Apple's music streaming service is launching in China, the company announced on Wednesday. And it's insanely cheap.

In the US, Apple Music will set you back $9.99 a month, or $14.99 for a family plan. In the UK, it's the exact same figures (making it slightly more expensive) — £9.99 for standard, £14.99 for a family.

In China, meanwhile, it's going for radically less. It'll cost just 10 RMB per month for a single membership.

That's around $1.60, or £1.

Apple launched Apple Music at the end of June in the US, the UK, and over 100 countries — but not China. The Asian nation is an increasingly important market for Apple. It launched an aggressive retail expansion in China at the start of 2015, and its smartphone business has grown 75% year-on-year in the country— even as the broader industry declines. It's now Apple's largest market in the world for app downloads.

The lower price makes sense from a commercial perspective: The Chinese average GDP per capita is significantly lower than in the US and other developed economies — $7,500 in 2010-2014, versus $55,000 in the US. Chinese consumers don't — on average — have the same disposable income, and may blanch at the Western price-point.

Back in June, before the launch of Apple Music, analyst Neil Shah from Counterpoint told The Wall Street Journal that "In Asia, the pricing needs to near free or around $2-$5 per month to hit the sweet spot." Apple has managed to offer its product for significantly less than that.

That said, the low price point could reignite the debate over appropriate compensation for artists. Over the last year, whether streaming services — particularly free, ad-supported ones — appropriately compensate artists for their work has been a frequent topic of discussion (although compensation levels are often down to an artist's individual contract with their label). It's questionable how much Apple will be able to pay out to labels and artists based on streams of customers who are paying Apple a tenth of what British subscribers are.

In a statement, Apple boasts about both local artists as well as mainstream international stars on Apple Music. "Launching with millions of songs in its catalog," it says, "Apple Music in China features music from artists including Eason Chan, Li Ronghao, JJ Lin and G.E.M., as well as a wide range of international artists including Taylor Swift, Ed Sheeran and many more."

Chinese customers are also offered a free three-month trial to test out Apple Music, just like Apple has done in other markets.

Apple Music isn't the only product rolling out to China today. The Cupertino company is launching iTunes Movies, offering films to rent or buy for 5 RMB and 18 RMB respectively ($0.79 and $2.80, or £0.50 and £1.90). iBooks, its ebook store, is also becoming available. Prices will start at 0.5 RMB ($0.08, or £0.05).

Join the conversation about this story »

NOW WATCH: 'Shade balls' are being used across California to combat the drought

On August 14, a compressor failed at the Soraz oil refinery near Zinder, Niger, crippling one of the very few pieces of industrial infrastructure in one of the poorest countries in the world.

The thing is, there may never have been a compressor blowout.

According to multiple energy-industry sources who spoke with Business Insider, the shutdown of the Soraz refinery — which has driven up gas and cooking-oil prices throughout Niger and pushed parts of the country of 16 million to the edge of a serious fuel shortage — was a deliberate decision by the refinery’s state-owned Chinese operators and coowners.

“The compressor is just to tell people something, but there are many problems,” an energy-industry expert told Business Insider. “The real problems are behind the compressor.”

The shutdown has been the subject of widespread speculation inside Niger. One headline on the news website TamTam Info framed the issue this way: “Halting Production at Soraz: The Chinese Want to Overthrow the Government.”

That may be hyperbole, but the refinery shutdown is still the likely result of a deliberate Chinese strategy — one that Niger is struggling to counter.

China conducts nearly $200 billion in annual trade with Africa. Its companies have dug over 200 oil wells in Niger since 2010, discovering a billion barrels of oil in the process. Chinese companies built the Soraz refinery and the domestic pipeline leading to it.

“China put in the investment that all the French and the US companies didn’t,” one Niamey-based energy expert told Business Insider. “They did what Exxon didn’t do in 30 years.”

But Chinese investment can have a price. The standoff over Soraz shows how unprepared even fairly stable and democratic African governments can be in dealing with China.

And it reveals the consequences of Chinese state-owned companies trying to import their domineering way of doing business to far different political, economic, and social contexts.

How to lose money selling oil

Soraz shut down amid tensions between it, Nigerien state petroleum company Sonidep, and the China National Petroleum Corp. (CNPC).

The refinery, which opened in 2011, is about 350 miles from the oil fields in the Diffa region in eastern Niger. Soraz is connected to the oil fields through a domestic pipeline that ends at the refinery. For internal Nigerien political reasons, the refinery was constructed in an area that’s far from the nearest export pipeline, which begins in neighboring Chad.

The pipeline and refinery are set up in a way that makes it difficult to get Nigerien oil to the international market. The infrastructure, however, does at least ensure that Niger can achieve a degree of energy independence that most developing nations can only dream of.

The refinery can process 20,000 barrels of oil a day, giving Niger nearly three times as much refinery capacity as it needs to meet its daily nationwide fuel requirements. When everything's going smoothly, Sonidep can sell 7,000 daily barrels' worth of refined product within Niger and send 13,000 barrels to neighboring countries.

But Niger’s oil industry has a couple of major structural problems. In the current arrangement, Sonidep purchases refined product from Soraz, a joint venture that is 60% Chinese-owned and 40% Nigerien-owned.

In practice, Soraz is fully operated by the CNPC, which also runs the oil wells and pipeline that feed the refinery. Sonidep pays the refinery, which in turn pays CNPC for its oil.

When it’s working, this structure fosters a degree of interdependence between Chinese state enterprises and their Nigerien partners, smoothing out the gaping power imbalance between Niamey and Beijing.

But a toxic dynamic has recently taken hold. For reasons even insiders can’t quite explain, Sonidep owes Soraz some 40 billion West African Francs, or roughly $68 million. Meanwhile, Soraz is nursing its own gaudy debt owed to the CNPC, perhaps as much as $100 million.

The first debt is likely attributable to Nigerien government dysfunction. Niger experienced its latest military coup in 2010 and is in the midst of what has so far been a successful democratic transition, with open national elections scheduled for early next year. But government remains opaque and unaccountable, particularly on financial matters.

The second debt — the one that Soraz owes to CNPC — is the partial result of financing arrangements on the refinery, which were being renegotiated as of 2014 and are widely considered to be favorable to Beijing.

