans (NPLs), and nonperforming assets on Chinese bank balance sheets.

The gist of what they argue is — we don't know what we don't know.

"Bank investors quite rightly have shifted back to the fundamentals, and the main area of investor focus now appears to be back to the trend of asset quality deterioration," Macquarie wrote in its note.

The problem isn't just that Chinese banks are carrying a lot of debt. It's that, because of its large shadow-banking system (debt held that does not appear on bank balance sheets), we don't know how much debt banks are actually holding.

"We won’t pretend that we know for certain what the “true” level of NPLs / NPAs might be. Neither does any other individual, in our view."

Last Monday, S&P changed its outlook on the Chinese banking system from stable to negative.

"We view economic risks for China's banking industry as high," S&P said in a report. Big lending by banks and the country's informal shadow-banking system between 2009 and 2013 "has led to high risks of economic imbalances and elevated credit risks in the economy," it said.

Then, on Tuesday, Moody's released a report explaining how we know the shadow-banking system has been growing over the last few months.

From Bloomberg:

There has been a surge in a balance-sheet item known as receivables, which often includes shadow funding such as trusts and wealth products, said Moody’s Investors Service. Fitch Ratings said it is hard to analyze this escalation in activity. Listed banks excluding the Big Four saw short-term investments and other assets — which include receivables — jump 25 percent in the first half, compared with total asset growth of 12 percent, data compiled by Bloomberg show.

Moody's thinks that, if you add what's on the books with what's in the shadow-banking sector, China could see NLP ratios hit 10% to 12%.

Sanford C. Bernstein & Co. analyst Wei Hou wrote that that would cause a "sizable credit crisis" in other countries.

So yeah, something to worry about.

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China got ugly in 2015.

After increasing by over 150% during a year-plus rally, the country's stock markets crashed twice — in June and in August — giving up all their gains for 2015.

Indexes for key drivers of the country's economy, such as real estate, manufacturing, and exports, started flashing red. September's purchasing managers index hit its worst read since 2009, the depths of the financial crisis.

Last month, the country devalued its currency.

In all this chaos, a key question has been: Why is this happening now?

At a debate at New York City's China Institute on Tuesday, short-seller Jim Chanos of Kynikos Associates — a well-known China bear — explained why.

"What made 2015 a little more important," Chanos said, "was the impact of the Fed interest-rate decision ... The possibility of an RMB [yuan] policy decision in August ... and the government's missteps in handling the stock market run-up and drop."

Together, he continued, those issues created a "heady witches' brew of changing perceptions on China."

Let's break that down.

Until just a few weeks before the Federal Reserve's September decision, the world of finance and money thought the central bank might end its financial-crisis-era 0%-interest-rate policy and raise rates by 0.25%.

Markets were bracing themselves. A rate hike would have been a statement of confidence in the US economy. The US dollar strengthened, in part in expectation of a rate hike, while money started flowing out of China at the fastest rate in around a decade.

The yuan is pegged to the dollar, and as the dollar strengthened, so did the yuan. That made Chinese exports more expensive. In August, the government found out that July exports cratered, falling 9% from the same time a year before.

Even though the government recognized that its "new normal" plan would cause the economy to slow down, it was not ready for a loss of that magnitude. The government decided to devalue the yuan, which has since fallen 4%.

The government doesn't want it to fall anymore, though, so it has been using its reserves to prop up the currency. Analysts estimate that it may have burned $94 billion to $110 billion on this defense in August alone.

Then there is the stock market disaster. The Chinese government decided to encourage citizens to get into the market because it wanted to deploy their savings to capitalize debt-laden companies, especially state-owned enterprises, as they were being restructured in accordance with the new-normal plan.

The Chinese people obliged their government and then some. Mainland indexes in Shanghai and Shenzhen rallied over 150%.

But that was until June 12, when both of them started cratering. The government threw hundreds of millions of dollars at the problem to make it go away. It canceled initial public offerings and new share issues. It went after "malicious" short-sellers in the market.

But then the indexes cratered again in August.

The whole process highlighted the Chinese government's inexperience in handling capital markets. Even Goldman Sachs CEO Lloyd Blankfein, a long-term China bull, said the government's reaction was "ham-fisted."

Of course, none of this means China is collapsing tomorrow. Not even Chanos believes that. But it helps explain why 2015 has been such a critical year for China.