And it has exacerbated by a related problem: Under a 2012 agreement, Soraz must purchase oil at prices fixed in 2012 at about $70 a barrel. This means that in times of price spikes, Niger has some of the cheapest gas in West Africa.

But when oil plunged to under $50 a barrel in mid-2015, the refinery, and the country at large, was placed at a huge disadvantage.

According to multiple energy-industry sources, the Soraz purchasing price is somewhat flexible and has been negotiated down on occasion, with the refinery buying oil at about $57 a barrel before Soraz's closure.

But this may skew the degree to which the refinery is overpaying when the costs of transiting the oil to the refinery are taken into account. Soraz is effectively paying somewhere between $87 and $100 a barrel, at a time when oil is struggling break the $50 barrier.

The CNPC’s insistence on selling at above the market price — even to a refinery for which it is itself the majority stakeholder — is an effort to impose authoritarian certainty on inherently unstable markets, an echo of the mentality that resulted in Beijing’s $236 billion bailout of the country’s stock markets in mid-2015.

The selling price is one of several areas where China wants concessions from their Nigerien partners. CNPC has been eyeing a second exploitation authorization. Niamey has been hesitant to grant one, since the government hoped to use future oil permissions as leverage in negotiations over the construction of an export pipeline.

China also wants a bigger slice of existing oil export revenue and a greater share of the 13,000 barrels of refined product that Niger exports each day. And there’s disagreement between Niger and CNPC over funding the refinery’s operating costs.

Making the relationship work

Niamey-based sources indicate that the Soraz standoff will likely end soon, because the oil industry is just too important to Niger and China for the problem to explode into a larger crisis.

But the episode will leave an important question: Is the unstable status quo between China and Niger the result of a rapacious and powerful state imposing its will on a much smaller and weaker one, or of a resource-rich country failing to understand and use its leverage? China has certainly gamed the existing system as much as it possibly can. But the Nigerien government hasn’t done much to stop it.

The CNPC operates largely outside of Nigerien Petroleum Ministry oversight. China has full control over pipeline monitoring and maintenance, meaning the government has little oversight of one of the country’s most important pieces of infrastructure.

Soluxe, a Chinese hotel chain, was given a parcel of land in Niamey for a 300-room, five-star hotel; instead, it built a much smaller hotel and constructed a dormitory and office for CNPC employees on the remaining space. The machinery and control panels at Soraz are reportedly labeled in Chinese, and the CNPC’s analytics and data are printed almost exclusively in Chinese — a language that officials at Niger’s oil ministry typically cannot read.

Niger, a relative newcomer in the oil industry, doesn’t have the expertise or the capacity to stand up to its Chinese partners. Dysfunction within Sonidep will only make it harder for Niamey to deal with Beijing on anything approaching an equal footing.

Niger is facing a number of challenges that are stretching the resources of an already overextended state, including 2.5 million chronically food-insecure citizens and the presence of the Nigerian jihadi group Boko Haram in the country’s southeast. Still, Niger will have a much harder time solving these problems if it can't deal with its long-term business partners more effectively.

As one Nigerien expert put it, “It’s our own flaws that allow the Chinese to do whatever they want to do.”

Nevertheless, the two sides need each other in the long run: China has already invested billions in Niger’s oil sector. A growing China needs the over 1 billion barrels of oil under eastern Niger — which, promisingly, is the only section of the country where serious exploration and drilling have taken place. Meanwhile, Niger’s future depends on the construction of a Chinese-built oil-export pipeline and the tens of billions of dollars in long-term export revenue it represents.

As Abu Tarka, the head of Niger’s High Authority for the Consolidation of Peace, told Business Insider, “Niger is going to be a poor country for another 20 to 30 years. I see only one miracle — that we find oil in a large quantity. That’s the only thing that can take us out of our situation.”

Partners, for better or for worse

China has shown unprecedented levels of interest and investment in Niger even outside the oil sector — a Chinese company built Niamey’s second bridge over the Niger River and is constructing a much-needed traffic flyover in downtown Niamey. The Soluxe may be smaller than promised, but for the time being it’s still the Nigerien capital’s only five-star chain hotel.

In the end, Niger comes out with an uncomfortable look at the tactics and objectives of China’s state oil company. The country’s future may hinge on whether it tips what will be a decades-long, multibillion-dollar economic relationship with China in a more equitable direction.

The Soraz dispute encapsulates the opportunity that China represents for a country such as Niger, and how that opportunity can backfire.

Armin Rosen reported from Niger on a fellowship from the International Reporting Project.

Join the conversation about this story »

NOW WATCH: This animated map shows how humans migrated across the globe

BEIJING (Reuters) — A series of package bombs exploded on Wednesday in the southwest China city of Liuzhou, killing at least seven people and injuring 51, state media said.

The official Xinhua news agency said police had determined the blasts were a "criminal" act and identified the suspect as a 33-year-old local man surnamed Wei, but added the investigation was continuing.

Media images showed a collapsed building, smoke and streets strewn with rubble in Liuzhou in Guangxi region. Two people were missing, state radio said on its microblog.

Bombs were sent to 13 places ranging from hospitals and shopping malls to prisons and government offices, reports said, adding that a terrorist attack had been ruled out.

The Ministry of Public Security has sent a team of experts to help with the investigation, Xinhua said.

Guangxi sits on the border with Vietnam and has several ethnic minorities, but is generally peaceful.

Disaffected or mentally unstable Chinese people have set off explosions in public places in the past. Explosives are relatively easy to come by, as they are widely used in China's large mining industry.

Such "sudden incidents," as Chinese authorities refer to them, are sometimes seen as linked to a widening gap between rich and poor and anger at corruption or environmental problems.

Hundreds have died in recent years in China's far western region of Xinjiang, in violence blamed by the government on Islamist militants, but that unrest only occasionally spills over into other parts of the country.

(Editing by Andrew Roche)

SEE ALSO: The world's largest army is getting an 'ambitious' overhaul to compete with the West

Join the conversation about this story »

Chinese scientists made headlines earlier this year when they used a powerful new technique to edit the genomes of human embryos, sparking ethical debate among scientists.

Now, another group of researchers have created genetically engineered "micro-pigs" which they want to sell as pets, Nature News recently reported.

Researchers at the genomics institute BGI in Shenzhen used gene editing to modify Bama pigs. 

Bama pigs are already teensy — they weigh about half as much as regular farm pigs.

BGI plans to sell the little creatures for about 10,000 yuan (US$1,600), institute representatives announced on September 23 at the Shenzhen International Biotech Leaders Summit in China.

In the future, customers will be able to order pigs with customized coat colors and patterns, they said.

Gene editing has been sweeping the biology world, largely thanks to a technique known as CRISPR/Cas9 that makes it incredibly easy. The technology opens up the possibility of curing genetic diseases and giving people, animals or crops more desirable traits.

The Chinese scientists who modified the pigs didn't use CRISPR/Cas9, but a different gene editing technique that involves proteins known as TALENs (transcription activator-like effector nucleases), which can target a specific gene and disable it.

To make the micropigs, they cloned a Bama pig and used TALENs to disable one of the two copies of a gene for growth hormone receptors. Because the cloned pigs lacked these receptors, they don't grow to a normal size. Next, they bred some of the cloned male pigs with regular female pigs.

Half of the offspring were micro-sized.

The micropigs have already been used in studies of stem cells and gut microbes, and the animals' small size makes it easier to replace the microbes in the animals' guts, the researchers say. The pigs could also be used to study Laron syndrome, a form of dwarfism caused by a mutation in the human version of the growth hormone receptor gene.

By selling the animals as pets, the BGI researchers hope to raise money for their research.

And it's not just pigs — soon we may be seeing genetically edited dogs and cats as well. Technically speaking, gene editing is not all that different from conventional breeding techniques, although it vastly speeds up the process.

While the pigs are undeniably cute, we still don't know whether tinkering with these animals' DNA could cause medical problems, and experts say we need regulations to ensure its done safely.

NEXT UP: Chinese scientists just admitted to tweaking the genes of human embryos for the first time in history

SEE ALSO: This is the game-changing technology that's just been used to genetically modify a human embryo

Join the conversation about this story »

NOW WATCH: We visited a one-of-a-kind lab in South Korea that will clone your dog for $100,000

While some sentiment indices in China suggest economic conditions in the nation are continuing to improve, that view is certainly not uniform in nature.

Based on the latest quarterly survey of banks, companies and households conducted by the People’s Bank of China – a report that captures the views of 20,000 urban households, 5,000 businesses and 3,100 banks – sentiment towards the economy deteriorated sharply despite relative stability in business profits, orders and labor market conditions.

“The business survey for Q3 makes for gloomy reading,” said Chang Liu and Mark Williams, economists at Capital Economics in a research note released overnight.

“The headline index on firms’ confidence in the state of the economy fell to its lowest since the trough in 2009. Firms’ sentiment about their own circumstances deteriorated too, with this index falling below 50 for the first time since 1999″.

The results are published as diffusion indices, akin to PMI reports, with a reading over 50 indicating an improvement relative to the preceding quarter.

Despite the ugly sentiment gauge, Liu and Williams suggest that the report was not all doom and gloom, pointing out that the decline in indices tracking individual economic variables was far less severe than that seen for sentiment.

“Profitability is at a similar level to the business conditions index but has been fairly stable over the past three years. Domestic and foreign orders declined this quarter, but both are above their level in Q1,” they wrote.

In what will no doubt create a challenge for policymakers who are trying to engineer an economic rebalancing away from export and industrial-led growth to that driven by consumption, gauges on credit demand and household income weakened compared to levels in the preceding quarter.

Liu and Williams point to the deflating stock market bubble as a catalyst behind the weakness in both gauges.

As happened when the equity bubble burst in 2007 and 2008, the slide in equity prices this quarter has caused this shift to reverse,” they said.

“A fair number of those turning their back on investment say they would prefer now to spend rather than save – the share of spenders overall is now the highest since 2009.”

With many pinning their hopes for an economic recovery in China led by recent improvements in the nations residential property market, it was interesting that survey respondents indicated that they were less inclined to buy a property during the quarter.

“The share of respondents saying they are on the verge of buying a house has dropped back since Q2 but remains higher than a year ago,” they note.

“The turnaround in property sales is one of the more positive recent developments in China. We don’t expect it to trigger a renewed construction boom given the overhang of unsold inventory and the fact that, even after the construction slowdown, property completions are continuing at a rapid rate.”

Today China starts the week-long golden week holiday. Given the recent deterioration in Chinese economic data, markets should be on alert for pending policy announcements that may arrive during this holiday period.

Join the conversation about this story »

NOW WATCH: This 'genius' playwright is giving free performances from the hottest show on Broadway

China’s manufacturing PMI report beat expectations in September, rising to 49.8 from 49.7 in August.

A reading below 50 indicates that activity in the sector is contracting, so at 49.8 it suggests conditions deteriorated at a slightly slower pace than August.

Despite the small improvement, activity levels have now contracted for two consecutive months, something that has not occurred since January and February this year.

While the headline index recorded a modest improvement, the internals of the report were more robust with output, new orders and supplier delivery times all improving from August.

Output jumped to 52.3 from 51.7, recording the fastest pace of expansion in two months. In a sign that demand may be starting to pick up, the gauge on new orders increased to 50.2 from 49.7, the first time since May that an improvement has been recorded.

Of the other three components, supplier delivery times improved to 50.8 from 50.6 while the employment index, still deep in contractionary territory, held steady at 47.9. Inventories, at 47.5, was the only component to deteriorate at a faster pace, sliding from 48.3 in August.

Released alongside the manufacturing report, non-manufacturing PMI held steady at 53.4 for a second consecutive month.

The report, often lost in the shadows of the manufacturing PMI release, indicates that activity levels continue to expand, albeit at a slower pace than that seen earlier in the year.

Despite both gauges coming in significantly weaker than levels earlier in the year, they aren’t as bad as what many had feared.

Stocks in Australia, along with the Australian dollar, have both responded positively to the news, adding to gains witnessed prior to the report’s release. As at 11.25am AEST the ASX 200 is up 0.59% while the AUD/USD has risen to .7031, an increase of 0.19%.

Join the conversation about this story »

President Obama’s cup runneth over. Not only did Pope Francis give his blessing to the president’s climate crusade, but Chinese President Xi Jinping chimed in, promising to roll out a nationwide cap-and-trade program by 2017.