"This is going to be a slow-motion unwind," Chanos said Tuesday. "This is not going to be smoking ruins tomorrow."

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The most frequently asked question in my meetings with accounts in recent weeks has been: “What’s your take on China’s economy?” I have been pessimistic on China’s economy for well over a year, mostly because of the producer price deflation. However, pessimism may be too widespread and excessive now.

Since the yuan was devalued on August 11, the US stock market has been much more sensitive to any indicator coming out of China. The latest one, released on 9/23 by Markit, showed that September’s flash M-PMI fell to 47.0, with the output component down to 45.7--both at 78-month lows.

Commodity prices remain under downward pressure, confirming the weakness in China’s factory sector. Also confirming China’s weakness are production indexes among its major trading partners. Industrial production indexes are falling in both Taiwan and Singapore, with the average of the two down 8.3% over the past five months through August. Brazil’s factory output is down 8.3% y/y to the lowest since May 2009.

Today's Morning Briefing: What’s the Matter? (1) Just another normal correction? (2) An ugly technical picture. (3) More Death Crosses. (4) Dow Theory looking bearish. (5) Fallen leaders. (6) Advance/decline lines in retreat. (7) Bearish sentiment, volatility, and junk spreads all elevated. (8) Three FAQs while waiting for Godot. (9) China’s canaries may be Brazil, Taiwan, and Singapore. (10) Draghi is waiting for lenders to lend more. (11) Abenomics 2.0 has three new darts. (12) US looking good, regional business surveys aside. (13) Resigned to more congressional partisanship. (14) “Pawn Sacrifice” (+ + +). (More for subscribers.)

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2015 hasn't been a great year for China.

The dramatic slowdown in China, whose economy is technically the second largest in the world behind the US', has policymakers around the world nervous as they assess how the massive emerging market affects their local businesses.

The US economy also isn't without its problems as legislatures push the government to the brink of a shutdown.

But some of Wall Street's biggest bulls write that there's one sub-economy that deserves more attention: the US consumer.

In a recent note to clients, David Rosenberg, chief economist and strategist at Gluskin Sheff, pointed out that US consumers alone made up an "economy" that is larger than China's entire economy. And, furthermore, it has more positives than China has negatives.

As he wrote in the note:

Yes, we hear constantly about how China's share of global GDP has risen inexorably over the decades, but that obscures a huge point.

China's contribution to global producers has been in the basic material sphere as the country absorbed so much of the world's resources in its quest to build mega cities and build a world-class industrial infrastructure, but that is about it.

China, for years, racked up massive trade surpluses as these mega cities became home to low-cost export regions.

The reliable buyer of last resort, outside resources, was never China. It was and continues to be the United States.

The American consumer, if it were a country of its own, would be the largest economic base in the world. That's right — even bigger than China's entire economy.

Piggybacking on Rosenberg's analysis, Fundstrat's Tom Lee then circulated a chart that Rosenberg shared showing this. As you can see, the US consumer economy makes up 15% of the global gross domestic product, while China's entire economy makes up 13% of it. (For what it's worth, the Chinese consumer economy makes up 5%.)

Lee even goes on to suggest that the fact the US consumer economy is both large and robust suggests there could be "life after China."

"Think about the tailwinds for US consumers," Lee writes. "Jobs market is strong. Wages could rise. Housing is only early stages of recovery. Gasoline is lower. All pointing to upside surprises. In fact, one could argue there is more upside surprises to the US consumer than downside to China at the moment."

RBC Capital Markets chief US economist Tom Porcelli came to a similar conclusion after examining two components of GDP: net exports of goods and services and real personal consumption expenditures. He argues that when it comes to the US economy, he observed that the positive effects of the latter overshadow the negative effects of the former.

The latest data continues to confirm these calls. On Monday, personal spending rose 0.4% for the month of August, more than the expected forecast of 0.3%.

"Net, net the consumer is running red hot, and their purchases are driving the economy fast enough to outweigh any concerns we might have about the slowdown in the world economy,"Chris Rupkey, chief financial economist at MUFG, wrote. "This is an economy that is not even remotely in the wake of financial crisis and recession. The recent stock market turbulence in August, those rocky seas have had no effect whatsoever on consumer spending. This economy is strong."

It's worth noting, however, that — when looking at this from the longer point of view — the robust US consumer economy could also be a red flag.

Last week at a press briefing, Mike Wilson, chief investment officer of Morgan Stanley wealth management, said consumer behavior was starting to show signs of excess as the economic recovery was reaching its later stages:

Consumers are feeling pretty good, and they are starting to spend money again, and they're starting to do dumb things. They're starting to borrow money, they're starting to maybe buy that house they shouldn't or that car they shouldn't ... And now, the clock is ticking. We're into the final part of this recovery. It could last three years, it could last five years, it could last two years, I don't know. But that excess sort of behavior is starting to happen.

Either way, China's economy is not the only one worth paying attention to.

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Since the end of the Cold War, the Pacific Rim has seen China rise and Japan stagnate. However, Japan is approaching an epochal shift that will enable it to challenge the current order. This analysis is the first in a four-part a series that forecasts the nature of that shift and the future of Japan.

Japan is waking up. For two decades, the island nation has been relatively removed from both regional and global affairs. Now it is in the earliest stages of a push to re-establish itself as a leading power in the Pacific Rim, a role that will require Japan to make some significant internal adjustments.

Over the past 150 years, Japan's political order has undergone three such overhauls. Each came as a reaction to profound changes in the international system: the entrance of European powers into East Asia, the rise of fascism in Europe and the beginning of the Cold War.

As the Cold War ended, Japan began to stagnate. Previously, Japan had managed to thrive by modeling its internal order to adapt to regional geopolitics. This time, however, no coherent order emerged in the Pacific Rim, so Tokyo maintained its Cold War status quo. Japan's maladapted holdover order quickly entered a 20-year slow-burning crisis that has come to be known as the “Lost Decades.” It is this period of crisis that is now coming to an end.

No single force will bring about the end of the Lost Decades. Instead, a number of circumstances will coincide, ushering in a new Japanese order. Over the next 10 years, the status quo will change as Japan adapts to the rise of China and changing U.S. expectations for Pacific allies. Meanwhile, economic and demographic pressures will mount on Tokyo.

However, the direct antecedents of Japan's coming break will be the contradictions that lie within its current stagnant order. Understanding this situation is the first step in forecasting the future of Japan.

Analysis

Despite its strong economic performance in the 1970s and 1980s, Japan foundered in the immediate aftermath of the Cold War. A succession of asset bubbles and financial crises in the 1990s and 2000s further undermined the country's economic growth. But leaders had little incentive to make the necessary reforms to political institutions or foreign policy: Despite the sluggish economy, quality of life for voters was high and external threats were few.

For the first time in its modern history, Japan did not know what to do, did not need to do much and therefore did nothing. The political and economic order designed for an earlier era persisted and became Japan's new status quo, gradually fraying at the edges, but stable enough to endure.

Japan's now-ailing Cold War configuration rests on two pillars: integrated business groups known as "keiretsu" and an autonomous, effective and powerful bureaucracy. Both of these interest groups have maintained strong ties with the Liberal Democratic Party, which has controlled the government for all but six of the past 60 years. The enduring power of the party rests on its ability to mobilize keiretsu employees in elections and its connections within the bureaucracy.

During the Cold War, Japan's political order leaned heavily on the support of the United States, which needed a strong Japan to serve as a key ally in the Pacific. To bolster Japan, the United States granted it a variety of benefits including open access to U.S. markets while allowing Tokyo to shelter its own market and implement policies to maintain artificially low-cost exports. The United States also shared defense and computing technology, fueling Japan's electronics and high-tech booms. When the Cold War began to wind down, the U.S. approach shifted from support to quiet containment. 

The 1985 Plaza Accord embodied this shift. The landmark agreement between the United States, France, West Germany and Japan allowed the U.S. dollar to depreciate relative to the yen and deutsche mark to bring the United States out of recession by curbing U.S. inflation and making its exports more cost competitive. But the deal was a bad one for Japan.

The rapid rise in the yen's value against the dollar between 1985 and 1987 undermined the low-cost export sector and sparked an enormous asset price bubble in Japan. When that bubble finally burst in 1990, it triggered a banking sector crisis that sent Japan's GDP growth tumbling from an average of 5-7 percent annually in the mid-1980s to near-zero percent by 1993, initiating the first of Japan's Lost Decades.

Fueled by newfound purchasing power, Japanese investment began to move overseas into developed markets. Many companies also moved operations to take advantage of low-cost labor in Thailand and China. Such offshoring has continued over the past few decades, undermining the domestic job market.