In return, the nationalistic leader was given a pass on cyber intrusions, China’s military build-up in the South China Sea, its provocative buzzing of U.S. planes, what Human Rights Watch calls “an extraordinary assault on basic human rights and their defenders with a ferocity unseen in recent years,” its strong-arming of U.S. tech companies to make private data available to authorities, and so much more.

Given that China’s cyber thefts have cost this country hundreds of billions of dollars and compromised our security, Americans might want reassurance that the deal struck on climate change was worthwhile, and represented real concessions from China’s leadership. No such luck.

Xi Jinping’s promise to expand regional cap-and-trade efforts -- underway (with modest results) in China since 2013 -- is entirely self-serving. It is similar to last year’s pledge that emissions “might” peak in 2030 – a promise that cost China nothing and that took into account the country’s slowing economy and shift away from manufacturing.

The vague promise won Mr. Xi and other Chinese leaders accolades from environmentalists, but in fact was a desperate effort to tamp down outrage at home.

Protests over China’s environmental destruction have increased in number and intensity, sparking alarms from the government’s Institute of Environmental Planning, which reported earlier this year that “There is a huge gap between how fast the environment is being improved and the how fast the public is demanding it to be improved, and environmental problems could easily become a tipping point that leads to social risks.”

In China, “social risks” means threats to the ruling party, and are not to be tolerated. 

Americans cannot imagine China’s air pollution. While most cities in the U.S. are smog-free, you cannot see across the street in Beijing on a bad day and quite frequently, the airport is shut down because of poor visibility. The Guardian reported one day last winter that the “concentration of PM 2.5 particles – those small enough to penetrate deep into the lungs and enter the bloodstream – hit 505 micrograms per cubic meter on Tuesday night.

The World Health Organization recommends a safe level of .25.” The Shanghai Academy of Social Sciences has described Beijing’s air as making the city almost "uninhabitable for human beings.” The air in Beijing is so toxic that according to another recent study, breathing it is as damaging as smoking 40 cigarettes a day.

Not just China’s capital city has a problem. In 2014, only eight of 74 cities monitored by China’s Ministry of Environmental Protection met the government’s air quality standards. More alarming, Chinese scientists have likened the country's air pollution to a nuclear winter, which could slow photosynthesis in plants and damage the country’s agricultural output.  

Within this context, Mr. Xi’s vow to roll out a national marketplace aimed at limiting carbon emissions by 2017 is politically essential; that it also alleviated pressure from President Obama to address other controversies, like cyber theft, was icing on the cake.

Meanwhile, the cap-and-trade plan faces substantial challenges. Overlaying a market-based cap-and-trade program on an economy with substantial non-market features is problematic, as the regional effort has shown. Also, verifying and assessing China’s emissions program will be all but impossible. We know about as much about China’s carbon footprint today as we know about the country’s economic growth – not much.      

Even in the EU, the only region where cap-and-trade has been implemented, the system has failed. The program’s shortcomings were evident from the beginning as governments attempted to lighten the burden on companies and industries by granting widespread exemptions. The failure became undeniable in 2013 when member countries voted down a last-gasp measure aimed at propping up emissions prices, which collapsed.

Emissions have declined in the EU, as they did in the U.S., mainly because of the recession – not because of the trading scheme. With state-owned enterprises still playing a key role in China’s economy, with the attendant political jousting and inefficiencies, the same competition for exclusions will prevail. Even as it is announced, some sectors of the economy, such as the large transport sector, are not included.

In return for a politically welcome commitment on cap-and-trade, President Obama extracted little of consequence from Mr. Xi on China’s blatant cyber intrusions of U.S. institutions and industries. Mr. Obama announced an agreement that “neither country’s government will conduct or knowingly support cyber-enabled theft of intellectual property, including trade secrets or other confidential business information, with the intent of providing competitive advantages to companies or commercial sectors.”  

This statement contains as many holes as a box of Cheerios. It does not ban state-owned companies from engaging in such activities, and does not address espionage. There is no enforcement mechanism, and no accountability. It would not, for example, have forbidden China’s giant theft of classified and potentially highly damaging information from the Office of Personnel Management. Mr. Xi focused on cybercrime instead, a less important concern to the United States.

On China’s increasing military aggression, Obama again came up empty. Xi Jinping was unapologetic about the build-up of artificial islands in the South China Sea and flatly denied that the project served any military purpose. Despite Obama pressing the issue, saying that the U.S. wants to “make sure that the rules of the road are upheld” in the region, Mr. Xi didn’t budge an inch, claiming “lawful and legitimate maritime rights” in the disputes area.

Mr. Obama was also stonewalled by his Chinese counterpart on human rights.

Efforts to clean up China’s foul air and water are to be celebrated. The country now produces twice as much carbon emissions as the U.S. How aggressively they tackle the problem will depend on whether unemployment or pollution becomes more threatening to the Communist party. The way forward will be dictated by China’s self-interest, not by lectures from Mr. Obama.

Join the conversation about this story »

NOW WATCH: 5 of the richest countries on Earth are in the Middle East, and they won't take any refugees from their war-torn neighbors

Activity across small and medium-sized Chinese manufacturing firms deteriorated at the fastest pace since March 2009 according to the latest Caixin manufacturing PMI report released by Markit.

In September the index fell to 47.2 from 47.3 in August. Despite the continued deterioration, the figure was an improvement on the 47.0 flash reading released in late September that incorporates around 85-90% of total survey responses.

“A key factor weighing on the headline index was a sharper contraction of manufacturing output in September,” said Markit.

“According to panelists, worsening business conditions and subdued client demand had led firms to cut their production schedules. Weaker customer demand was highlighted by a further fall in total new orders placed at Chinese goods producers in September.

“Furthermore, the rate of reduction was the steepest seen for just over three years. Data suggested that the faster decline in total new business partly stemmed from a sharper fall in new export work. The latest survey showed new orders from abroad declined at the quickest rate since March 2009.”

Fitting with that unsettling picture on the sector, Markit note that firms cut staff numbers at the fastest pace in 80 months. With less staff manning the production lines, order backlogs grew modestly.

Elsewhere total new orders contracted at a sharper rate amid a steeper downturn in new export business, while at the same time inventories of finished goods rose, indicating that demand is soft.

In what will no doubt raise questions over China’s economic transitions from an industrial to services economy, there was also worrying news on activity across the nation’s services sector.

The separate Caixin services PMI gauge dipped to 50.5 in September from 51.5, falling to the lowest level in 14-months.