Stifled Reforms

Since the 1990 banking crisis, Tokyo has made several attempts to revive economic growth through fiscal stimulus and structural reforms. All have failed; Japan's problems require much deeper structural reforms. Though leaders have tried to make these reforms, they have been constrained time and again by the alliance between business, bureaucracy and Liberal Democratic Party.

Japanese Prime Minister Junichiro Koizumi, for example, pushed strongly for reform from 2003 to 2006. He attempted to break Japan's Cold War-era order to clear the way for necessary change. His efforts largely failed, as have those of other reformers, and Japan has remained stagnant. Because the country has failed to alter its fundamental order, Japan essentially has not grown since 1994.

The country has managed to maintain high levels of overall employment, but a growing share of these jobs are part time. In the 1990s, part-time workers represented less than 20 percent of the workforce, but by 2014, this number had risen to nearly 38 percent. Meanwhile, Japan's sovereign debt has grown substantially since 1994 as Tokyo has borrowed to maintain the bureaucracy, sustain infrastructure investment, cover social services and healthcare costs and service past debts.

But the crisis of Japan's post-Cold War model is relatively mild. Despite two decades without growth, Japan is still the world's third-largest economy and maintains one of the highest GDPs per capita among major economies. Meanwhile, a consistently strong yen has meant rising purchasing power. Japan also has one of the world's highest research and development expenditure-to-GDP ratios and remains one of the world’s most innovative high-tech economies.

Battered, Not Broken

Recognizing that the Lost Decades have not led to an earthshaking national crisis is key to forecasting the next step for Japan. The country will only shift if it is forced to do so. If not, the status quo will persist more or less intact, albeit fraying at the edges, for the foreseeable future.

Two factors undergird the stability of the current order: high living standards and a stable regional position. The Japanese government, first and foremost, needs to guarantee that quality of life remains steady or improves. Tokyo will need to keep Japan's GDP constant, or at least declining slow enough to dovetail with its population decline, over the next several decades.

The government will also need to find a way to pay the costs associated with the country's growing elderly population. Both will mean improving worker productivity to offset a shrinking workforce while helping Japanese industries remain globally competitive and effectively taxing overseas economic activity. Extracting government revenue from Japanese businesses abroad, which have used offshoring to keep themselves globally competitive, will be possible with some political wrangling.

It will also be a crucial move, since the government will need to bolster domestic spending. Social security and healthcare costs now account for over 35 percent of government expenditures. At the moment, however, only 26 percent of the population is over 65. By 2040, the elderly will make up 36 percent of population. The government will likely manage this by exploiting its close ties with the leading keiretsu.

Tokyo will also push for incremental labor reforms and technological advances to improve worker productivity. To be politically viable, these reforms will only need to be gradual enough to avoid substantially increasing unemployment (currently just 3.4 percent) or underemployment in the near term. This will be tricky. For the next 5-10 years, Japan will see population aging and workforce shrinkage slow.

Between 2015 and 2025, Japan's workforce will shrink by 5.5 million-5.6 million, down from its loss of 7.7 million-8.3 million workers between 2005 and 2015. Steadier population levels will raise the pressure on the government to maintain employment.

After 2025, and especially after 2045, extreme working age and overall population declines could force more fundamental changes in the structure of Japan's economy. By 2060, Japan's total population will fall by around 25 percent, while the working-age population will fall by around 50 percent. This will almost certainly have profound implications for the country's economy. Still, the population shifts will be gradual and it will take some time before their full effects are felt.

Without changes in Japan's external environment, the Japanese government could make incremental policy adjustments that address the impact of population decline on quality of life over the next three to five decades, at least enough to stave off a catastrophic change in the foundations of the current order.

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As China's economy boomed, US industrial companies made serious investments in helping to build infrastructure, helping to drive growth in the country and their bottom lines.

This relationship, however, appears to be at an end.

"We are just back from our annual (since 2003) trip to China, and this one definitely fits in the top-quartile of bearish field trips," Barclays Scott Davis wrote. "We suspected that our forecasts for China industrial growth (for U.S. Multi-Industry) would need to come down, but it’s worse than we had hoped."

Davis said that the decade and a half of US industrial companies raking in serious gains from China is over.

"We suspected that foreign direct investment would slow but, in fact, it has essentially stopped," wrote Davis in a note to clients Monday. "Our average company is consolidating factories and working to pull capital out of the region."

Davis originally estimated that US Industrials, which make any number of large products from escalators to electrical grid infrastructure, would grow revenues in China 4-5% in 2015, and they have done so year-to-date. After the trip, he adjusted that to a rate of 2-3% for the rest of the year and only 1-3% in 2016.

According to Davis, these large industrial suppliers — such as General Electric, 3M, and Ingersoll Rand — have been able to grow their margins through investments in China for 15 years, and now there is nowhere to go:

"This marks the end of a 15-year investment cycle, the problem being that there is nowhere else in the world to invest for growth at present. There is excess capacity everywhere. This has implications for global capital spend levels and also price. There is nothing that correlates more to industrial growth (and stock performance) than capital spending and margin expansion. We have not seen a negative price environment for industrials since the late 1990s and over this time period we have seen steady gross margin improvements. This may mark the end of the margin expansion era." 

Davis cites 4 reasons for the end of the era in China:

1. "Anti-Corruption Campaign a Bigger Deal than We Had Thought." Before the year-long corruption campaign, many US industrial companies could differentiate themselves during contract bid processes as clean companies, which won them contracts despite higher prices, Davis wrote. Now, with the Chinese government bringing down the hammer on shadier Chinese companies, this gap is shrinking.
2. "Excess Capacity." Davis said that he toured many US company's factories in China and they were running under peak capacity. This, combined with a more vacant real estate and a focus on growth in smaller cities, means that there are simply less things to make.
3. "Local Chinese players are building skill in manufacturing." Davis said that in previous trips, Chinese-owned factories were disastrous but that has turned around significantly. He cites more skilled workers, better facilities and better manufacturing techniques as examples of the quality improvements.
4. "Export of Technology." Not only have the Chinese begun to take on their own industrial projects within the country, but they are beginning to export these efforts to other emerging markets as well. Since Chinese companies have the backstop of the government, they are willing to do projects at lower margins and higher risks, cutting off a source of growth for US industrials.

This is the middle of a significant shift, says Davis, and it's a tough road ahead for US companies that many won't survive.

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Silicon Valley took a stab at international diplomacy this past week, welcoming two major world leaders: Indian Prime Minister Narendra Modi and Chinese President Xi Jinping.

Both sought to promote and expand their tech agendas by forging relationships with influential executives and companies, placing Silicon Valley in the driver’s seat of key US interests.

But the two most populous countries in the world differ in their technology goals.

Mr. Modi aimed to build support for the Digital India initiative, a plan that calls for greatly expanding the Internet infrastructure in India’s rural areas, in addition to digitizing government services and increasing “digital literacy.” Modi believes Internet access is key to lifting people out of poverty, a belief that Facebook CEO Mark Zuckerberg conveyed during a recent speech at the UN.

Over the course of his visit, the prime minister crossed paths with executives from Microsoft, Adobe, Uber, Google, and Facebook (Mr. Zuckerberg hosted Modi at Facebook’s headquarters for a discussion and pre-screened Q&A session with employees and others invited by the Indian embassy).

And Modi did not leave empty handed: Google agreed to provide free public Wi-Fi in 500 train stations throughout India. But as The New York Times’ Vindu Goel reported, Modi’s trip was about domestic politics more than anything:

Mr. Modi’s message of partnership with American technology companies has been carefully choreographed to appeal to his constituents back in India, a country that is rapidly discovering the Internet and the start-up culture. The prime minister’s Bharatiya Janata Party has encountered setbacks in its legislative agenda and will soon face state elections.

Noticeably absent from Modi’s discussions was the issue of privacy, a significant concern in the digital era, particularly since the NSA revelations. Last month, a group of academics questioned Digital India’s motives, citing an increased capability for surveillance as a major concern:

We are concerned that the project’s potential for increased transparency in bureaucratic dealings with people is threatened by its lack of safeguards about privacy of information, and thus its potential for abuse. As it stands, “Digital India” seems to ignore key questions raised in India by critics concerned about the collection of personal information and the near certainty that such digital systems will be used to enhance surveillance and repress the constitutionally-protected rights of citizens.