Earlier in the session China’s government released separate manufacturing and services PMIreports for September, with both exceeding those figures in the Caixin-Markit series.

While both the government and Markit use diffusion indices, with 50 being the levels that separates expansion from contraction, there are two key differences between the two data series. The government PMI survey is larger than that conducted by Markit. It also encompasses responses from larger forms, whereas Markit’s survey is based around responses from small to medium-sized firms.

Join the conversation about this story »

NOW WATCH: Footage shows tourists captured by gunmen at a Philippine resort

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.

Join the conversation about this story »

NOW WATCH: 4,000 people in China die every day from air pollution

The American nuclear-powered aircraft carrier USS Ronald Reagan docked at its new home in Japan's Yokosuka naval port Thursday just as Tokyo tries to deepen defense ties with the U.S. under new security laws that expand the role of Japan's military.

The warship received a warm welcome from Japanese officials because of its role in disaster relief following the March 2011 earthquake and tsunami disaster in northern Japan.

At a ceremony, U.S. Secretary of the Navy Ray Mabus said the vessel's arrival and its welcome are "visible symbols of our shared commitment to one another and regional stability."

"Together we provide the most critical pillar of international security, one that only maritime services can deliver," he said.

Outside the port, however, a small group of citizens protested the aircraft carrier's deployment as a move to step up Japan's military cooperation with the U.S.

Prime Minister Shinzo Abe's government has pushed to enhance the role of Japan's military in national defense and in global peacekeeping. It passed new laws during a chaotic parliamentary session last month that allow the country's troops to also defend their allies, mainly the U.S., overseas.

Abe says Japan needs the laws to increase its capabilities amid China's growing military assertiveness, North Korea's missile and nuclear ambitions, and other security concerns. But many Japanese worry the new laws increase the risk of Japan becoming embroiled in U.S.-led wars.

The Ronald Reagan, carrying about 5,000 crewmembers, replaces the USS George Washington, which was the first U.S. nuclear-powered warship based in Japan, where atomic weapons are a sensitive issue. The George Washington, which arrived in 2008, left in May for a multiyear overhaul in the U.S.

Three destroyers are to be deployed later this year in Yokosuka, near Tokyo, bringing the number of U.S. warships based there to 14, the largest since Japan's World War II defeat in 1945, Kyodo News reported.

During its relief work four years ago, the Ronald Reagan ferried food and water to the city of Sendai in disaster-hit northern Japan. About 80 sailors on that mission have sued the operator of the wrecked Fukushima Dai-ichi nuclear power plant, saying it lied about the levels of radiation in the area.

SEE ALSO: Russia just released its first gun camera footage from airstrikes in Syria

Join the conversation about this story »

Things have been tough in China for months, but people bullish on the Chinese economy still often point to one part of it: the services sector.

The problem with that, though, is that the services sector too is showing signs of deterioration.

On Thursday, the September Caixin services PMI came in at 50.5, down from 51.5 in August. Anything below 50 suggests a contraction.

The official government services PMI held steady at 53.4 from August to September.

In other words, it doesn't look as if the services sector is growing, no matter how you slice it.

That's important, because some China bulls have been saying a growing services sector is what will get China out of its economic slump.

Last month, China's Beige Book — which is released not by the government but by a private New York-based firm — argued that recent perceptions of a Chinese slowdown were "thoroughly divorced from facts on the ground."

It conceded that the manufacturing sector — which posted a 49.8 PMI reading in September, up slightly from August's 49.7 number — was contracting. But it also said manufacturing was no longer the force of the Chinese economy.

Instead, it said, investors should look at the country's growing services sector. China bulls know the country's traditional growth drivers — like property development — have languished.

They just argue that that's OK because the services sector will pick up the slack.

This month's PMI read of the services sector, however, casts more doubt on the argument that it is growing fast enough to carry China's transitioning economy as it moves from one based on investment to one based on consumption.

"The story of strong services offsetting weak manufacturing looks increasingly unlikely to have a happy ending," Bloomberg economist Tom Orlik wrote in a note out after the data release.

Expect the government to continue enacting measures to stimulate the economy — more rate cuts, more loosening of housing policy — to breathe life into the real-estate market.

Join the conversation about this story »

NOW WATCH: The most expensive and extravagant vacations in the world

Satellite photos published by IHS Jane's 360 this week might show China's first indigenous aircraft carrier while it's under construction.

The suspected carrier's construction site in China's northeastern port of Dalian was first spotted in satellite photography taken on May 1. Continued construction over the following months revealed the development of a vessel that could be in line with the specifications for an aircraft carrier.

Jane's notes that the vessel could be as long as 885 feet (270 m) when the bow is taken into account, which would put the ship within necessary carrier size. Still, until the upper decks of the vessel are completed it is impossible to definitively conclude that the ship is indeed a carrier.

Instead, the ship could be "a new class of amphibious assault ship or helicopter carrier," Jane's reports.

Other evidence supports the idea that China is currently building an ingeniously designed aircraft carrier. Reuters reports that according to Taiwan's Defense Ministry, China is constructing two aircraft carriers that will be the same size as its current carrier, the Liaoning.

The Liaoning, a 302-meter (990-foot) former Soviet vessel capable of carrying 50 aircraft or helicopters, is the largest carrier in Asia. As the bow and aft parts of the suspect vessel continue to be expanded and lengthened, it could equal the size of the Liaoning.

Additionally, satellite images on Google Maps indicate that Beijing had constructed a model aircraft carrier in Wuhan Province by February 2015. The model is estimated to be 300 meters (984 feet) long and 80 meters (262 feet) wide. The model is complete with a helicopter landing pad and a model of a carrier-borne aircraft.

The mockup is likely to be used for the testing of communication systems aboard a future carrier.

According to AFP, Chinese local media reported that a company was awarded a contract to supply the cabling necessary for the vessel's construction. Late last year, another Chinese media story quoted Wang Min, the Communist Party secretary of Liaoning province, discussing Beijing's expectation of having a second aircraft carrier by around 2020.

Both stories were quickly deleted from the Chinese media outlets after their publication.

The push to develop an aircraft is part of Beijing's drive towards becoming its region's unquestioned military power.

In addition to the carrier, China has been developing a new generation of antiship cruise missiles, guided-missile naval destroyers, and ballistic-missile submarines in an effort to more effectively project power in areas far from the Chinese coastline.