Meanwhile, Mr. Xi's visit took a different tone. Issues pertaining to cybersecurity remained a top priority in light of how hacks emanating from China against US companies and government agencies have become ritualized (though they slowed ahead of Xi's visit with President Obama). As Re/code’s Noah Kulwin reported, Xi had domestic goals of his own:

Tech CEOs wanted to hear firm assurances that the Chinese government would take aggressive measures to curtail the devastating hacks that have hampered American businesses, and that their intellectual property rights would be respected. Xi wanted to assuage their fears, and also to let them know China’s recent economic struggles haven’t diminished the massive opportunity for American businesses to reach the 1.3 billion people who live there.

That last part is key. China’s massive middle-class market represents a crucial opportunity for American business, but some US companies are still barely in reach. Zuckerberg has been openly frustrated over his company’s exclusion from China, and is even learning Mandarin, partly to better understand Chinese culture, perhaps with the eventual goal of bringing his social network to the country’s nearly 600 million Internet users. But that is unlikely to happen any time soon while the government continues to censor media and block non state-sanctioned social media.

India is in a much different position. A less wealthy market where US companies face fewer barriers, India has courted philanthropic support rather than assuring business endeavors in its country would be successful – the expansion of Internet connectivity anywhere should be music to Silicon Valley’s ears.

But last week was a showcase for an emerging power in international relations that barely existed a few decades ago – and it will take a few more to know the full effect of its influence.

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The economic outlook for China points to a bumpy deceleration that will last for a prolonged period with a large debt overhang, over-capacity and a generally weak external environment, likely to weigh on growth prospects in the years ahead.

That’s the view of Goldman Sachs’ chief Asia-Pacific economist Andrew Tilton who, in a research note released late last week, attempted to explain what is actually going on within the Chinese economy.

While Tilton admits that he has a “fair amount of confidence in the official data in terms of registering the broad pace of growth over the last 5, 10, 20 years”, he suggests that at present the economy is likely growing “a bit below 6%”, citing Goldman’s China activity indicator gauge, shown in the chart below.

The figure, while not far off, is below the 7% annual growth rate reported by the Chinese government when they released Q2 GDP figures earlier in the year.

“Alternative measures of growth suggest that the amplitude of the business cycle is bigger”, said Tilton, adding “at times like now when growth is weak, these alternative measures suggest something weaker”.

He also attempts to dissect why concerns over the outlook for Chinese economic growth have rattled markets in recent months. In his opinion, the rapid deceleration in growth witnessed in July and August saw concerns jump as the deceleration occurred at a time when monetary and fiscal policy already seemed to be reasonably supportive.

He also suggests that uncertainty surrounding economic policy in China is also contributing to amplification in market volatility, outlining three key areas of concern that are creating negative headwinds for sentiment at present: how aggressively policymakers will respond to economic weakness, the mode of policy that will be used by the government to help stimulate growth and whether policy will be as effective as it has been in the past given the current very high debt load, lower interest rates and some policy implementation problems that international markets witnessed, first hand, earlier in the year.

Tilton believes that while policymakers were clear in their strategy to boost growth earlier in the year, the response to recent economic weakness has been less clear, contributing to volatility in financial markets rarely seen in recent years.

“The new administration has tried to temper its support because many officials believe that the 2009 stimulus was excessive and contributed to the credit buildup and problems the economy faces today. In response to weakness in 1Q 15, authorities rolled out fiscal measures, cut short-term interest rates, and loosened housing measures. But the response to the more recent dip in activity has been less clear,” he said.

He suggests the recent one-off depreciation in the Chinese renminbi has been one of the chief reasons behind the increase in policy certainty.

“Historically, the response has been primarily via fiscal and money and credit expansion, i.e., domestic stimulus that would have positive spillovers to other economies. But the recent move in the renminbi (RMB) raised questions about whether more of the response might come via currency depreciation.”

Although the markets remain unconvinced, Tilton believes fears that policy stimulus will be less effective on this occasion than what has previously been seen in the past are “somewhat overdone”.

“We don’t think that the response will be primarily via the currency, which we think policymakers prefer to keep relatively stable in the near term. And while policies may not have quite as much impact as in the past, we believe they can still be efficacious for now,” he said.

On the outlook for policy stimulus, Tilton believes further easing would be appropriate at this point, but admits it would carry its own challenges given the nation’s large debt overhang, something that requires interest rates to remain at very low levels, along with the additional pressure on the renminbi that additional rate cuts would bring.