SEE ALSO: These are the Chinese military advancements that could shift the balance of power in Asia

SEE ALSO: China is launching a "trump card" nuclear submarine that could target the US

Join the conversation about this story »

NOW WATCH: Startling facts about World War II

Neptune Group, one of Macau's biggest junkets, admitted in a dire filing this week that it had lost around $130 million so far this year.

"We are unsure how to cope with this vicious circle which has devastated Macau's VIP gaming business," it said, according to the South China Morning Post.

The firm cited government measures to track money going to the gambling haven, the devaluation of the Chinese yuan, and new regulations on junkets — high-roller financing firms — as the reasons why their business was being "devastated."

"We think a further negative impact on VIP gaming volumes is inevitable, accelerating junket room closures," it said.

Macau's overall monthly gambling revenue has seen year-over-year declines of between 30% and 50% since late last summer. That's when the government started cracking down on the amount of money and number of people heading to the territory.

Macau's high-roller scene has been hit harder than any other part of the gambling industry. The government's anti-corruption drive has made it dangerous for Chinese people to flaunt their wealth.

That means junkets —which act as high-roller financing firms and investment pools that pay out returns from leveraged VIP winnings — have been getting reamed. Sixteen percent of all of Macau's junkets closed in 2014.

That year, liquidity was zapped from the system when someone made off with $1.3 billion in junket funds.Jason Ader, founder of hedge fund SpringOwl and an investor in Macau's gaming industry, called it Macau's "Lehman moment," referring to now-defunct investment-bank Lehman Brothers.

In September, $13 million was stolen from one junket and overall Macau gambling revenue fell 33%. Analysts pointed to the VIP sector for a lot of that weakness.

"Based on our checks, contributing to the sequential decline were: (1) junket theft liquidity issues, and (2) low VIP win rate," wrote Wells Fargo analyst Cameron McKnight, emphasis ours.

"We remain on the sidelines on the Macau gaming names as estimates and valuations adjust to a ''new normal'' of: (1) tighter government oversight, (2) a recovery that is likely to be flatter than prior rebounds, and (3) a weak Chinese economy — all of which are contributing to more muted revenue growth in Macau," he continued.

Join the conversation about this story »

NOW WATCH: Life lessons from the Goldman Sachs Elevator parody twitter account

If the height and swinging cables don't get to you, the transparent bottom almost certainly will.

At 984 feet long, the Haohan Bridge — better known as the "Brave Men's Bridge"— is the longest glass-bottom bridge in the world. 

And it just opened to the public.

The newly opened contraption in China's Hunan Province sits 590 feet in the air, stretches across Shiniuzhai National Geological Park, and has a bottom made entirely out of glass.

According to the South China Morning Post, the wooden bridge was originally only going to include a small portion of glass. However, developers took a liking to the modern look and decided to replace the whole thing. 

But don't fear the worst: The glass is 25 times stronger and 12 times thicker than the normal glass used in home windows.

Despite it's impressive size and height, the bridge is actually one of several glass-bottomed structures around the world.

If you're interested in going even higher than the Brave Men's Bridge, there's a glass walkway in Zhangjiajie that sits 4,700 feet above the ground. 

Or take a visit to the Grand Canyon Skywalk, a glass-bottomed U-shaped observation deck that sticks out over the rock face 720 feet above the canyon floor.

If glass bottoms aren't your thing, you could still get the death-defying feel by venturing to the Titlis Cliff Walk in the Swiss Alps. 

It's Europe's highest suspension bridge, and it sits 9,000 feet above sea level.

Let us know how it goes. We'll be here, safe on the ground.

Join the conversation about this story »

NOW WATCH: An artist has completely re-envisioned the most mundane piece of furniture

The world’s longest glass-bottomed bridge is open to the public in China’s Hunan Province. The Brave Men’s Bridge is 984 feet long, and spans a 590-foot deep crevice. People attempting to make the terrifying walk across resorted to closing their eyes, crawling, and holding on to the rope guide for dear life.

The glass is 24 millimeters thick (around one inch), and there’s nothing but air below.

Story by Tony Manfred and editing by Adam Banicki.

Follow INSIDER:On Facebook

Join the conversation about this story »

Increasingly reliant on each other for sustainable economic growth, the United States and China have fallen into a classic codependency trap, bristling at changes in the rules of engagement. The symptoms of this insidious pathology were on clear display during Chinese President Xi Jinping’s recent visit to America. Little was accomplished, and the path ahead remains treacherous.

Codependency between America and China was born in the late 1970s, when the US was in the grips of wrenching stagflation, and the Chinese economy was in shambles following the Cultural Revolution.

Both countries needed new recipes for revival and growth, and turned to each other in a marriage of convenience. China provided cheap goods that enabled income-constrained American consumers to make ends meet, and the US provided the external demand that underpinned Deng Xiaoping’s export-led growth strategy.

Over the years, this arrangement morphed into a deeper relationship. Lacking in saving and wanting to grow, the US relied increasingly on China’s vast reservoir of surplus saving to make ends meet. Anchoring its currency to the dollar, the Chinese built up a huge stake in US Treasuries, which helped America fund record budget deficits.

America provided China with both stability and growth anchors. China enabled the US to sidestep the mounting perils of subpar saving, reckless fiscal policy, and weak household income growth.

But economic codependency is as unstable as human codependency. One partner eventually changes, while the other is left hanging, feeling scorned.

China is now changing, and America doesn’t like it. Not only is China rebalancing its economic model from exports to consumption; it is also redefining its national character. It has adapted a more muscular foreign policy in the South China Sea, embraced the nationalistic longing of rejuvenation, framed by what Xi calls the “China Dream.” And it has started to reshape the international financial architecture with new institutions such as the Asian Infrastructure Investment Bank, the New Development Bank, and the Silk Road Fund.

The US response has put China on edge, particularly America’s so-called “Asian pivot,” or “strategic rebalancing,” with its subtext of containing China. The US recognizes the need to increase China’s role in the existing Bretton Woods institutions (the International Monetary Fund and the World Bank); but when it fails to deliver, it chafes at Chinese institution building. And while the US has long urged China to tilt its growth model toward private consumption, it is uncomfortable with many of the implications of this shift.