As the chart below shows, capital outflows from China hit a record high in August.

Although he believes the deceleration in Chinese growth will be bumpy and prolonged, Tilton suggests the slowdown will moderate in the months ahead as current drags on growth fade and additional fiscal stimulus is implemented.

“Shutdowns in factory activity — like the ones around the major military parade held in early September — have probably had a noticeable impact on national manufacturing activity. The explosion at Tianjin, which is one of the top ports in the country, might have also led to short-term disruptions in activity,” he said.

He also expects that an acceleration in fiscal spending, something that was evident in August when the government reported an annual increase in expenditure of 25.9%, will also contribute to a stabilization in growth in the latter parts of the year.

“We expect to see the impacts of policy support in the fourth quarter, particularly in the form of fiscal stimulus, as policymakers are now clearly encouraging local governments to spend more and accelerate projects,” Tilton said.

“This message was a bit muddied by efforts earlier this year to curtail off-balance sheet financing by local governments, but it’s getting across now, and we would expect to see some results in the near term.”

Chinese September quarter GDP is scheduled for release on October 19.

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China will prioritize its energy and financial cooperation with Iran, as the recent nuclear deal means there is now even more opportunity to work together, Chinese President Xi Jinping told his Iranian counterpart Hassan Rouhani.

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 the nuclear issue.

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.

Meeting in New York on the sidelines of the United Nations, Xi told Rouhani that once the nuclear agreement was put in force "Iran will have ever more opportunity for foreign cooperation, and Sino-Iran ties will face a new development opportunity", China's Foreign Ministry said on Tuesday.

China wants increased cooperation in the fields of railways, roads, iron and steel, auto manufacturing, electricity and high-technology, Xi said.

"(We) must prioritize energy and financial cooperation," he added, without elaborating.

China is the biggest customer of Iranian oil.

Last week, a senior Chinese envoy offered Iran help with upgrading its manufacturing technology to boost its economy.

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

(Reporting by Ben Blanchard; Editing by Michael Perry)

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Fund manager Luke Hickmore is emphatic when asked what he is keeping an eye on.

"It's always going to be currencies, right? Currencies, currencies, currencies."

Hickmore, a senior investment manager in fixed income at the $483.3 billion Aberdeen Asset Management, sat down with Business Insider on September 17 during a visit to New York.

China had devalued the yuan a month earlier, and the Federal Reserve was about to announce its decision over whether to raise rates.

"We went short [on September 16] Aussie dollar versus the US dollar," Hickmore said. "We've had a short in Euro versus dollar for some time — it's a really [crowded] trade, which I hate, but it still feels like the right place to be."

Foreign-exchange rates are important to bond buyers who invest globally, as a change in the value of the currency the bond is issued in can easily overwhelm the performance of the bond itself.

The Australia trade is largely driven by China, he said, as he believes Australia is"most at risk from Chinese growth problems."

China is on everyone's minds, and sometimes it's hard to know what to watch for there.

Most recently, the country's stock market has been making headlines, crashing twice this summer after rallying over 150% in just over a year.

Real rate of Chinese growth

Then there is economic growth. Many investors have grown suspicious of official statistics and have started looking elsewhere to get a sense of what is happening on the ground.

"We've been talking about what the real rate of Chinese growth is for some while," Hickmore said. "It's not 7%. We've been saying 5% to 5.5%, and it looks like it might be kind of around that level — 5% may be the sensible level of growth.

"If I'm worried about anything, it's about how the Chinese authorities come in to try to support that," he told Business Insider.

"I think they've kind of restricted themselves a little bit maybe about how they do that after the mess they made of trying to support the equity markets over the summer," he said. "They're going to have to think very carefully about how to do that."

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The world's longest glass bottom bridge just opened in Shiniuzhai Geological Park in China's Hunan Province.

The geopark is now home to a 590-foot-high and 984-foot-long glass bottom bridge.

It's called Brave Men's Bridge or Haohan Qiao and is the world's longest glass bottom bridge, as well as China's first all-glass suspension bridge.

Fortunately for those willing to cross the bridge, the glass its made of is sturdier than normal glass.

According to CNN, each panel is 24 millimeters thick and 25 times stronger than regular glass.

Before a team of a 11 engineers went to work on the bridge, Haohan Qiao was made of wood, with only a small section that was made of glass as an experiment.