In large part, America’s unease reflects a failure to address its core economic problems – mainly a lack of domestic saving. The net national saving rate (businesses, households, and the government combined) stood at just 2.9% of national income in mid-2015, less than half the 6.3% average over the final three decades of the twentieth century. As China shifts from surplus saving to saving absorption – using its surpluses to build a safety net for the Chinese people rather than subsidize the savings of Americans – a saving-short US will find it tough to fill the void.

America’s monetary policy reveals another layer of codependency. By citing international concerns – especially China’s slowing growth – as a major reason for deferring its long-awaited interest-rate hike in September, the Federal Reserve has left little doubt concerning the key role that China plays in sustaining a still-fragile US recovery.

And with good reason: US exports, which accounted for a record 13.7% of GDP in the fourth quarter of 2013, up from 10.6% in the first quarter of 2009, slipped back to 12.7% of GDP in mid-2015. With domestic demand still weak – real consumption has grown at an anemic 1.4% pace over the past 7.5 years – the US needs export growth more than ever. So the outlook for China, America’s third-largest and most rapidly growing major export market, is crucial for a Fed that has failed to gain much traction from its unconventional post-crisis monetary policies.

This aspect of codependency is global in scope. Over the past decade, China has accounted for an average of 1.6 percentage points of world GDP growth per year – more than double the combined 0.7-percentage-point contribution of the so-called advanced economies. Even if its GDP growth slows to 6.8% this year, China would account for slightly more growth than is likely from the advanced world. Little wonder that China’s growth prospects are such a big deal for policymakers worldwide.

Speaking in Seattle on September 22, Xi stressed the need for both the US and China to deepen their “mutual understanding of strategic intentions” as a key objective for the bilateral relationship. And yet his deliberations with US President Barack Obama were lacking in precisely that respect. The agenda was shaped more by disconnected issues – cyber security, climate change, and market access – rather than by an appreciation of the strategic challenges that both countries face alone and together.

Moreover, there was little sign of meaningful progress even on the issues that Xi and Obama discussed. Both sides hailed a newfound commitment to high-level exchanges on cyber crime; but the US is about to impose sanctions on Chinese companies that have benefited from egregious hacking. Likewise, they stressed yet again the need for a “high standard” bilateral investment treaty; but there was little indication of serious movement on the industries that would be shielded from such an agreement (the “negative list.”).

To its credit, China did announce an important shift in environmental policy – a nationwide cap-and-trade system for greenhouse-gas emissions, to go into effect in 2017. But, without similar actions by the US, China’s move hardly tempers the perils of global climate change.

Trapped in a web of codependency, the US-China relationship has become fraught with friction and finger pointing. In human behavior, the endgame of this pathology is usually a painful breakup. The just-concluded summit between Obama and Xi did little to dispel this possibility.

Join the conversation about this story »

NOW WATCH: Here's why you should never handle confrontations at work using email

The global manufacturing sector continued to record lacklustre growth at the end of the third quarter, with rates of expansion in output and new orders edging lower and remaining marginal overall. As a result, global activity recorded its slowest monthly expansion in more than two years.

The latest J.P. Morgan Markit global manufacturing PMI fell to 50.6 in September, below the 50.7 level of August, to the lowest level since July 2013.

The survey, covering more than 10,000 firms in over 30 countries, is a diffusion index where a reading of 50 is deemed neutral, meaning there is no overall change in activity levels. Above 50 indicates an expansion in activity levels while a reading below 50 points to a contraction.

Of the survey’s six sub-components, output and new orders grew at a slower pace than August while new export orders, employment, input and output prices all contracted — hardly internals to get excited about.

Reflective of the uneven economic performance across the globe at present, individual nation’s PMIs varied widely in September.

“The US and the European Union (EU) remained positive contributors to global manufacturing growth in September,” Markit said.

“Within the EU, almost all of the nation’s covered by PMI surveys reported expansions (the sole exception being Greece).

The strongest improvements were seen in the Czech Republic, Ireland and the Netherlands, while France returned to growth following contractions in the prior two months.”

While there was relative strength coming from the EU and US, that was not the case in Asia and most emerging markets.

“The Asia region remained one of the weaker points in the global manufacturing sector during September,” noted Markit.

“The China PMI slipped to a six-and-a-half year low of 47.2, while headline indices also signalled contractions in South Korea, Taiwan, Indonesia, Vietnam and Malaysia. Although Japan and India were plus points for the region, rates of expansion in these two nations slowed to three and seven-month lows respectively. Brazil and Greece, meanwhile, remained in severe downturns. Contractions were also signalled by the Russian, Canadian, Turkish and Swiss PMI indices.”

The full chart tracking individual nation’s PMI readings can be found below. Those for September are shown in blue while August’s figures are reported in grey.

Due to the slowdown in activity across the sector, the employment sub-component fell below the 50 level that separates expansion from contraction for the first time since July 2013.

Although a modest deceleration in activity compared to August, it is clear that the trend for global manufacturing is deteriorating for the moment. While services PMI readings have generally registered stronger performances in recent years, concerns about the outlook for global growth — already weak — may intensify should a similar declaration occur across the global services sector.

Having seen the Chinese services PMI plummet to a 14-month low of 50.5, many will be hoping that deterioration is not reflective of developments in other major nations. We’ll soon find out — a raft of services PMI’s will be released on Monday and Tuesday next week.

Join the conversation about this story »

NOW WATCH: Forget work-life balance and focus on inner balance

Singapore is in danger of entering recession in the third quarter, in what could be a sign of a wider, deeper slow down all over Asia.

A recession is defined as two consecutive quarters of quarter-on-quarter contraction.

In Q2, Singapore's GDP fell 4.6% from Q1, and recent trade data suggests it could contract again in the third quarter.

That spells bad news for the rest of the region. 

That is because during Asia's last two major recessions — the 2001 tech recession and the 2008 financial crisis — Singapore was one of the first and/or few Asian nations to hit a wall, according to Bank of America Merrill Lynch.

The country usually starts to slow down considerably one to two quarters earlier than its neighbors.

"During the global financial crisis, after Singapore slipped into a recession in 3Q 2008, Malaysia, India, Thailand and the Philippines all followed suit and slipped into recession one to two quarters later," BAML said in a recent note. 

"Indonesia and Korea saw one quarter of negative quarter-on-quarter growth. China’s growth moderated but did not contract." 

Why this canary in that cold mine?