The Brave Men's Bridge won't be the only of its kind in China for long. The National Park of Zhangjiajie is set to open yet another glass bottom bridge which will be a whopping 1,247 feet long and 984 feet high, surpassing Brave Men's Bridge.

Here are photos of some of the first few visitors who braved the bridge.

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WASHINGTON (Reuters) - The top U.S. intelligence official on Tuesday said he was skeptical that a new cyber U.S.-China cyber agreement would slow a growing torrent of cyber attacks on U.S. computer networks, and said his approach will be to "trust but verify."

Director of National Intelligence James Clapper told the Senate Armed Services Committee the agreement did not include specific penalties for violations, but the U.S. government could use economic sanctions and other tools to respond if needed.

Clapper and other officials said they viewed last week's cyber agreement between China and the United States on curb economic cyber espionage as a "good first step," but that it was unclear how effective the pact would be.

President Barack Obama on Friday said that he had reached a "common understanding" with China's President Xi Jinping that neither government would knowingly support cyber theft of corporate secrets or business information.

Asked if he was optimistic the agreement would eliminate Chinese cyber attacks, Clapper said simply, "No."

Clapper said he was skeptical because Chinese cyber espionage aimed at extracting U.S. intellectual property was so pervasive, and there were questions about the extent to which it was orchestrated by the Chinese government.

He said the U.S. should "trust but verify," a reference to former President Ronald Reagan's approach to nuclear disarmament with the former Soviet Union,

Clapper and other top U.S. military officials said cyber threats were increasing in frequency, scale, sophistication and severity, and the United States needed the same kind of deterrent capability in cyberspace that it maintains for nuclear weapons.

Attacks by countries such as Russia, China, Iran and North Korea, as well as non-state actors, would increase and likely grow more sophisticated in coming years, expanding to include manipulation of data, he said.

"Such malicious cyber activity will continue and probably accelerate until we establish and demonstrate the capability to deter malicious state-sponsored cyber activity," he said. Establishing a credible deterrent requires agreement on norms of cyber behavior by the international community, he said.

However, they said attributing a cyber attack was far more difficult than determining who launched a missile.

Clapper said the current environment was like "the Wild West," and the world needed to deal with the evolving threats.

One key question, he said, was whether to limit spying activity, such as the incident that compromised personal data of 21 million individuals in a database maintained by the Office Of Personnel Management.

Deputy Defense Secretary Robert Work told the committee that the U.S. response would be "vigorous" if another incident on the scale of the OPM breach was firmly linked to China. He said the Pentagon was finalizing a broad cyber warfare policy that was supposed to be shared with Congress over a year ago.

He said the response could involve a variety of tools, including economic sanctions and criminal indictments, as well as potential use of offensive cyber weapons.

U.S. officials have linked the OPM breach to China, but have not said whether they believe the government is responsible.

Clapper said no definite statement had been made about the origin of the OPM hack since officials were not fully confident about the three types of evidence were needed link an attack to a given country: the geographic point of origin, the identity of the "actual perpetrator doing the keystrokes," and who was responsible for directing the act.

(Reporting by Andrea Shalal; Editing by Chizu Nomiyama and Christian Plumb)

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(Reuters) - Apple Inc launched Apple Music along with iTunes Movies and iBooks in China and said the cloud-based music streaming service will roll out on Android phones this fall.

Apple will offer Apple Music subscribers access to a vast library of songs for 10 yuan ($1.57) a month after an initial three-month trial membership, the company said in a statement.

The announcement comes at a time when the iPhone maker has been struggling to reassure its shareholders about its business in China.

Chinese consumers are critical to fueling demand for iPhones, and a slump in the country's stock market and Beijing's recent devaluation of the yuan have shaken Apple investors already worried about slowing growth in the world's No. 2 economy.

Apple Music in China will feature local artists such as Eason Chan, Li Ronghao, JJ Lin and G.E.M., along with a range of international artists, the company said.

Subscribers would also be able to rent or buy movies from a selection of Chinese studios as well as Hollywood blockbusters on the iTunes Store, Apple said.

Movies on iTunes will start at 5 yuan for renting in high definition and 18 yuan for buying new releases in high definition, the company said.

Paid iBooks will start at 0.5 yuan.

(Reporting By Aurindom Mukherjee in Bengaluru; Editing by Anupama Dwivedi)

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