Singapore is vulnerable because it's small, and its total trade is over three times GDP. BAML says that makes it a "useful recession barometer." It is sensitive to its neighbor's demand (or lack thereof).

See, a demand crisis is what we're worried about in Asia. With China slowing down significantly, the worry is that countries that have been providing it with raw materials or manufactured goods will start to feel its absence. 

Singapore's August trade numbers reflect that. Non oil exports (NODX) fell 8.4% on a year-over-year basis. The government cited a contraction in Taiwan, South Korea and China as the main reason for its decline.

A reliance on trade is one huge reason Singapore is a barometer. Another is that Singapore releases its flash GDP number before any of its neighbors.

Its next release is during the second week of October. BAML expects GDP to grow 1% on a year-over-year basis, but to contract 0.9% from August to September.

Digging into that GDP number

Once we have the fresh GDP number, there's more we can learn about Asia — specifically China, where numbers tend to be more opaque.

Back in July, LMM's Bill Miller told an audience in New York City that if you don't trust the growth numbers coming out of China, the best way to understand the world's 2nd largest economy is to look at Singapore.

"Singapore's numbers you can trust," he said. "That's a good sense of how much the Chinese economy has slowed down."

The key is manufacturing. When Miller made those comments in July, manufacturing in the country had slowed down 4% from the same time a year before.

In August things got worse.

"On a year-on-year basis, manufacturing output declined 7.0% in August 2015," Singapore's government wrote in its data release.

"Excluding biomedical manufacturing, output fell 8.1%.  On a three-month moving average basis, manufacturing output contracted 5.7% in August 2015, compared to a year ago.  On a seasonally adjusted month-on-month basis, manufacturing output decreased 3.7% in August 2015 compared to July 2015."

 So are you ready for the reveal?

SEE ALSO: The hottest bull argument in China is melting

Join the conversation about this story »

NOW WATCH: New aerial footage shows aftermath of explosion in China

Casino stocks are ripping higher after the Chinese government made a vague promise about Macau.

Li Gang, China's liaison to the gambling haven, said the mainland will "support Macau's economy in all aspects," according to Teledifusao de Macau.

It's unclear exactly what that means, but Macau could use all the help it can get. For over a year the global gambling hub has seen monthly declines in gambling revenue of 30% to 50% from the same time a year before.

The drop is the result of a government clampdown on corruption that has Chinese officials tracking how citizens are using their debit cards in Macau, capping traffic to the island, and allowing fewer tables at new casinos than companies expected.

Since this problem comes from the Chinese government, clearly investors think the Chinese government has something of a solution.

Here's what a bunch of long-suffering casino stocks are doing after that news.

• Las Vegas Sands is up 9%
• MGM Entertainment is up 5%
• Melco Crown Entertainment is up 12%
• Wynn Resorts is up almost 20%

Wynn is seeing the greatest gains, in part, because it has been the biggest loser in Macau. It is less diversified than its peers, having only two properties — one in Las Vegas and one in Macau. Macau made up 77% of the company's revenue as recently as the end of last year.

Here's Wynn blasting off:

That said, even with this 20% rally, Wynn is still down 58% for the year.

And again, it's unclear exactly what the Chinese government means by "support." President Xi has never wavered in the anti-corruption campaign, which has scared away Macau's high-rollers and small-time gamblers alike.

Plus a lot of damage has been done. In 2014 thieves stole $1.3 billion from one junket — a high-roller financing company — and the cash pool was hit again this year when $13 million was taken from a company operating out of the Wynn casino.

The junkets finance gambling by Chinese tourists, and help them bypass restrictions on how much money they can take out of the mainland, so the thefts are a liquidity zap to the system.

Earlier this week, Neptune, one of Macau's biggest junkets, released a dire report saying that it wasn't sure how long it would be able to take the pressure. In 2014, 16% of junkets to Macau closed down.

No matter what China's about to do, it's hard to bring all of that back.

Join the conversation about this story »

NOW WATCH: This is what separates the Excel masters from the wannabes

The social media antics of the fuerdai — the children of China's richest politicians and businessmen — paints a picture of undeserved wealth and irresponsible spending. 

In May, the son of the richest man in China bought his dog two gold apple watches and flashed it online.

Other children of China's wealthy have photographed themselves burning 100-yuan notes.

Earlier this year, Chinese President Xi Jinping spoke out about the issue, urging the fuerdai “think about the source of their wealth and how to behave after becoming affluent.”

A September 30 Bloomberg Businessweek article by Christopher Beam dives into the inner lives of the fuerdai, the "most loathed group" in China. And it's a suprising portrait of a group that has seemed completely out-of-touch with their country.

Here are four things we learned from Beam's story: 

1. They are emotionally scarred 

Their parents lived through some of the worst parts of the cultural revolution — and there are a host of traumas and emotional issues that come with being the legacy of Mao-era China.

Most fuerdai don’t talk about their problems openly. “They have trust issues,” said Wayne Chen, 32, a second-generation investor from Shanghai. “They need a place to talk. They need a group.” 

2. Their life of spending, partying, and orgies is a coping mechanism.

Their life of partying turns out to be a way of dealing with loneliness. “They want to be taken care of. They want to be loved,” one member of the fuerdai said.

Take the story of 22-year-old Jason Zhang, for example.

"Some nights, sitting at home alone, (Zhang) scrolls through the contacts on his phone only to reach the bottom without finding anyone he wants to call. When we first spoke, he said he had a girlfriend of three years who treated him well, but that he didn’t love her. “You’re the first person I’ve told that to."

3. They know they are hated by the general Chinese population

Relay China Elite Association is a nonprofit that connects fuerdai with their cohorts. The entry fee is about $31,450, and to be accepted their parents must pay at least $7.86 million in annual taxes.

The organization is trying to encourage the fuerdai to takeover their parents companies, and rebrand the fuerdai - "second-generation rich kids" into the "chuangerdai" or the "second-generation entrepreneurs," who give to charity.

4. Some realize the gap between the poor and the rich is a problem

"When we were children, we went to the best schools, so we didn’t encounter a lot of poor people... This is very dangerous for society,” said Martin Hang, the organizer of a fuerdai dinner event. 

Read the full article on Bloomberg.

Join the conversation about this story »

NOW WATCH: Footage shows tourists captured by gunmen at a Philippine resort